JOHANNESBURG (Reuters) – South African pulp and paper maker Sappi will invest $305 million in North America and Europe to increase its packaging capacity, the firm said on Wednesday after releasing its first-quarter results.
Sappi, which makes 50 percent of its sales in Europe and 27 percent in North America, is reducing its dependence on graphic and glossy paper and is diversifying into speciality packaging paper.
The company suffered from a fall in demand for glossy paper as tablet computers and e-readers eroded the traditional magazine industry and as retailers relied more on websites than printed catalogues.
Sappi will invest approximately $165 million in North America to upgrade a paper mill and $140 million in Europe over a three year period in a number of projects that will support its speciality packaging paper capacity.
“Our decision demonstrates our clear commitment to the consumer packaging market and our focus on maintaining our leadership in coated paper production in both North America and Europe,” Chief Executive Steve Binnie said in a statement.
Shares in Sappi were up 1.8 percent at 86.30 rand at 0712 GMT.
Sappi said first-quarter profit increased 20 percent to $90 million from $75 million a year ago due to greater sales volumes across all major divisions and higher prices for dissolving wood pulp.
Earnings per share for the period rose 23 percent higher to 16 U.S. cents from 13 U.S. cents a year earlier, while net debt fell by 23 percent to 396 million.
The firm expects to reduce net debt further this year.
“Based on current market conditions, we expect the group’s operating performance for the second quarter to be broadly in line with that of 2016”, Binnie said, citing the recent strength of the rand and further weakness in graphic paper demand and pricing in Europe and the United States.
(Reporting by Nqobile Dludla, editing by Louise Heavens)