Sappi Targets Higher-Margin Cellulose to Boost Profit

(Corrects additional capacity in sixth paragraph of story published Nov. 8.)

Sappi Ltd. (SAP), the world’s biggest maker of glossy paper, returned to profitability for the full year as it shifted its focus away from paper and toward higher-margin chemical cellulose.

The company posted a profit of $104 million for the 12 months through September, compared with a year earlier loss of $232 million, the Johannesburg-based papermaker said in a statement. Its earnings per share of 20 cents compared with a loss of 45 cents a year ago and beat analyst estimates of 18 cents, according to data compiled by Bloomberg.

“In three to four years’ time, most of our business must come from high-margin operations,” Chief Executive Officer Ralph Boëttger said in a phone interview today. “Chemical cellulose contributes 18 percent to 20 percent of our sales and once the new plants become operational, that will increase to as much as 35 percent.”

Chemical cellulose is a type of fiber made from wood that can be used in consumer products including cellophane wrap, clothing and make-up such as lipstick.

Add Capacity

Sappi gained 3 percent to a near-four month high of 25.50 rand in Johannesburg by 11:43 a.m. About 826,000 shares changed hands, or 54 percent of the daily average for the past three months.

The paper and pulp company is converting part of its South African Ngodwana mill to produce 210,000 metric tons of cellulose a year. It is also modifying its Cloquet, Minnesota plant to produce another 300,000 tons. This will add to current production capacity of 800,000 tons at its Saiccor, South Africa-based plant before the middle of next year, Boëttger said.

Sappi said its European and North American paper businesses delivered good performances in the fourth quarter, helping to offset weaker market conditions in Southern Africa.

Full year sales fell 13 percent to $6.3 billion.

“Given continued uncertainty in global financial markets, and questions around the timing of any meaningful economic recovery in our major markets, we expect trading conditions to remain challenging for the next twelve months,” Boëttger said in a statement.

The company reduced its debt to $1.9 billion from $2.1 billion a year ago as of the end of September.

To contact the reporter on this story: Jaco Visser in Johannesburg at avisser3@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.