Sappi Profit Rises 75% as Paper Maker Strives to Reduce Debt

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Sappi Ltd., the world’s biggest producer of dissolving wood pulp and glossy paper, said second-quarter profit gained 75 percent as the company continued efforts to reduce debt.

Profit was $56 million in the three months through March, compared with $32 million a year earlier, the Johannesburg-based company said in a statement on Thursday. Sales declined 15 percent to $1.34 billion.

Sappi is focusing on pulp and packaging products for growth amid declining demand for graphic paper, Chief Executive Officer Steve Binnie said in February. The company is trying to cut net debt, which stood at $1.92 billion at the end of March, about 6 percent lower than three months earlier.

The shares rose as much as 3.2 percent and were little changed at 47.02 rand as of 10:51 a.m. in Johannesburg. The stock has advanced 11 percent this year, compared with an 8.5 percent increase on the FTSE/JSE Africa All-Share Index.

The company expects net debt will decline to about $1.8 billion by the end of the fiscal year, Binnie said by phone on Thursday. Sappi is probably about 18 months away from achieving a debt target of two times earnings before interest, taxes, depreciation and amortization, he said.

“The quarter ending September is typically a very strong quarter for us,” he said. “We believe that we can do similar this year and we should get down to $1.8 billion.”

Operating performance was in line with expectations, Binnie said in Thursday’s statement. While dollar prices for dissolving wood pulp declined from the previous quarter because of excess supply in the market, the weaker rand exchange rate helped support pricing and profit margins for the company’s South African mills, Sappi said.

While operating performance for the year will be broadly similar to 2014, the company said it expects earnings per share excluding one-time items will be “substantially better”.

(An earlier version of this story was corrected to show the rand was weaker against the dollar.)

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