Sappi swings into a loss
Slumps 5%
Sappi has been battling with high customer inventories and weak consumer demand for key products.
Karl Gernetzky - Shares in pulp, paper and packaging group Sappi slumped more than 5% yesterday after it said a weak global economy and poor demand resulted in a hefty negative profit swing in its first quarter to end-December.
Group sales fell 23% to US$1.27 billion (about R24 billion) in the three months to end December, with the company reporting a loss of US$126 million, from profit of US$190 million previously. It still managed to cut its net debt by 2% to about US$1.2 billion, however, it has made this a priority as it seeks to navigate a tough economic climate.
Shares in Sappi, valued at about R24.6 billion on the JSE, were down about 5.2% after the announcement and have fallen by over a fifth in the past year.
Pressure
After a record year in 2022, customers whittled away stocks built up in fear of shortages during Covid-19. Sales volumes for many of its major products came under severe pressure in 2023, with Sappi responding by curtailing production to manage the weak demand.
Paper markets remained unpredictable, and demand was still under pressure from low consumer confidence, high interest rates and ongoing geopolitical instability, it said on Wednesday. Group sales volumes were down 12%.
Demand for dissolving pulp, often used in textiles, was robust, buoyed by high downstream operating rates in China.
Despite favourable demand and tight supply dynamics, prices were range-bound amid sluggish textile and apparel markets, especially in Europe and China, influenced by low consumer confidence.
Global economy
"The global economy has yet to show signs of significant improvement and we anticipate demand for many of our products will continue to be impacted by weak consumer sentiment and low economic growth," Sappi said.
"Order activity for paper products is slowly improving and it appears the extended destocking cycle has concluded across the majority of our key product categories."
Sappi added that while it anticipates "a substantial cash outflow in the second quarter" related to the closure of the two European mills and a dividend payment, it is "well positioned with healthy cash reserves and liquidity to fund this outflow." – Fin24
Group sales fell 23% to US$1.27 billion (about R24 billion) in the three months to end December, with the company reporting a loss of US$126 million, from profit of US$190 million previously. It still managed to cut its net debt by 2% to about US$1.2 billion, however, it has made this a priority as it seeks to navigate a tough economic climate.
Shares in Sappi, valued at about R24.6 billion on the JSE, were down about 5.2% after the announcement and have fallen by over a fifth in the past year.
Pressure
After a record year in 2022, customers whittled away stocks built up in fear of shortages during Covid-19. Sales volumes for many of its major products came under severe pressure in 2023, with Sappi responding by curtailing production to manage the weak demand.
Paper markets remained unpredictable, and demand was still under pressure from low consumer confidence, high interest rates and ongoing geopolitical instability, it said on Wednesday. Group sales volumes were down 12%.
Demand for dissolving pulp, often used in textiles, was robust, buoyed by high downstream operating rates in China.
Despite favourable demand and tight supply dynamics, prices were range-bound amid sluggish textile and apparel markets, especially in Europe and China, influenced by low consumer confidence.
Global economy
"The global economy has yet to show signs of significant improvement and we anticipate demand for many of our products will continue to be impacted by weak consumer sentiment and low economic growth," Sappi said.
"Order activity for paper products is slowly improving and it appears the extended destocking cycle has concluded across the majority of our key product categories."
Sappi added that while it anticipates "a substantial cash outflow in the second quarter" related to the closure of the two European mills and a dividend payment, it is "well positioned with healthy cash reserves and liquidity to fund this outflow." – Fin24
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