South African-based multinational Sappi delivered far more robust results than anticipated during its final quarter, catching investors by surprise with the full-year results to end September released today. CEO Steve Binnie chats to BizNews editor Alec Hogg about the R32bn wood-fibre group’s transformation into global leadership in a new area – and a $400m investment into a US plant that may well benefit from the result of the presidential election’s result.
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By BizNews Reporter
Sappi, the South African-based global leader in wood-based products, surprised the market with exceptionally strong financial results for the year ending September, far exceeding analysts’ expectations. The positive surprise, which sent the company’s share price up by 9%, was a key talking point in a recent interview with CEO Steve Binnie, who discussed Sappi’s strategic transformation, its focus on sustainability, and the challenges it faces in the global market.
Resilience Amid Challenges
When asked about the key factors behind the surprise performance, Binnie reflected on the difficulties faced in 2023 and the company’s recovery in 2024. He noted that while the pulp segment performed well, benefiting from a strong rebound, the paper segment showed a slower recovery. However, significant internal efficiencies and cost-cutting measures across the business helped deliver better-than-expected results. According to Binnie, Sappi’s ability to take substantial costs out of the business, both fixed and variable, has been instrumental in their financial success.
“2023 was a tough year for us, but we’ve seen a progressive improvement as we moved into 2024,” Binnie explained, emphasizing how Sappi has navigated through global headwinds and is now seeing a positive turn in its financial trajectory.
A Changing Industry Landscape
Sappi, like many companies in the forestry sector, faces the challenge of adapting to an evolving marketplace, where digitalization and synthetic alternatives are reshaping traditional industries. However, Binnie explained that Sappi has been actively transforming its business over the past decade to reduce dependence on traditional graphic paper products, which once made up 80% of the company’s portfolio.
The company has focused on two key growth areas: textiles and packaging. Sappi is the world’s largest producer of dissolving pulp, which is used in the textile industry, especially to produce rayon, a high-end fabric that competes with cotton. Rayon’s natural fiber base positions it as a more sustainable alternative to fossil-fuel-derived polyester, making it an attractive growth segment. The dissolving pulp market is expanding at around 6% annually, and Sappi’s position as a global leader in the production of this product is fueling its growth.
Another strategic shift has been towards high-end coated paper for packaging, as consumers and industries increasingly seek sustainable alternatives to plastic. This paper is used for premium packaging applications like cosmetics, electronics, and luxury goods. Binnie pointed out that the global trend toward paper-based packaging as a replacement for plastic is creating substantial opportunities.
“Packaging is a growing market for us. It’s no longer just about the brown cardboard used in big-ticket items; it’s about premium, coated paper packaging for high-end goods,” Binnie said, noting that this shift in consumer demand aligns perfectly with Sappi’s capabilities and transformation strategy.
The Strategy Behind Sappi’s Transformation
The decision to shift from traditional graphic paper to dissolving pulp and packaging wasn’t made overnight. As Binnie explains, the process has been a carefully planned journey. The company had to balance significant capital expenditures with maintaining financial stability. When Binnie took the reins at Sappi, the company was burdened with debt from its earlier global expansion efforts. Consequently, the company has had to carefully manage capital allocation, ensuring that it invested in high-growth segments while keeping debt under control.
Binnie credits Sappi’s existing asset base and expertise in wood-based products as key drivers of this transformation. By leveraging its cost-efficiency and existing resources, Sappi was able to pivot toward these higher-margin, higher-growth markets. Binnie emphasized that it wasn’t about abandoning the traditional business but rather about finding new, more sustainable and profitable avenues for growth.
“We couldn’t do it overnight because it costs a lot of money to build new plants and convert machines. It’s been a progressive journey, but a very successful one,” he said.
As part of this transformation, Sappi is moving towards reducing its reliance on graphic paper. The goal is to lower the proportion of its traditional paper business from 45% to 30% over the next few years, a target that Binnie is confident will be achieved by 2027.
Sustainability and Forestry
Sappi’s focus on sustainability is also reflected in its management of timber plantations. The company owns and manages approximately 400,000 hectares of forests in South Africa, primarily consisting of pine and eucalyptus. Binnie explained that Sappi’s approach to forestry is designed to be sustainable. For example, they harvest around one-eighth of their eucalyptus plantations each year, with the same amount being replanted, ensuring a continuous, renewable supply of raw materials.
While the company’s forestry operations in South Africa are constrained by geographical and climatic factors, Sappi remains committed to sustainable practices, which help support the long-term viability of the business.
Navigating Geopolitical and Operational Challenges
Despite its strong performance, Sappi faces external challenges, including supply chain issues, geopolitical instability, and global economic uncertainty. Binnie acknowledged the ongoing struggles in South Africa, particularly with Transnet, the state-owned logistics company. While things are improving, the logistics problems have added substantial costs and inefficiencies to Sappi’s operations.
“Our biggest concern at the moment is Europe. The war in Ukraine has driven up energy prices and raw material costs, making our operations there less efficient,” Binnie said, highlighting the challenges that global geopolitical instability poses to Sappi’s European business. He expressed cautious optimism about the global economy, pointing to stimulus packages from China and falling global interest rates as factors that could benefit the business in the coming years.
On the U.S. front, Binnie noted that while the rise of Donald Trump and his administration’s policies could lead to tariffs, it may also offer opportunities for Sappi’s U.S.-based operations. With Sappi’s domestic manufacturing capacity in the U.S., any protectionist measures could actually benefit the company by supporting local production.
Looking ahead, Binnie expressed confidence in Sappi’s future. The company has made significant progress in its transformation, and with markets for dissolving pulp and sustainable packaging continuing to grow, Sappi is well-positioned to capitalize on these opportunities.
“We’re optimistic that 2025 will be better than 2024. Global interest rates are coming down, and we’re seeing signs of recovery,” Binnie concluded.
For Sappi, the path forward will be defined by a careful balance of sustainable practices, innovation, and the continued global expansion of its transformed product offerings. Despite the challenges of the global economy and shifting market dynamics, Sappi’s transformation under Steve Binnie’s leadership has positioned the company for a resilient and sustainable future.
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