Pulp and paper manufacturer Sappi’s earnings a share, excluding special items, for the financial year ended September 30, rose to $0.34, up 54.5% on the $0.22 a share recorded the year before.

Earnings before interest, taxes, depreciation and amortisation (Ebitda), excluding special items, however, decreased to $625-million, from $658-million in the previous year.

Sappi’s profit increased 22%, from $135-million in 2014, to $167-million for the year under review, owing to higher operating profits and lower interest costs.

The company also attributed the increase to stronger seasonal demand and an improvement in the graphic paper and dissolving wood pulp markets.

“I am very satisfied with the strong performance by the group during the financial year. The group benefitted from the strong export performance of the Southern African business, combined with a weaker rand,” CEO Steve Binnie said in a statement.

In rand terms, group Ebitda, excluding special items, increased by about 8% from R7-billion in the 2014 financial year to R7.5-billion in the year under review, while group net profit increased 40% year-on-year to R2-billion.

The refinancing of higher-cost debt and the reduction in net debt by $175-million resulted in significantly lower ongoing interest charges. The completion of major capital projects at the Gratkorn, Kirkniemi and Somerset mills would lower Sappi’s cost base further in the coming years.
 
Meanwhile, the company noted that its European business had been adversely affected by higher pulp prices in the fourth quarter of the financial year; but demand for coated paper was solid and helped offset the variable cost pressures when compared with the fourth quarter of the prior year.

In addition, the profitability of the speciality packaging business continued to improve.

Speaking to Engineering News Online in a telephone interview, Binnie said that, although the demand for graphic paper remained under pressure, the business achieved an increase in sales volumes of 5% and average sales prices of 4% quarter-on-quarter, with particular strength in the wood-free coated segment.

This was mainly owing to the euro/dollar exchange rate on export sales pricing and the graphic paper price increases implemented in the past quarter.

Binnie noted that the wood-free coated segment could experience a 2% drop in the next quarter.

“Nevertheless, our order book is full; our mills are full – the business is doing okay in those circumstances,” he said.

“Things are relatively better, albeit still down,” he stated.

Further, Binnie highlighted that the European market was faring better than its North American counterpart, where the coated paper market remained challenging, with the business continuing to experience significant pressure as a result of the stronger dollar. This, Binnie pointed out, led to more imports into the market.

However, a number of actions to regain sales volumes and to lower costs resulted in a much improved result in the “seasonally stronger quarter”.

Meanwhile, strong containerboard demand, combined with “excellent” variable cost control had enabled the South African packaging business to continue improving its performance.

Binnie noted that Sappi expected to achieve an improvement in Ebitda, excluding special items, in the first quarter of the new financial year, in addition to a “substantial” increase in earnings a share, owing to an improved operating performance and lower interest charges.

“However, a severe drought is currently being experienced in many parts of South Africa and may adversely impact our mill production and consequent profitability should normal summer rainfall not be forthcoming,” he cautioned.

“If things are going to be worse than we expect, then we would have to look at reallocating some of our capacity, as we have done in Europe. There are more opportunities to do that,” Binnie said, noting that the company had no plans to close any of its mills in the foreseeable future.