Sappi quarterly results 31 December 2011
Sales dropped to USD1.6 billion (USD1.9 billion) and gross profit fell to USD208 million (USD236 million). Operating profit was down to USD107 million (USD121 million), while profit for the year increased to USD45 million (USD37 million). Additionally, headline earnings per share improved to USD8cps (USD7cps).
No dividend has been declared for the period under consideration.
Although market conditions remain uncertain, the company is experiencing reasonable demand in its major markets. The focus is on delivering the benefits of the restructuring and cost reduction actions announced and implemented in 2011 - in line with the group's stated strategy. The European business has made good progress with its USD100 million per annum cost reduction plans and has further benefited from the reduction of prices for some raw materials, including pulp. At current demand levels the group expects to see further improvement in the performance of this business as the year progresses. The group expects that the North American business' overall performance will improve as a result of increased pulp production, as well as an improvement in Chinese demand for casting release paper. There are signs that pulp prices may have reached a turning point and the company could see an increasing trend over the next few months. The North American coated paper business is expected to continue performing well. The restructuring of the Southern African business is proceeding as planned and the group expects the benefits to be realised from the second half of the financial year. Demand for chemical cellulose remains relatively strong. The performance of the group's Southern African chemical cellulose business is sensitive to the Rand price for sales, based on the US Dollar chemical cellulose price and the Rand/Dollar exchange rates. To date the exchange rate movement has largely offset the drop in prices, resulting in relatively stable Rand-denominated chemical cellulose prices realised and good margins for the business. The chemical cellulose expansion projects announced last year are on track. The group is committed to managing its debt levels with a view to reducing net debt below USD2 billion as soon as the current transforming capital expenditure has been completed and thereafter to reducing gearing (e.g. Net Debt to EBITDA) to a substantially lower level. The group expects net cash generation to turn positive for the full year after the increased capital expenditure and for debt levels, given constant exchange rates, to reduce by the year end. Provided there is no deterioration in market conditions, the company expects the second quarter operating profit excluding special items to improve compared to the first quarter.