Johannesburg - A combination of higher sales volumes and prices and increased productivity helped paper maker Sappi increase profit to $32 million (R331bn) in the financial second quarter to March from $2m in the same quarter a year earlier, boosted by the southern African unit.
“The southern African paper business continued the trend of improving performance, with increased sales prices offsetting cost pressures,” Sappi said.
The group said despite more challenges in the dissolving wood pulp markets, the specialised cellulose business had another good quarter with strong shipment volumes, generating $82m in earnings before interest, tax, depreciation and amortisation (Ebitda) excluding specialised items at an Ebitda margin of 33 percent.
The South African specialised cellulose business achieved another solid quarter despite an annual shutdown at the Ngodwana mill in Mpumalanga. The mill contributed to increased sales volumes.
As a result of the improved operational performances, lower capital expenditure after the completion of three major conversion projects and stringent capital management, net cash generated for the quarter was $132m compared with net cash utilisation of $99m in the previous equivalent period.
Sappi managed to control capital expenditure to $62m compared with $179m a year earlier. Net debt of $2.248 billion declined by $132m from the prior period due to cash generated from operations and the lower working capital.
Total sales rose 4.7 percent year on year to $1.57bn.
Chief executive Ralph Boëttger, who will leave Sappi next month due to ill health, said yesterday that despite overall tough market conditions, the past quarter saw improvements in performance in all three operating regions.
Boëttger will be replaced by the current chief financial officer, Steve Binnie, in July.
Boëttger added that continued emphasis on lowering costs and optimising sales in both the coated paper and dissolving wood pulp markets had enabled the group to compete effectively. “Looking forward, we will continue to take action in North America, Europe and southern Africa to improve our competitiveness and enable us to reduce debt,” Boettger said.
The group said due to the competitive nature of the market and weak viscose staple fibre pricing, it had experienced increased pressure on its prices, which led to a lower average dollar price realised for dissolving wood pulp than achieved in the previous corresponding quarter.
The paper maker said the graphic paper markets in Europe and North America continued to experience demand declines for most major grades, and sales prices remained under pressure in both markets.
“These market dynamics were anticipated and we responded by implementing a number of cost-cutting initiatives across the group. This, combined with the seasonally stronger second quarter, delivered an improved operating performance in both businesses,” it said.
The coated paper markets remained under pressure due to continued declines in prices.
The shares rose 3.13 percent to close at R36.61 on the JSE.