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Durban - JSE listed Sappi said its strategic shift to place more emphasis on dissolving pulp and speciality packaging was starting to pay off, placing it in a good position to reach its 2020 target.

Sappi on Monday  said it had put emphasis on strong cash- generation and cost-management initiatives to reduce variable costs to reach its target.

The group said it had set aside nearly $350million (R4.6billion) for capital expenditure in 2017.

Sappi said it managed to improve its European and US businesses, with speciality-packaging paper units achieving strong sales growth and profit margins. In South Africa, the group said, the paper business experienced a strong recovery in sales volumes in the six months to end March.

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Chief executive Steve Binnie said the business was on track to deliver projects it set to achieve locally and abroad.

“Our projects to increase capacity of speciality packaging in Europe and North America are progressing as planned,” Binnie said. “Capital expenditure in 2017 is expected to be about $350m."

This includes the next phase of the dissolving pulp debottlenecking projects at Ngodwana and Saiccor mills, the Somerset Mill wood yard and the initial phases of the speciality-packaging conversions.”

Sappi has manufacturing operations in Europe, America and South Africa and customers in over 150 countries.

The graphic-paper markets in Europe and the US remained sluggish during the sixth-month period.

But the group said orders improved in late March and April while rising paper pulp and latex prices, along with a weaker euro, had started to place pressure on European margins. It said paper price increases, scheduled for April, offered only partial relief.

“The reason for this is that paper is a business in decline and it continues to be under pressure because of an increased shift to the digital space in conducting business and an increase in the price of raw materials, especially in the past six months,” said Binnie.

In a move to reposition the business, Binnie said Sappi would undertake some measures to keep the business going in a rapidly changing global market. He said the traditional glossy-paper business represented only one-third of the company while two-thirds consisted of dissolving wood pulp and speciality packaging.

In South Africa, Sappi has set itself growth ambitions in an economy set to grow no more than 0.8percent in 2017.

“The short-term goal is to produce 60000 tons in dissolving wood pulp over the next year in South Africa. We expect to grow that to 300000 tons in the next three years and we are hoping to increase it to a million tons by 2025,” said Binnie.

Sappi reported a marginal rise in sales to $2.6bn, up from $2.5bn, while headline earnings per share was higher at 33 US cents a share, up from 31 US cents reported in 2016. The profit came in a $178m, up from $175m a year earlier.

The group reported a net debt of $1.33bn, down by $323m year-on-year. Sappi shares rose 0.74percent on the JSE yesterday to close at R101.34.

BUSINESS REPORT ONLINE