| Mon 3 Mar 2008, 14:54 | | SAP - Sappi Limited - AGM Update |
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SAP
SAVVI
SAP - Sappi Limited - AGM Update
Sappi Limited
Registration Number 1936/008963/06
(Incorporated in the Republic of South Africa)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
Sappi Limited
AGM UPDATE
We reported our results for the our first financial quarter on the 31st of
January, which reflected the 6th consecutive quarter of year-on-year
improvements in operating performance excluding special items.
At the same time we said that we expected the operating profit excluding special
items to improve again in our second quarter on a year-on-year basis. We are on
track to achieve this.
Looking at our business on a region by region basis, the Southern African
businesses and Forest Products in particular continue to perform strongly,
supported by good demand, improving prices and the weakening Rand. Management
is acutely aware of rising input and labour costs and this remains a key issue.
The SA business was unfavourably impacted by the power disruptions earlier this
quarter. After a major disruption for 3-4 days we reached agreement with the
national utility, Eskom, to reduce our purchases by generating more of our own
power. We have subsequently operated without further major disruptions;
however, the additional power comes at additional cost.
The US$500 million Saiccor expansion is due to be completed in the second
calendar quarter. At full output the project will increase capacity of chemical
cellulose by about a third. With pulp prices at current high levels the timing
of the start up appears very favourable.
The full impact will only be felt in the next financial year. The project will
also improve Saiccor`s energy efficiency and result in a further reduction in
our power purchases.
Our North American business has shown a steadily improving trend as a result of
improvements across all disciplines. We expect to see further improvements from
this business but are conscious of the warnings from economists about a possible
slow down in the US economy. Demand for coated fine paper in web form and price
realisation continues to improve; however, in sheet form the markets continue to
be influenced by low cost imports. We still have some way to go with the
turnaround of this business and the improving trend is encouraging.
Our most critical requirement is to fix our European business. The position has
not improved and prices have edged up off the bottom in some markets; pressure
remains on our sales force to increase prices further. Input cost pressure is
continuing, as it is group-wide, and we are exploring every area of our business
for efficiencies and cost reductions. While we continue to reduce our costs,
returning to acceptable profitability in Europe with current high input cost
levels does require material price increases.
There seems to be general understanding in the market that prices have to go up
and there are media reports of price increases by all major producers which
sounds encouraging.
After years of declining prices in Europe and high operating rates we are
convinced that consolidation of the segment is needed to sustain long term
profitability.
3 March 2008
Date: 03/03/2008 14:54:54 Produced by the JSE SENS Department.
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