Sappi turns to glossy packaging to realign as publishing demand drops

SAPPI is putting a new twist on an old trick as it expands in specialty packaging to counter declining prospects for its traditional glossy paper business.

The company is using expertise in coating paper for luxury magazines and advertising literature to the production of high-end packaging for products from cosmetics to consumer electronics, CEO Steve Binnie has said.

Sappi is developing new businesses as a global shift to digital publishing and advertising reduces demand for its biggest product by sales.

The Johannesburg-based company has already diversified by expanding in dissolving wood-pulp, a high-margin cotton substitute used in items from lingerie to golf shirts, and has become the world’s biggest maker of the material.

Sappi is investigating ways to profit from the by-products of its pulp-making process. “We know that our traditional graphic paper business is in decline and we accept that,” Mr Binnie said last week. “We need to look for opportunities to diversify and look for other areas to grow our business.”

While Sappi saw dissolving wood pulp as having the best growth prospects, the company was targeting higher sales from specialised packaging, where it can meet requirements for complicated prints, finishes and colours thanks to its coatings expertise, Mr Binnie said.

Paper-based packaging is also seen by marketers as more environmentally friendly and often more upmarket than plastic options, he said.

Sappi wanted its packaging division to contribute 25% of earnings before interest, taxes, depreciation and amortisation (ebitda) by 2020, from 18% now, Mr Binnie said. The company was targeting 40% of ebitda from dissolving wood pulp by the same date, leaving graphic paper at 25%, plus an additional 10% from new businesses. Coated paper accounts for 47% currently, with dis- solving wood pulp at 35%.

Significant investments would have to wait until Sappi reached its debtreduction target of two times ebitda, which Mr Binnie said was achievable by 2017.

Sappi had already reduced net debt from a peak of $2.8bn in the third quarter of 2009 to $1.9bn at the end of June. That should decline to $1.8bn by the end of this month, Mr Binnie said.

Mr Binnie has been CEO since the start of July last year.