News

SAPPI has reported operating profit of $129 million excluding special items for the fourth quarter, as opposed to $38 million last year.

The paper and pulp company has reported earnings per share of US 16c while last year for the same period the company reported a loss of US 20c per share.

Net cash generated has topped $238 million while in the fourth quarter last year it was $225 million.

At a press conference discussing the company’s results, SAPPI CEO Ralph Boëttger said the company’s markets in South African and North America were the best performers, but that it’s European operations had not yet “reached full potential” even though growth was encouraging.

Sales increased to $1.8 billion, a 14% increase on sales in the equivalent quarter last year as a result of increased sales volumes and prices.

Boëttger says that this is the highest quarterly growth experienced since 2002.

“I would put this down to mainly strong demand for products and higher prices being afforded for pulp,” he said.

Boëttger believes the growth outlook moving forward is “stable and promising”, but that much depends ont eh potential volatility in exchange rates.

“We are on course to meet our goal in reducing debt to less than $2bn by 2012 and are looking forward to further growth and expansion,” he said.

The company reported that coated paper prices have increased, and pulp prices are generally high. This lead to the spike in operating profit.

“The group had a much improved performance particularly those of North America and Southern Africa which are net sellers of pulp and therefore benefited from high pulp prices,” it said in an online statement.

“Demand conditions continued to improve gradually and almost all our mills ran at full capacity for the quarter. In Europe, we implemented a price increase during September which has started to offset the effect of the substantial increase in pulp input costs experienced over the past year and to restore reasonable margins.”

Raw material input costs were up approximately $100 million compared to the equivalent quarter last year, mainly as a result of higher pulp prices.

Average prices realised by the group were 3% higher than a year ago in US Dollar terms. In local currency, average prices increased by 11% in Europe, 8% in North America and, largely as a result of high pulp prices, 25% in South Africa.

Raw material input costs were up approximately $100 million compared to the equivalent quarter last year, mainly as a result of higher pulp prices.

Special items for the quarter amounted to a gain of $29 million primarily in respect of the plantation price fair value adjustment.

Operating profit excluding special items was $129 million for the quarter, a substantial improvement compared to US$38 million in the equivalent quarter last year and compared to US$75 million in the June 2010 quarter. Including special items, operating profit was $158 million compared to a loss of $129 million in the equivalent quarter last year.

“We expect continued gradual improvement in global economic conditions during the year ahead; however we remain cautious as a result of factors such as the volatility of exchange rates which could dampen growth,” it warned.

“Against that background, we expect demand for coated paper in our major markets to recover further during the year. We believe that input costs are likely to rise. We intend to reduce our costs where possible and to grow revenue through sales volume, mix and higher price levels to achieve acceptable margins across the businesses.”

The company is expecting strong demand for chemical cellulose products going forward while the reorganization of the paper business in South Africa is expected to improve margins.

Its also warned on the strengthening rand which is says will be unfavourable for the performance of the Southern African business.

http://www.businessday.co.za/articles/Content.aspx?id=126142