With global diversified woodfibre company Sappi ending strong in a quarter that is traditionally its seasonally weakest, the JSE-listed group looks to the fourth quarter of 2016 with a positive outlook.
This follows a series of double-digit growth quarters as the group continues its recovery throughout the 2016 financial year.
Sappi’s JSE share price surged nearly 5% on Thursday after it posted a profit of $32-million for the third quarter of the year, a significant improvement on the $4-million in the corresponding quarter last year, said CEO Steve Binnie.
Basic earnings a share for the three months to June 30 jumped to 6c, from the 1c reported in the equivalent quarter last year, while operating profit more than doubled year-on-year to $97-million, despite the third quarter being seasonally the weakest owing to the summer holiday period in the northern hemisphere and the scheduling of yearly maintenance work during the period.
Earnings before interest, taxes, depreciation and amortisation (Ebitda), excluding special items, increased 47% to $160-million during the June quarter.
Sales remained steady at $1.2-billion.
Meanwhile, Sappi narrowed its net debt from the $1.9-billion posted in the equivalent quarter last year to $1.58-billion during the quarter under review, mostly owing to strong cash generation and the weakening of the euro and rand against the dollar in the past financial year.
“We expect to reduce net debt levels during the fourth quarter and improve our financial leverage closer to our target ratio of less than two times net debt to Ebitda,” Binnie commented.
Further, Sappi expected to repeat last year’s solid quarterly performance in the quarter to September 30 based on current market conditions and exchange rates.
“[However,] a worsening of the drought in South Africa, [the] effects of Brexit and further graphic paper market pressure could negatively impact the expected results,” he warned.
Binnie said the curtailing of production at the Saiccor mill remained a possibility should drought conditions persist in South Africa and the summer rains arrive later than usual.
However, mitigation strategies are in place, with plans to increase dissolving wood pulp (DWP) production at the Cloquet mill, taking advantage of the company’s ability to “swing capacity between paper pulp and DWP at that mill”.