5 August, 2014
Sappi eyes profitable year-end after stronger-than-expected Q3
Sappi CEO : Steve Binnie
Pulp and paper manufacturer Sappi was
headed for a year of profitability as the stronger-than-expected third
quarter delivered improved performance within all its operations,
barring North America.
Despite being a traditionally seasonally weaker quarter, the three
months to June saw profit for the period rise to $17-million - a jump
from the loss of $47-million reported in the corresponding period the
This upward trend was expected to continue into the next quarter and the new financial year, Sappi CEO Steve Binnie
, who took the reins from Ralph Boëttger
on July 1, told Engineering News Online
over the past year, implemented a number of initiatives to bring the
company back into profitability after falling into the red during the
2013 financial year.
"A lot of great work has been done to take costs out of the business and improve margins," he said.
Thursday posted third-quarter basic earnings a share of 3c, a
turnaround from the basic loss a share of 9c in the corresponding period
the year before, while earnings before interest, tax, depreciation and
amortisation, excluding special items, rose to $140-million during the
quarter under review, up from $88-million in the corresponding quarter
Sappi's sales remained steady at $1.5-billion for the quarter.
While the Southern African paper business
improved on the prior quarter and the European business delivered a
"solid quarter" in a "seasonally slow" period, the North American
operations remained under extreme pressure.
In South Africa,
revenues rose to R3.78-billion during the three months to June 30, up
from R3.25-billion in the prior year, while operating profit jumped from
R192-million to R653-million in the period under review.
The higher average rand pricing, increased sales of dissolving wood pulp and improved profitability from the paper packaging business all contributed to the improvement.
Meanwhile, in the quarter under review, the European business had
lower variable and fixed costs arising from cost-cutting initiatives -
the company had shaved between $50-million and $60-million off costs -
offsetting weaker graphic paper prices.
Sales from operations reached €543-million, a slight drop from the
€574-million reported in the June 2013 quarter; however, a €12-million
operating profit was a turnaround from the €12-million operating loss
recorded in the corresponding period the year before.
"The stronger-than-expected coated wood free paper market,
coupled with excellent ongoing cost control and focus, has led to
steady progress in the European business, an important cash contributor
to the group," Binnie pointed out.
Further, the Gratkorn and Kirkniemi projects, currently under way, were expected to improve the financial performance of the business.
The upgrade of the Gratkorn mill's
pulp production facilities and improvements to its papermaking
capabilities, which would be completed in mid-2015, would secure a
significantly lower cost base.
A new power plant at the Kirkniemi mill, expected to be operational early in 2016, would improve cost competitiveness and profitability by reducing energy costs and securing energy supply.
The North American business experienced an "extremely difficult" third quarter, with cost and price pressures in graphic paper,
inclement weather and some operational challenges widening the
operating loss to $9-million, from a loss of $2-million in the third
quarter last year. Sales ticked up marginally to $380-million.
However, the graphic paper business was expected to improve, with good volumes and higher pricing going forward.
The price increases for coated wood free web paper implemented during the quarter would "bring some relief to a difficult market" during the fourth quarter.
maintain its focus, over the next two years, on achieving cost
advantages, working to lower fixed and variable costs, increase cost
efficiencies and invest for cost advantages, while optimising and
rationalising declining businesses.
Further, the company would deliver growth through moderate
investments - injecting smaller amounts of capital into existing areas
with strong potential growth, including pulp, speciality grades and packaging papers.
The company had reduced its net cash use from $157-million in the
third quarter of 2013, to $44-million in the three months ended June,
owing to a cut in capital expenditure (capex) and an improved operating
Capex for the third quarter of the 2014 financial year was $57-million - a decline from the $174-million spent a year ago.
Source : www.engineeringnews.co.za