Storage towers at Sappi’s Ngodwana wood mill in Mpumalanga. Picture: BLOOMBERG
FUTURE: Workers stand beside storage towers at Sappi’s Ngodwana wood mill in Mpumalanga on Wednesday. Picture: BLOOMBERG

SAPPI’s operating performance in the first quarter of its financial year was "substantially above" the corresponding quarter last year, as coated paper volumes in the US rebounded.

Despite the strong dollar, which had led to more imports and fewer exports in the US, overall group profit for the period ended-December shot up from $24m to $75m. Pertinently, CEO Steve Binnie said on Wednesday group debt had been cut by about R300m, to R1.73bn.

"We are thinking of using cash reserves to further alleviate net debt and reduce interest costs," he said.

The diversified wood fibre group said it had gained market share from other US-based producers. This had led to the rise in sales volumes even as prices were 3% below those of the same quarter last year.

Meanwhile, the European business delivered close to targeted operational earnings.

Mr Binnie said the weak rand had helped boost margins and exports from South African operations, despite increased input costs. As well as improved local graphic paper volumes, Sappi had seen higher domestic selling prices and had contained costs tightly.

The group said it had continued to generate good returns from its specialised chemical cellulose business in the period, despite the severe drought in SA, which had slowed production and had a negative effect on results.

Sappi has been diversifying from paper into chemical cellulose for years. The intention is to provide the high-margin product worlwide mainly to textile makers, as the internet changes the landscape for paper products.

"The results are confirmation that the strategy to reposition Sappi into a profitable and cash-generative diversified wood fibre group is well on track," the company said.