Sappi sinks on soggy paper demand

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Sappi sinks on soggy paper demand

Published Date: 2019-05-10 | Source: Stephen Gunnion | Author: Stephen Gunnion

Sappi sinks on soggy paper demand

The paper and pulp producer says full-year earnings are likely to be lower due to pricing pressure and global economic uncertainty.

Sappi's shares sank yesterday after the paper and pulp producer cut its full-year earnings forecast after a tough first half.

Demand for its graphic paper has been weaker than expected in Europe and North America due to general economic uncertainty and weaker end-use demand. At the same time, raw material costs, particularly pulp, continue to be elevated. Markets for packaging and specialities have been inconsistent and the ramp-up of its recently converted paper packaging machines is ongoing.

In SA, its business delivered a strong performance, with increased dissolving wood pulp (DWP) sales and better average net selling prices across all major product categories more than offsetting higher energy and fibre cost pressures.

While its SA DWP business benefited from the weaker rand/dollar exchange rate, it said there was general pricing pressure due to an oversupplied market for viscose staple fibre (VSF). DWP products are used to create viscose fibre for fashionable clothing and textiles, as well as other consumer products. It said the prospects for DWP remained strong.

Sales rose 0.5% in the three months to end-March from a year earlier to $1.5 billion. For the half year, they rose 3.4% to $2.92 billion.

Excluding special items, earnings before interest, tax, depreciation, and amortisation (EBITDA) fell 11% to $187 million and profit for the period declined 29% to $72 million, dragged lower by a higher depreciation charge and the sale of property that flattered last year's numbers. Earnings per share, also excluding special items, declined by 23.5% to 13c.

Sappi said DWP demand from its major customer remained health and following the debottlenecking of its Saiccor and Ngodwana mills last year, its expanded production capacity was fully sold. Because its DWP contract sales prices lag Chinese market prices by a quarter, the decline in market prices over the past few months, together with planned maintenance downtime at all three of its DWP mills, will impact margins and profitability in the third quarter.

Its shares fell 8.5% to R61.10 yesterday.





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