Sappi CEO Steve Binnie
Pulp and paper manufacturer Sappi’s continued strong recovery has flowed into the 2016 financial year, with the group posting a surge in profit for the three months to December 31.
Profit for the first quarter of the new financial year increased to $75-million – triple that of the profit achieved in the corresponding quarter the year before – as the company made a strong start to the year after a difficult 2015.
The significant year-on-year rise was attributed to higher graphic paper volumes, improved pricing for dissolving wood pulp and cost containment initiatives, CEO Steve Binnie said during a conference call on Wednesday.
Basic earnings a share increased from 5c in the three months to December 2014 to 14c in the quarter under review.
Operating profit for the quarter increased to $112-million, compared with the $74-million achieved in the corresponding period the year before, while earnings before interest, taxes, depreciation and amortisation (Ebitda) rose from $145-million in the first quarter of last year to $175-million in the quarter under review.
Net cash generated for the quarter to December was $19-million, compared with the $121-million net cash used in the prior equivalent period, while Sappi reduced its capital expenditure during the period to $40-million, from the $68-million spent in the equivalent quarter last year.
The strong cash generation in the past financial year and a weaker euro had seen Sappi reduce its net debt from over $2-billion in the first quarter of the prior year to $1.7-billion in the first quarter of the current financial year.
“We expect to reduce our net debt further over the course of the year and reduce our financial leverage closer to our targeted ceiling of two times net debt to Ebitda,” Binnie said.
The group was also considering the use of some of its cash reserves, depending on market conditions, to repay and refinance a portion of its debt to lower future interest costs.
The strong growth was expected to continue throughout the year as a result of Sappi’s improved operating profits and lower expected finance costs.
“We expect the second-quarter Ebitda to be in line with that of the first quarter and slightly ahead of the equivalent quarter last year,” he said.
“Variable costs are reducing and sales volumes have improved after a particularly difficult third fiscal quarter in 2015. The European business is improving due to actions we have taken to reduce costs and enhance returns over the past few years. Strong demand for fruit exports, a key market for our packaging products, is supporting South African growth.”
However, the second quarter would include a $12-million impact owing to an extended yearly maintenance shutdown at the Ngodwana Mill and the yearly maintenance stoppage at Saiccor, which traditionally occurred in the third quarter.