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Sappi’s pulp mill in KwaZulu-Natal. Picture: FINANCIAL MAIL
As consumers and producers have been forced by the global pandemic to shift towards digitisation, paper and packaging company Sappi has reaped the rewards of increased volumes of online package deliveries.
In the quarterly period to end-September 2021, the pandemic boosted online retail and shored up group sales by 10% compared with the previous comparative period in the packaging and speciality papers segment. Paper in this segment is used in the manufacture of soup sachets, luxury carry bags, cosmetic and confectionery as well as agricultural packaging.
Sappi wants to continue on that upward growth trajectory by taking advantage of the online boom and strong demand cycle to recover margins to pre-Covid levels.
“Market demand is looking good and recovering from Covid-19,” head of sustainability and investor relations at Sappi Tracy Wessels told Business Day.
Its North American business experienced encouraging sales growth and margin improvement across all major product categories. In SA, containerboard demand was robust due to strong fruit exports. Earnings before interest, taxation, depreciation and amortisation (Ebitda), which measures profitability, for the segment improved 21% compared with last year.
Focus on margins
“In the packaging segment, we really have done well there to grow our volumes, but again, within packaging there are so many grades you can make. To fill our machines, we obviously targeted large-volume but not necessarily high-margin grades ... because we want to dilute fixed costs and fill our machines,” said Wessels.
“The opportunity in the packaging segment is optimising that customer product mix, so we really try to improve the margins in that segment,” she said.
Sappi’s dissolving-pulp segment, which supplies primarily the retail and textile sectors with pulp that makes viscose fibre, used in combinations with cotton and polyester in garment blends, is making gains as cotton prices shoot up to all-time highs, with a global deficit of the fibre squeezing mills holding huge short positions.
Its pulp business has also been lifted by buoyant demand and better market prices.
For textile producers, “it’s significantly cheaper to now substitute cotton for viscose”, said Wessels, adding that viscose that is made from Sappi pulp is sourced from sustainable forests.
With operations in North America, Europe and Southern Africa, Sappi has experienced logistical issues including port delays that hit the company hard during the height of the pandemic, but it said bottlenecks are slowly being resolved as much of the fruit export season, which takes priority at the ports due to refrigeration, comes to an end.
Shut plants
Despite battling surging energy costs and global supply chain issues associated with the supply of its graphic paper, the company maintains that “there is still demand for graphic paper, make no mistake”, she said.
Demand for graphic paper has dropped, driven by the closure of magazines and similar hard-copy products worldwide.
“A lot of our competitors have shut down plants or converted them to make other grades, so ... the market is actually very tight because the demand in some cases is exceeding supply, affected also by logistics issues,” Wessels said.
The company, valued at R24.7bn on the JSE, says the Covid-19 pandemic led to competitors backing out of the graphic paper business, allowing it to take on new clients left in the lurch by deserters.
Company spokesperson Andre Oberholzer said though Sappi has historically relied heavily on graphic paper, it has since shifted away slightly to invest more in the dissolving-pulp field “because there the growth is quite clear”, though “paper use will never go to zero”.
Despite the declining demand, the company has strong assets in that sunset field. Oberholzer said Sappi will maintain its strong, aggressive position in graphics because “we believe our competitors don’t have the assets, or balance sheet or strategic view to stay in that industry”.
Sappi’s share price climbed 1.05% on Wednesday to close at R44.11.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Online package deliveries boost Sappi sales
As consumers and producers have been forced by the global pandemic to shift towards digitisation, paper and packaging company Sappi has reaped the rewards of increased volumes of online package deliveries.
In the quarterly period to end-September 2021, the pandemic boosted online retail and shored up group sales by 10% compared with the previous comparative period in the packaging and speciality papers segment. Paper in this segment is used in the manufacture of soup sachets, luxury carry bags, cosmetic and confectionery as well as agricultural packaging.
Sappi wants to continue on that upward growth trajectory by taking advantage of the online boom and strong demand cycle to recover margins to pre-Covid levels.
“Market demand is looking good and recovering from Covid-19,” head of sustainability and investor relations at Sappi Tracy Wessels told Business Day.
Its North American business experienced encouraging sales growth and margin improvement across all major product categories. In SA, containerboard demand was robust due to strong fruit exports. Earnings before interest, taxation, depreciation and amortisation (Ebitda), which measures profitability, for the segment improved 21% compared with last year.
Focus on margins
“In the packaging segment, we really have done well there to grow our volumes, but again, within packaging there are so many grades you can make. To fill our machines, we obviously targeted large-volume but not necessarily high-margin grades ... because we want to dilute fixed costs and fill our machines,” said Wessels.
“The opportunity in the packaging segment is optimising that customer product mix, so we really try to improve the margins in that segment,” she said.
Sappi’s dissolving-pulp segment, which supplies primarily the retail and textile sectors with pulp that makes viscose fibre, used in combinations with cotton and polyester in garment blends, is making gains as cotton prices shoot up to all-time highs, with a global deficit of the fibre squeezing mills holding huge short positions.
Its pulp business has also been lifted by buoyant demand and better market prices.
For textile producers, “it’s significantly cheaper to now substitute cotton for viscose”, said Wessels, adding that viscose that is made from Sappi pulp is sourced from sustainable forests.
With operations in North America, Europe and Southern Africa, Sappi has experienced logistical issues including port delays that hit the company hard during the height of the pandemic, but it said bottlenecks are slowly being resolved as much of the fruit export season, which takes priority at the ports due to refrigeration, comes to an end.
Shut plants
Despite battling surging energy costs and global supply chain issues associated with the supply of its graphic paper, the company maintains that “there is still demand for graphic paper, make no mistake”, she said.
Demand for graphic paper has dropped, driven by the closure of magazines and similar hard-copy products worldwide.
“A lot of our competitors have shut down plants or converted them to make other grades, so ... the market is actually very tight because the demand in some cases is exceeding supply, affected also by logistics issues,” Wessels said.
The company, valued at R24.7bn on the JSE, says the Covid-19 pandemic led to competitors backing out of the graphic paper business, allowing it to take on new clients left in the lurch by deserters.
Company spokesperson Andre Oberholzer said though Sappi has historically relied heavily on graphic paper, it has since shifted away slightly to invest more in the dissolving-pulp field “because there the growth is quite clear”, though “paper use will never go to zero”.
Despite the declining demand, the company has strong assets in that sunset field. Oberholzer said Sappi will maintain its strong, aggressive position in graphics because “we believe our competitors don’t have the assets, or balance sheet or strategic view to stay in that industry”.
Sappi’s share price climbed 1.05% on Wednesday to close at R44.11.
gumedemi@businesslive.co.za
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