Sappi's moves from loss to profit

The Ngodwana Mill's focus on cellulose is paying dividends for Sappi. Image: Tracks 4 Africa

The group returned to positive earnings in the quarter with earnings before interest‚ tax‚ depreciation and amortisation (ebitda)‚ excluding special items of US$147m.

It reported an operating profit excluding special items of US$60m compared with US$67m in the previous quarter and a profit for the period of US$18m after a loss of US$149m the quarter before.

The group said it continued to generate good returns in the specialised cellulose business. The dissolving wood pulp market experienced strong demand in an increasingly competitive market.

Sappi said that conditions were generally difficult in the global graphic paper markets and this was in line with the company's expectations in Europe and more challenging than anticipated in North America.

South Africa performs well

The South African business had another good quarter‚ benefiting from additional sales volumes in the specialised cellulose business from the Ngodwana Mill‚ the weaker rand-dollar exchange rate and a gradual improvement in the paper business.

The European business returned to a small operating profit after three quarters of losses‚ with a reduction in fixed cost offsetting lower selling prices.

The North American business experienced a difficult quarter‚ with volume and price declines in the paper segment as well as increased variable costs leading to a small operating loss.

"The group has benefited from the strategic decision to invest in and grow the specialised cellulose business‚ generating US$74m in ebitda excluding special items at an ebitda margin of 30%," said Sappi.

"We continue to benefit from our low-cost position at each of our dissolving wood pulp mills and the weaker rand-dollar exchange rate during the quarter‚" Sappi said.

There were no major special items for the quarter. The gain of US$10m included a positive plantation fair value price adjustment of US$8m and an asset impairment reversal of US$2m.