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Sappi shows hefty rise in Q2 profit, despite lower sales: Steve Binnie – CEO, Sappi

‘Efficiencies and productivity improvements…enabled us to reduce costs.’

SIKI MGABADELI: Sappi, the world’s biggest producer of dissolving wood pulp, said that second-quarter profit rose by 75%, helped in part by a weaker rand relative to the US dollar as the company continued its efforts to reduce debt. Profits were $56m in the three months through March. That compared with $32m a year earlier. Sales were down 15% to $1.4bn.
    Steve Binnie is CEO and joins us now. Steve, thanks for your time this evening. Quite a hefty rise in second-quarter profit, even on those lower sales. What made the difference?

STEVE BINNIE: Yes, we are very pleased with the outcome for the quarter. The lower sales arose mainly from the fact that much of our sales are denominated in euros and sold to the European market. With the weaker euro, one is trying to turn those into dollars and their number is less. And that accounts for much of the lower sales.
   In terms of profits, we’ve been able to take out significant costs across the business. We’ve been looking at efficiencies and productivity improvements and that’s enabled us to reduce costs. At the same we did sell one of our mills in Europe – in The Netherlands – last year, and we were able to shift those production volumes to other locations, remove the cost, but obviously still benefit from the sales.
    And lastly we’ve been able to implement price increases both in Europe and in North America, which boosted profitability.

SIKI MGABADELI:  And those two markets – how have they performed? Obviously we’ve been watching the Eurozone quite closely over the past few years – some lacklustre growth, but now it looks like some shoots are coming up.

STEVE BINNIE: That’s right. Our Europe businesses had some difficult times over the years and the graphic paper market in Europe has been in significant decline, probably since 2008.
    We have seen a relative steadying of that in probably the last 12 months or so and, as I said, we’ve been able to take costs out at the same time. The demand declines that we’ve seen over the last year or so have been about 2% per annum, which is much less than it’s been in the past, so that’s enabled us to improve profitability.
    In the US, interestingly, we had very severe weather conditions in the north-east during the quarter, and unfortunately that did impact on production and logistics and lowered the profitability. Generally the US has been a better market in recent times, but there was this significant once-off impact from the adverse weather.

SIKI MGABADELI:  What do you think the prospects are for paper in this world where we are dominated by smartphones, by tablets and so on?

STEVE BINNIE: Yeah, sure, that has put pressure on demand. But much of the paper we make goes into high-end graphic paper, which goes into advertising, brochures and advertising literature and we believe that that can be aligned with any digital marketing strategy that’s out there. So the two can go hand in hand and we still think, certainly from the feedback that we get from advertisers, that it’s still worthwhile for good products and getting some good return on their investments.

SIKI MGABADELI: Thanks for your time today, Steve Binnie.

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