Sappi’s capex to grow to $590m
Paper and packaging producer Sappi will spend about $590m in capital expenditure, predominantly at the Saiccor pulp mill in KwaZulu-Natal, as part of its strategy to shift from paper to higher-margin segments.
Paper and packaging producer Sappi will spend about $590m in capital expenditure, mainly at the Saiccor pulp mill in KwaZulu-Natal, as part of its strategy to shift from paper to highermargin segments.
The R7.7bn Saiccor project is in line with the firm’s strategy to shift to dissolving wood pulp (DWP), for which there is growing demand from the clothing and textiles industry in particular, and from the packaging industry. DWP, which contributed about 18% to Sappi’s overall sales, accounted for about 50% of the group’s profit.
Besides halving its total debt, Sappi has prioritised investments in DWP and packaging in the past decade. This comes as its traditional graphics paper market has dwindled in the past decade, mainly because of the use of technological devices.
Improved performance in 2019 would validate Sappi’s strategy, which has seen DWP and packaging dominate its current capital expenditure programme, which will increase to $590m in 2019.
“Having completed the significant projects in 2018 to convert paper machines to highermargin and growing packaging grades, in addition to de-bottlenecking of both Saiccor and Ngodwana Mills, we expect earnings before interest, taxes, depreciation, and amortisation in the first quarter of financial year 2019, given current exchange rates, to be comfortably higher than that of 2018,” CEO Steve Binnie said on Thursday.
In the year to end-September, the listed pulp and paper group’s profit slipped 4.4% from $338m to $323m.
Sappi benefits from a weaker rand because it exports most of the products manufactured in SA. Higher rand selling prices offset input cost pressure from timber, paper pulp, chemicals and energy, Sappi said.
The company declared an increased dividend of 17 US cents, compared to 15 US cents in the 2017 financial year.