Weak rand fuels hike in Sappi’s profits
Pulp and paper producer Sappi reports a hike in profits, helped by its diversification strategy.
|||Johannesburg - Pulp and paper producer Sappi yesterday reported a hike in profits fuelled by its diversification strategy and a weaker rand against the dollar for the third quarter to June.
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The group said its profits shot up to $32 million (R448m) in the quarter, from $4m in the third quarter of last year.
Chief executive Steve Binnie said the group was optimistic that the demand for dissolving wood pulp would remain favourable and recent improvements in textile fibre prices and viscose staple fibre operating rates would support the wood pulp prices at current levels for the coming months.
Binnie said the company recorded a net debt of $1.58 billion during the quarter as a result of strong cash generation and the weakening of the euro and rand against the dollar compared with the $192bn at the end of the equivalent quarter last year.
He said the results reflected the positive impact of the company’s strategy to diversify operations.
“Operating performance for the quarter improved markedly over the equivalent quarter last year with profit for the period increasing from $4m to $32m,” Binnie said. “All our regions are up including South Africa. We have managed to cut costs in Europe and America to ensure that we remain profitable. I am confident we are going to perform well in the next quarter as well.”
Sappi operates in North America, Europe and southern Africa dealing with different currencies. Binnie said the weaker rand boosted in profits in the period.
Advantage
“A weaker rand is a better advantage for us because we manufacture in rands and sell in dollars,” he said. “We would still like the rand to trade around R15 or R16 to the dollar because it is good for our business. However, we are still profitable in these levels of just below the R14 mark.”
The company said revenue was $1.22bn, up from $1.27bn as compared with last year with operating profit shooting up to $96m against last year’s $35m. Headline earnings per share (Heps) were higher at 6 US cents per share from 1 US cent per share last year. Earnings before interest, tax, amortisation and depreciation excluding special items saw a 47 percent increase to $160m.
Binnie said coated graphic paper markets continued to be challenging during the quarter and demand was weaker than in recent periods. “Notwithstanding these challenges, the European business delivered a solid improvement on last year, with good variable and fixed cost control initiatives more than offsetting the effect of declining sales volumes.”
Sasha Naryshkine, an analyst at Vestact, said: “The company has done better lately. They are still a fine coated paper business in the developed world, with an interesting early stage cellulose business. What I know is that the share price is up 72 percent over the last 12 months.”
Naryshkine added that the company was forced to restructure 10 years ago after it encountered profitability problems. “The last 10 years as a result of too much debt and legacy assets, forced the restructure, which saw a deep discounted rights issue. The stock is down 20 percent over that period of 10 years.”
Sappi shares gained 0.91 percent on the JSE yesterday to close at R69.99.
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