EXPANSION: Sappi’s Saiccor plant in KwaZulu-Natal. The company says its success in reducing its level of debt means it can turn its attention to investing more in growth projects.
JOHANNESBURG - JSE-listed diversified wood fibre company Sappi said yesterday that it was well on track to achieve its Vision 2020 targets, which includes cutting its debt to acceptable levels.

In the year to September, Sappi has managed to cut down its debt by $86million (R1.24billion) year-on-year and has decreased it to $1.32bn.

In the past five years, the group has managed to lower its debt below the $2bn level.

Paying part of the debt has not put the company in a negative position either as it has cash on hand of $550m at the end of the period. Also it still has $623m from the unutilised committed revolving credit facilities in South Africa and Europe.

Chief executive Steve Binnie said yesterday that the group had managed to lower the debt through good discipline in the balance sheet.

“Our success in bringing our debt levels to below our targeted leverage ratio of less than two times net debt to earnings before interest, tax, depreciation and amortisation (Ebitda) in the prior year has meant that we could turn our attention to increased investments in growth projects, with the main focus being on conversions of paper machines in Europe and the US to speciality packaging grades and dissolving wood pulp (DWP) de-bottlenecking projects in South Africa,” Binnie said

Lowering the debt has also allowed the group to increase capital expenditure in different geographies across the globe.

Going forward, the group said capital expenditure in 2018 was expected to increase to $450m as it continued the conversions in both Europe and North America, complete the Saiccor and Ngodwana de-bottlenecking and start the upgrade of the Saiccor wood yard in South Africa.

The increase in expansionary capital spending during 2018 was focused on higher margin growth segments, including DWP and speciality packaging in which the group said it will position it for stronger profitability from 2019 onwards.

In the results, sales increased to $5.3bn, up from $5.1bn, while operating profit excluding special items for the year was $526m, compared with $487m in the prior year.

Net profit increased 6percent to $338m compared with last year’s $319m with headline earnings per share increasing to $0.64 a share, up from $0.58.

Ebitda excluding special items was $785m, an increase of 6percent on the prior year’s $739m. Net finance costs for the year were$80m, a decrease from the $121m in the prior year as a result of both lower debt levels and once-off finance charges incurred in 2016.

The board declared a dividend of $0.15 a share, up by 36.36percent compared with $0.11 last year.

Strong results

Sappi has delivered another strong set of results with profits up 6percent year-on-year.

“I am very pleased with the growth of the DWP and speciality packaging businesses. Furthermore our initiatives to reduce variable costs and the benefits of lower interest charges were able to help mitigate higher paper pulp prices and a stronger rand/dollar exchange rate during the reporting period,” Binnie said.

Looking ahead the group said the demand for DWP remains favourable and spot prices have increased significantly in recent weeks. “After the quarter-end a severe storm caused significant damage to the harbour and logistics infrastructure in Durban. The estimated impact on first quarter profitability is approximately $4m due to damaged inventory and lost production at Saiccor,” Binnie said.

Sappi shares rose 4percent to close at R98.80 on the JSE yesterday.