Sappi reports 56% earnings slump in Q1 FY2026 amid challenging market conditions

SOUTH AFRICA – JSE-listed forestry and woodfibre group Sappi reported a sharp 56% decline in adjusted EBITDA (aEBITDA) to US$90 million for the first quarter of its 2026 financial year, reflecting difficult global trading conditions in the three months to December 31.

CEO Steve Binnie attributed the weaker performance to macroeconomic pressures, subdued consumer confidence and overcapacity across key product segments, which drove price declines.

Results were further impacted by rand appreciation against the US dollar, scheduled and unscheduled maintenance, and lower dissolving wood pulp (DWP) prices. These were partially offset by cost-saving initiatives and annual energy refunds in Europe.

In North America, a scheduled maintenance shut at the Somerset Mill and additional operational disruptions weighed on production volumes and costs.

The group also recorded a US$9 million forestry fair value loss due to declining domestic wood prices in South Africa.

Despite solid demand for DWP, supported by high operating rates in the viscose staple fibre (VSF) industry and relatively low inventories, pricing remained under pressure.

Pulp sales volumes rose 10% year-on-year, with DWP volumes up 13%, but net selling prices fell 12%.

Hardwood DWP prices declined by US$33 to around US$785 per tonne, as subdued textile fibre pricing and low paper pulp prices incentivized substitution by some non-integrated VSF producers.

In packaging and speciality papers, sales volumes increased 6% year-on-year. Underlying containerboard demand in South Africa remained resilient, but paperboard markets in North America and Europe continued to face weak demand and oversupply.

To preserve cash and strengthen the balance sheet, Sappi has reduced planned capital expenditure for FY2026 to approximately US$260 million.

Liquidity improved after quarter-end following an increase in its international revolving credit facility and a new term loan.

Binnie said the group remains focused on its “Back to Basics” strategy, prioritizing cost discipline and operational efficiency to navigate ongoing volatility.

Sappi also updated the market on its proposed 50/50 joint venture with UPM-Kymmene Corporation, first announced in December 2025.

The transaction would combine Sappi’s European graphic paper operations with UPM’s Communications Paper business in Europe, the UK and the US.

Definitive agreements are expected in the first half of 2026, with completion targeted by year-end, subject to regulatory approvals.

Looking ahead, management struck a cautious tone, forecasting second-quarter aEBITDA below first-quarter levels amid persistent geopolitical and trade tensions.

Despite the weaker outlook, Sappi’s share price rose 5.88% to R19.82 following the results, although it remains significantly below the R45.57 level recorded a year ago.

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