PULP AND PAPER
Sappi shares rise despite profit plunge
SAPPI shares advanced more than 10 percent on the JSE yesterday, despite the diversified woodfibre company reporting that its profits plunged in the second quarter to March, as prices stalled due to the global coronavirus pandemic.
Covid-19 saw the company slashing its capital expenditure (capex) as profits tumbled to from $72 million (R1.34 billion) to $2m on earnings before interest, tax, depreciation and amortisation that fell to $131m from $187m last year.
Initially, the company said it expected the capex to be $460m for 2020. However, it has since been revised down to $200m. The group said special items that reduced earnings by $29m, related mainly to restructuring provisions and asset impairment charges. Its earnings per share excluding special items also declined to 4 US cents from US13c during the equivalent quarter last year.
The group said the dissolving pulp (DP) market prices also eased by $233 a ton in the last 12 months as the combined impact of soft global textile markets, US duties on textiles from China, excess viscose staple fibre capacity and a weaker $/renminbi exchange rate drove prices downwards.
Chief executive Steve Binnie said the performance was negatively impacted by the historic low DP prices and reduced sales volumes. He said the company was bracing itself for a massive Covid-19 fallout in the third quarter.
“We began to receive significant cancellations of DP and graphic paper orders scheduled to be delivered in the third quarter and new orders for both product categories slowed considerably,” Binnie said. Sappi said sales volumes for packaging and specialities in Europe, however, increased 5 percent on the year earlier, with food and hygiene experiencing strong demand.
It said in North America, the volumes grew 68 percent year-on-year and 49 percent from the previous quarter, driven mainly by the ramp-up of the paper board grades on PM1 at Somerset Mill as well as strong growth in label paper volumes.
Binnie said the group would not provide a profit forecast or guidance, as the potential impact of the virus cannot be estimated as stated at the end of March.
“We do, however, expect significantly lower demand for DP and graphic paper in the short term. The group’s focus is to preserve liquidity and cash flow and we have implemented various cost-saving measures across our operations,” Binnie said.
Sappi shares closed 12.28 percent higher at R24.14 on the JSE yesterday.