Wrap Text
Results for the third quarter ended June 2025
Sappi Limited
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI
("Sappi" or "the Group")
Results for the third quarter ended June 2025
Quarter ended Nine months ended
% %
US$ million Jun 2025 Jun 2024 Change Jun 2025 Jun 2024 Change
Revenue 1 321 1 370 -4% 4 031 3 994 1%
Adjusted EBITDA 80 148 -46% 390 458 -15%
EBITDA excluding special
items 71 151 -53% 363 490 -26%
Profit (loss) for the period (33) 51 N/M 17 (46) N/M
Net debt 1 947 1 340 45% 1 947 1 340 45%
Headline EPS (US Cents) (5) 7 N/M 4 (8) N/M
Basic EPS (US Cents) (5) 9 N/M 3 (8) N/M
Adjusted EPS (US Cents) (4) 9 N/M 11 26 -58%
Net asset value (US Cents) 406 405 0% 406 405 0%
N/M - Not meaningful
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 bio-energy. 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(1)
The group faced a particularly challenging quarter, marked by ongoing global economic
weakness and heightened uncertainty stemming from persistent trade and tariff tensions.
These macroeconomic pressures weighed heavily on selling prices across many of our
product categories, with dissolving wood pulp (DWP) in particular experiencing significant
downward pricing pressure. Operationally, the Somerset Mill PM2 conversion and expansion
project was completed in early May 2025 and impacted EBITDA for the quarter by
approximately US$22 million due to the extended shut on the machine prior to this date.
Subsequently, start-up volumes were at low levels, in line with the planned ramp-up
projections, further impacting quarterly sales volumes. As a consequence of these negative
factors, the group delivered Adjusted EBITDA of US$80 million. The forestry fair value price
adjustment for the quarter was a loss of US$9 million.
DWP markets faced challenging conditions during the quarter. While demand is typically
seasonally weaker during the third quarter, sentiment across the textile value chain
was further dampened by uncertainty surrounding potential US tariff threats. In addition,
China's deflationary environment and low paper pulp prices encouraged swing mill producers
to increase DWP production. This contributed to a supply-demand imbalance and a short-term
oversupply of DWP in the market. Consequently, the Chinese hardwood DWP market price(2),
fell US$100/ton to end the quarter at US$800/ton.
Despite the headwinds, demand for Sappi's DWP remained stable. Sales volumes for the pulp
segment were 4% below the prior year due primarily to reduced external sales of high yield
pulp from the Matane Mill as we increased internal integration into our North American
packaging papers business. Additionally, a scheduled maintenance shutdown at the Cloquet
Mill, absent in the prior year, contributed to higher costs.
Demand across global packaging and speciality papers markets remained muted, weighed
down by lingering economic challenges and cautious consumer behaviour. Competitive
pressures in Europe intensified, largely due to oversupply across all product categories. In
South Africa, while local containerboard demand strengthened with the onset of the citrus
season, sales were constrained by low inventory levels following extended downtime at the
Ngodwana Mill in the previous quarter. While segmental sales volumes and pricing were
stable year-on-year, profitability was negatively impacted by substantially higher costs,
primarily associated with the start-up of Somerset Mill PM2. Selling prices in North America
were negatively impacted by softer market conditions and a shift in product mix ahead of the
Somerset Mill ramp-up. As a result, the segment's profitability was significantly lower than
the equivalent period last year.
The graphic papers segment continues to navigate long-term structural decline, with global
oversupply amplifying pricing and competitive pressures. Ongoing uncertainty around
potential US tariffs added to the challenges, disrupting supply chains and creating further
headwinds. Despite these dynamics, Sappi sales volumes outperformed broader market
contraction, reflecting strategic efforts to defend and grow market share. In North America, the
delayed start-up of Somerset Mill PM2 created operational disruptions and resulted in reduced
production and higher costs for the graphic papers asset at the site.
Adjusted earnings per share for the quarter was a loss of 4 US cents, below the profit of
9 US cents in the prior year and reflective of the challenging operating conditions in the
quarter. Special items reduced earnings by US$2 million.
Cash flow and debt
Net cash utilised for the quarter of US$136 million was due to the weak operating
performance, a working capital outflow of US$22 million and a capital expenditure of US$129
million, which included scheduled maintenance shuts and expenditure associated with the
Somerset Mill PM2 conversion and expansion project.
Net debt of US$1,947 million was US$277 million above last quarter. This was due to the net
cash utilised as discussed above, and a negative currency translation effect of US$114 million
due to a substantially weaker US Dollar on our Euro-denominated debt. Liquidity comprised
cash on hand of US$203 million and US$599 million from the committed revolving credit
facilities (RCF) in South Africa and Europe.
The increase in net debt and recent lower EBITDA has resulted in an increase in the leverage
ratio to 3.2 times as at June 2025. The leverage ratio typically fluctuates in line with Sappi's
capex cycle. Although the major expansion at Somerset Mill is now behind us, the peak in net
debt associated with this expansionary capex cycle is occurring at a time of volatile and weak
macroeconomic conditions. The current increase in the leverage ratio does not change our
strategy to target an absolute net debt level of less than US$1 billion. The primary focus in
fiscal 2026 and 2027, in the absence of major capex projects, will be to reduce net debt and
leverage towards our stated targets.
Outlook
Escalating tariff-related trade tensions between the United States and key global trading
partners continue to contribute to significant uncertainty in the international economic
landscape. We are closely monitoring these developments and their potential adverse effects
on trade flows and consumer demand across our core markets. While these conditions may
negatively affect our financial performance, we remain focused on maintaining agility and
strong cost discipline to navigate any resulting challenges.
The textile and apparel sector, which is a key driver of DWP demand, remains highly sensitive
to ongoing trade tensions and inflationary pressures. Weak textile fibre prices, including VSF,
and low paper pulp pricing have intensified pressures on DWP. However, the outlook for global
DWP demand remains positive and the current Chinese hardwood DWP market price is below
the industry marginal cost. Therefore, we are cautiously optimistic that prices will recover in
the year ahead particularly as the Chinese market price has recently risen to US$810 per ton.
Despite short-term volatility, our DWP business remains well positioned to benefit from long-
term structural demand growth.
The fourth quarter outlook for the packaging and speciality papers segment is centred on the
commercial ramp-up of the Somerset Mill PM2 project. As expected during this phrase, near
term, profitability will be negatively impacted while we optimise operational efficiencies and
increase capacity utilisation. Strategically, we aim to optimise our product portfolio mix and
position the North American business to capture long-term growth opportunities as
market conditions improve. Demand for containerboard in South Africa remains healthy, while
in Europe our focus is on managing capacity utilisation, strengthening our competitive cost
position, and completing the Alfeld Mill consultation process.
Demand for graphic papers continues to decline, in line with the structural trend. Our strategic
focus remains on proactively managing capacity utilisation and driving cash generation from
our assets. Efforts to grow market share are delivering positive results, with year-on-year
gains reinforcing our competitive position in this challenging environment.
Trade tensions and overcapacity in global paper pulp markets are exerting downward
pressure on prices, which is expected to benefit our paper businesses in Europe and North
America, where we are not fully integrated. Furthermore, with no maintenance shutdowns
planned for the fourth quarter, we anticipate improved operational efficiencies across our mills.
We further anticipate that the forestry fair value price adjustment will be positive.
Within the context of our elevated net debt levels and ongoing macroeconomic uncertainty,
Sappi remains firmly focused on preserving liquidity and strengthening cash flow. We have
implemented a broad range of cost-saving initiatives across our operations and continue to
apply disciplined capital allocation. Non-essential capital expenditure has been deferred
where possible, resulting in a reduction of our FY2025 capex forecast from US$550 million, as
estimated in the second quarter, to US$510 million. This marks the completion of our strategic
investment cycle and capex for FY2026 and FY2027 will be substantially lower. In addition,
the board has determined that there will be no dividend declared for FY2025. Reducing net
debt is our immediate priority and we will continue to assess our capital allocation in line with
our financial position and long-term strategic objectives.
Taking into account current trading conditions, the ongoing trade tariff uncertainty and volatility
in global markets, the ramp-up of Somerset Mill PM2 and the anticipated operational efficiency
improvements, we estimate that Adjusted EBITDA for the fourth quarter of FY2025 will be
above that of the third quarter.
On behalf of the board
SR Binnie
Director
GT Pearce
Director
06 August 2025
(1) "year-on-year" or "prior/previous year" is a comparison between Q3 FY2025 versus Q3
FY2024; "Quarter-on-quarter" or "prior/previous quarter" is a comparison between Q3
FY2025 and Q2 FY2025.
(2) Market price for imported hardwood dissolving wood pulp into China issued daily by
the CCF Group.
This results announcement is the responsibility of the directors. It is only a summary of the
information in the full results for the third quarter ended June 2025 and does not contain full
or complete details. Any investment decisions should be based on the full results for the third
quarter ended June 2025 accessible from 07 August 2025 via the JSE link and also available
on the home page of the Sappi website at www.sappi.com.
The JSE link is as follows:
https://senspdf.jse.co.za/documents/2025/JSE/ISSE/SAVVI/SAPQ325.pdf
07 August 2025
JSE Sponsor: RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 07-08-2025 08:00:00
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