Sappi adjusts capex, will not declare dividend to contain debt
JSE-listed Sappi says in a voluntary update that it is intensifying efforts to enhance the group’s financial flexibility, with the immediate focus remaining on internal factors within its control, primarily the reduction of debt and strengthening the balance sheet.
To support the commitment to reducing debt, Sappi has adjusted its capital expenditure (capex) downward for the next two years, with no expansionary capex anticipated during this period.
Moreover, the board has decided to suspend the dividend for the current fiscal year to preserve cash.
Sappi has also taken several proactive actions to maintain financial flexibility.
This includes preserving cash, with current group liquidity in excess of $800-million, comprising cash resources and committed revolving credit facilities.
Moreover, Sappi’s banking group has unanimously supported increasing its leverage covenant levels for the next 12 months to provide additional headroom during this temporary period of elevated leverage.
Discussions will start shortly with Sappi’s banking group to further extend its revolving credit facilities, which is expected to be finalised early next year.
Sappi also highlights good progress to term-out a large portion of its short-term debt with a new five-year term facility.
As stated during Sappi’s third quarter results announcement, the group’s leverage ratio is currently elevated owing to a confluence of factors, with a peak in debt after completing the Somerset PM2 conversion and expansion project; a weak dollar impacting the translation of its euro-denominated debt to dollars; pricing headwinds across a number of product segments; and a tough macroeconomic environment.
“While these conditions have created a more complex operating environment, we remain confident in the underlying strength of our business and the resilience of our operations,” Sappi states.
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