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SIMON BROWN: I’m chatting with Steve Binnie. He is CEO of Sappi. We had second-quarter and half-year results to March 2026. Revenues of 3%, adjusted earnings per share a loss of eight US cents but adjusted Ebitda [earnings before interest, taxes, depreciation, and amortisation] $52 million.
Steve, appreciate the time. I want to dig into numbers, but something that really struck me – you and I over the last year have been talking, and a lot of it has been around tariffs. Tariffs haven’t been all bad for you, because you’ve got US operations.
Things have now changed. It’s now an energy story. But you made the point that many of your operations are energy self-sufficient. How much is energy pricing hurting Sappi at this point?
STEVE BINNIE: Tariffs, as we did talk about last year, weren’t necessarily all bad. But things have shifted. And specifically with the Iran war now, as you say, energy costs have been rising and logistics costs – I’ll come back to logistics.
Just specifically on the energy, in South Africa we are probably about 70% self-sufficient. But even the 30% that we have to buy from Eskom is, as you know with everybody else, very expensive and it’s been rising each year. And when you combine that with the rising costs of oil – and for example we’re a big diesel user. We have to move the tanks from the plantations to the nodes.
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And then when we export our products, it has an impact on our shipping. So it has had a vast impact on us,
What exacerbates the situation, unfortunately, is we are a second manufacturer. When the rand gets stronger and the dollar gets weaker – and we invoice in dollars – it squeezes our margins further. So unfortunately on the cost side we have a bit of a perfect storm underway at the moment.
SIMON BROWN: I take your point. The currency is not operational, but it’s accounting, as you point out. Broadly – I mentioned there was $52 million of Ebitda and broadly volumes increasing, but pricing is under some pressure if you look sort of across and we’ll delve into some of the sectors. But that seemed to be the theme across.
STEVE BINNIE: Indeed. Selling prices across all our segments have been under pressure. Perhaps the main one which impacted on profitability was dissolving pulp. Partially, it was the tariffs issue that you referred to earlier.
And across all our segments things have been decreasing. DP [dissolving pulp] prices were over $100 a tonne less than a year ago, and we sell 1.2 million tonnes a year. So a vast impact.
But it’s not just there – even on packaging. And the global consumer is under pressure. It puts pressure on the FMCG [fast-moving consumer goods] companies. And ultimately, although volumes are increasing, selling prices have been dropping and once again squeezing on our margins.
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SIMON BROWN: Have you seen that? Of course this is to the end of March, so you would have had the March period with the higher energy costs. And the impact, to the point you just made there, will often be to your customer perhaps more than you, and therefore reduce orders from them as they see sort of challenges – and challenges with their customers. It’s that sort of knock-on effect that ends up at your door. Have you seen that already in March?
STEVE BINNIE: Yes. Even for us, our costs have been rising. Logistics costs are long, as are shipping costs. And with all the turmoil going on, probably in a quarter it’s going to increase by as much as $20 million.
Not only that, but we also use various chemicals in our production processes. Some of them are oil derivatives – for example latex. And we use a lot of sulphur. These have been rising substantially since the war began.
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Some of it is because product is trapped on ships, and it has meant that there’s less supply available globally, and there’s a frantic push by various industries to get their hands on this product. But then because some of them are oil derivatives and the fact that oil prices are rising, that has magnified the impact.
SIMON BROWN: Gotcha. In North America paperboard volumes are up or 27% year on year. This is a ramp up of the Somerset Mill. You made the point that perhaps the ramp up was slower than expected, but it’s a significant milestone for Sappi and something that’s going to be a significant part of the future of Sappi.
STEVE BINNIE: That’s right. We made a big investment. It was completed last year and the initial ramp-up of volumes was a bit slower than expected. But I was very pleased with how it accelerated, particularly towards the end of the quarter. And, as we’re post the quarter end we’re seeing further improvements. So that is a strong positive sign for us moving forward.
I guess the challenge, like everything else, is that selling prices unfortunately are under pressure at the moment.
SIMON BROWN: Europe saw underlying profitability benefitting from sales volumes and, you say, fixed-cost savings initiatives there. Again you’re managing what you can manage.
You also have the proposed joint venture. Where is that JV in terms of the legal process?
STEVE BINNIE: Yes, we have just received notification from the competition authorities that it’s moving into phase two, which really involves a more in-depth investigation on their part. That was expected.
I would say overall as things are progressing very much as we anticipated, we think we’ve got a strong case. But they’ve got to do their work, and we expect it to be completed by close to the end of the calendar year.
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SIMON BROWN: Okay. It’s a container board of sales. I always ask this because of course you’ve got the agricultural sector. We’ve got the 2026 citrus season. This gives us an ability to get some sort of insight into that season. How has its container board been?
STEVE BINNIE: Yes, it’s interesting. The container board volumes – that’s a consistent theme with what I’ve been saying on other segments, but volumes have been pretty good. You’ve probably seen the data on citrus exports out of South Africa being very, very strong. And we’ve benefitted from that.
Unfortunately, once again, the global markets do have an impact on South Africa, as does the rand. So what’s happened is that, because prices have dropped in places like Europe, it’s had a knock-on effect and we have seen a bit of paper packaging imports into South Africa. And with the rand being stronger, it does make imports more attractive.
Having said that, I’m very optimistic about volumes going forward and I do think profitability can improve over the next few quarters in the container board segment.
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SIMON BROWN: A last question. You had a $267 million impairment. Much of that was European graphic paper. That makes perfect sense to you, and I’ve chatted much around that. Is there much more impairment in that space?
And the second part of the question – $110 million was plantation revaluation. My sense around the revaluation is that it can move in both directions.
STEVE BINNIE: Yes, that’s right. Firstly, on the impairments, it was predominantly Europe, as you said, and it’s predominantly the assets that we’re going to be selling into the joint venture.
So we knew we were going to be taking impairments and ultimately, when the transaction is completed, the full impairment will come through. The accounting rules dictate you have to do a value now.
We took some of the impairment upfront on the forest evaluation – and I know I keep coming back to the same theme – interestingly when you value your forests, it’s based on timber prices.
South Africa’s a big exporter of timber – not Sappi but other producers. And the dollar export price is unchanged. This is all about the rand/dollar currency move. So when you convert that back into rands, it meant that we had to fair value our forests downwards.
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SIMON BROWN: Gotcha. So nothing to do with the forest, everything to do with the currency. It’s accounting.
We’ll leave it there. Steve Binnie, Sappi CEO, always appreciate the insights.
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