Sappi bounces back from COVID-19 setbacks in full-year financial recovery

12 Nov 2021 --- Sappi has announced a robust COVID-19 recovery in its full-year financial results. Steve Binnie, Sappi’s CEO, was “very pleased” with the results after the paper packaging company turned a US$135 million loss in 2020 into a profit of US$13 million for 2021. Moreover, EBITDA also increased by 40% over the prior year.

Year highlights included a profitability recovery for the dissolving pulp segment, driven by “buoyant demand,” “significantly better market prices,” and North America delivering its highest financial year EBITDA in over a decade.

“Our strategy of making investments in packaging and specialty papers reaped the rewards as the [dissolving pulp] segment achieved record profitability and sales volumes increased by 21%,” notes Binnie.

“The team overcame significant COVID-19 challenges. The cooperation, cross-regional support and continued focus on our Thrive25 strategy were exemplary.”

“A comprehensive COVID-19 action plan enabled us to operate in a safe and uninterrupted manner where demand permitted. Working closely with our customers and suppliers, we systematically increased activity and output in response to improved market demand.”

Rebounding global trade
Binnie acknowledges global trade rebounded much faster than initially anticipated as COVID-19 lockdowns eased and economic activity resumed. The requirement for shipping surged, triggering vessel and container shortages, severe port congestion and significant freight rate increases.Global trade rebounded faster than initially anticipated as lockdowns eased and economic activity resumed.

These logistical disruptions “severely constrained” Sappi’s export sales in all regions. By year-end, this resulted in 100,000 tons of dissolving pulp backlog deliveries. The impact on earnings from this backlog amounted to approximately US$30 million.

Furthermore, high demand for raw materials and commodities, coupled with long lead times and an inability to restock inventories, fuelled worldwide inflationary pressures. Consequently, escalating delivery and raw material costs, particularly purchased pulp, chemicals and energy, negatively impacted margins in all product segments.

Sappi implemented a series of price increases in its paper businesses to mitigate the impact of these rising costs.

Prudent cash management
While market conditions improved, Sappi focused on preserving liquidity and prudent cash management. Strategic actions were reprioritized while variable and fixed costs continued to be reviewed.

The project to expand the Saiccor Mill capacity in South Africa was impacted negatively by COVID-19 lockdowns and associated travel restrictions, delaying the project schedule. Plant commissioning began during the fourth quarter and will be completed in the first-quarter of the 2022 financial year, the company confirms.Global logistical challenges and vessel shortages are expected to continue in 2022.

Looking ahead
According to Binnie, overall market conditions for dissolving pulp continue to be strong. However, short-term demand in China is impacted by the recent implementation of energy savings regulations, imposing curtailments for energy-intensive manufacturing operations across the country.

Meanwhile, the demand recovery for graphic paper combined with industry capacity closures has tightened the market balance. In North America, restrictions on imports due to global supply chain disruptions have further contributed to a positive environment in this region, adds Binnie.

Recent spikes in global energy prices for gas, power and coal are also anticipated to hurt Sappi’s first-quarter results, principally in Europe. The company has announced selling price increases across all paper grades to offset rising costs. Also, energy-specific surcharges have been implemented for all European shipments from October 25, 2021.

Global logistical challenges and vessel shortages are expected to continue through FY2022, which may have an ongoing negative impact on Sappi’s export sales. “It is unlikely any improvement in supply chain reliability will be realized in the first-quarter, and hence the backlog of 100,000 tons of dissolving pulp sales volumes will take time to resolve,” says Binnie.

In other Sappi news, its subsidiary Sappi Rockwell Solutions recently launched a coated lidding film ahead of the UK Plastic Packaging Tax.

By Joshua Poole