Despite reporting significant losses amid a challenging global environment for woodfibre producers, paper and packaging giant Sappi is upbeat about their South African operations, which remain a bright spot in their portfolio.
“Ultimately, we have a very strong South African business, and I think with the opportunities for growth going forward, that will continue to be the case,” said Sappi CEO Steve Binnie.
The company said its South African business delivered a “satisfactory performance within the context of challenging global paper market conditions”, generating R26.18bn in revenue with adjusted EBITDA (earnings before interest, taxes, depreciation & amortisation) of R5.2bn for the year.
However, South Africa only accounts for 30% of Sappi’s total revenue, as the remaining 70% is generated across Europe, the US and other markets. Globally, the company posted adjusted EBITDA of R8.7bn ($501m), a 27% decline from last year, with revenue largely flat at R94.2bn, resulting in a R3.1bn loss in FY2025.
Binnie said challenging global conditions, declining prices, and persistent trade tensions created a difficult environment for Sappi, disrupting markets and adding costs and uncertainty.
The company was focusing on internal measures to reduce debt and strengthen its balance sheet, including a roughly R5bn cut in annual capital expenditure over the next two years, and the suspension of the 2025 dividend to preserve cash, he said.
The relative strength of South African operations was supported by the performance of the company’s two main production areas in the region: dissolving wood pulp, primarily sold to China for use in clothing manufacturing, and packaging for citrus fruit exports.
Demand and volumes for dissolving wood pulp remained strong despite declining selling prices because there are few producers worldwide, and South Africa remains globally competitive, he said.
Binnie also highlighted the growth in citrus exports, noting that experts project the sector to expand by 6-8% annually over the next four to five years. “It’s a very exciting opportunity [with] Sappi being the supplier of the packaging. We stand to benefit from that.”
We do think profits will increase progressively across the new year.
— Steve Binnie, Sappi CEO
However, the picture is different abroad.
According to Packaging Dive, several North American paper and packaging companies have closed facilities this year, contributing to a 6% reduction in containerboard production capacity in 2025.
In contrast, Sappi has moved in the opposite direction, completing its R8.67bn Somerset Mill PM2 conversion and expansion project in North America. The upgrade transformed the mill from graphic paper to packaging production, doubling its capacity from 240,000t to 480,000t.
As a result of this conversion, sales volumes for packaging and speciality papers increased 22% compared to the previous year. However, the segment’s profitability remained below the previous year’s levels due to lower pricing in weak market conditions and higher costs.
“The acceleration of the profit is probably a little bit slower than we thought it was going to be 18 months ago, but we do think profits will increase progressively across the new year,” said Binnie.
The packaging segment in the US was growing at around 2.2% per year, partially driven by the economy there and owners of big brands looking to replace plastic with paper.
Binnie also noted that the graphic papers segment, used for advertising, marketing, brochures, and high-end magazines, faces a structurally declining market in the digital age. By contrast, sustainable packaging presents a growing opportunity as demand shifts.
He added that the shift toward sustainable packaging had created opportunities in Europe, though the region remained challenging and could benefit from further consolidation.
“We’ve got a great South African business. We’ve got a great American business. Europe is a tough place to do business. There’s excess capacity, and we’re focused on reducing our costs,” he said.
Despite challenges overseas, Sappi’s liquidity remained healthy at year’s end with cash on hand of R3.8bn and R10.4bn from unutilised committed revolving credit facilities in South Africa and Europe.
Binnie said they anticipated further pressure on profits in the first quarter of 2026. “Taking into account the confluence of market factors and the scheduled maintenance shut at the Somerset Mill, we anticipate that the adjusted EBITDA for the first quarter of FY2026 will be below that of the fourth quarter of FY2025.”
“Our belief is that markets will gradually get better as 2026 unfolds. On top of that, obviously, we’ve got the ramp-up of the new machine, which will also boost profitability. I don’t think it’s going to be a sharp macroeconomic recovery. I think it’s going to be gradual.”
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