JOHANNESBURG – Pulp and paper group Sappi yesterday fell more than 5 percent after the group said it would spend $590 million (R7.9 billion) in capital expenditure to shore up its Saiccor 110 kiloton expansion project and the completion of its Gratkorn Mill.

The group said that its European operations weighed heavily on its performance in the first quarter as demand for graphic paper slowed.

Chief executive Steve Binnie said graphic paper markets in Europe and North America had been weak in recent months, which had impacted on the market.

“Further potential industry capacity conversions and closures may happen in the coming periods. However, short-term profitability will be negatively impacted if demand continues to be as weak as it has been recently,” Binnie said.

“Market conditions for the various grades of packaging and speciality papers that we produce have diverged in the past month or so, with strong container board markets in South Africa and solid paper board demand in Europe contrasting with some weakness in the release paper, and various European speciality grades.”  

The company said it would focus on mitigating increased input costs and weaker global graphic paper markets. Sappi’s results for the quarter ended December showed a 15 percent rise to $197m in earnings before interest, taxes, depreciation, and amortisation, excluding special items.

The group’s profit increased 29 percent to $81m, attributing this to improved operating profit and a lower tax charge for the quarter.  

It said net debt rose from $1.3bn to $1.5bn as a result of the Cham Paper acquisition of S$132m (R1.3bn) and increased capital expenditure in the past year.

The group liquidity in the period comprised cash on hand of $350m and $670m available from “the undrawn committed revolving credit facilities in southern Africa and Europe”.

Sappi was one of the companies that pledged to invest billions of rand in the South African economy as part of President Cyril Ramaphosa’s $100bn investment driver in the next five years. The group, which is the world’s biggest producer of dissolving wood pulp, is planning a $528m upgrade and expansion of its Saiccor Mill Packaging company as part of the pledge.

Sappi also announced the appointment of Brian Beamish as independent non-executive director with effect from next month. 

Wayne McCurrie of FNB Wealth and Investments said the weak magazine paper demand in Europe had affected the company’s performance during the period.

Sappi closed 5.1 percent weaker at R75.73.

BUSINESS REPORT