Paper and packaging group Sappi has had a bumper year, reporting record profit and earnings before interest, tax, depreciation, and amortisation (ebitda), bolstered by surging demand in the US and dwindling capacity in some of the markets in which it operates.
Business Day spoke to CEO Steve Binnie on the Johannesburg-based group’s operations in SA and how the R31.3bn JSE-listed producer of dissolving pulp, wood pulp, biomaterials and timber is navigating some of the incessant headwinds in its supply chain.
Can you quantify the effect of the recent Transnet strike on Sappi’s operations?
The strike at Transnet has negatively impacted supply chains and we anticipate the severe congestion at the Durban port may impact sales volumes in the first quarter. The Transnet strike is going to be a timing difference for us because it’s delayed our supply chain. So in 2023, we are still going to sell full volumes but it just means that some has shifted from Q1 into Q2 and it will take a little bit of time to catch up.
It is difficult to pinpoint because they are starting to catch up, but obviously still behind, but it’s probably in the order of about 20,000 tonnes that were delayed.
Sappi previously said it was exploring alternatives to mitigate much of the risk at SA’s congested ports, specifically Durban. What has been done in this regard?
We’ve done a number of things because clearly the Durban port continues to be a challenge, not just for Sappi but everybody. We send a lot of products from SA to India and what we’ve done is negotiate a dedicated breakbulk vessel every month with 25,000 tonnes on it, and that’s given us more flexibility.
The second thing that we’ve done is to start sending products from the Ngodwana mill through to the Maputo port. Initially it has been low volumes but ultimately we want to send all our export business from there. Then third we’re now in the process of looking at putting in warehouses offshore, mainly in China, whereby we’re going to send out the inventory and then store it, so that when we sell it to the customers there are no delays and we think that will give us flexibility.
What progress has been made with regard to selling electricity onto the national grid from your Ngodwana Mill in Mpumalanga?
Yeah, we already sell energy into the grid from Ngodwana, but, unfortunately, we don’t have any more capacity to give them. We do have an investment in a joint venture, which is near Ngodwana which produces an additional I think it’s 25MW out of this plant. We are one of the shareholders and that will also sell into the grid. So overall I think we should have about 10MW from Ngodwana plus an additional 25 from this new plant.
So is Sappi looking to ramp up its production given the opportunities presented by the electricity crisis in SA?
Not at this stage, and not at that plant itself. I think we’re maxed out there. One of the things that we’re focusing on to reduce our carbon footprint is renewable energy sources. Across the country, we have been investigating solar-based alternatives, but it’s still very much in the early stage.
Where is the low-hanging fruit for the group?
We’ve reduced our debt. It was R1.9bn last year and now is R1.1bn, so that put us in a very different place. It’s given us more flexibility to withstand any of the challenges that the economy may present. And also as we have repositioned the business, packaging and speciality is less volatile. And now this further investment in Somerset in US will further cement that change.
What is your outlook on the short to medium term?
We’ve had a remarkable year — our best ever. Obviously, we all know we have global macroeconomic challenges on the horizon, so it’s unlikely that we will repeat the performance. Again, against that backdrop, we know inflation is big, we know in Europe there’s a war going on, energy prices are rising along with interest rates. [But], the business is in a much better place fundamentally. So while we may not repeat the record of this year, we’ll still have a good year. And for that reason, we said Q1 earnings will be above the first quarter of the prior year. And we are confident we can do that.
Correction: November 11 2022
The story has been corrected to reflect that a dedicated breakbulk vessel has been negotiated every month.
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