Diversified industrial materials group Sappi says it is making progress in its plan to lessen its exposure to the dwindling graphic paper market as it prepares to commission the $418m Somerset mill in the US in 2025.
CEO Steve Binnie said as the paper and packaging group’s strategy gained traction, Sappi planned to use the second half of 2025 and 2026 year to reduce debt, with growth and expansion of its SA packaging capabilities on the cards for post-2027.
“We’ve set ourselves a target of getting our debt back down to about $1bn,” Binnie said. “And with all the great work that we’re doing, by the time we get to the end of the 2026 financial year, we should be reasonably close to those levels.”
For the year to September Sappi recorded $1.42bn (R25bn) in debt, up from $1.08bn in 2023 as the group invested in capital projects which includes $154m of expansionary capex, resulting in increased net debt. “It’s not because of operational issues,” Binnie said.
In the fourth quarter of 2023 Sappi was able to reduce its net debt to $1.085bn, the lowest level in 30 years. The second quarter of its 2021 financial year was its highest at $2.07bn.
“After the big conversion project that we’ve got under way at the moment, and once that’s fully ramped up, we’re going to be down to about 30% of our business being graphic paper. If you go back seven or eight years it was it was over 70%,” Binnie said. “So we’ve been transforming Sappi.”
In 2023, Sappi initiated the expansion and conversion of its US-based Somerset PM2 from graphic paper to packaging and speciality paper.
The Somerset investment — its largest on record — to transform the factory from making coated wood-free graphic paper to solid bleached sulphate paperboard is in line with Sappi’s plan to expand in the higher-margin packaging paper market.
Somerset will add 470,000 tonnes a year of capacity to Sappi’s packaging paper segment.
The closure of the European Stockstadt and Lanaken Mills during the year, which enabled it to reduce fixed costs, has also reduced its graphic paper capacity.
Confident about growth in its various segments between 2027 and 2030, Binnie said Sappi was mulling expansion projects for its packaging business in SA, where it had named Graeme Wild to lead its Southern Africa unit from December.
Binnie pointed to packaging opportunities in SA to support the growing citrus fruit export industry.
“We’re just trying to figure out the right timing of that,” he said, adding that typically it was more efficient to add from an existing asset base and use expansions and conversions than to acquire a whole new business. “I think we’ve got lots of exciting opportunities to grow in the packaging and pulp spaces.”
The Citrus Growers Association said port inefficiencies continued to be a major hurdle for the citrus industry throughout the previous season. Nonetheless, the industry body said all signs pointed to a rise in volumes throughout the upcoming seasons.
Wood fibre from sustainably managed forests and plantations is used in Sappi production facilities, which frequently use internally generated bioenergy.
While evaluating internal and external opportunities to grow its dissolving pulp segment, the R30bn market cap group will also look to leverage off of the global shift away from plastics.
Highlighting that many of the major fast-moving consumer goods firms in the world were transforming and moving away from plastics to paper, he said Sappi was in a strong position since it was in an industry that was now known for having a sustainable, ecologically friendly supply of raw materials.
Additionally, textiles made from wood-based fibres had a highly positive environmental impact in contrast to the traditional polyester and cotton types that were manufactured using fossil fuels that used a lot of water, chemicals and land, he said.
“That creates opportunities for us. The environmental footprint for wood-based fibres for textiles is very favourable. So the macroeconomic shifts are in our favour.”
Sappi’s share price has risen 12% so far this year.
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