Sappi reported a sharp deterioration in financial performance for the quarter ended December 2025, reflecting weaker global demand, lower product prices and adverse currency movements. The JSE-listed woodfibre-based products and packaging group generated earnings before interest, tax, depreciation and amortisation of $90m, down from $203m a year earlier. The company also recorded a net loss of $37m for the quarter, compared with a profit of $70m in the prior period, while loss per share widened to $0.03 from earnings of $0.14 previously.
Trading conditions remained difficult across all major regions, with macroeconomic pressure, subdued consumer confidence and industry overcapacity driving price declines in most product categories. In Southern Africa, profitability was weighed down by lower dissolving wood pulp prices and a stronger rand against the dollar, which reduced export earnings when translated into local currency. Currency effects have become increasingly significant for producers selling into dollar-denominated global markets, particularly as the rand has strengthened against the US currency over recent months.
Operational challenges in North America added to the pressure. Scheduled maintenance at Sappi’s Somerset Mill and further unplanned disruptions constrained output and lifted costs, affecting sales volumes and margins. These disruptions coincided with a slower-than-expected ramp-up of the conversion of Somerset Mill’s PM2 machine to paperboard production, which reduced fixed-cost absorption at a time when demand in the paperboard market was already soft.
Although group-wide cost-saving initiatives and energy refunds in Europe provided some relief, they were insufficient to offset weaker pricing and lower operational efficiency. Consumer confidence remained muted in all regions in which the group operates, reinforcing the downward pressure on prices across pulp, packaging and paper segments. According to Fastmarkets, global pulp prices were under sustained pressure during the quarter due to oversupply and cautious purchasing by downstream users, particularly in textiles and packaging.
Demand for dissolving wood pulp remained comparatively stable, supported by strong operating rates in the viscose staple fibre industry and low inventories along the value chain. Pulp sales volumes increased by 10% year on year, driven by a 13% rise in dissolving wood pulp volumes. However, this was more than offset by pricing weakness, with average dollar selling prices 12% lower than a year earlier. Hardwood dissolving wood pulp prices declined by about $33 a tonne during the quarter to around $785 a tonne, reflecting subdued textile fibre pricing and substitution towards cheaper paper pulp by some producers.
In packaging and speciality papers, sales volumes improved by 6%, supported by growth in all regions. South African containerboard demand remained relatively resilient, but paperboard markets in North America and Europe were affected by weak consumption and excess supply. Profitability in the segment declined as prices fell by 4% year on year and costs rose due to maintenance shutdowns, operational issues and the ongoing ramp-up of the converted Somerset Mill machine.
Graphic papers continued to face structural decline, with sales volumes falling by 9% compared with the previous year following capacity reductions in North America. Global oversupply and falling demand kept prices under pressure, although North American prices proved more resilient than those in Europe because of a tighter regional supply-demand balance. Despite this, production disruptions in North America reduced margins and overall segment profitability.
The weaker operating performance translated into higher leverage. Net debt increased to $1.95bn from $1.4bn a year earlier, pushing the group’s Ebitda leverage covenant to 4.9 times, still within revised banking limits. Liquidity was supported by the renewal and expansion of its revolving credit facility to €550m and the addition of a new €200m term loan to refinance short-term debt. Net cash outflow for the quarter was limited to $3m, helped by lower capital expenditure and a working capital inflow.
Capital spending was reduced as part of Sappi’s Back to Basics strategy, which prioritises essential maintenance and balance sheet protection in a weak macroeconomic environment. Capex for the quarter fell to $56m from $101m a year earlier, when spending included payments related to the Somerset Mill conversion project. Cash on hand and undrawn facilities remained sufficient to cover near-term requirements.
Looking ahead, the company expects conditions to remain difficult as geopolitical tensions, weak global growth and volatile currencies continue to disrupt markets and restrain consumer demand. According to World Bank, global manufacturing activity and trade volumes remain under pressure from tighter financial conditions and fragile confidence, which is likely to weigh on commodity-linked industries such as pulp and paper. Sappi expects its second-quarter Ebitda to be lower than the December quarter and has guided for full-year capital expenditure of about $260m.