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Sappi Posts Improved First Quarter Profit

Jan. 28, 2010 - South Africa's Sappi reported sales for its fiscal first quarter (ended Dec. 27) rose by 36 percent to $1.6 billion compared to its first quarter last year, while operating profit, excluding special items, rose to $81 million versus $25 million a year ago.

  • Operating profit excluding special items increased to US$81 million (Q1 2009: US$25 million)
  • General improvement in demand for fine paper and pulp
  • Increased pulp prices; favourable for Southern African and North American businesses, but unfavourable for European business
  • Basic loss per share 10 US cents (unfavourably impacted by 11 US cents special items)
  • Cash generated from operations US$245 million (Q1 2009: US$95 million); net cash outflow US$30 million (Q1 2009: outflow US$121 million)

Ralph Boettger, Sappi's chief executive said, "The operating results excluding special items for the group improved substantially compared both to the equivalent quarter last year and to the prior quarter.

"Demand continued to improve for our major products with a steady improvement in demand for coated woodfree paper. Paper pulp prices and prices for chemical cellulose have continued to rise, driven by improved demand in general and good demand from China. Demand for coated mechanical paper has, however, not recovered and demand conditions in the South African domestic market remained challenging.

"The Fine Paper business results excluding special items improved compared to a year earlier but fell short of the prior quarter primarily as a result of seasonal factors. The Southern African business returned to profitability excluding special items largely as a result of the improving performance of the expanded Saiccor Mill.

"Group sales for the quarter increased by 36% to US$1.6 billion over the equivalent quarter last year largely as a result of the European Acquisition completed in December 2008 and the Saiccor expansion. Sales increased 4% compared to the September 2009 quarter. Cash generated from operations increased to US$245 million for the quarter.

"Synergy achievement from the European Acquisition for the 12 months to December 2009 was euro 102 million, which is ahead of our target for that period. We expect to achieve our announced target of euro 120 million of synergies earlier than the original 3 year time frame.

"Operating profit for the quarter excluding special items improved substantially to US$81 million, compared to US$25 million a year ago and US$38 million in the quarter ended September 2009. Taking into account the largely non-cash special items of US$80 million, operating profit for the quarter was US$1 million compared to a profit of US$57 million for the equivalent quarter a year ago, but which included favourable special items of US$32 million.

"Net finance costs increased to US$73 million, mainly as a result of the higher interest rates on the debt refinanced in September 2009 and our decision to maintain high cash balances.

"The loss per share for the quarter was 10 US cents, including a loss of 11 US cents in respect of special items. For the equivalent quarter last year, the earnings per share was 6 US cents, which included a gain of 7 US cents in respect of special items."

ACTION PLAN AND OUTLOOK

Looking forward, Boettger commented, "Conditions in our major markets are expected to improve gradually in 2010, resulting in rising demand for our products. Although we expect demand and our capacity utilisation rates to improve compared to financial 2009, we do not expect demand to return to 2008 levels. We will therefore continue to manage our output to meet customer demand. Current indications are that recovery of coated mechanical paper is lagging coated woodfree paper, which will impact our European business.

"As markets improve, it is likely that input prices for our raw materials and energy will also rise. The strong demand for pulp and chemical cellulose, accompanied by rising prices, is expected to have a favourable effect on the Southern Africa and North American businesses, which are net pulp sellers. Increased pulp prices are, however, expected to result in rising costs for our European business which purchases more than half of its pulp requirements.

"The achievement of Acquisition synergies and the effect of our cost reduction initiatives and mill closures over the past year are expected to help us offset rising input costs.

"Against this background, we expect the operating profit excluding special items to remain positive in the second financial quarter but to be below the level achieved this quarter."

SOURCE: Sappi




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