Sappi shares plummet 13.66% after wider annual loss

Sappi's shares closed 13.66% lower at R11.25 on Friday, their steepest drop since August 2019, wiping out a 10.33% jump on Thursday and valuing the group at about R6.9bn. The shares have lost more than half their value this year. The significant drop came after Sappi reported a much wider annual loss, with tough conditions across many of its paper categories and the stronger rand weighing on profitability.

Sappi's loss for the year to end-September widened to $747m from $177m a year earlier. Adjusted earnings before interest, tax, depreciation and amortisation (ebitda) fell 41% to $294m, while the headline loss per share widened to 69 US cents from 15c. The company attributed the poor performance to a difficult and volatile operating environment, with persistent macroeconomic headwinds, geopolitical disruptions, and cost inflation.

The pulp segment faced several headwinds during the year, with profitability declining year on year, primarily due to lower selling prices early in the year and the adverse exchange rate effect in South Africa. Pulp segment sales volumes decreased 3%, with dissolving wood pulp (DWP) sales volumes down 4%. Average dollar selling prices for the pulp segment remained 6% below the previous year.

In North America, earnings were hurt during the first half by lower operating efficiencies and the slower-than-anticipated ramp-up of Somerset Mill PM2. However, operational performance improved in the second half, with focused operational interventions stabilising production and sales volumes lifting during the second half. The group said demand for DWP remained robust, and pricing recovered in the second half of the year.

To address the challenging environment, Sappi implemented a targeted cost savings programme, liquidity management, capital allocation discipline, and a focus on driving operational performance. The group also engaged its lending group during the fourth quarter to ensure continued financial flexibility, securing the suspension of covenant testing under its international revolving credit facility and bank term debt until June 2027.

Despite the current challenges, Sappi expects conditions across several key product categories to improve, supported by firmer pricing dynamics. The group continues to engage with the European Commission on its proposed graphic papers joint venture with UPM, having submitted remedy proposals on November 4. A decision is expected early in January.

Looking ahead, Sappi expects adjusted ebitda for the first quarter of the 2027 financial year to be below that of the fourth quarter, due to current market conditions, scheduled maintenance shutdowns, and the effect of elevated oil prices on raw material and logistics costs.

Key points

• Sappi's shares fell 13.66% to R11.25, their steepest drop since August 2019.
• The company's annual loss widened to $747m from $177m a year earlier.
• Sappi expects adjusted ebitda for the first quarter of the 2027 financial year to be below that of the fourth quarter.