Sappi hit by Russia, Ukraine crisis

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Johannesburg - South African pulp and paper maker Sappi's sales into Russia and Ukraine have been affected by the political crisis in the region, its chief executive said on Thursday, as the company posted a return to third-quarter profit.

Sappi sells its products into Russia and Ukraine mainly from its key European operations, chief executive Steve Binnie said.

“We are still selling into these countries but it has had an impact on our business. Our average monthly sales were about 10 million euros and it has dropped to about 8 million euros,” he told Reuters in an interview.

Sappi, which also has operations in North America, has been facing headwinds due to a fall in demand for glossy paper as tablet computers and e-readers take a bite out of the traditional magazine industry and as retailers rely more on websites than printed catalogues.

It has closed some paper mills to focus on higher-margin businesses such as chemical cellulose, which is made from wood and used in clothing, plastics and pharmaceutical products.

It is now the world's largest manufacturer of chemical cellulose.

The company reported diluted headline earnings of 9 US cents per share for its April-June quarter, from a loss of 9 cents a year earlier as cost cuts in its key European business offset weak paper prices.

Headline earnings are the main profit gauge in South Africa and exclude certain one-time and non-trading items.

Despite the uptick in profit, Binnie reiterated that the company would only resume dividend payments after reducing its debt.

Sappi has not paid out dividends since 2008.

“We have set ourselves a target of 2 times EBITDA for our debt. We are not sure exactly when we will get there but it's unlikely to be in the 2015 financial year,” Binnie said.

“So we wouldn't be resuming dividend this year or next year.”

Sappi's net debt stood at about $2.3 billion at the end of the June quarter, which translates to about 3.7 times EBITDA, the company said.

That ratio should decline to about 3 by the end of this financial year, it added.

Sappi shares were down 4.47 percent at 41.08 rand at 12:20 SA time.

They have risen 30 percent this year, outperforming a 12 percent rise in Johannesburg's All-Share index. - Reuters


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