Sappi's fiscal Q2 profit increases to US$32M from US$2M in year-ago period on 4.7% year-over-year increase in sales to US$1.57B; focus continued on lowering cost, optimizing sales and operating performance improved in all three operating regions

JOHANNESBURG , May 12, 2014 (press release) – Highlights for the quarter
· Strong cash flow generation
· Good performance from South African business
· Profit for the period US$32 million (Q2 2013 US$2 million)
· EPS 6 US cent (Q2 2013 0 US cents)
· EBITDA excluding special items US$171 million (Q2 2013 US$126 million)
· Net debt US$2,248 million (Q1 2014 US$2,380 million)

Commenting on the result, Sappi Chief Executive Officer Ralph Boëttger said:
The past quarter saw an improvement in the operating performance of all three of our operating regions, despite tough market conditions overall. The improving trend in operating performance continued for the quarter, with EBITDA excluding special items of US$171 million, operating profit excluding special items of US$95 million and profit for the period of US$32 million. There were no major special items for the quarter.

Continued emphasis on lowering cost and optimising sales in both the coated paper and dissolving wood pulp markets have enabled us to compete effectively. Looking forward, we will continue to take actions in North America, Europe and Southern Africa to improve our competitiveness and enable us to reduce debt.

Our outlook for the year is one of significantly improved performance for the 2014 financial year when compared to 2013.

The quarter under review
Against a backdrop of more challenging dissolving wood pulp markets, the Specialised Cellulose business had another good quarter with strong shipment volumes generating US$82 million in EBITDA excluding special items at an EBITDA margin of 33%.  Due to the competitive nature of the market and weak viscose staple fibre pricing, we experienced increased pressure on our prices, leading to a lower average dollar price for our dissolving wood pulp than achieved in the prior quarter.
The graphic paper markets in Europe and North America continue to experience demand declines for most major grades, and sales prices remained under pressure in both markets.  These market dynamics were anticipated and we responded by implementing a number of cost cutting initiatives across the group. This, combined with the seasonally stronger second quarter, delivered an improved operating performance in both businesses.
The Southern African paper business continued the trend of improving performance, with increased sales prices offsetting cost pressures.
As a result of the improved operational performance, lower capital expenditure post the completion of the three major conversion projects and stringent working capital management, net cash generated for the quarter was US$132 million compared to net cash utilisation of US$99 million in the equivalent quarter last year. Capital expenditure in the quarter declined to US$62 million compared to US$179 million a year ago, reflecting the completion of the expenditure on the dissolving wood pulp projects.
Net debt of US$2,248 million declined by US$132 million from the prior quarter, as a result of the cash generated from operations and the lower working capital.
Finance costs of US$48 million were in line with the restated equivalent quarter last year.
Earnings per share for the quarter was 6 US cents (including a gain of 1 US cent in respect of special items), compared to 0 US cents (including a gain of 2 US cent in respect of special items) in the restated equivalent quarter last year.
Demand in the Specialised Cellulose business remains firm, though pricing pressure continues to be evident.  The Rand/Dollar exchange rate will continue to play a major role in the operating performance of the South African Specialised Cellulose business as well as the Southern African paper business.
Capital expenditure for the full year is expected to be below US$300 million, with positive cash generation for the remainder of the year.  We anticipate net debt levels to end the year close to US$2 billion.
The third quarter is seasonally weaker in both North America and Europe, and scheduled annual maintenance shuts during the quarter in all three regions will also impact the results in the third quarter, leading to a weaker operating performance than the past quarter, though we expect the result to be substantially better than the equivalent quarter in the prior year.  Our outlook for the year is one of significantly improved performance for the 2014 financial year when compared to 2013.

There will be a conference call to which investors are invited. Full details are available at using the links Investor Info; Investor Calendar; 2Q14 Financial Results
Click here for full financial results.

Industry Intelligence editor's note: In an omitted table, Sappi Ltd. reported fiscal second-quarter 2014 sales of $1.573 billion compared to fiscal second-quarter 2013 sales of $1.503 billion.

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