Special items for the quarter were a net charge of US$48 million. Included in the special items was a provision for retrenchments and restructuring costs in our European paper business. These charges were offset by a deferred tax asset of US$53 million in North America which was recognised due to the non-taxability of bio-fuel tax credits received in fiscal 2009 and 2010.
Earnings per share for the quarter were 13 US cents (including a gain of 1 US cent in respect of special items), compared with a loss of 29 US cents (including a charge of 30 US cents in respect of special items) in the restated equivalent quarter last year.
Commenting on the key financial highlights of the quarterly and year-end results, Sappi Chief Executive Officer Steve Binnie said: “We made significant strides in the execution of our strategy this past year. Notable achievements were reduction of net debt, improved performance of our European and Southern African paper businesses and delivery of substantially increased
dissolving wood pulp volumes into a growing and high margin market. Additionally, we disposed of Nijmegen Mill in order to reduce costs, and sold our Usutu forests which were surplus to requirements, to assist with reducing net debt. The North
The first full year of operation for our expanded Specialised Cellulose operations as well as reduced capex expenditure following the completion of the dissolving wood pulp projects, allowed for a focus on cash generation and debt reduction. The group’s EBITDA excluding special items for the full year increased by 25% over the prior year.
The group continued the strong progress made throughout 2014 and delivered a 29% rise in EBITDA excluding special items compared with the equivalent quarter last year. It is pleasing to note that all three regions improved from the prior quarter. Cost reductions across the group and higher selling prices in some markets contributed to the growth. Volumes continued to decline in the graphic paper markets, but at a slower rate than experienced in recent years.
“The European business saw an encouraging improvement in margin in this seasonally better quarter, achieving an EBITDA excluding special items margin of more than 10% for the first time since 2012. “In North America, market conditions were extremely competitive throughout the year and we experienced significant downward pressure on pricing. During this seasonally stronger quarter, operating profit excluding special items recovered compared with the prior quarter, which included the impact of outages. The result was slightly below that of the equivalent quarter last year due to lower paper prices and higher input costs, particularly for wood. Prices for coated woodfree web increased during the quarter, but have yet to match prior year price levels. The release paper business was once again impacted by weak Chinese demand, only partially offset by stronger sales to the rest of the world.
“Overall, this has been a good year for the Southern African business, with an expanded Specialised Cellulose business and the restructured paper business consistently delivering enhanced margins. The performance of the Southern African business improved compared to the equivalent quarter last year due to increased sales volumes for dissolving wood pulp, as well as higher average prices for paper and paper packaging.
“The Specialised Cellulose business had another solid quarter, with increased sales volumes and a weaker Rand/Dollar exchange rate offsetting the lower average dollar dissolving wood pulp prices compared to both the prior quarter and prior year. Strong shipment volumes contributed towards an EBITDA excluding special items of US$77 million.
“Based on current market conditions, we believe that EBITDA excluding special items in the 2015 financial year will be broadly similar to that of 2014. The expected improvement in the underlying operational performance of the paper businesses wil
“The first quarter result will be negatively impacted by the Gratkorn PM11 upgrade project, resulting in three weeks of downtime for the paper machine. The results will be further impacted by the extended annual maintenance outage and the finalisation of the natural gas conversion project at Somerset Mill in the US.
American business had a challenging year; however, we can already see advancement in that business and expect further improvement in the year ahead.
The first full year of operation for our expanded Specialised Cellulose operations as well as reduced capex expenditure following the completion of the dissolving wood pulp projects, allowed for a focus on cash generation and debt reduction. The group’s EBITDA excluding special items for the full year increased by 25% over the prior year.
The group continued the strong progress made throughout 2014 and delivered a 29% rise in EBITDA excluding special items compared with the equivalent quarter last year. It is pleasing to note that all three regions improved from the prior quarter. Cost reductions across the group and higher selling prices in some markets contributed to the growth. Volumes continued to decline in the graphic paper markets, but at a slower rate than experienced in recent years.
“The European business saw an encouraging improvement in margin in this seasonally better quarter, achieving an EBITDA excluding special items margin of more than 10% for the first time since 2012. “In North America, market conditions were extremely competitive throughout the year and we experienced significant downward pressure on pricing. During this seasonally stronger quarter, operating profit excluding special items recovered compared with the prior quarter, which included the impact of outages. The result was slightly below that of the equivalent quarter last year due to lower paper prices and higher input costs, particularly for wood. Prices for coated woodfree web increased during the quarter, but have yet to match prior year price levels. The release paper business was once again impacted by weak Chinese demand, only partially offset by stronger sales to the rest of the world.
“Overall, this has been a good year for the Southern African business, with an expanded Specialised Cellulose business and the restructured paper business consistently delivering enhanced margins. The performance of the Southern African business improved compared to the equivalent quarter last year due to increased sales volumes for dissolving wood pulp, as well as higher average prices for paper and paper packaging.
“The Specialised Cellulose business had another solid quarter, with increased sales volumes and a weaker Rand/Dollar exchange rate offsetting the lower average dollar dissolving wood pulp prices compared to both the prior quarter and prior year. Strong shipment volumes contributed towards an EBITDA excluding special items of US$77 million.
“Based on current market conditions, we believe that EBITDA excluding special items in the 2015 financial year will be broadly similar to that of 2014. The expected improvement in the underlying operational performance of the paper businesses wil
l be offset by lower US Dollar dissolving wood pulp pricing and the impact of the projects at Gratkorn and Somerset.
“The first quarter result will be negatively impacted by the Gratkorn PM11 upgrade project, resulting in three weeks of downtime for the paper machine. The results will be further impacted by the extended annual maintenance outage and the finalisation of the natural gas conversion project at Somerset Mill in the US.
“We therefore expect the group EBITDA excluding special items in the first quarter to be similar to that achieved in the equivalent quarter last year, despite the improved underlying performance of the overall business.”
Company extects markets will remain challenging, both for graphic paper, where demand is expected to continue to decline, and for dissolving wood pulp due to current pricing pressures. In the dissolving wood pulp market, demand remains robust. US Dollar prices have weakened post the financial year due to pressure from lower cotton prices and the continued oversupply of dissolving wood pulp and viscose staple fibre production capacity. Cloquet Mill will likely take advantage of its ability to swing between dissolving pulp and hardwood paper pulp production to optimise margins for the US business.
Volumes with key dissolving wood pulp customers will not be impacted by any such optimisation. Company will continue to focus on cost management in order to maintain our current margins for the overall Specialised Cellulose business. Currency movements affect margins in its European and Southern African businesses, having both transactional and translational impacts. A weaker Rand and Euro in relation to the US dollar both support local and export pricing for these business
es, historically offsetting any input cost impact of the weaker currency. Capital expenditure in 2015 is expected to be in line with that of 2014, and focussed largely on the investments at our Kirkniemi and Gratkorn Mills.
