| Tue 11 Nov 2003, 12:24 | | Strong rand rips into Sappi profit |
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Strong rand rips into Sappi profit
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Sales jump 15,3% to $4,3bn, but first quarterly headline loss in 20 years expected
Trade and Industry Editor
DESPITE a 15,3% jump in sales to 4,3bn in the year to September, paper and pulp group Sappi delivered a poor financial performance, due to weak demand globally and the effect of the strong rand on its South African operations.
HSBC analyst Paul Clark said that in all likelihood Sappi would report a loss in headline earnings for the current quarter to December. "This would be the first time in 20 years that Sappi would have made a quarterly headline loss," he said.
Operating profit for the year fell 26,5% to $286m, while net profit fell 32,3% to $149m, with a 30% fall in headline earnings a share to 70c.
However, there was a $258m net inflow of cash, compared to the 238m net outflow in the previous year, and Sappi's gearing fell from 33,2% to 30,8%.
The group repurchased 2,2-million shares for $29m.
Sappi also released data for the quarter to September, which showed a more modest revenue rise of 6,7%, but a 62,3% fall in operating profit to 46m and an 86,3% slump in net profit to $10m all compared to the same quarter last year.
Headline earnings a share for the quarter fell almost threefold to 11c.
Sappi CE Jonathan Leslie said: "Our results were achieved in an environment of continued weak demand for coated fine paper, contrary to the customary seasonal pick-up in this quarter, and lower prices in all regions.
"Our fine paper businesses were unfavourably affected by weak pricing in Europe and North America and in SA by more competitive imports and reduced export margins due to the weaker US dollar."
He said Sappi had embarked on a series of measures to offset rising costs and to restore profitability, which included 720 job cuts and the closure of some production facilities.
Leslie said Sappi planned to continue to curtail fine paper production in Europe and North America during the current quarter. This would involve, among other measures, the scheduling of major maintenance during this period.
Leslie said the US and European operations had been running at about 80% of their potential in the last quarter because of weak demand. "It appears as if any pick-up in markets will be delayed beyond our first quarter," he suggested.
"As a result of poor market conditions and low prices, we expect earnings to be weaker than the prior quarter, before the charges related to closures and staff reductions and the impact of maintenance shuts, in the first quarter.
"We are, however, seeing early signs of improvement in Europe.
"The order intake of coated fine paper has improved and announcements of price increases for coated groundwood paper, in Europe and the US, and coated fine paper reels, in Europe, have been made.
"With this background, we expect earnings to improve for the balance of the year, resulting in an overall improvement, before closure and staff reduction charges, compared to 2003."
He warned that the current quarter to December "will be more difficult than the one just finished".
Sappi's quarterly headline earnings had been their worst for at least four years, but the company's performance had been anticipated by the markets, and the share price remained steady yesterday afternoon.
"The earnings were in line with expectations," said JP Morgan analyst Duncan Raftesath. "The positive issue was the increase in volumes, which were much improved in the last quarter on quarter three. Prices were the biggest area of weakness."
Sappi declared a 29c dividend (2002: 28c).
Sappi shares gained 30c to close at R89,80 yesterday.
The Bottom Line: Page 14
Nov 11 2003 07:27:24:000AM John Fraser Business Day 1st Edition
Tuesday
11 November 2003
