JSE-listed woodfibre-based products and packaging manufacturer Sappi posted earnings before interest, taxes, depreciation and amortisation (Ebitda) of $90-million for the quarter ended December 31, 2025, down from the Ebitda of $203-million reported for the quarter ended December 2024.

It also posted a loss for the quarter of $37-million, compared with a profit of $70-million in the prior comparable quarter.

Similarly, it posted a loss a share of $0.03 for the first quarter, compared with earnings a share of $0.14 reported for the prior comparable quarter, which reflects weaker market conditions and exchange rate headwinds.

Market conditions remained challenging during the quarter with ongoing macroeconomic pressures, subdued consumer confidence and overcapacity driving pricing declines across all product segments, said Sappi CEO Steve Binnie during a briefing on February 4.

In particular, lower dissolving wood pulp (DWP) prices and a stronger rand versus the dollar significantly impacted on profitability in the Southern African region.

In North America, the scheduled maintenance at the Somerset Mill, in the US, and further unplanned operational disruptions affected production, sales volumes and costs.

These adverse impacts were partially offset by ongoing group-wide strategic cost-saving initiatives and the annual energy refunds in Europe, he said.

On top of weaker paperboard markets, in North America, there was a slower ramp-up of the conversion of the Somerset Mill PM2 in the prior year to produce 470 000 t/y of paperboard from producing 235 000 t/y of coated wood-free paper, said Binnie.

There was also ongoing subdued consumer confidence in all the geographies in which Sappi operated. All of these challenges combined to lead to price declines in all the company's major product segments, he noted.

However, demand for DWP continued to be solid, supported by high downstream viscose staple fibre (VSF) industry operating rates and relatively low inventories in the value chain.

Sales volumes for the pulp segment were 10% higher than last year, driven by a 13% increase in DWP volumes.

However, the segment faced substantial pricing pressure with net dollar selling prices 12% below the comparable period in the prior financial year.

Additionally, subdued textile fibre pricing combined with low paper pulp prices, which continued to incentivise paper pulp substitution by some non-integrated VSF producers, contributed to a $33/t decline in the hardwood DWP price during the quarter to about $785/t.

High-yield pulp sales were intentionally reduced owing to low external selling prices and increased internal integration into the paperboard grades in North America.

The higher pulp segment sales volumes were insufficient to offset the stronger rand against the dollar and materially lower prices, which reduced year-on-year profitability of Sappi's pulp segment, said Binnie.

In the packaging and speciality papers segment, sales volumes improved by 6% year-on-year, driven by volume growth in all three regions. Underlying demand for containerboard in South Africa remained healthy but paperboard markets in North America and Europe continue to be challenged by weak demand and oversupply.

However, profitability of this segment was negatively impacted by lower pricing, which was 4% below the comparable period in the prior financial year, and higher costs owing primarily to the scheduled maintenance shut at Somerset Mill, operational disruptions in North America and the ramp-up of Somerset Mill PM2 with its associated low fixed-cost absorption.

Further, graphic papers sales volumes declined by 9% compared with the three quarters to end December 2024, primarily owing to the reduction in capacity in North America after the conversion of Somerset Mill PM2 to paperboard.

The market also continued to face significant headwinds, driven by global oversupply and the ongoing structural decline in demand, which placed sustained pressure on selling prices.

North American prices proved more resilient than those in Europe owing to a tighter regional supply-demand balance. However, the production issues in North America impacted on margins and overall segment profitability declined. Despite this, margins remained above historical trend levels, Binnie said.

Meanwhile, Sappi's net debt increased to $1.95-billion, up from $1.4-billion in the prior comparable quarter, thereby nudging the Ebitda leverage covenant to 4.9-times, which remains within the revised covenants agreed with the banks.

Sappi’s revolving credit facility was renewed and bolstered to €550-million for a five-year term. A new €200-million five-year term loan was taken up to repay short-term debt.

Net cash used during the quarter was $3-million compared with the $62-million used in the comparable first quarter of Sappi's 2025 financial year, largely owing to a working capital inflow of $10-million and lower capital expenditure (capex) of $56-million compared with the $101-million in the quarter to end December 2024, which had included payments for the Somerset Mill PM2 conversion and expansion project.

The reduced capex was part of Sappi's Back to Basics strategy, which prioritised essential spending to maintain asset integrity amid ongoing macroeconomic weakness, said Binnie.

Further, liquidity was well managed and remained satisfactory with cash on hand of $143-million and $608-million from the committed unused revolving credit facility in South Africa and Europe.

Liquidity improved further after quarter-end with the increased international revolving credit facility and the new term loan.

For Sappi's outlook for the year, challenging global macroeconomic environment and persistent geopolitical and trade tensions continued to disrupt market stability and dampen consumer demand, negatively impacting the industry, Binnie said.

“Against this backdrop, we remain focused on executing the Back to Basics phase of our Thrive strategy, closely monitoring external developments while prioritising strong cost discipline, and targeted operational efficiency improvements to strengthen the balance sheet and maintain agility during this period of market weakness,” he said.

A core concern is the weakening dollar against the rand, as well as the lower selling price and how this will impact the industry.

Sappi has forecast capex of $260-million for the financial year to September 30, and it anticipates that its Ebitda for the second quarter – to end on March 31 – will be below that of the December 2025 quarter.

Global trading in paper and packaging is priced in dollars and the weakened dollar is causing concerns for many producers, including Sappi. However, the company has seen a rise in pricing in the past few weeks and it hopes this will fuel a rise in DWP prices, said Binnie.