Sappi expects growth surge

Sappi says first-quarter results are in line with expectations and that growth projects are on track to deliver a significant increase in earnings from the end of the 2018 financial year.

Sappi says first-quarter results are in line with expectations and growth projects are on track to deliver a significant increase in earnings from the end of the 2018 financial year.

Earnings before interest, tax, depreciation and amortisation (ebitda) were similar to the first quarter in financial 2017 — excluding special items — at $172m from $181m previously. But profit for the period to December plunged to $63m from $90m in the earlier period. This meant earnings per share of $0.14, excluding special items, fell from 16c in the same quarter previously.

Net debt crept up to $1.35bn from $13.4bn in 2017.

The maker of fine paper, packaging and dissolving wood pulp — also known as specialised cellulose — said there was an additional accounting week in 2017, which increased the ebitda reported in the comparative period by $20m.

The share price fell 3.21% to close at R81.74 on Wednesday.

Specialised cellulose is used to make textiles and has helped Sappi beat a slump in global advertising paper markets precipitated by the internet.

The group also reported a noncash income statement charge of $19m relating to its deferred tax asset in the US following that country’s lowering of its corporate income tax rate. However, going forward this will be positive and contribute to increased earnings, it says.

“Our performance for this quarter was in line with our expectations,” CEO Steve Binnie said on Wednesday. “We will begin to see the benefits of selling price increases during the rest of the financial year.”

Binnie said it was clear that speciality and packaging paper demand had continued to grow as the worldwide push to encourage the use of paperbased packaging over plastic gathered momentum.

“Overall the results came in slightly below our expectations, so a touch disappointing,” Electus Fund Managers analyst Mish-al Emeran said on Wednesday. “Margins contracted in both graphic paper and [specialised cellulose] due to a combination of higher input costs ... and a stronger rand.”

But he said management was bullish that Sappi would need significantly more capacity for specialised cellulose by 2025.