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Johannesburg - Paper and pulp group Sappi has warned that it remains cautious despite a gradual improvement in its performance.

In Sappi's 2010 annual report, unveiled online on December 13, Sappi chairperson Danie Cronjé and CEO Ralph Boëttger note factors which could upset the group's expected improvement.

These include slower than predicted global economic growth, which could lead to a drop in demand and prices, as well as new paper capacity in China, which could impact the supply demand balance in its markets.

Cronjé and Boëttger write that while the company expects continued gradual improvement in global economic conditions, it remains cautious of the exchange rate volatility, which could dampen growth.

For the full year to September 2010, Sappi posted a 22% increase in sales to $6.572bn on improving demand, favourable currency movements and the inclusion of the coated paper businesses acquired from M-real for the full year in 2010 compared to nine months in 2009.

This helped the group boost basic earnings per share to 13 US cents for the full year to September 2010, compared with a basic loss per share of 37c in the corresponding period in 2009.

Cronjé and Boëttger expect a further recovery in demand for coated paper in Sappi's major markets during the year.

Sappi also sees continued strong demand and good price levels for chemical cellulose in the year ahead.

"Our aim is to be, on a sustainable basis, the most profitable company in paper, pulp and chemical cellulose-based solutions and we measure this in terms of return on capital employed. Although we made significant progress during the year, our performance is still well short of our goal," Cronjé and Boëttger said.

"Our focus is on improving the performance of our existing businesses and our balance sheet."

They say Sappi's capital investment had been targeted at areas required to keep the core business healthy. These included cost reduction projects, particularly energy-related ones.

"In the year ahead, we will continue to focus on improving the underlying business to create a platform for our future growth in the areas of low cost plantation fibre, chemical cellulose, and forward integration in select areas of the value chain," Cronjé and Boëttger said.

"During the year, we acquired 14 500 hectares of developed softwood plantations close to Ngodwana Mill and have made good progress in rehabilitating plantations lost to fire in 2007 and 2008, including at Usutu in Swaziland.

"At the start of 2009, we acquired the M-real coated paper business to improve our market position and the supply/demand balance," said Cronjé and Boëttger.


http://www.fin24.com/Companies/Industrial/Sappi-still-wary-despite-uptick-20101217