Sappi wraps up Cham purchase

• Wood pulp company concludes acquisition of Cham Paper Group in deal that includes two paper mills and digital imaging business

Sappi, a global producer of dissolving wood pulp, speciality and packaging papers and high-quality printing papers, says all conditions relating to its $149m buyout of speciality paper business Cham Paper Group have been fulfilled.

Sappi, a global producer of dissolving wood pulp, specialty and packaging papers and highquality printing papers, says all conditions relating to its $149m buyout of speciality paper business Cham Paper Group have been fulfilled.

The deal includes the acquisition of the Carmignano and Condino paper mills in Italy, the digital imaging business of Cham located in Switzerland, and all brands, technology and know-how.

“This transaction strengthens Sappi’s specialities and packaging papers business both in Europe and globally, improves our profitability and is another significant milestone towards realising our [strategic goal to grow in higher margin growth segments],” Sappi CEO Steve Binnie said on Wednesday.

Sappi said the acquisition added 160,000 tonnes of speciality paper to overall production capacity. It also opened up new markets and generated economies of scale and group synergies.

This would add €183m of annual sales and about €20m of earnings before interest, tax, depreciation and amortisation.

“I think it’s an interesting deal, with pros and cons,” said Mish-al Emeran, an analyst at Electus Fund Managers.

He said the positive attributes of the deal included the “reasonable price paid” and the product diversification. “Sappi’s strategy is to increase exposure to specialty paper markets. This deal brings it closer to its 25% target [for the sector] by 2020.”

But he also said the Italian mills were not integrated and did not produce their own pulp.

“Therefore margins [are] squeezed when pulp prices increase, which has been the case recently,” Emeran said.

But he said that Sappi’s balance sheet had sufficient capacity for the buyout, which was from cash resources.

André F Oberholzer, Sappi’s group head of corporate affairs, said the company had paid about Sf146.5m (R1.7bn at the time) for Cham.

He said the digital imaging business was a new enterprise for Sappi. It transferred images items, including clothing and material.

“It’s a small, niche market, but is growing at a very good rate,” he said.

Sappi’s first-quarter results to December 2017 were in line with group expectations.

Earnings before interest, tax, depreciation and amortisation (ebitda) were similar to the first quarter in financial 2017, excluding special items.

But profit for the period plunged to $63m from $90m in the earlier period.

However, there was an additional accounting week in the 2017 financial year, which increased the ebitda reported in the comparative period by $20m. The company had also said growth projects were on track to deliver a significant increase in earnings from the end of financial 2018.

Sappi is the world’s largest producer of dissolving wood pulp — also called specialised cellulose — widely used in making textiles.

POSITIVE ATTRIBUTES OF THE DEAL WERE THE REASONABLE PRICE PAID AND THE PRODUCT DIVERSIFICATION