Sappi plans heavy infrastructure investment - CEO Steve Binnie

South African paper producer Sappi is set to invest $305 million over a three-year period in certain US and Europe – two regions that account for more than three-quarters of its group-wide sales – after announcing a set of positive quarterly results on Wednesday.

CEO Steve Binnie announced that first-quarter profit had increased by 20% to $90 million from $75 million a year ago, driven largely by greater sales volumes and a higher dissolving wood price. Earnings per share for the period rose 23% higher to 16 US cents from 13 US cents a year earlier, while net debt fell by 23% to $396 million and is expected to decrease further in 2017. Earnings before interest, taxes, depreciation and amortisation was up 15% year-on-year.

Before being appointed CEO in July 2014, Steve served as the company's CFO and was in charge of Edcon's finances for a decade. A chartered accountant and MBA graduate, he has also held various senior finance roles at Investec.

"Our European business once again delivered strong results due to variable cost control and year-on-year growth of 26% in the specialities categories. In the US we increased sales volumes and gained market share, despite an overall decline in coated paper demand and our South African business delivered excellent margins due to higher DWP and paper prices, despite lower containerboard and tissue sales in December as customers worked to reduce inventory stock."

Founded in 1936 and headquartered in Braamfontein, Johannesburg, Sappi is a global diversified woodfibre company focused on providing graphic/printing papers, packaging and speciality papers, dissolving wood pulp as well as products in adjacent fields to a direct and indirect customer base in more than 150 countries.

Steve said he expected the group's performance to continue in the same vein as it did in 2016, with a strong rand and a drop in glossy paper demand fueled by mobile technology posing challenges.

In order to continue the group's momentum and growth trajectory, Sappi had made the strategic decision to invest more than $300 million in US and European mills, which will see a rise specialty and paper packaging capacity and capability and is in line with its mission to become the lowest-cost producer of graphic papers. The targeted plants include the Somerset mill, in Maine, USA, the Dutch Maastricht mill, the Lanaken mill in Belgium and its Ehingen and Alfeld operations in Germany.

Steve said: "Our focus has always been to build and strengthen competitive advantage. Taken as a whole, these investments take advantage of our manufacturing base and the skills and knowledge of our people to enhance the potential of the mills, setting us on a strong course for the future."

Sappi Europe CEO Berry Wiersum added: "We are delighted to have received strong support from Sappi's board. These projects will enable us to make better use of our assets to drive growth in speciality papers, as well as to reduce by 2020 our coated graphic papers capacity by about 200 000 tons."