Drought fells R87m off Sappi’s earn­ings

CityPress - - Business - JUSTIN BROWN justin.brown@city­press.co.za

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.

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