Sappi shares knocked by capex

European operations have weighed heavily on its performance in the first quarter

PULP AND PAPER group Sappi yesterday fell more than 5 percent after the group said it would spend $590 million (R7.9 billion) in capital expenditure to shore up its Saiccor 110 kiloton expansion project and the completion of its Gratkorn Mill.

The group said that its European operations weighed heavily on its performance in the first quarter as demand for graphic paper slowed.

Chief executive Steve Binnie said graphic paper markets in Europe and North America had been weak in recent months, which had impacted on the market.

“Further potential industry capacity conversions and closures may happen in the coming periods. However, short-term profitability will be negatively impacted if demand continues to be as weak as it has been recently,” Binnie said.

“Market conditions for the various grades of packaging and speciality papers that we produce have diverged in the past month or so, with strong container board markets in South Africa and solid paper board demand in Europe contrasting with some weakness in the release paper, and various European speciality grades.”

The company said it would focus on mitigating increased input costs and weaker global graphic paper markets. Sappi’s results for the quarter ended December showed a 15 percent rise to $197m in earnings before interest, taxes, depreciation, and amortisation, excluding special items.

The group’s profit increased 29 percent to $81m, attributing this to improved operating profit and a lower tax charge for the quarter.

It said net debt rose from $1.3bn to