DURBAN - Sappi yesterday announced its intentions to close two paper machines in its mills abroad and lay off 245 employees in an effort to reduce costs by the global leader in dissolving pulp and paper-based solutions, with the move set to save the company around $27million (R460m) a year.
The diversified wood fibre company said the decisions taken were necessary as it would help the company to remove capacity, reduce costs, improve machine utilisation and increase competitiveness.
Sappi chief executive Steve Binnie said these steps demonstrated their commitment to taking decisive action to reduce costs and respond to market dynamics. “These mills will now be better placed to compete in the marketplace and deliver increased returns,” Binnie said.
Sappi would close its Paper Machine 2 (PM2) at its Stockstadt Mill in Germany and Paper Machine 9 (PM9) and the energy complex at its Westbrook Mill in the US.
The group said Sappi Europe had announced the initiation of a process in February to determine the future of PM2 at its Stockstadt Mill, in view of the continuing decline of the coated wood-free paper market.
The group had reached an agreement with the employee representatives after a consultation process to permanently close PM2, which had a coated wood-free paper production capacity of 240000 tons a year.
The group expected production to cease at the end of September, with 170 employees expected to leave the company.
“The once-off restructuring charges amount to approximately 27m (R529m) and the estimated annual saving will be approximately 15m,” the group said.
Going forward, Stockstadt would now focus on its strong and growing uncoated wood-free offering.
Sappi said it had decided to permanently shut its Westbrook Mill in North America and the majority of the energy complex after reviewing the operations.
The group intended to shift PM9’s base paper production to its state-of-the-art mills in Cloquet, Minnesota and Skowhegan, Maine. Sappi said 75 employees would be impacted and the impacted assets were expected to close by the end of calendar year 2020.
“As a result of these actions, a restructuring charge of approximately $14m is expected during Sappi’s fourth quarter, in addition to approximately $8m of accelerated depreciation to be recorded during the second half of calendar 2020,” the group said. It estimated an annual saving of $10m.
In May the diversified wood fibre company reported that its profits had plunged in the second quarter to March, as prices stalled due to the global coronavirus pandemic.
Covid-19 saw the company slashing its capital expenditure as profits tumbled to from $72m to $2m on earnings before interest, tax, depreciation and amortisation that fell to $131m from $187m last year.
The group said at the time that the dissolving pulp market prices had also eased by $233 a ton in the past 12 months as the combined impact of soft global textile markets, US duties on textiles from China, excess viscose staple fibre capacity and a weaker dollar to renminbi exchange rate drove prices downwards.
In April, Sappi announced in recognition of the uncertain trading environment due to Covid-19, the board of directors and the group and regional leadership teams in Europe, North America, Southern Africa and Trading had volunteered a 10 percent reduction in salaries or fees for the three months to June and would receive no short-term incentive bonuses for the 2020 financial year.
Sappi plans to release its third quarter financial results for the period ended June on Thursday, July 30.
Sappi shares closed 1.36percent lower at R26.15 on the JSE yesterday.