Sappi reports strong earnings for the year, defying market volatility

SOUTH AFRICA – Sappi, a major player in paper and dissolving wood pulp (DP) manufacturing, exceeded expectations for its financial year ending September 30, despite a 6.4% year-on-year drop in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to US$684 million.

This achievement came against a challenging backdrop of weak consumer confidence, geopolitical instability, and a slow economic recovery.

CEO Steve Binnie highlighted the strong performance of Sappi’s pulp segment, which drove record profits in South Africa.

The segment contributed US$33 million to the group’s profit, down from US$259 million the previous year.

The South African region reported an adjusted EBITDA of R2.03 billion (US$112.99m), marking its third consecutive record performance.

Sappi declared a dividend of US$0.14 per share, slightly down from US$0.15, and adjusted earnings per share were US$0.41 compared to US$0.52 last year.

While demand for graphic paper continued its structural decline and is projected to drop by 6% to 8% next year, DP demand held steady, especially in the second half of the year as prices rebounded.

Binnie noted that high global inflation and interest rates initially dampened DP demand in 2023, but recent months have shown a normalization in demand and inventory levels.

He expects DP demand to strengthen as global interest rates ease and economic conditions improve.

Sappi responded to global overcapacity by reducing its production in Europe, aligning with market demand forecasts, and will further scale back in 2025.

In North America, Sappi’s Somerset PM2 project, which converts graphic paper machines to produce bleached paperboard, is expected to add 470,000 tonnes of solid bleached sulfate capacity annually to the U.S. market.

This move aims to capitalize on the favourable long-term outlook for sustainable packaging and speciality paper products, especially in South Africa and North America.

However, while DP demand remains robust, paper pulp markets have faced pressure due to rising production capacity and soft downstream demand.

Sappi’s operational strategies are focused on managing capacity, controlling costs, and adjusting pricing strategies amid supply chain instability and fluctuating input costs.

Looking forward, Binnie anticipates that Sappi’s first-quarter adjusted EBITDA for the 2025 financial year will improve compared to the same period in 2024.

Capital expenditure for the past year reached US$458 million, with net debt rising to US$1.4 billion due to the Somerset PM2 project, two European mill closures, and a US$63 million currency translation impact.

Sappi has budgeted US$500 million for capital expenditure for the coming year, including US$157 million to complete the Somerset PM2 project by April 2025.

Despite these investments, Sappi maintains a strong liquidity position, with US$317 million in cash and US$692 million in unused credit facilities in South Africa and Europe.

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