Johannesburg — For pulp and paper group Sappi, money does grow on trees and the company's latest annual report suggests that it grows most efficiently in SA.
"We have an extraordinarily low cost base in SA, which has unique competitive advantages in fibre production because of the speed at which trees grow and low inherent energy costs," the report noted.
"The division enjoys a major competitive advantage due to its low cost base, which arises from our operating out of southern Africa, where trees can grow more than four times as fast as in Canada and Scandinavia, and because of good cost management and excellent operating efficiencies."
The report noted that Sappi's southern Africa division, Sappi Forest Products, represented 15% of group sales, but contributed 36% to the group's operating profits in the year to September.
Sappi said it had implemented "modest" local price increases during the past financial year to take advantage of the weak rand. "Our price increases were, however, modest compared to the 30% depreciation of the rand, and local prices remain well below import parity prices."
In an introduction to the annual report, Sappi's executive chairman Eugene van As who plans to retire as CE once a successor has been appointed described the year to September 2002 as "an extremely volatile and difficult year".
He noted that following the September 11 2001 terror attacks, consumption of coated paper, much of which is used in producing glossy magazines, fell 12%, "the sharpest decline most participants can recall".
Van As said that despite losing money in the US, Sappi came through the year with reasonable earnings. He highlighted the benefits of the geographical diversity of the company, which has plants in North America, Europe and SA.
Van As said 2003 would be a year of "considerable challenge and opportunity" and that markets in Europe and SA should be fairly stable.
Van As noted that with the decline last year in the euro and the rand against the dollar, which is the group's reporting currency, as well as the exiting from noncore businesses, Sappi has seen a "significant" decline in turnover. "I believe this is set to change.
"There has been an adjustment in the currencies, and I believe US prices will begin to rise, and hopefully volumes will rise with them.