Sappi has reported significant first-quarter losses, hit by currency headwinds, lower pulp prices and operational challenges, prompting the company to adopt a more defensive, back-to-basics strategy.
The woodfibre-based products and packaging manufacturer posted adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) of $90m (R1.4bn), down 56% from a year earlier. It also reported a loss of $37m, compared with a profit of $70m in the same period last year.
Sappi attributed the losses to sustained challenging market conditions, including macroeconomic pressures, subdued consumer confidence and overcapacity driving pricing declines.
The main concern is the weakening of the US dollar against the rand, and the low selling prices and how that impacts our overall earnings.
— Steve Binnie, Sappi CEO
The company added that lower dissolving wood pulp prices and a stronger rand-dollar exchange rate further weighed on profitability in South Africa. While demand across key product segments remained strong, with a 12% year-on-year increase in sales volumes, this was insufficient to offset lower pricing.
“The main concern is the weakening of the US dollar against the rand, and the low selling prices and how that impacts our overall earnings,” said Sappi CEO Steve Binnie.
He added that the impact was partially offset by cost-saving initiatives, including lower capital expenditure during the quarter. Sappi has reduced its FY2026 capex forecast from $290m to $260m, focusing on essential maintenance and regulatory spend to preserve cash.
Binnie said this approach is part of Sappi’s back-to-basics strategy, which involves “closely monitoring external developments, while prioritising cost discipline, operational efficiency, and strengthening the balance sheet”.
He also noted that the company has “been prioritising essential spend amid this ongoing macro-economic weakness”.
Sappi expects second-quarter earnings to remain below December results, with adjusted Ebitda likely lower than first-quarter levels.
The company said earnings will be affected by a scheduled maintenance shutdown at its Saiccor Mill in Umkomaas, which is expected to reduce profits by $15m. Maintenance and ongoing operational disruptions at its Somerset Mill in North America also slowed the ramp-up of the PM2 conversion last year.
This past December, Sappi announced a non-binding letter of intent with UPM-Kymmene Corporation (UPM) to form a 50/50 joint venture for graphic paper in Europe. The proposed venture will combine Sappi’s European graphic paper operations with UPM’s Communications Paper business in Europe, the UK and the US.
Sappi said this potential venture reflects the long-term structural decline of the European graphic paper industry, facing falling demand, high energy costs, excess capacity and broader macroeconomic pressures.
“The joint venture in Europe is with the ambition of consolidating the industry,” said Binnie. “Ourselves and UPM are the largest players in our segments in graphic paper in Europe, and by combining the businesses, this will enable us to achieve significant synergies, optimise the assets, and ultimately make a stronger, more resilient sustainable business.”
The parties aim to sign definitive agreements in the first half of this year, with completion expected by year-end.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.