Cost cuts and a focus shift to higher margin products has put the pulp and paper producer on track to performing better than it has in five years.
Sappi, the world’s biggest producer of dissolving wood pulp, sees a return to full-year profit as cost cuts and a move away from lower-margin paper boosted performance.
“We are starting to gain momentum in terms of earnings before interest, taxes, depreciation and amortisation, operating profit and net profit,” chief executive Ralph Boettger said in a phone interview from Johannesburg on Monday. “From a net point of view, this will probably be the best in the last five years.”
Net income increased to $32-million for the three months through March, compared with a restated $2-million a year ago, the Johannesburg-based company said in a statement on Monday. The paper-maker was unprofitable in the year through September 2013 as demand fell in its main European markets. The company also has divisions in North America and Southern Africa.
Sappi is increasing its focus on dissolving pulp, used to make luxury clothing, sportswear and pharmaceuticals, as the product carries a higher profit margin than paper. The company is targeting production of 1.3-million tonnes of the pulp in the year ending September, supplying 20% of world demand, while continuing to reduce spending in Europe.
“Continued emphasis on lowering cost and optimising sales in both the coated and dissolving wood pulp markets have enabled us to compete effectively,” the company said. “We will continue to take actions in North America, Europe and Southern Africa to improve our competitiveness and enable us to reduce debt.”
Sappi shares advanced as much as 4.9% to R37.22, the highest on an intraday basis since March 31, and traded 3.1% higher by 12.31pm in Johannesburg. The stock is up for a third day and has gained 12% this year, valuing the company at R19.1-billion.
Net debt declined to $2.25-billion from $2.38-billion in the first quarter, according to the company. Sappi is on track to meet a debt target of $2-billion by the end of the fiscal year on September 30, Boettger said.
Reaching the $2-billion level “would certainly be in line with our expectations,” he said on a conference call with reporters. The company plans to resume dividends once its debt is below an unspecified level, Boettger said in January.
Boettger is leaving the company in June because of ill health after almost seven years as chief executive. He will be replaced by chief financial officer Steve Binnie. – Bloomberg