The share price of global pulp and paper producer Sappi fell by 4,3% or R2,89 in early trade on Friday after the company said in its second-quarter results that it does not expect its 2005 full-year earnings to match those of 2004, with its margins facing sustained pressure from rising raw-material prices and a strong rand despite determined increases in its paper product prices.
At 9.50am, Sappi’s shares were quoted on the JSE Securities Exchange at R64,50, down from R67,39 at Thursday’s close, with 45 552 shares having changed hands.
Sappi’s results for the second quarter and half-year to the end of March this year showed that its sales for the quarter had dipped to $1,23-billion, from $1,25-billion in the December quarter.
Speaking in a conference call, Sappi CEO Jonathan Leslie said rising raw-material costs have had a major impact on the group’s earnings, decreasing earnings per share — reported at 10 United States cents for the quarter — by nine US cents. The strong rand has also had a “very detrimental” impact on margins.
“Although we have implemented cost-reduction measures that are bearing fruit, we seem to be running very fast to stand still,” Leslie said.
Paper price increases implemented earlier in the year have resulted in lower volumes and a “much lower” order book than that of the previous year, the CEO noted. Although over the longer term the forecasts for paper-industry supply-and-demand dynamics are positive, the group has opted to take downtime at some of its mills in the US and Europe in April to prevent the build-up of inventories and more closely match supply with demand.
More downtime at the group’s mills is planned in the upcoming quarters, he added, depending on sales, as Sappi is determined to maintain its prices while keeping inventories from building up.
“Although we believe the long-term demand-and-supply picture remains very positive for our industry, and key indicators like advertising expenditure show continued solid growth, we are battling in the short term to return our margins to an acceptable level,” he said.
“Despite positive price development and savings from our continuing cost-reduction actions, the combination of high raw-material costs and substantial downtime now make it unlikely that earnings for the full year will match last year’s earnings.” — I-Net Bridge