| Tue 1 Feb 2005, 9:41 | | Fine paper sales lend gloss to Sappi |
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Fine paper sales lend gloss to Sappi
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Group optimistic as paper industry recovers from a three-year slump
Industrial Correspondent
SAPPI, the world`s leading producer of glossy magazine paper, is optimistic about prospects for this financial year after its fine paper division boosted sales 11,7% to $1,011bn in the December quarter.
Sappi is maintaining its positive outlook, despite recording an impairment charge of $41m from the revaluation for its Usutu mill in Swaziland.
The maintenance shutdown of a plant in the US cost Sappi a further $20m.
Andisa Securities analyst David Brennan says while he is positive about the group`s prospects for the rest of the year, the impairment and the exceptional items costs make it difficult to measure how well the group did over the quarter.
Operating profit rose to $4m from neither profit nor loss in the corresponding period. Net debt rose to $1,89bn from $1,58bn for the quarter.
Brennan says he is disappointed by Sappi`s statement that the results for the second quarter would mirror those of the previous corresponding period with headline earnings at about $0,16 a share from $0,10 in the second quarter last year.
Analysts have differing views on how Sappi will perform for the year. An I-Net Bridge forecast of 549,7c a share is higher than the 294c Sappi made for the year to September, but there is a wide variation between the nine analysts surveyed.
One of the analysts came in with 721,16c a share, while another came in with 348c. While analysts differ in their outlook for the company, there is consensus that Sappi will perform better than last year.
Sappi CEO Jonathan Leslie says advertising is improving and paper prices in the US are rising.
The rise in advertising spend and paper prices follows a slump in the international paper industry over the past three years.
Sappi says the consumption of coated fine paper has increased 9,7% in North America and 9,1% in Europe compared with the same quarter last year.
While paper prices in North America are on the rise, prices in Europe did not increase in local currency terms.
Leslie says although there are underlying reasons for European paper producers to push through price increases, the `collective nerve` is not there.
He says the rise in Sappi`s total sales from $1,23bn to 1,25bn for the quarter has been `flattered` by dollar weakness, boosting the contribution from its European operations, which account for 46% of group sales.
While the outlook for the North American paper market is improving, raw material input costs in the form of wood and energy are putting pressure on its operations there.
Headline earnings a share of 0,06 for the quarter are an improvement on the $0,11 loss a share in the equivalent quarter last year.
After the $41m asset impairment charge, the loss a share for the quarter was $0,13c.
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