Sappi slumps amid profit disappointment

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Sappi Ltd's new headquarters in the plush suburb of Rosebank, north of Johanneburg. (Picture: Sappi Ltd)
Sappi Ltd's new headquarters in the plush suburb of Rosebank, north of Johanneburg. (Picture: Sappi Ltd)

Renewable material and paper company Sappi reported profit of $18 million in the quarter to end-June, compared to a loss of $73 million in the same three months in 2020.

But its share price fell by more than 5% on Thursday to R38.34.

Analyst Chantal Marx said the group's profit fell short of market expectations, and the precautionary closures of Sappi mills due to the unrest in KwaZulu-Natal were also weighing on Sappi's positive outlook.

"The outlook statement was broadly positive, but management did mention some challenges for the fourth quarter. Sappi also confirmed the precautionary closures of three mills located in KZN (Saiccor, Tugela and Stander) from 12 July 2021 (this was already known to the market) and [that] the expansion of its Saiccor mill has been on hold [until early in its new financial year, which starts in the final quarter of 2021]."

Sappi said on Thursday that the company lost a combined total of 28,000 tons of dissolving pulp and 7,000 tons of paper production were lost, which will have an estimated negative impact on the current quarter profit of some $16 million (R230 million)

"Shipments through Durban port have been impacted and they are facing some logistical challenges as well," said Marx.

But Sappi said it experienced a more favourable economic climate compared to the previous quarter in the majority of its trading regions.

"The Covid-19 pandemic continued to evolve. In response, countries moved in and out of restrictions of varying stringency over the past 18 months with many facing considerable pressure to relax public health and social measures," the shareholder notice said. 

Sappi said strong dissolving pulp prices and improvements in its packaging and specialities segment contributed to the rebound.

"These were partially offset by lower profitability in Europe due to significant input cost inflation. Global logistical challenges continued to impact sales volumes and delivery charges escalated materially," the notice said.

Sappi added that the demand for graphic paper improved during the quarter as a result of renewed economic activity as countries eased Covid-19 lockdown restrictions and vaccination continued.

"Sales volumes increased by 23% compared to the equivalent quarter in the prior year. The growth in sales volumes and the improved margins in the segment are reflective of the encouraging progress in North America to optimise the product mix at the Somerset Mill and a strong containerboard performance in South Africa," the notice said.

The company's net debt burden came to more than $2 billion, 4% higher than a year ago.

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