Sappi halts dividend due to soggy pulp prices

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Sappi halts dividend due to soggy pulp prices

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Published Date: 2019-11-15 | Source: Stephen Gunnion | Author: Stephen Gunnion

Sappi halts dividend due to soggy pulp prices

The group has cut back on capital expenditure and will manage its working capital as it rides out weakness in dissolving wood pulp prices.

Sappi has put a temporary halt on dividends due to uncertain market conditions and low prices for dissolving wood pulp (DWP). Releasing fourth-quarter results, the paper and pulp producer said it had taken steps to mitigate the impact of weak prices on its profitability and leverage, including tighter working capital management and postponing and reducing capital expenditure.

DWP is a is a big contributor to the group's earnings and there has been pressure on prices due to an oversupplied market for viscose staple fibre (VSF) and a weak Chinese textile market. DWP products are used to create viscose fibre for fashionable clothing and textiles, as well as other consumer products. It said prices were currently at historic lows, having fallen 32% over the past year.

The group reduced capex last year and said it hadn't committed capital to any material project for the year ahead, with the exception of the expansion of its Saiccor Mill in KwaZulu-Natal, which is currently underway. It has also amended its debt covenants, targeted further cost reductions and is evaluating various options regarding its paper machines in Europe in order to lower fixed costs and match capacity to demand.

It said its packaging and speciality segment had made good progress with customer acceptance in both the US and European markets and the ramp-up of volumes continued, supported by the shift from plastic to paper in many packaging categories. However, the slowing local economy was expected to impact domestic demand for containerboard in the coming year.

Meanwhile, global graphic paper markets continued to experience weakness due to a combination of economic factors as well as the ongoing shift towards digital media. Pricing declined marginally over the quarter. As paper pulp prices in Europe and North America approached those prevalent in China, it expected margins to be maintained.

Sales fell 5% to $1.45 billion in the three months to end-September. Earnings before interest, tax, depreciation and amortisation declined by 17% to $185 million. That left profit for the period 53% lower at $50 million, while headline earnings per share declined by 45% to 11c.

Due to the current very weak pricing in the DWP market and with paper markets yet to show signs of a sustained recovery, the group said EBITDA for the first quarter of its 2020 financial year was likely to be lower than the previous comparative period.

Sappi's shares closed 3.5% up at R37.46 yesterday.





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