| Imagery Source: Wikipedia |
| Information Source: JSE SENS |
| Our packaging papers, graphic papers, pulp and biomaterials are manufactured from woodfibre sourced from sustainably managed forests, in production facilities which, in many cases use internally generated bioenergy. Many of our operations are self-sufficient. |
| Together with our partners, Sappi works to build a thriving world by acting boldly to support the planet, people and prosperity. |
| Commentary on the quarter |
| Operating performance for the second quarter fell short of expectations, with the Group delivering Adjusted EBITDA of US$107 million. Challenging market conditions prevailed across all segments, driven by heightened uncertainty from potential global trade tensions and a broader economic slowdown, which placed downward pressure on selling prices. Despite these headwinds, year-on-year sales volumes remained stable, with a modest recovery in packaging and speciality paper volumes, underscoring the long-term potential of these markets. While market conditions for graphic papers remained soft, targeted efforts to grow market share delivered positive year-on-year gains. The forestry fair value price adjustment for the quarter was a loss of US$17 million. Amid these macroeconomic challenges, the Group remained focused on optimising asset utilisation and advancing cost-saving initiatives to support future performance. |
| The quarter was negatively impacted by issues that arose during the scheduled maintenance shutdowns in South Africa, which required additional repairs and extended the shutdowns beyond the planned timeline, thereby reducing production for the period. This resulted in an additional financial impact of US$13 million over and above the US$45 million guidance. These issues were resolved, and both Saiccor and Ngodwana Mills are running well post-start-up. The quarter was also affected by the extended shutdown for the conversion and expansion of Somerset Mill PM2 in North America, which was US$20 million as per guidance. |
| Demand for dissolving wood pulp (DWP) remained steady during the quarter, but the typical seasonal boost in demand post Chinese New Year was not observed as textile and apparel markets slowed on the back of increasing geopolitical trade tensions and macroeconomic uncertainties. Viscose staple fibre (VSF) pricing consequently came under pressure, catalysing a US$70 per ton decline in the hardwood DWP market price2, which ended the quarter at US$900 per ton. The profitability of the pulp segment was negatively impacted by the lower production at the Saiccor and Ngodwana mills during the quarter. Although market prices dropped during the quarter, the net average selling price for the segment was above the equivalent period last year. However, this positive year-on-year sales price momentum was offset by lower sales volumes and increased costs resulting from the extended maintenance shutdowns. |
| Graphic paper sales volumes remained relatively stable year-on-year, despite the ongoing structural decline in market demand, reflecting positive market share gains for Sappi. The segment continued to operate in an oversupplied environment, with pricing largely influenced by cost dynamics rather than demand fundamentals. In this context, lower raw material costs compared to last year, particularly for paper pulp, exerted some downward pressure on selling prices, which negatively impacted the profitability of the segment. |
| Sales volumes in the packaging and speciality paper segment increased by 9% year-on-year, reflecting a normalisation of inventory levels and a modest recovery in demand in North America and South Africa. However, overall global demand remained subdued due to persistent macroeconomic headwinds and weak consumer sentiment. Intense competition across all product categories, driven in part by ongoing market oversupply, coupled with deliberate product mix adjustments undertaken in North America to seed the market ahead of the Somerset Mill PM2 commissioning, contributed to a 4% year-on-year decline in average selling price. Profitability was impacted by the extended maintenance shutdown at the Ngodwana mill. |
| Adjusted earnings per share for the quarter were 1 US cent, which was below the 12 US cents in the prior year due to the challenging market conditions and the adverse impacts of the once-off operational challenges experienced during the quarter. Special items reflected a net expense of US$17 million due primarily to US$12 million related to fire and other extraordinary events at our sites, together with the final closure costs for the Lanaken mill of US$4 million. |
| Cash flow and debt |
| Net cash utilised for the quarter of US$207 million was principally due to elevated capital expenditure of US$182 million associated with the scheduled maintenance shutdowns and the Somerset Mill PM2 conversion and expansion project, and a dividend payment of US$85 million. |
| On 19 March 2025, Sappi completed a €300 million bond issuance of 4.500% sustainability-linked senior notes due in 2032. The net proceeds from the offering were used to redeem all of Sappi’s outstanding senior notes due in 2026, with an aggregate principal amount of €240 million, with the remaining funds to be used for general corporate purposes. |
| Net debt of US$1,670 million was US$264 million above last quarter. This was due to the net cash utilised as discussed above, and a negative currency translation effect of US$52 million due to a weaker US Dollar on our Euro-denominated debt. Liquidity comprised cash on hand of US$156 million and US$612 million from the committed unutilised revolving credit facilities (RCF) in South Africa and Europe. |
| Outlook |
| The escalating tariff trade tensions initiated by the United States against key trading partners introduce a high level of uncertainty into the global macroeconomic outlook, which poses risks to our financial performance. We expect the direct impact of the currently proposed United States trade tariffs on our business to be relatively limited. At present, less than 7% of the Group’s sales volumes involve cross-border trade with the United States, limiting our direct revenue exposure to tariff-related risks. Importantly, we maintain a strong domestic presence in the United States, and the paper markets in which we operate are net importers. As a result, tariffs could present a strategic opportunity as downstream participants in the value chain may increasingly shift toward domestic supply. However, the disruption of trade flows related to tariff actions could contribute to global inflationary pressure, which may materially weaken consumer demand across all of our key markets. We continue to monitor these developments closely and remain focused on maintaining operational flexibility and cost discipline in the face of these external challenges. |
| The Somerset Mill PM2 conversion and expansion project was completed in early May 2025, and machine commissioning is in progress. Our strategic focus for the packaging and speciality segment is to execute the commercial ramp-up of the PM2 machine, optimise our product portfolio mix and capture long-term growth opportunities as market conditions improve. |
| The textile and apparel market, with its long and complex supply chain, is particularly vulnerable to ongoing trade tensions and inflationary pressures. Moreover, inflation-driven constraints on consumer spending are likely to dampen demand for discretionary items such as clothing. Demand for VSF and DWP in China has slowed in recent weeks as the value chain assesses the implications of these newly imposed tariffs. This has exerted downward pricing pressure, causing the hardwood DWP market price3 to drop to US$847 per ton in early May. Despite current headwinds, our DWP business remains well-positioned for sustained long-term growth. |
| Demand for graphic papers continues to decline. Our strategic focus in this segment is to proactively manage capacity utilisation and cash generation from our assets. Our efforts to maximise our market share are yielding positive results, with year-on-year gains reinforcing our competitive positioning. |
| Despite current raw material costs being relatively low, potential global inflationary impacts associated with trade tensions pose a risk for our input costs. Maintenance shuts are scheduled for the Cloquet4 and Saiccor mills in the third quarter, which will have a negative impact on earnings of approximately US$20 million. We further anticipate that the forestry fair value price adjustment will be negative due to lower wood market prices in South Africa. |
| Our capital expenditure forecast for FY2025 has risen to US$550 million due to the delay in the start-up and substantially increased labour costs associated with the Somerset Mill PM2 project. We anticipate that net debt will peak in the third quarter as the capital expenditure for the project is completed. We remain committed to disciplined capital allocation, and reducing net debt is our priority for FY2026 and FY2027. |
| Given the uncertainty in our markets due to ongoing global trade tensions and their broader indirect effects on macroeconomic conditions, particularly the tariffs imposed by the US on textile and apparel manufacturers in China which is impacting demand and pricing for DWP, we are adopting a cautious outlook and estimate that Adjusted EBITDA for the third quarter of FY2025 will be at a similar level to that of the second quarter. |
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| Sappi Limited |
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