Sappi shifts focus to higher margin cellulose to boost profit

Sappi returned to profitability for the full year as it shifted its focus away from paper and towards higher-margin chemical cellulose, the world’s biggest maker of glossy paper said in a statement yesterday.

The company posted a profit of $104 million (R897.3m) for the 12 months through September, compared with a year earlier loss of $232m, Sappi said.

Its earnings a share of 20c compared with a loss of 45c a year ago and beat analyst estimates of 18c, according to data compiled by Bloomberg.

“In three to four years’ time, most of our business must come from high-margin operations,” chief executive Ralph Boëttger said yesterday.

“Chemical cellulose contributes 18 percent to 20 percent of our sales and once the new plants become operational, that will increase to as much as 35 percent.”

Chemical cellulose is a type of fibre made from wood that can be used in consumer products including cellophane wrap, clothing and make-up such as lipstick.

Sappi gained 3 percent to a near-four month high of R25.50 in Johannesburg by 11.43am and closed 7.4 percent higher at R26.60.

About 826 000 shares changed hands, or 54 percent of the daily average for the past three months.

The paper and pulp company is converting part of its Ngodwana mill in Mpumalanga to produce 210 000 tons of cellulose a year.

It is also modifying its Cloquet, Minnesota plant to produce another 300 000 tons and will add 500 000 tons of chemical cellulose capacity to its current 800 000 ton Saiccor South Africa-based plant before the middle of next year, Boëttger said.

Sappi said its European and North American paper businesses delivered good performances in the fourth quarter, helping to offset weaker market conditions in Southern Africa.

Full year sales fell 13 percent to $6.3bn.

“Given continued uncertainty in global financial markets, and questions around the timing of any meaningful economic recovery in our major markets, we expect trading conditions to remain challenging for the next 12 months,” Boëttger said in a statement.

The company reduced its debt to $1.9bn from $2.1bn a year ago as of the end of September.