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Sappi surprises investors

Jan 28 2010 12:10 Shaun Harris Print this article  |  Email article

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Durban - Sappi's shares soared more than 4% on Thursday after the paper and pulp producer posted a healthy increase in sales and operating profit (excluding special items) in the first quarter of its financial year to end-December.

During the period under review, sales rose 36% to $1.62bn compared to $1.19bn in the first quarter of financial 2009, while operating profit without the special items always present in Sappi's accounts grew to $81m from $25m from the year before.

CEO Ralph Boëttger said demand for Sappi's major products continued to improve, the exception being coated mechanical paper. The Kangas Mill, which Sappi is closing in Europe, made coated mechanical paper.

Before special items, operating profit was $1m compared to $57m a year before. But it was up substantially on the $129m operating loss Sappi made in the quarter to end-September.

Overall, the results showed a basic loss of 10 US cents per share compared to a positive 6c/share the previous year.

'Tough unfavourable situation'

Special items stood at $80m, relating to a non-cash plantation price adjustment charge of $95m and charges for the closures of the Kangas Mill and Usutu Mill in Swaziland, offset by alternative fuel tax credits of $49m in North America.

Asked by Fin24.com why demand for coated mechanical paper was not recovering, Boëttger said it was used mainly by "lower end" magazines". He said: "Lots of those titles have disappeared. Demand from the higher quality magazines [using coated wood-free paper] has come back."

He said as one of the smaller, higher-cost mills making coated mechanical paper, Kangas was the correct mill to close.

Boëttger said Sappi was looking at selling the Usutu Mill. Staff in Swaziland have not accepted retrenchment offers. "It's a tough and unfavourable situation," he said.

Looking forward, Boëttger said he expects operating performance in the second quarter to remain positive, but not at the same level as achieved in the first quarter.

At 11:30 on Thursday, Sappi's shares were trading up 4.23% at 3 230c/share.

- Fin24.com

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