Sappi first quarter results in line with expectation; growth projects on track to deliver significant increase in earnings as from end of 2018 financial year

Financial summary for the quarter
•EBITDA excluding special items US$172 million (Q1 2017 like-for-like US$181 million)
•Profit for the period US$63 million (Q1 2017 US$90 million)
•EPS excluding special items 14 US cents (Q1 2017 16 US cents)
•Net debt US$1,349 million (Q1 2017 US$1,338 million)

An additional accounting week occurred last year which increased the comparative period reported EBITDA by US$20 million. A non-cash income statement charge of US$19 million was taken relating to our deferred tax asset in the Unites States following that country’s lowering of their corporate income tax rate. However, going forward this will be positive and contribute to increased earnings.

Commenting on the result, Sappi Chief Executive Officer Steve Binnie said: “Our performance for this quarter was in line with our expectations. We continue to work hard to mitigate increased input costs and the impact of a stronger Rand/Dollar exchange rate. We will begin to see the benefits of selling price increases during the rest of the financial year.”

The major factors which influenced the first quarter’s results include:
•Dissolving wood pulp (DWP) demand remained strong with a healthy EBITDA margin of 31%;
•Demand for specialities and packaging papers continued to grow across all regions and all major product segments, only constrained by our current production capacity. EBITDA margins were maintained at 14%;
•Printing and writing papers markets were stable in Europe and we implemented higher selling prices to offset the impact from increased raw material costs. In the US, sales volumes were lower due to production challenges and the commencement of project work for the conversion to higher margin growth products at Somerset;
•Paper pulp costs continued to rise throughout the quarter; and
•A stronger Rand/Dollar exchange rate.

Update on investments for growth
•Acquisition of Cham to be concluded by 28 February 2018. Will deliver positive earnings during the current financial year
•Integration of Rockwell Solutions (barrier coating technology) complete
•Projects at Somerset, Maastricht, Alfeld, Lanaken, Ngodwana, Saiccor and Cloquet Mills on track to deliver positive earnings boost as from FY2019
•The possible 110,000 tpa expansion of Saiccor mill is being brought forward due to increased demand and positive outlook for DWP prices

Commenting on investments to enhance the competitive advantage and increase speciality packaging and DWP capacity, Binnie said: “I am very excited about the prospects for dissolving pulp over the next few years. It is also clear that speciality and packaging paper demand continues to grow as the push to encourage the use of paper based packaging over plastic gathers momentum.”

The acquisition of the Cham speciality paper business is due to be completed at the end of February 2018. This will significantly strengthen Sappi’s speciality and packaging papers footprint, skills, volumes, product offering, innovation and market presence. The conversions of the paper machines at Maastricht and Somerset will be completed in the second and third quarter respectively and will further add to our coated packaging capabilities.

The debottlenecking projects at Saiccor, Ngodwana and Cloquet mills will bring an additional 90,000 tpa to the market through the end of this financial year. In light of increased demand and the positive outlook for DWP, Binnie confirmed that: “Over and above our debottlenecking projects, we are advancing plans for the possible expansion of Saiccor by a further 110,000 tpa.”
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