Sappi aims to cut debt

Sappi, the world's largest maker of fine paper used in glossy magazines, will only invest in more growth in its lucrative chemical cellulose business after trimming its net debt to below $2 billion, its chief executive said on Wednesday.

The company said in May that it had reduced its net debt to $2.133 billion in the second quarter to end-March 2012, down slightly from the first quarter.

The South African paper maker has said chemical cellulose, which it produces from its own woods for conversion into raw materials for clothing, plastics, food and pharmaceutical products, is one of the higher-margin businesses it plans to expand on as the paper industry struggles to recover from a slump caused by anaemic demand and overcapacity.

The company, which is the world's largest producer of chemical cellulose, is currently investing a total of about $500 million to boost its total production capacity to more than 1.3 million tonnes a year by 2013.

“We will only consider further investment in growth once we are happy with our gearing and the debt levels,” Chief Executive Ralph Boettger told Reuters.

“We feel confident that we will reduce our net debt to below $2 billion at the latest by the end of the 2013 financial year.”

The conversion projects at Cloquet mill in North America and Ngodwana mill in South Africa were on track for start-up in the third financial quarter of 2013, the company said last month.

“A large proportion of the additional capacity has already been taken care of in terms of long-term supply agreements with customers, so it's a low risk investment that we are making,” Boettger said.

Sappi posted healthy second-quarter earnings in May, benefiting from aggressive cost cuts and a solid chemical cellulose business. - Reuters