SOUTH AFRICA – Pulp and paper producer Sappi has reported record earnings before interest, taxes, depreciation and amortization (Ebitda) of US$371 million – excluding special items – for its third fiscal quarter ended June 30.

The company on August 4 said this was an “excellent achievement against a backdrop of significant geopolitical turmoil, supply chain headwinds and extraordinary global inflationary pressures”.

Ebitda for the quarter under review was higher than the Ebitda of US$145 million reported for the third quarter of the prior financial year.

Sappi noted that strong global paper demand and pricing momentum had offset sharply rising costs, as well as the negative impact of maintenance shutdowns in the pulp part of the business during the quarter.

“The sizeable cash generation during the quarter supported our strategic objective to de-gear the balance sheet and accelerated our timeline to reduce debt,” Sappi said, noting that Covid-19 lockdowns in China and the ongoing Russia-Ukraine conflict exerted renewed pressure on global supply chains and energy prices, resulting in further broad-based inflation during the quarter.

During April, floods forced the temporary closure of the company’s three mills in KwaZulu-Natal, resulting in a loss of 24,000 tons of production and 32,000 tons of inventory, which was damaged in a warehouse at the Durban port.

Meanwhile, the hardwood dissolving pulp (DP) market price rallied to $1200/ton on the back of buoyant viscose staple fiber (VSF) prices, which reached their highest level since 2017, Sappi said.

Earnings a share of US$0.39 – excluding special items – substantially improved on the US$0.05 of the prior comparable quarter.

Special items reduced earnings by US$34 million, which related mainly to a negative plantation fair value adjustment of US$16 million and the net loss after insurance proceeds for the South African floods of US$19 million.

In terms of profitability, Sappi reported a profit of US$199 million for the third quarter, compared with a profit of US$18 million posted for the third quarter of the prior year.

Owing to the higher profitability, net cash generated for the quarter of US$170 million was substantially better than the US$49 million generated in the prior comparable quarter, despite an outflow of working capital related to inflationary increases for inventories and accounts receivables, the company reported.

Net debt of US$1.53 billion was US$525 million lower than a year before owing to strong cash generation and a positive translation impact of a weaker euro to dollar exchange rate on the predominantly euro-denominated debt.

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