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Sappi Falls After Profit Slumps on Lower Prices for Paper, Pulp

Sappi Ltd., the world’s biggest maker of glossy paper, fell the most in six months in Johannesburg trading after it said fiscal first-quarter profit slumped 62 percent because of lower paper and pulp prices.

Sappi declined as much as 7.4 percent, the biggest intraday drop since Aug. 6, and was 3.9 percent lower at 29.55 rand by 10:03 a.m. in Johannesburg. Net income fell to $17 million, or 3 cents a share, in the three months through December, compared with $45 million, or 9 cents, a year earlier, the company said in a statement today.

“We have seen the worst,” Chief Executive Officer Ralph Boettger said on a conference call. “Pulp prices have been moving up over the last three months as the North American and Chinese economies are picking up.”

Sappi, also the largest producer of dissolving wood pulp, is betting on the product to increase profit and allow it to resume dividend payments. The Johannesburg-based company stopped payouts to shareholders in 2008 as it struggled with a high debt burden and weakening paper sales in Europe.

The company is converting pulp mills in South Africa and Minnesota at a cost of about $540 million to produce the specialty pulp used to make goods from sports clothing to mobile phone screens and pills. The mills will start production in the quarter ending June, Boettger said.

Most of Sappi’s pulp production is in South Africa, where a weaker rand has a positive impact, he said. The currency retreated 1.9 percent against the dollar during the quarter, according to data compiled by Bloomberg.

Sappi returned to profitability in the year ended September and set a target to cut borrowings by $300 million a year to a ratio of twice earnings before interest, taxes, depreciation and amortization by the end of fiscal 2013, Boettger said in a Nov. 29 interview.

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