Sappi shares rise despite profit plunge

DURBAN – Sappi shares advanced more than 10percent on the JSE yesterday, despite the diversified woodfibre company reporting that its profits plunged in the second quarter to March, as prices stalled due to the global coronavirus pandemic.

Covid-19 saw the company slashing its capital expenditure (capex) as profits tumbled to from $72 million (R1.34billion) to $2m on earnings before interest, tax, depreciation and amortisation that fell to $131m from $187m last year.

Initially, the company said it expected the capex to be $460m for 2020. However, it has since been revised down to $200m. The group said special items that reduced earnings by $29m, related mainly to restructuring provisions and asset impairment charges. Its earnings per share excluding special items also declined to 4 US cents from US13c during the equivalent quarter last year.

The group said the dissolving pulp (DP) market prices also eased by $233 a ton in the last 12 months as the combined impact of soft global textile markets, US duties on textiles from China, excess viscose staple fibre capacity and a weaker $/renminbi exchange rate drove prices downwards.

Chief executive Steve Binnie said the performance was negatively impacted by the historic low DP prices and reduced sales volumes. He said the company was bracing itself for a massive Covid-19 fallout in the third quarter.