Drought fells R87m off Sappi’s earnings
Sappi’s operations in South Africa took a hit from the drought that has been plaguing the country.
“The drought slowed production at the Siaccor mill for a few weeks and reduced earnings before interest, taxes, depreciation and amortisation [Ebitda] excluding special items of the South African business by R87 million [for the quarter to December 2015],” Sappi said this week.
Sappi’s southern African operations reported Ebitda of R1.119 billion, which means the drought reduced this measure by 7% during the threemonth period.
In November last year, Sappi had already warned that the severe drought in South Africa might affect its mill production and profitability should normal summer rainfall fail to take place.
Andre Oberholzer, a Sappi spokesperson, said the lower production at the Siaccor mill on the KwaZulu-Natal south coast, near Umkomaas, was due to the fact that Sappi had to slow down production to two-thirds of normal production rates over October and November because of the low levels of water in the Umkomazi River, which prevented the mill from abstracting the usual amount of water.
“Subsequent rains in December in the catchment areas have returned the river to normal flow and production has also returned to normal,” he added.
“This is the most severe impact the mill has ever had. We believe the last time there was any impact was in 1981/82, but we only bought the mill in 1988 so this was before our time,” Oberholzer said.
Siaccor mill produces dissolving wood pulp, which is used mainly to create viscose staple fibre for clothing and textiles, but is also used in foodstuff, household products and pharmaceuticals.
Sappi is the world’s largest maker of dissolving wood pulp.
Sappi’s Stanger mill on the north coast of Durban in KwaZulu-Natal also experienced reduced water supply from the Umvoti River.
However, Oberholzer said the drop in water supply did not have a material effect on the Stanger mill because the mill recycled more water from the Stanger municipality.
Sappi this week reported that profit for the quarter to December 2015 more than tripled to $75 million (R1.19 billion) from $24 million in the previous comparative quarter last year.
Operating profit rose by 51% to $112 million from $74 million in the December 2014 quarter.
“The operating performance in the quarter was strong and substantially above the equivalent quarter last year,” Sappi said.
“The successful result was attributable to higher graphic paper volumes, improved pricing for dissolving wood pulp and cost containment initiatives,” Sappi added.
An analyst, who wished to stay anonymous, said Sappi was benefiting from increasing dissolving wood pulp prices and the weaker rand.
The group’s debt fell by 15% to $1.734 billion.
Turning to the outlook, Sappi said its secondquarter Ebitda was expected to be in line with the first quarter.
“The quarter will be impacted by an extended annual maintenance shut at our Ngodwana mill in South Africa and the annual maintenance stoppage at Saiccor, which traditionally occur in the third quarter,” Sappi added.
The analyst said despite the shutdowns, Sappi was expected to show an improvement in profit in the second quarter, while the third quarter was expected to be strong because there would not be any shutdowns then.
After releasing its results on Wednesday, Sappi’s shares traded 2% lower at R65.20.
On Friday, the share price closed 3.58 percent higher at R67.33.