Commenting on the result, Sappi CEO Ralph Boettger said: “The third financial quarter is seasonally our weakest, due to typically lower demand in Europe and North America and the scheduling of planned annual maintenance shuts at most of our major pulp mills. In this transitional year, the quarter was also impacted by the extended shuts at both the Cloquet and Ngodwana Mills as they completed the capital projects to convert existing paper pulp lines to dissolving wood pulp. In addition, market conditions, particularly in our European paper business, deteriorated further during the quarter. These factors combined to reduce group operating profit excluding special items for the period to $8 million from $40 million in the prior quarter and $60 million for the equivalent quarter last year. The 3Q results were also impacted by special items including a charge of $11 million related to plantation price fair value adjustment and a charge of $4 million due to plantation fire damage in South Africa.”
This seasonally slow quarter saw a significant decline in demand for major paper grades, with total European industry deliveries of coated woodfree and coated mechanical paper down 8% year-on-year for the quarter.
Sappi's total sales volumes were 6% below that of the equivalent quarter last year despite good growth in specialities volumes. Average prices realised were slightly higher than in the previous quarter, as a result of marginal price increases for coated woodfree paper, but remain on average below those of the equivalent quarter in the prior year.
In the North American business, operating profit for the current quarter was negatively impacted by an estimated $12 million due to 22 days of incremental downtime taken for the Cloquet pulp mill conversion project and related ramp-up of operations. Coated paper sales volumes were essentially flat year-on-year; however the average net sales price per ton was 4% lower than in the prior year due to a competitive local market and increased import pressure. Prices appeared to have stabilised during the quarter and we expect to realise some price increases on economy sheets and web products over the coming months. The release business continues to perform well and sales volumes were up 11% compared to last year driven by improved demand and the success of our key new patterns.
In the Southern African business, the domestic paper packaging and office paper markets were weak during the quarter; although, towards the end of the quarter and to date, there have been encouraging indications in the containerboard segment of a possible improvement in volumes. The estimated adverse operating profit impact of the conversion to produce dissolving wood pulp at the Ngodwana Mill and the extended pulp mill downtime was approximately ZAR78 million during the quarter. The Specialised Cellulose business had another good quarter, generating ZAR463 million in EBITDA excluding special items at an EBITDA excluding special items margin of 30%. Sales volumes for the quarter were 183,000 tons, similar to the prior quarter and 8% lower than the equivalent quarter last year due to the timing of shipments. During the quarter, the planned annual maintenance shut of one of the pulp lines at Saiccor Mill took place.
Net finance costs for the quarter of $42 million were in line with those of the prior quarter. The comparative 3Q 2012 net finance costs of $141 million included the once-off charges of $89 million related to the bond refinancing during that quarter.
Net cash utilised for the quarter was $157 million, compared to net cash utilisation of $56 million in the equivalent quarter last year. This cash utilisation was mainly as a result of capital expenditure of $174 million which related primarily to the strategic investments in expanding dissolving wood pulp capacity and lower profits from operations.
Liquidity remains strong with cash on hand of $236 million and $561 million available from the undrawn committed revolving credit facilities in Europe and South Africa.