DURBAN - The increasing demand for dissolving wood pulp (DWP) throughout the world has led to a surge in profits for Sappi in the second quarter to end March.
Sappi reported 15.91 percent increase in profits to $102 million (R1.25 billion) for the second quarter, up from $88m, with the group attributing this to higher selling prices and sales volumes.
Chief executive Steve Binnie said on Monday that the demand for DWP remained good and Chinese market prices had remained relatively stable.
“We anticipate that this demand will continue well into the third quarter and we have increased our capital expenditure for all our operations both in South Africa and abroad,” he said.
Capital expenditure in 2018 is expected to be $500 million as currency movements and the acceleration of various conversion and de-bottlenecking projects would inflate the total expenditure for the year.
“The conversions at Maastricht and Somerset Mills, the Saiccor, Ngodwana and Cloquet Mills DWP debottlenecking projects and the expansion of Saiccor Mill are projects focused on higher margin growth segments including dissolving wood pulp and speciality packaging,” he said.
Binnie said the group expected the Saiccor plant in KwaZulu-Natal to be completed by early 2020.
Sappi is a global leader in paper, paper pulp and DWP solutions and has manufacturing operations in three continents in seven countries. The group has seven mills in Europe, with three mills in America and four mills in Southern Africa.
Going forward the group said the viscose staple fibre (VSF) prices currently remained under pressure due to low industry operating rates following significant capacity additions in the last few years.
“Third quarter average realised DWP prices should be in line with those of the second quarter while volumes will be lower due to scheduled annual maintenance shuts at Cloquet, Ngodwana and Saiccor Mills,” the group said.
Binnie added: “Our operating performance for the third quarter is expected to be in line with that of the prior year as the impact of the stronger rand and the various capital projects underway will offset the improved paper markets.”
In the results, the group also reported earnings before interest, tax, depreciation and amortisation (Ebitda) excluding special items of $211m, up from $208m while earnings per share (Eps) excluding special items remained flat at 17 US cents a share.
The net debt increased to $1.63bn, up from R1.33bn.
“We faced higher raw material costs, in particular pulp, for our paper businesses but were able to increase selling prices to offset most of this impact. The acquisition of the Cham speciality paper business was completed during the quarter and the integration into Sappi is moving ahead smoothly,” Binnie said.