• Adjusted EBITDA: $684 million for the full year.

• Dividend: Declared at USD0.14, totaling USD84 million.

• Net Debt to Adjusted EBITDA: 2.1 times.

• CapEx for 2024: $458 million.

• Projected CapEx for 2025: Approximately $500 million.

• South Africa Margin: 28% margin reported.

• Graphics EBITDA Margin: 10.6%.

• Somerset Project Cost: $420 million.

• Warning! GuruFocus has detected 6 Warning Signs with SPPJY.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Sappi Ltd (SPPJY) reported a strong adjusted EBITDA of $684 million for the full year, indicating a successful recovery from previous challenges.

• The South African region achieved record profitability for the third consecutive year, driven by strong performance in the pulp segment and lower wood costs.

• The company declared a dividend of USD0.14, maintaining the same level as the prior year, in line with their dividend policy.

• Sappi Ltd (SPPJY) achieved significant year-on-year cost savings through strategic rationalization actions, including the closure of two mills.

• The company is progressing with its transformation strategy, reducing its reliance on graphic paper and focusing on higher-margin, higher-growth segments like pulp and packaging.

Negative Points

• The global recovery in paper markets was slower than expected, impacting overall performance.

• Net debt increased due to higher capital expenditures, particularly related to the Somerset project, and costs associated with mill closures.

• Packaging faced a challenging year with major destocking across regions, particularly in Europe, where recovery is slower.

• Despite improvements, the graphic paper segment continues to face suppressed demand, affecting overall margins.

• The company anticipates a negative fair value adjustment in the first quarter of the next financial year due to lower wood prices.

Q & A Highlights

Q: Can you explain the impact of the PN2 conversion on earnings over the next few quarters? A: Stephen Binnie, CEO: We anticipate a 70-day shutdown for the conversion, primarily affecting graphic paper. However, due to prior curtailments, the impact will be less than 70 days. The ramp-up in packaging will be gradual, starting in April, with full capacity expected by 2026. Overall, we expect less curtailment than last year, with steady graphic volumes and additional packaging volumes in the second half of the year.

Q: Do you still need customer approvals for the new packaging paper? A: Stephen Binnie, CEO: It's an ongoing process, but we're receiving positive feedback. Michael Haws, CEO of Sappi North America, added that existing customers will be transitioned to the new machine, which is similar to the current one, allowing for a quick qualification process.