Sappi to increase its capital expenditure
Getting more out of wood capacity
PULP and paper company Sappi has said that it was planning to increase its dissolving wood capacity by more than 30 percent in the next four years in order to extract maximum value from the wood fibre value chain.
The company said yesterday that it would continue to invest in South Africa and develop its dissolving wood pulp at the Ngodwana and Saiccor plants.
Chief executive Steve Binnie said Sappi would also increase its capital expenditure in South Africa, because the country still provided good opportunities.
Binnie said Sappi had set aside $350 million in the 2017 financial year as capital expenditure in order to achieve this.
More diversified
“We have moved away from being a company that has been known for producing glossy paper to a more diversified company,” he said. “The Sappi of today is different from the Sappi of 12 years ago.”
Sappi now is a business with diverse, yet focused business operations that aims to extract maximum value from the wood fibre value chain. It plans to increase dissolving wood pulp capacity by more than 30 percent over the next four years.
Yesterday, the company celebrated a milestone by completing 80 years of being listed on the JSE.
Binnie said the company had to overcome obstacles such as a declining market in its core business of coated graphic paper in order to survive. He said coated graphic paper has been in decline since 2007, resulting in Sappi incurring more debt while margins shrank.
“We knew we needed to do something to turn the situation around,” Binnie said. “We realised the company was heavily indebted. It became our priority to reduce the debt. We are happy to have reached that target.”
Binnie said Sappi has managed to reduce the net debt by 20 percent year-on-year to $1.41 billion (R14.87bn).
He said the group wanted to consolidate its business for the year ahead and to look for more opportunities.
In its year-end results in November, Sappi announced that it had increased its profits by 91 percent to $319m, from $165m a year before, and lowered its net debt by 20 percent, to $1.41bn or by $363m year-on-year for the year to end September.
Profit growth
Sappi managed to grow the profits in South Africa, in one of its regions where it has operations, despite the country’s economy growing by less than 1 percent and the threat of downgrade from the ratings agencies.
“Rating agencies have no direct impact on Sappi’s business. Actually our business thrives on the weaker local currency because that lowers our costs,” said Binnie.
“I can say one of the challenges Sappi had to overcome over the years was the introduction of digital world into the business environment. We were a company that was strong on paper business, but the digital world slowed that side of business and we had to adapt. The paper business became a market in decline.”
He said the company survived by diversifying.