Commenting on the group’s results, Sappi Chief Executive Officer Steve Binnie said: “I am pleased with another strong performance from the Group which was well above pre-Covid levels and the best ever first quarter results.

EBITDA of US$290 million was 21% above the prior year and in line with guidance provided in the previous quarter. The positive results were underpinned by year-on-year pricing gains for paper products which offset cost inflation, lower sales volumes and delivered an EBITDA margin of 17.5%.”

The lower profits relative to the record levels in the prior quarter were reflective of the slowing global economy, which led to a softening in demand for our products, driven by the volatile and uncertain macroeconomic context including ongoing geopolitical turmoil, rampant inflation, rising interest rates and an underperforming Chinese economy as well as rapid downstream inventory accumulation in all our major product categories.

Looking forward, Binnie stated: “Factoring in the protracted macroeconomic uncertainty, and coming off three quarters of outperformance, we anticipate a return to a normalised level of earnings in FY2023. The second quarter will likely be the most challenging with a recovery in earnings expected later in the financial year. EBITDA for the second quarter of FY2023 is expected to be below that of the first quarter.”

Financial summary for the quarter.    EBITDA excluding special items US$290 million (Q1 FY22 US$240 million). Net debt US$1,241 million (Q1 FY22 US$1,917 million). Profit for the period US$190 million (Q1 FY22 US$123 million). EPS excluding special items 30 US cent (Q1 FY22 20 US cents).

Recent improvements in global supply chains resulted in a reduction in delivery lead times and a surge in customer inventory levels.

The same market dynamics of elevated retailer stock levels and general concerns over negative consumer sentiment adversely impacted demand for all textile fibres, placing pressure on the hardwood dissolving pulp market price which decreased to US$900 per ton by quarter end. Despite this pressure Sappi’s net average sales price for the pulp segment was 9% higher than a year ago, although this was offset by a 8% reduction in sales volumes.

Underlying demand in the packaging and speciality papers segment remained relatively stable. Selling price realisation more than offset the lower sales volumes and supported year-on-year margin expansion for the segment Sales volumes were down 14% compared to the prior year driven primarily by the large customer inventory build.

A series of price increases in the previous year neutralised the impact of cost inflation and lower sales volumes in the graphic papers segment. Margins remained healthy but reduced relative to the highs of recent quarters. Sales volumes were down 31% compared to the prior year due with production rates optimised to match sales.  

Profitability of the European region improved substantially compared to the prior year as pricing gains offset cost inflation. Lower demand occurred across all product categories and there was a significant inventory build. Selling prices remained stable quarter-on-quarter which protected margins.

The North American region delivered another strong performance with first quarter EBITDA of US$114 million. Selling price gains offset significant cost inflation but sales volumes were negatively impacted by a broad-based softening in paper demand towards the latter part of the quarter.

Significant year-on-year cost inflation and slightly reduced sales volumes negatively impacted profitability of the South Africa region despite higher average US dollar selling price for Verve (dissolving pulp) and a significant Rand/US dollar exchange rate benefit on the Rand selling price. A fire in a municipal electrical substation disrupted production at the three operations in the KwaZulu-Natal region.