- Sappi released Q1 24A results this morning: EBITDA was lower q-o-q, in line with guidance due to the impact of planned shuts ($45mn, ahead of the $40m guidance). Reported EBITDA came in at $156mn, with EPS of $0.08/share (excluding special items). Adjusting reported EBITDA for the FV plantation gain (impacting SA EBITDA) and the once off energy subsidy (impacting Europe EBITDA), EBITDA was around $112mn – a lot closer to our estimate of $114mn.
- Sappi has guided for EBITDA in Q2 to be similar to that of the first quarter: Guidance appears reasonable, and it is likely that the FV forestry adjustment would be lower in Q2, implying underlying profitability is set to improve by around at least 30% (this assumes FV gain of $6mn and using $112mn as the base line). Sappi expects a further small rebound in graphic paper sales volumes through 2024 as value chain inventory levels normalize, however, they believe that the market remains in oversupply. In terms of DP, Sappi anticipates that underlying textile demand will likely drive positive pricing momentum after the holiday period in China, further supported by a tight DP supply landscape. Packaging and specialty papers markets in North America and South Africa are steadily improving, while European markets remain weak, and recovery may take longer in this region.
- Reported net debt came in lower than expected at $1,216mn with net debt/EBITDA of 2.0x: We had penciled in capex of $125mn, while Sappi only spent $75mn in the quarter. As expected, debt levels are going to rise in the coming quarters. Sappi flagged a “significant increase in outflows” for Q2, driven by the payment of dividends ($84mn) and closure costs related to the Stockstadt ($43mn was paid in Q1) and Lanaken mills. Around $169mn in closure costs still needs to be paid (provision was raised in Q1). FY 24E capex guidance remains unchanged ($154mn for the Somerset conversion).
- The European Segment benefitted from a once-off energy subsidy boosting group EBITDA by around $18mn (€17mn): Volumes were slightly better than we had expected, driven by Graphic Paper, which improved by 9% q-o-q (-12% y-o-y). Meanwhile, P&S volumes continue to disappoint, down 18% y-o-y and down 8% q-o-q. Variable costs dropped 18% y-o-y, while fixed costs also eased 4% due to lower headcount.
- The SA performance was ahead of our expectations due to changes in accounting policy: From FY 24E, EBITDA excluding special items now includes the plantation fair value price adjustment which was previously included as part of special items. Accordingly, $26mn (R484mn) was included in EBITDA, compared to $6mn in the prior year. Adjusting for this, the EBITDA margin was closer to 17% vs. the 25% reported. DP volumes softened 5% y-o-y (-15% q-o-q), while P&S slumped 28% q-o-q (-9% y-o-y), largely explained by planned maintenance at Ngodwana. SA variable costs declined by only 3% y-o-y, while fixed costs jumped 18% y-o-y, largely driven by planned maintenance.
- As seen with Billerud’s recent results, profitability in North America slumped by 23%: Graphic paper volumes weakened by 5% q-o-q (-21% y-o-y), while P&S exceeded expectations, up 6% q-o-q. DP volumes seemed pretty low at 50Kt for the quarter. On the cost front, variable costs eased 6% y-o-y (-14% y-o-y), while fixed costs were down 2% y-o-y, despite planned maintenance at the Cloquet mill.
Sappi will hold the Q1 24A results conference call at 4pm today: Register for conference call or Register for the webcast.