Paper and pulp manufacturer Sappi reported a loss of $33-million for the third financial quarter of the year, compared with the profit of $51-million reported for the third quarter of its 2024 financial year.

The group faced a challenging period, characterised by ongoing global economic weakness and heightened uncertainty stemming from persistent trade and tariff tensions, CEO Steve Binnie explains.

“Sales volumes were impacted on by the ramp-up of the Somerset Mill PM2 project. As a consequence, the group delivered adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) of $80-million,” he says.

This was a decrease from the $148-million Ebitda reported for the prior comparable period.

Sappi further reported an adjusted loss a share of $0.04 for the quarter ended June 30, compared with adjusted earnings a share of $0.09 in the prior comparable period.

Net debt of $1.95-billion was $277-million above the second quarter owing to net cash used for the quarter of $136-million and a negative currency translation effect of $114-million owing to a substantially weaker dollar on the group’s euro-denominated debt.

The net cash used for the period was owing to the weak operating performance, a working capital outflow of $22-million and capital expenditure of $129-million, which included scheduled maintenance shuts and expenditure associated with the Somerset Mill PM2 conversion and expansion project.

The macroeconomic pressures weighed heavily on selling prices across many of Sappi’s product categories, with dissolving wood pulp (DWP) especially experiencing significant downward pricing pressure, Binnie points out.

The Somerset Mill PM2 conversion and expansion project in North America was completed in early May and impacted on Ebitda for the quarter by about $22-million owing to the extended shut on the machine prior to this date. Subsequently, startup volumes were at low levels, in line with the planned ramp-up projections, further impacting quarterly sales volumes.

Binnie highlights a key milestone for this quarter as the successful startup of the Somerset Mill PM2 line. The startup occurred later than originally planned, owing to unexpected delays and costs, Binnie told Engineering News.

Despite this, ramp-up progress and customer qualification trials were noted as encouraging, with very good initial market feedback on product quality.

The conversion of Somerset Mill PM2 from 235 000 t/y of coated wood-free paper to 470 000 t/y of paperboard is highlighted as a significant step in advancing Sappi’s strategy to reduce reliance on declining graphic paper markets and driving growth in the packaging and speciality paper segments.

SOUTH AFRICA 
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.

Binnie says this has since been resolved, and the group is eager for increased demand, with a bullish outlook for citrus over the next few years. 

However, the country’s agriculture sector is concerned about the impact of the 30% US export tariff. Binnie does not expect this to have a major impact on the group, as less than 10% of overall export volumes are to the US.

The group’s profitability in the South African region improved compared to the previous quarter but remained below the prior year’s level, mainly owing to lower regional sales volumes, increased variable costs, and a sharp decline in DWP selling prices.

The forestry fair value price adjustment for the quarter was a loss of R179-million.

Despite the high levels of market uncertainty, demand for Sappi’s DWP remained steady with sales volumes comparable to the previous year.

However, rand-denominated selling prices were 5% lower year-on-year, which in combination with increased costs, led to margin compression for the segment.

OUTLOOK
Sappi’s outlook is more positive for the next quarter, Binnie told the publication, with the Somerset Mill PM2 ramp-up and the anticipated operational efficiency improvements expected to support higher adjusted Ebitda, despite tariff impacts and ongoing volatility in global markets.  

Within the context of the group’s elevated net debt levels and ongoing macroeconomic uncertainty, Sappi remains firmly focused on preserving liquidity and strengthening cash flow.

Non-essential capital expenditure (capex) has been deferred where possible, resulting in a reduction of the full year capex forecast from $550-million, as estimated in the second quarter, to $510-million.

Also, the board has determined that there will be no dividend declared for the full year.