Johannesburg - Sappi’s profit tripled in the first quarter as its strategy to reposition the JSE-listed paper and pulp company into a diversified wood fibre group paid off.
Net income for the three months to December rose to $75 million (R1.19 billion), compared with $24m a year earlier – a 212.5 percent increase.
Read: Sappi's profit jumps
This was despite the drought in South Africa, which Sappi said had a negative effect of $6m on its results.
“The $6m negative impact on our profits means had we not had the drought, we could have produced more and sold more. The cost of the lost sales was $6 million of Ebitda (earnings before interest, tax, depreciation and amortisation) and profit,” said Graeme Wild, the group head of investor relations and sustainability.
Strong performance
Chief executive Steve Binnie said the operating performance in the quarter was strong and substantially above the equivalent quarter last year.
The group increased Ebitda, excluding special items, by 21 percent to $175m. Operating profit excluding special items rose 51 percent to $112m.
Despite the strong results, the share price ended yesterday’s session 2.09 percent lower at R65.60 on the JSE. The stock has increased 31 percent in the past 12 months.
Sappi has operations in Europe, North America, Africa and Asia, all of which contributed to the strong results.
The southern African business continued to prosper, despite serious challenges in emerging markets. The region contributes 9 percent to the overall company sales. Although the drought dented business, it did not stop Sappi from growing its profit by 4.75 percent in the region.
Europe contributed the most with 45 percent of sales.
“The southern African business continued to enhance margins as a result of higher net selling prices for dissolving wood pulp and paper. Margins were further boosted by the weaker rand,” Binnie said.
Wild said: “Dollar-based prices were increasing during the quarter, but with a weaker rand that means that in rand terms the prices increased even more, hence boosting margins. Most of our sales prices are linked to dollar selling prices, but relatively few of our costs are linked to the dollar price.”
Debt reduction
Net cash generated for the quarter was $19m compared with net cash of $121m in the equivalent quarter last year.
It reduced its net debt to $1.734 billion from $2.04bn a year earlier and planned to “reduce our net debt further”.
Going forward, Sappi forecast a bright year ahead. “We expect the second quarter results to be in line with the first quarter results. But in the year 2016, we expect a strong growth in profits – much better than 2015,” Binnie said.
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