Sappi notes 'extraordinary inflation' in Q3 results

Jo Francis
Monday, August 15, 2022

Sappi has posted record Q3 results but has flagged the ongoing energy crisis as a potential risk for its European business.

Sappi: variable costs increased by 47% compared to the prior year
Sappi: variable costs increased by 47% compared to the prior year

The South Africa-headquartered group said that its record Q3 EBITDA (excluding exceptional items) had been achieved against a backdrop of “geopolitical turmoil, supply chain headwinds and extraordinary global inflationary pressures”.

“Covid lockdowns in China and the ongoing Russian-Ukrainian conflict exerted renewed pressure on global supply chains and energy prices resulting in further broad-based inflation during the quarter,” Sappi stated. 

In the three months ended 30 June the group had sales of $1.82bn (£1.5bn) (Q3 2021: $1.39bn), and operating profits jumped from $53m to $266m. 

At its European business, sales were up 12% on Q2 at €943m (£795m), while EBITDA excluding special items jumped from €14m in 2021 to €200m. 

Sappi said that graphic paper markets remained tight during Q3 despite the end of the strike action at UPM’s Finnish mills. 

“Sales volumes were 4% higher than the prior year and the selling price increases implemented during the quarter offset rising costs and drove margin expansion for the segment,” the company stated. 

At its packaging and speciality papers operation sales volumes grew by 16% compared to the prior year.

The ramp-up of sales of new label papers being made at its Gratkorn Mill “is proceeding faster than anticipated”.

Label printers were badly affected by the shortage of materials caused by the UPM strike. 

Renewed volatility in energy pricing towards the end of the quarter was “fuelled by concerns about potential gas shortages linked to the Russian-Ukrainian conflict”.

Sappi said that chemical, pulp and delivery costs all escalated substantially

“Extraordinary inflation across all input categories, especially energy, increased variable costs by 47% compared to the prior year. Fixed costs were 14% higher year-on-year due to escalating personnel and maintenance costs,” the group noted. 

Sappi’s European business is headquartered in Belgium, and it has nine paper mills on the continent. 

Regarding the ongoing energy crisis and impact of reduced supplies of Russian gas, Sappi commented: “The ongoing threat to gas and energy supplies in Europe poses a potential risk to our European business. 

“To date, our energy risk mitigation strategies have successfully neutralised cost impacts, and we will continue to monitor developments and take action where appropriate.”

Papermakers’ federation Cepi has already warned about possible disruption to paper and packaging supplies if mandatory consumption cuts are enforced in the EU.

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