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May 08, 2002

SA paper giant forecasts improving price trend

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© Reuse this Pulp and paper group Sappi’s headline earnings per share (EPS) for the three months to end-March rose 86% on the previous quarter and said it expected quarterly results to improve further on firming paper and pulp prices.

Headline EPS –excluding exceptional items and their tax effects – climbed to $0,26 in the end-March quarter from $0,14 in the December quarter. “For the balance of this year we expect to see a slowly improving trend in quarterly earnings per share provided there are no major shocks in world economies,” Sappi said in a statement.

The group, which acquired the Potlatch Corporation’s coated fine paper business for $480-million in a deal expected to be closed during May 2002, would add $0,20 to earnings in a full year from 2003.

“It is better than my expectations, and better than market expectations. The volumes are slightly better than I thought for the quarter and the margins were a lot better than expected,” said analyst David Brennan at SCMB Securities.

Sappi’s results were fuelled by a good quarter in its European and southern African businesses. However, in North America low demand and weaker paper prices continued to weigh.

“Considering the challenging conditions that remain in most of our markets, Sappi’s performance this quarter was excellent and we are cautiously optimistic that the declining trend seen in the last year has begun to turn,” said executive chairperson Eugene van As.

Analysts were heartened by Sappi’s positive outlook for the coming quarters.

“It is a good result. I think what stands out is the comment on the outlook, it's more positive than expected,” said Nico Lamprecht at Merrill Lynch.

Sappi said there were hopes of a turnaround in the US paper and pulp markets.

“There is considerable scope for improvement in our global order levels, particularly in the US,” Sappi said, adding consumer inventories for pulp and paper were generally low and the economies of major countries were expected to pick up in the next quarter.

“There are an increasing number of reports in the US of increased advertising spend in the third calendar quarter, which if correct, should translate into improved demand for coated fine paper”.

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