Paper and packaging group Sappi maintained an improving trend in its operating performance during the three months to March 2014, after bouncing back into the black during the first quarter of the year.

The improving operating performance during the second quarter of the year – despite tough market conditions – of the European and South African paper markets, as well as the company’s cellulose business, maintained the newly lifted earnings, which had dipped into the red during the 2013 financial year.

Outgoing Sappi CEO Ralph Boëttger expected this to continue, despite an expected moderate decline during the traditionally seasonally weaker third quarter, with the company ending the 2014 financial year on a “significantly improved” note than 2013.

He said Sappi posted a profit for the period of $32-million, a jump from the prior corresponding quarter’s restated profit of $2-million, while operating profit rose to $95-million in the quarter under review, compared with a restated $38-million reported during the three months to March 2013.

The JSE-listed group delivered earnings per share (EPS) of 6c for the quarter, compared with the 0c EPS recorded in the restated equivalent quarter last year.

Earnings before interest, tax, depreciation and amortisation (Ebitda), excluding special items, rose to $171-million during the second quarter, up from $126-million in the corresponding quarter last year.

Sappi’s sales for the quarter under review increased to $1.57-billion, up marginally from the restated $1.5-billion recorded during the prior second quarter.

Boëttger pointed out that the decline in demand for most major grades in the graphic paper markets, as well as pressurised sales prices in Europe and North America, had been offset by a number of cost-cutting initiatives across the group, which, combined with the seasonally stronger second quarter, delivered an improved operating performance in both businesses.

In Europe, the group reported sales of €603-million during the second quarter, down from the restated €624-million reported in the three months to March last year, and an operating profit of €14-million during the March quarter, compared with an operating loss of a restated €1-million in the corresponding quarter last year.

Sappi’s North American unit delivered sales of $382-million during the three months to March, up from the $341-million in the corresponding quarter the year before. Operating profit, which despite a decline from a restated $18-million in the corresponding quarter last year, returned to profitability with $5-million, when compared with the loss of $3-million reported in the preceding quarter.

The Southern African paper business continued the “trend of improving performance”, with increased sales prices offsetting cost pressures.

Sales reached R3.94-billion, a rise on the restated R3-billion, with operating profit rising to R765-million during the quarter under review, compared with R181-million reported in the quarter to March last year.

“Against a backdrop of more challenging dissolving wood pulp markets, the specialised cellulose business had another good quarter with strong shipment volumes, generating $82-million in Ebitda, excluding special items, at an Ebitda margin of 33%,” Boëttger added.

Further, as a result of the improved operational performance, capital expenditure (capex) post the completion of the three major dissolving wood pulp projects declined to $62-million compared with capex of $179-million a year ago.

Capex for the full year was expected to be below $300-million.

Net cash generated for the quarter was $132-million compared with net cash use of $99-million in the equivalent quarter last year, said Boëttger, adding that positive cash generation was expected for the remainder of the year.

Sappi reported that its net debt declined $132-million to $2.2-billion during the second quarter, as a result of the cash generated from operations and the lower working capital.

“We anticipate net debt levels to end the year close to $2-billion,” Boëttger commented.