Sappi’s earning leap as demand for paper, wood fibre products surges
SAPPI, the global wood fibre products group, had proven resilient, had recovered fully from the pandemic and was bullish about its prospects in the second quarter of its 2022 financial year, chief executive Stephen Binnie said yesterday.
Yesterday morning the share price soared 10.1 percent to R50.01 after results for the first quarter to end-December 2021 were released that showed headline earnings rebounding strongly to US22 cents (R3.40) per share, compared with a US3c per share loss reported at the same time in 2020.
The share price has risen more than 38 percent over five months.
Sales were up 46 percent to $1.7 billion (R26.25bn), while earnings before interest tax and depreciation allowances, before special items, was up 145 percent to $240 million. Net debt was down 7 percent to $1.92bn. Net asset value was up 8 percent to 353c.
The group sells raw materials such as dissolving pulp, wood pulp, biomaterials and timber, and end-use products such as specialities and packaging papers, graphic papers, casting and release papers and forestry products, which it manufactures from wood fibre from its forests and plantations.
Binnie said the good financial performance was mainly driven by “robust” demand across “all geographies” and “in all segments”, which he attributes to the likely effects of pent-up demand and, for instance, the resumption of advertising by many businesses after the pandemic which would have driven up graphic paper sales.
Rising sales prices were also implemented to offset rising costs, which Binnie said was a factor affecting all businesses around the world at present.
Timber, pulp, chemicals, energy and delivery costs were expected to remain at elevated levels through the current financial year.
He said, for instance, that the group, which uses a large quantity of gas at its European plants, had been impacted by the fast rising gas prices on that continent.
Also, in South Africa, the higher delivery, timber and chemical prices would impact the margins for the pulp business.
Ongoing logistical challenges and adverse weather conditions in Durban in December had prevented any reduction of the 100 000 ton sales backlog from the fourth quarter of the 2021 financial year.
Constrained global container vessel supply necessitated the use of alternative non-contracted ocean carriers and break-bulk shipping to fulfil customer shipping requirements, which negatively impacted delivery costs.
Binnie said the group had largely been able to mitigate the cost increases in the first quarter, and he anticipated the group would continue to do so.
An additional sales week in the first quarter augmented sales and boosted earnings before interest, taxes, depreciation and amortisation by about $25m.
Pulp sales volumes had increased by 48 percent compared to the prior
quarter as the group secured more shipping capacity for its South African exports.
Markets for packaging and speciality papers continued to be robust across all regions with sales volumes up 26 percent on a year ago.
Buoyant demand for graphic papers boosted sales volumes by 20 percent.
All assets ran at full operating capacity during the quarter.
Capital expenditure of $72m included certain payments for the Saiccor Mill expansion.