Sappi Limited reported a profit for its second fiscal quarter ending March 2012 of US$58 million compared to a loss of US$74 million in its second quarter 2011.
Sappi's CEO, Ralph Boettger, made the following comments about the 2Q results:
"The improving trend in operating performance continued in the quarter, with the European and North American businesses in particular showing good improvement. The group achieved a net profit for the period of US$58 million (Q2 2011 US$74 million loss) and EPS of 11 US cents (Q2 2011 loss of 14 US cents) in the second quarter of the 2012 financial year.
"The performance of the European business was particularly pleasing, following the relentless focus on cost reduction in that region. Market conditions for coated paper have been weaker than in the equivalent period last year, but despite this, our operating rates remained good in both Europe and North America as a result of management action. Variable costs and fixed costs are generally lower, particularly in Europe, enabling margins to be maintained or widened.
"The Southern African chemical cellulose business continues to perform strongly, driven by strong sales volumes. Despite pricing being lower than in the prior quarter and in the equivalent quarter last year, the business generated an EBITDA margin of approximately 30%.
"Pulp prices, which had been weakening since July 2011, stopped declining midway through the quarter, and have since been gradually increasing. This increase in pulp prices benefits our Southern African and North American businesses as they are net sellers of pulp, but it has a negative effect on the input costs of our European business.
"Cash generated from operations was US$214 million for the quarter, and net cash generated was US$91 million. Net debt reduced to US$2,133 million. Net finance costs of US$51 million were significantly lower than the US$68 million of the equivalent quarter last year."
"We expect demand for our coated paper to remain challenging compared to last year, but for most major input costs to remain below the levels seen a year ago. The European and South African businesses will benefit from the restructuring actions taken in these regions.
"The Southern African chemical cellulose business is expected to continue to perform well. The conversion projects at Ngodwana and Cloquet mills are on track for start-up in our third financial quarter of 2013. We have received good support from a range of customers for the future increase in production volumes.
"Our third financial quarter is historically and seasonally the weakest quarter, and will be further impacted, as it was last year, by planned annual maintenance shuts at a number of our major pulp mills. These shuts will result in an increase in maintenance costs and lost contribution from reduced output and sales. We expect our operating profit excluding special items for the third financial quarter to be in line with the equivalent quarter last year.
"For the full year we expect operating profit excluding special items to be in line with the previous financial year, and for the group to generate positive earnings per share.
"We expect positive cash generation for the balance of the year, leading to a further reduction in net debt. We will consider refinancing our higher cost debt, including the bonds due in 2014, when market conditions are favourable and it makes economic sense to do so.
"We are confident that the actions we have taken and that we continue to take will lead to a sustainable and continuous improvement in performance going forward."
