Sappi (SAP) Q4 2020 earnings summary

Executive summary

• FY2020 sales were $4.609bn and EBITDA excluding special items was $378m, down from $5.746bn and $687m; the period ended with a $135m loss.

• COVID-19, lockdowns and economic fallout sharply reduced graphic paper and dissolving pulp demand; packaging and specialities was the main growth and profitability bright spot.

• Q4 EBITDA excluding special items was $82m, down 56% YoY; the quarter recorded an $88m loss versus a $50m profit in Q4 FY2019.

Financial highlights

• Q4 sales were $1.092bn versus $1.454bn YoY; FY sales were $4.609bn versus $5.746bn.

• FY gross profit was $399m versus $777m; operating profit excluding special items was $57m versus $402m.

• FY net loss was $135m versus net income of $211m; basic EPS was a loss of 25 US cents versus earnings of 39 cents.

• Adjusted EPS was a loss of 5 US cents for FY2020 versus 44 cents; Q4 adjusted EPS was a loss of 4 cents versus 10 cents.

• Special items were a $95m expense for FY2020, mainly restructuring, asset impairments and costs related to fire damage at Alfeld PM3.

Outlook and guidance

• Q1 FY2021 EBITDA was expected slightly below Q4 FY2020, with improving DP and graphic paper markets offset by maintenance shutdowns and seasonal weakness.

• Delayed Ngodwana and scheduled Somerset maintenance shutdowns were expected to reduce profitability by $30m, predominantly in packaging.

• FY2021 capital expenditure was estimated at $370m, including about $100m related to the delayed Saiccor expansion and postponed major maintenance shutdowns.

• Chinese DP market price had risen to $680/ton in October; DP sales volumes in Q1 were expected only marginally above Q4 due to production constraints and maintenance.

• Packaging and speciality demand remained robust; graphic paper demand was improving, though a second COVID-19 wave in Europe threatened to slow recovery.