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Sappi Turns to Glossy Packaging as Publishing Demand Drops

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According to a report this past week by Bloomberg, New York, N.Y., USA, Sappi (Johannesburg, South Africa) is putting a new twist on an old trick as it expands in specialty packaging to counter declining prospects for its traditional glossy paper business.

The company is using expertise in coating paper for luxury magazines and advertising literature for the production of high-end packaging for products from cosmetics to consumer electronics, CEO Steve Binnie said. Sappi is developing new businesses as a global shift to digital publishing and advertising reduces demand for its biggest product by sales.

The company has already diversified by expanding in dissolving pulp, a high-margin cotton substitute used in items from lingerie to golf shirts, and has become the world’s biggest maker of the material. Sappi is investigating ways to profit from the by-products of its pulp making process. "We know that our traditional graphic paper business is in decline and we accept that," Binnie said earlier this month. "We need to look for opportunities to diversify and look for other areas to grow our business."

While Sappi saw dissolving wood pulp as having the best growth prospects, the company was targeting higher sales from specialized packaging, where it can meet requirements for complicated prints, finishes, and colors thanks to its coatings expertise, Binnie added. He also explained that paper-based packaging is also seen by marketers as more environmentally friendly and often more upmarket than plastic options.

Sappi wanted its packaging division to contribute 25% of earnings before interest, taxes, depreciation, and amortization (ebitda) by 2020, from 18% now,  Binnie said. The company was targeting 40% of ebitda from dissolving pulp by the same date, leaving graphic paper at 25%, plus an additional 10% from new businesses. Coated paper accounts for 47% currently, with dissolving pulp at 35%.

Significant investments would have to wait until Sappi reached its debt-reduction target of two times ebitda, which Binnie said was achievable by 2017. Sappi had already reduced net debt from a peak of $2.8 biullion in the third quarter of 2009 to $1.9 billion at the end of June. That should decline to $1.8 billion by the end of this month, Binnie concluded.

Binnie has been CEO since July of 2014.

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