Consumption of coated woodfree and coated web offset papers in Europe continues to fall, driving Sappi to move production from these grades to speciality papers for packaging where growth is the order of the day.
Nevertheless, thanks to lower input costs, from energy pulp and chemicals and thanks to other efficiency savings, the South African papermaker was able to improve its performance in Europe which accounts for around half the company’s $5.1 billion sales.
The company has reported pretax profit of $423 million ($229 million) for the year to the end of September and announced that it will pay shareholders a dividend for the first time since 2008.
In Europe revenue from sales was largely static at €2.3 billion, tonnes shipped increased slightly to 3.25 million (3.24 million) with a fractionally increased price per tonne at €715 (€713). The outlook for the 2017 financial year is broadly in line with 2016 the company says.
However, overall declines in demand for printing papers in Europe, down around 40% since 2008 according to Cepi and other industry organisations, means that Sappi “is continuing to seek opportunities to shift production from graphic papers to speciality packaging grades”.
Volumes for coated papers in the final quarter of the year were 9% higher than in Q3 reflecting a very soft summer across Europe, but were 4% down on the same period in 2015. Overall demand for woodfree coated paper was 6% lower in 2016 and is forecast to fall 4.2% in this financial year; coated mechanical demand fell 7% and will drop a further 5.2% in 2017.
At the same time year on year increase in demand for speciality papers, produced at three mills in Europe, has increased by 15%.
The company will continue to convert capacity to meet this rise in demand for topliner, for release papers and for folding box boards and make further investments to take advantage of this trend it says.
The improving performance is being used to reduce the company's debt burden as well as to fund the transition. It has a way to go: coated paper accounts for 59% of revenues with speciality papers at 11% currently.
The improvement is also reflected in its ROCE rations, rising from 15.4% in 2014, 18.7% in 2015 and reaching 20.9% in 2016.
Sappi is converting capacity from producing coated papers where demand in Europe is in decline to producing packaging grades where demand is increasing in double digits and where Sappi is growing faster than the market overall.