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Sappi FY earnings up 24% as debt costs decline

Revenue declined 11% to $5.39 billion.
Sappi, the world’s biggest producer of dissolving wood pulp, said full-year profit rose 24% after the company reduced financing costs and prices for the cotton substitute rose.

Net income was $167 million in the 12 months through September, compared with $135 million a year earlier, the Johannesburg-based company said in a statement on Thursday published in the Business Day newspaper. Revenue declined 11% to $5.39 billion, while net debt fell to $1.77 billion, from $1.95 billion a year earlier.

Sappi is diversifying its production as a global shift to digital publishing and advertising cuts demand for its traditional glossy paper business. The company got 12% of revenue from dissolving wood-pulp, a high-margin product used in items from lingerie to golf shirts, and is also seeking growth in niche packaging.

“The refinancing of the higher-cost debt and the continued reduction in net debt resulted in significantly lower ongoing interest charges,” the company said. “Dissolving wood pulp markets have improved this year as a result of higher pricing and improved operating rates for viscose staple fiber in China.” Viscose staple fiber, or rayon, is produced from dissolving wood pulp.

While Sappi expects higher first-quarter and full-year 2016 earnings before interest, taxes, depreciation and amortization, and excluding special items, the company warned that a severe drought being experienced in South Africa may negatively affect mill production and profits if normal summer rain levels don’t fall. Net debt levels are expected to decline further, the company said.

Sappi’s shares have gained 28% this year, compared with a 5.7% increase in the FTSE/JSE Africa All-Share Index.

©2015 Bloomberg News

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