Sappi updates investors on financial strategies after Q3 results

Sappi’s share price nudged up 5.1% on the JSE on Friday after investors likely took heart from an update on the global paper and packaging group's actions since it released weak third quarter results.

The share price closed at R21.65, which is a far cry from the R50.39 it traded at a year ago, but the low price is also symptomatic of the financial positions of at least two global paper and packaging groups, Sappi and Mondi, which have both recently posted weaker financial results due to a sector that is at the bottom end of a structural adjustment and price cycle. Mondi’s share price of R105.29 on Friday was also over 41% lower than a year ago.

In August, Sappi reported a $33 million loss for the third quarter to June 2025, versus a $51m profit at the same time a year before, but it anticipated a better fourth quarter result. Earlier this month, Mondi reported third quarter earnings before interest, tax, depreciation, and amortisation down by 22.9% over the second quarter after volumes were impacted by subdued demand and lower paper selling prices.

Sappi said in an update on Friday that its leverage ratio was currently elevated due to a peak in debt after completing the Somerset PM2 conversion and expansion project, a weak dollar impacting the translation of Euro-denominated debt to dollars, pricing headwinds across a number of product segments, and the generally tough global macroeconomic environment.

“While these conditions have created a more complex operating environment, we remain confident in the underlying strength of our business and the resilience of our operations,” Sappi’s directors said.

They said their immediate focus was on internal factors within the company’s control, primarily the reduction of debt and strengthening the balance sheet. “To this end, we are intensifying efforts to enhance our financial flexibility,” they said.

To support efforts to reduce debt, capital expenditure had been reduced for the next two years, with no expansionary capital expenditure anticipated during this period. In addition, the board had decided to suspend the dividend for fiscal 2025 to preserve cash.

Proactive actions taken to maintain financial flexibility include the preservation of cash - group liquidity stood at more than $800m in cash and committed revolving credit facilities.

In addition, the group’s banks had unanimously supported increasing leverage covenant levels for the next 12 months to provide additional headroom during “this temporary period of elevated leverage.”

Discussions with the banks would also start shortly to further extend the revolving credit facilities, “which we expect to be finalised very early in 2026,” the directors said. Good progress was also being made to term out a large portion of the short-term debt with a new five-year term facility.

“Sappi is a well-capitalised business with a proven ability to adapt and respond to market cycles. We remain focused on navigating the current operating environment with discipline and transparency,” Sappi’s directors said.

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