Sappi expanding its chemical celluloses capacity

10 May '11

3 min read

Sappi Limited announces results for second quarter ended March 2011.

Highlights:

• EPS excluding special items 9 US cents; Q2 2010 loss per share 3 US cents
• Operating profit excluding special items US$127 million; Q2 2010 US$54 million
• Special items US$128 million charge including envisaged closure of Biberist Mill
• Good demand for the majority of our products
• Input costs continue to increase
• Net cash generated US$100 million

Commenting on the results, Sappi Chief Executive Ralph Boettger said:

"Operating profit excluding special items for the quarter (US$127 million) more than doubled compared to a year earlier (US$54 million) and on a per week basis was at the same level as our first financial quarter ended December 2010. The operating performance of each of our regional businesses improved when compared to a year earlier and in particular the fine paper business continued its improving trend, with operating profit excluding special items increasing 65% compared to the equivalent quarter last year and 25% compared to the quarter ended December 2010. Sales for the quarter increased to US$1.8 billion, up 16% compared to the equivalent quarter last year.

"Input cost increases affected the performance of each of our businesses. In particular our European business, which purchases more than half its pulp requirements, was affected by high pulp prices together with prices for wood, latex and energy. Special items for the quarter were a charge of US$128 million arising mainly as a result of costs associated with the envisaged closure of Biberist Mill. The Biberist charges comprise restructuring costs of US$59 million and non-cash asset impairment costs of US$59 million. In the event that Biberist Mill is closed, we will transfer production to, and will service our customers from our other mills. We estimate the benefits of such a closure to exceed US$50 million per annum. In addition, we have identified further actions across our European business, which will result in fixed and variable cost savings of over US$50 million per annum once fully implemented.

"The Sappi Limited board has approved the expansion of the Ngodwana Mill in South Africa. The expanded mill will produce kraft linerboard, newsprint as well as 210,000 tons of chemical cellulose. We expect chemical cellulose production to commence in early 2013."

"We expect business conditions in our major markets to remain favourable; however, input costs are increasing as the global economic recovery gathers momentum. We also expect to start realising the benefits of our European profit improvement measures in the fourth financial quarter. We therefore expect the improved trend in the group's underlying operating performance to continue through the remainder of the financial year.

"We expect positive cash generation for the rest of our financial year and good net cash generation for the full year.

Sappi Limited