Sappi loses R220m production due to riots in KwaZulu-Natal
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SAPPI, the wood fibre product group, had suffered a more than R220 million loss of production after having to close paper and pulp mills due to the recent riots in KwaZulu-Natal, chief executive Steve Binnie said yesterday.
He said during an interview on the group’s third quarter results to June 2021 that this figure might rise further due to the impact of the cyberattack on Transnet and ongoing Covid-19 related global supply chain issues.
The civil unrest in July caused disruptions to raw material supplies and forced the temporary closure of the Saiccor, Tugela and Stanger mills in KwaZulu-Natal.
A combined total of 28 000 tons of dissolving pulp (DP) and 7 000 tons of paper production were lost, which would have an estimated negative impact on fourth quarter earnings before interest tax depreciation and amortisation (Ebitda) of about $16m (R229m).
Commissioning of the Saiccor Mill expansion project was also negatively impacted by the unrest and Covid-19 travel restrictions, and its start-up was likely to be delayed until early in the new financial year.
Due to Covid-19 travel restrictions, original equipment vendors were unable to travel to South Africa and a number of projects during the shutdown at Saiccor was negatively impacted. Vessel delays at quarter end further reduced DP sales volumes by 21 000 tons. Nevertheless, the group experienced a more favourable economic climate in most of its trading regions in the quarter, which boosted performance. Firm DP prices and a strong performance from the packaging and specialities segment contributed to the success.
The group returned to profit in the third quarter after lifting Ebitda to $145m, a material improvement on the second-quarter Ebitda of $112m.
This was in spite of lower profitability in Europe due to rising input cost inflation. Global logistical challenges impacted sales volumes and delivery charges escalated materially, he said.
DP segment sales volumes for the quarter were below expectations and 14 percent lower than the second quarter due to loss of production volumes at the Saiccor Mill and shipping delays in South Africa and North America.
Sales volumes increased by 23 percent compared to the equivalent quarter in the prior year.
This growth and an improved margin were reflective of progress in North America to optimise the product mix at the Somerset Mill and a strong containerboard performance in South Africa
The decision taken to reduce exposure to graphic paper through diversification into packaging and specialities grades continued to yield benefits.
The Ebitda in this segment reached a new record high and contributed almost half of the group Ebitda.
The average Chinese market price for hardwood DP during the quarter was $1 088 per ton, a 19 percent increase on the prior quarter.
Due to the lag impact of selling price, the benefit of higher third quarter DP market prices would only be realised in the fourth quarter. Liquidity remained strong with cash on hand of $405m and $690m available from the undrawn revolving credit facilities in South Africa and Europe.
Sappi shares closed 5.99 percent lower at R38.32 on the JSE yesterday.
BUSINESS REPORT ONLINE