Sappi’s profits plunge as maintenance costs exceed expectations
Shares of global paper and packaging group Sappi on Friday, 7 August 2015, dropped more than 6% on the JSE after the company reported zero earnings growth in the third quarter. Sappi, which has operations across Europe, North America and Southern Africa, reported earnings per share excluding special items at two US cents in the June quarter, unchanged from the year-earlier period. Profit for the period, however, plunged by 76% to $4m, due to seasonal weakness, planned maintenance and the stronger dollar. "The third quarter is seasonally the weakest for Sappi," said CEO Steve Binnie.
"In addition, the pulp mill upgrade at Gratkorn and planned annual maintenance shuts in all three regions reduced profit by approximately $27m when compared to the equivalent quarter last year," he said.
This exceeded the company’s guidance in May, when it said maintenance costs were expected to reduce profits by $21m.
Sappi has operations in more than 160 countries. Its products range from coated fine paper used for the production of books, brochures and magazines to casting release papers used in the fashion and automobile industries. The group’s South African operations were boosted by higher prices and the weaker rand, which supported demand for its virgin fibre packaging business used for the shipping of fruits.
In Europe, graphic paper sales volumes were down 5% due to higher raw material costs as a result of the stronger dollar. The paper maker recorded an operational loss of $2.2m in North America. A combination of increased imports of coated paper, particularly from Asia, and a decline in exports resulted in lower than expected sales volumes in the US, the company said.
Binnie said the graphics paper market, particularly in the US, was expected to remain challenging, while its southern Africa operations would continue to benefit from favourable exchange rates.
Source: Business Day (Edited)