Highlights
- Reduced revenue amidst a weak product pricing environment; partially mitigated by cost reduction efforts
- Gross profit margin and EBITDA margin improved to 34% and 32% respectively
- Profit attributable to shareholders affected mainly by adverse non-cash impact from the depreciation of the Brazilian Reais against the US Dollar
- Commencement of production at new VSF plant in Fujian, China
- Increased penetration into specialty-grade pulp market; significant product quality
- improvement puts the Group in a good position to further increase its market share going forward
- Continued focus on improving cost competitiveness to keep Sateri a leading, sustainable low-cost global producer of specialty cellulose
- Recommended final dividend of HK2.5 cents per share
Sateri Holdings Limited (“Sateri” or the “Group”; stock code: 1768),
a leading global specialty cellulose company, today announced its audited results for the year ended
31 December 2013. The Group produces dissolving wood pulp (“DWP”) using wood resources grown
from its captive plantations in Brazil, and viscose staple fiber (“VSF”) in China using DWP as its main
raw material feedstock.
Business Review
In 2013, market conditions remained challenging. Despite rising demand, the continued addition
of new rayon-grade DWP capacity kept product prices in a narrow range of US$850 to US$930
per metric ton in 2013. VSF prices also faced downward pressures during the year despite robust
growth in demand, due to China’s slower economic growth and a weaker downstream pricing
environment, and fell to under US$1,800 per metric ton at the end of 2013.
In 2013, the average selling prices (“ASP”) of the Group’s rayon-grade DWP and VSF were 16%
and 10% respectively lower than the ASPs achieved in 2012. The ASP for specialty-grade DWP,
on the other hand, remained fairly stable. As a result of the lower ASPs, the Group’s revenue
declined to US$646 million, representing a decrease of 10% compared with 2012.
During the year, the Group increased its penetration into the specialty-grade DWP segment.
Sales volume for this segment increased by 9% compared with 2012. The Group also made
significant product quality improvement which will put Sateri in a good position to further increase
its market share going forward.
Despite the challenging market environment and operational issues at its Brazil mill in the second
half of 2013, the Group recorded a 14% decline in total cost of sales as it continued to benefit
from the lower prices of certain key materials for VSF production, the Group’s persistent effort to
improve cost competitiveness as well as weaker Brazilian Reais during the year. This brought
about an improved gross profit margin and EBITDA margin of 34% and 32% respectively,
compared with 31% and 28% in 2012.
Profit attributable to shareholders declined to US$33 million, representing a decrease of 40%
compared with 2012, after taking into account an adverse non-cash impact of US$22 million arising
from fair value adjustments relating to forestation assets in Brazil, mainly as a result of the
depreciation of the Brazilian Reais against the US Dollar in 2013. There was a similar non-cash
impact of US$15 million in 2012.
Further, the depreciation of the Brazilian Reais against the US Dollar impacted on the deferred
income tax assets as well as Brazilian Reais denominated monetary assets of the Group, resulting in
a negative non-cash impact on its profit attributable to shareholders.
The Board has recommended a final dividend of HK 2.5 cents per share for the year ended 31
December 2013.
Mr. Tey Wei Lin, Acting CEO of Sateri, said: “Despite challenging market conditions, we have
improved our cost competitiveness and product quality, and made further progress in penetrating
into the specialty-grade segment. This has not only enhanced our gross profit margin, but also puts
Sateri in a good position to further increase its market share in specialty-grade grade going forward. ”
In December 2013, the first of four lines (each line with a design capacity of 50,000 metric tons per
annum) of the Group’s new greenfield VSF project in Fujian, China, commenced production and
made good progress in terms of both production volume and product quality. When all four lines are
operational and ramped up to full production, the new plant will add an aggregate annual design
capacity of 200,000 metric tons, bringing the Group’s total annual design capacity of VSF to 360,000
metric tons.
Future Development Plans
In 2014 and beyond, the Group will continue its strategy to produce and sell more specialty-grade
pulp, in view of its lower level of pricing volatility and superior positioning within the value chain. The
Group’s strategy is to continue strengthening its position as one of the leading global suppliers in this
market, particularly in acetates.
As part of the Group’s DWP-VSF integration strategy, its greenfield VSF project in Fujian, China, has
commenced operation. The Group incurred US$235 million in capital expenditure on this project in
2013 (2012: US$107 million) and US$387 million in total capital expenditure up to 31 December
2013.
Three of the four production lines of the Fujian VSF mill are now in operation. The additional annual
design capacity of 200,000 metric tons of VSF when fully operational will not only increase the
Group’s integration of its VSF business and its rayon-grade DWP business, but will also increase the
scale and improve the competitive positioning of its VSF business in China. Also, the new mill in
Fujian, China, will enable the Group to increase its penetration into the specialty VSF markets such
as the non-woven sector, thus enhancing Sateri’s competitive positioning in the VSF market.
The Group will also continue to explore the feasibility of further greenfield or brownfield expansion,
particularly at its existing manufacturing locations, and/or acquisition opportunities, if they meet the
Group’s stringent strategic and financial return targets.
Outlook
The Group has made significant progress during the year in implementing its two-pronged
strategy of penetrating the specialty-grade DWP market as well as further integrating its DWP
business with its VSF business by completing the construction of its Fujian mill. Going forward,
the Group will focus on two product segments, namely VSF and specialty-grade DWP, and
become much less exposed to pricing fluctuations in the rayon-grade DWP market.
Mr. TEY Wei Lin, Acting CEO of Sateri, concluded: “Going forward, we will continue our
relentless efforts to further penetrate the specialty-grade DWP market, which offers more stable
and premium pricing than rayon-grade DWP. This way, we will achieve a better sales mix to
improve profitability from our integrated business platform.
“The successful start-up of our Fujian plant marks a key milestone in the Group’s DWP-VSF
integration strategy. Sateri will focus on ramping up the Fujian plant to design capacity, producing
high quality products to target premium prices, and improve the overall profitability of the VSF
business. We will also constantly strive to sustain our operations with improved efficiency at a
competitive cost level. The above, together with our conservative cash flow and balance sheet
management, means that we are poised to grow further in future and deliver attractive long-term
shareholder value.”
Industry Intelligence Inc. editor's note: In an omitted table, Sateri Holdings Ltd. reported full year profit attributable to shareholders of US$33 million in 2013 and of US$56 million in 2012, while its revenue was US$646 million in 2013 and US$720 million in 2012.
