Sappi Ltd., the world’s biggest producer of dissolving wood pulp, will raise about $60 million from the sale of South African pine forests as more focus on higher-margin products reduces the need for such trees.
“We are going through a process to dispose” of 30,000 hectares (74,000 acres) of forests in the Mpumalanga province, Chief Executive Officer Steve Binnie said by phone today from Johannesburg. “It should be concluded probably early in the new financial year” starting Oct. 1.
The company owns a specialized cellulose mill in Mpumalanga, northeast of Johannesburg, that needs more eucalyptus trees than pine. Sappi is increasing its focus on dissolving wood pulp, used to make luxury clothing, sportswear and pharmaceuticals, as the product carries a higher profit margin than paper.
“In South Africa, we do have excess softwood plantations,” Binnie said. “So we will continue to look for opportunities to sell those.”
Net income was $17 million in the three months through June, compared with a loss of $47 million a year ago, the Johannesburg-based company said in a statement today. The European business had a “solid quarter,” while the North American unit was hurt by unplanned outages at pulp mills and weak paper pricing, the company said.
Sappi shares declined as much as 5.8 percent, the most on an intraday basis since Dec. 3, and traded 4.7 percent lower at 41 rand as of 4:15 p.m. in Johannesburg. The stock has advanced about 25 percent in 2014, compared with a 11 percent gain on the FTSE/JSE Africa All Share Index.
The third quarter is traditionally the company’s weakest, Binnie told reporters on a conference call. “Demand is typically lower in Europe and North America due to the summer holidays” and planned maintenance, he said. The fourth quarter ending September is usually one of Sappi’s most productive and the company can say with “certainty” that the full fiscal year will be profitable, according to the CEO.
Sappi is aiming to reduce debt by about a third to $1.6 billion within two years as it cuts costs, according to Binnie. Net debt was $2.29 billion at the end of June, down from $2.33 billion a year ago. The company has 750 million rand ($69.92 million) of debt maturing in April 2015, according to data compiled by Bloomberg.
“There are opportunities to refinance at significantly lower levels than the current levels,” Sappi’s Binnie said. “At this stage we are evaluating our alternatives and we haven’t made any definitive decision.”