South African paper maker Sappi said on Friday it will slash jobs and restructure its operations to rein in costs and focus on higher margin businesses, sending its shares sharply higher.
It said it expects to save as much as R350-million a year at its South African business.
Shares in Sappi jumped more than 5% after the news, as investors looked beyond the one-time costs from the restructuring, which Sappi said would lead to a weaker than expected fourth quarter.
The shares were up 4.15% at R24.07 as of 0940 GMT, compared with a 1.39% rise in Johannesburg’s broad All-share index.
“It’s a combination of the [broader] market being up today and a little bit of excitement about the announcement,” said Mohamed Kharva, an analyst at Nedbank Securities.
Johannesburg-listed Sappi is the world’s largest maker of fine paper used in glossy magazines such as Vogue and has operations in Europe, North America and Southern Africa.
The company said market conditions remained uncertain with demand in most of its markets showing less resilience than anticipated.
Paper industry executives recently said that the prospects of another economic slowdown may force global forest products companies to further cut capacities while they pursue growth in emerging markets and packaging.
Sappi, which has already announced the closure of mills in Switzerland and South Africa, said it wants to focus more on higher margin businesses such as pulp-derived chemical cellulose, used to make viscose fibre, cellophane and other products.
“We aim to generate at least 60% of operating profit from these higher margin growth businesses within three to five years,” Sappi said.
Kharva said the market would be waiting to see if the restructuring, which was expected, would lift the company’s earnings.
“Every time they have announced cost savings, it has not materialised in improving profitability. We will wait to see how this plays out and how it impacts the bottom line and improve the competitiveness of the business,” he said.
Sappi said in May it would boost chemical cellulose output at its Ngodwana Mill in South Africa by 210 000 tonnes as it improves its production facilities, which should raise total output to over a million tonnes a year.
It said on Friday that the project was progressing well and was set to start up in early 2013. — Reuters