• Sappi has reported a loss of $73 million in the third quarter due to Covid-19, following changes in consumer behaviour and logistical challenges.
• The paper manufacturing industry has been impacted by the move to digital.
• Sappi’s specialty packaging papers used on products like labels for food packages has been the best performer for the company

Shares in paper manufacturer, Sappi, plunged almost 13% after reporting a quarterly loss on the back of Covid-19 pandemic and falling demand for paper.

The company reported a loss of $73 million (about R1.2 billion at today's exchange rate) for the third quarter to end-June, which CEO Steve Binnie attributed to the pandemic and the lockdowns that followed it that saw changes in consumer behaviour and logistical challenges in South Africa's ports.

"I don’t think the results could have been better under the circumstances with the impact of the virus," he said after presenting the manufacturer's results. On the stock performance, he added that it was "...just a natural reaction."

Sappi, which has operations in Southern Africa, Europe and North America, has seen its stock fall by 39% over the past five years as it grapples with structural changes in its core market. The paper industry has been impacted by the move to digital, particularly for media consumption, and many publications across the globe have had to close down in the past few years. The economic shock of Covid-19 has wreaked havoc on parts of SA's print industry, contributing to the closure of Associated Media Publishing, which includes Cosmopolitan, Women on Wheels and House and Leisure.

Binnie said newsprint demand has declined 60% year-on-year.

“It [graphic paper] seems to have bottomed in June, for the quarter, we were down by 40% but June was the worst month, June was actually down 50%. Since then we have seen a progressive improvement in July,” said Binnie.

He said decline was driven by the low demand in the advertising and media spaces due to the lockdown.  

Despite graphic paper's struggles, Sappi’s packaging and specialities division saw sales volumes increase by 11%. Binnie said the company would continue to look for opportunities in the speciality packaging market.

Jay Vomacka, a portfolio manager at Aeon Investment Management, said speciality packaging was a good space for Sappi to be in.

“Sappi has been so down and out and they have been plagued by issues for so long and they have no growth options whatsoever. They have run out of options, there’s nothing left to buy because they are not vertically integrated,” he said.

He said the paper industry in general is facing a land challenge, due to less of it being available for pulp.

Vomacka said the only positive from the results was the performance of its packaging and specialities business.