Sappi continues to lose money

Sales for the June quarter were US$1.417bn from US$1.503bn in the March quarter and US$1.544bn in the June quarter a year ago.

Operating profit excluding special items for the June quarter amounted to US$8m‚ compared with US$60m a year ago and US$40m in the March quarter.

The loss for the period was US$42m down from 2012's loss of US$106m.

The company said market conditions‚ particularly in its European paper business‚ deteriorated further during the quarter. This‚ coupled with the group's conversion projects and planned annual maintenance shut-downs‚ knocked group operating profit excluding special items for the period.

"The third financial quarter is seasonally our weakest‚ with typically lower demand in Europe and North America and with planned annual maintenance closures at most of our major pulp mills‚" it said.

"In this transitional year‚ the quarter was also impacted by the extended closure at both the Cloquet and Ngodwana mills as they completed the capital projects to convert existing paper pulp lines to produce dissolving wood pulp."

The third-quarter results were also affected by special items including a charge of US$11m related to a plantation price fair value adjustment and a charge of US$4m due to plantation fire damage in SA.

Ngodwana, Cloquet

Both the dissolving wood pulp projects at the Ngodwana and Cloquet pulp mills have now started production. The Cloquet mill produced the first bales of dissolving wood pulp in early June‚ and the proudction increase has progressed according to schedule‚ with production and quality targets met.

The Ngodwana mill started up in late July‚ a few weeks later than scheduled‚ and is expected to reach to full production over the coming months.

Looking ahead‚ the group said the past quarter saw a further deterioration in the European paper industry‚ exacerbating an already weak market‚ and demand was expected to remain subdued.

Input costs‚ particularly pulp‚ remain high and Sappi does not expect to see any price increases in its major paper grades in the coming quarter.

Plans are being finalised that will result in significant capacity closure‚ lower costs and improved operating margins in Europe.

"We envisage these actions will occur over a three-year period and that any cash costs will be self-funded. The benefits of these actions will begin to flow in the 2014 financial year‚" it said.

Growth coming

The South African paper business expects to see growth in container-board volumes‚ although demand continues to be weak in other grades. Cost pressures and weak demand have resulted in further actions being implemented to improve profitability.

The North American paper business is positioned to perform well in an increasingly competitive market and Sappi expects to realise some price increases on economy sheets and web products over the coming months.

"Our expanded global specialised cellulose business is focused on selling a higher volume of dissolving wood pulp‚ as the mills continue on their start-up‚ cementing our position as the leading producer in this market," Sappi said.

It said dissolving wood pulp prices are under pressure in the current market and could have an impact on margins.

Debt remains within the levels previously indicated despite the weaker operating performance and Sappie says it expects debt levels to peak during the fourth quarter‚ as the final outlays for the dissolving wood pulp projects occur.

Sappi expects the European business to make an operating loss in the fourth quarter‚ which will result in the group making a small net loss for the financial year.

"Our full-year results may be hurt by the strategic initiatives and any asset impairments and restructuring costs that may arise‚" it said.