Sappi profit up across board

ALL Sappi’s operations lifted profit in its fourth quarter to September on stronger seasonal demand and improved markets for graphic paper and dissolving wood pulp compared with the third quarter.

The group generated operating profit of $136m, which was higher than in the same quarter last year, despite the translation effect of a weaker euro relative to the dollar.

Profit shot up by 22% year on year to $83m due in part to lower interest costs on reduced debt.

“We had a strong year,” CEO Steve Binnie said yesterday.

“Obviously, that doesn’t happen overnight. We have reduced costs and lowered debt and interest costs.”

He said the weak rand had helped group operations. Sappi Southern Africa is a big exporter of dissolving wood pulp, also known as chemical cellulose.

Margins for chemical cellulose are high, with sales mainly to China, Indonesia and India. Mr Binnie said Sappi would further invest in its South African mills to improve capacity for the product. Its US-based Cloquet mill could also produce more if needed.

The group’s US graphic paper markets were tougher on a stronger dollar, which encouraged imports and depressed exports.

Graphic paper markets in Europe were slightly better than expected, but were still expected to show a longterm decline.

This meant Sappi’s European mills were in full production and export pricing was benefiting from a weaker euro. However, Europe faced pressure from higher pulp prices.

Dollar spot prices for dissolving wood pulp in China had risen steadily in recent months, driven by improved conditions for viscose staple fibre, a cotton substitute. Along with weaker production in rand, the dollar-rand exchange rate helped lift returns in the quarter.

Sappi said strong containerboard demand, combined with excellent cost controls, helped the South African packaging business to continue its improving trend.

It said the completion of major capital projects in Europe and North America would lower its cost base further.

Last month, Sappi Southern Africa received Competition Commission approval to sell its Enstra mill to Corruseal and the Cape Kraft mill to Golden Era.

Sappi had said it would receive “just short of R600m” from the sales. The Enstra sale was concluded last week, and the Cape Kraft sale is expected to be finalised by month-end.