2012 Integrated report - Sappi

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Review of operations continued Sappi Fine Paper continued Capacity (’000 tons) Divisions Mills Products produced Paper Pulp Employees* North America Cloquet Mill Somerset Mill Bleached chemical pulp for own consumption and market pulp 1 455 Coated woodfree paper 330 Bleached chemical pulp for own consumption and market pulp 525 Coated woodfree paper 795 Westbrook Mill Coated specialities paper 35 Total North America 1,160 980 2,190 Capacity (’000 tons) Divisions Mills Products produced Paper Pulp Employees* Europe Bleached chemical pulp for own consumption 120 Alfeld Mill Coated woodfree paper, coated and uncoated speciality paper 2 330 Bleached chemical pulp for own consumption and market pulp 135 Ehingen Mill Coated woodfree paper 285 Bleached chemical pulp for own consumption 250 Gratkorn Mill Coated woodfree paper 990 Bleached chemical pulp for own consumption 330 Kirkniemi Mill Coated mechanical paper 735 Bleached chemi-thermo mechanical pulp for own consumption 180 Lanaken Mill Coated mechanical paper 470 Maastricht Mill Coated woodfree paper 280 Nijmegen Mill Coated woodfree paper 240 Stockstadt Mill Bleached chemical pulp for own consumption and market pulp 150 Coated woodfree paper, uncoated woodfree paper 440 * Rounded to nearest 10 and excludes corporate head office employees. Total Europe 3,770 1,165 5,770 Total Sappi Fine Paper 4,930 2,145 7,960 Notes: 1. As a result of the conversion of this site to produce 330,000 tons per annum of dissolving wood pulp, production of bleached chemical pulp will cease once dissolving wood pulp production commences. We expect the production of dissolving wood pulp to commence in the third financial quarter of 2013. 2. We have announced the conversion of our Paper Machine 2 at the Alfeld Mill from coated woodfree production to speciality packaging paper production. This conversion is scheduled to commence at the end of our 2013 financial year and will result in a reduction of 150,000 tons per annum of coated woodfree production capacity and the addition of 135,000 tons of speciality packaging paper production in our 2014 financial year. 36 Coated paper manufactured at Somerset Mill in North America.
streamlined The closure of the Biberist Mill in August 2011 and other fixed and variable cost reduction programmes have resulted in cost savings in excess of €100 million in the past financial year. This, along with lower input prices, particularly for pulp, have enabled the business to offset the volume declines and improve operating profit and cash generation. During the year, the agreement that Sappi sell the coated paper output of Äänekoski Mill was terminated on the closure of the machine by the owner and part of its production (of the mill) was transitioned to our mills. This has assisted with both the coated woodfree supply and demand balance in Europe, as well as with our own operating rates. The coated specialities products, produced at the Alfeld Mill, had another good year in terms of a sales and margin, and further growth in this market is expected going forward. It is in this light that we announced in September 2012 the investment in PM2 at the Alfeld Mill to convert the machine from coated woodfree paper to one-sided coated speciality paper for packaging, labels and technical applications. This conversion not only increases our capacity in a specialised, growing and higher margin business, but also improves our cost position in coated woodfree graphic paper and reduces further our graphic paper capacity. Unfortunately in July, Sappi’s Nijmegen Mill suffered a fire in a section of electrical wiring, leading to four weeks of lost production, and a financial impact of US$4 million to the group. North America Sappi’s North American operations had a year of mixed fortunes. It was another good year for the coated paper business; sales volumes were flat in a market where demand for coated woodfree paper declined 3% overall while operating margins improved as a result of reduced variable and fixed costs. This business continues to outperform the industry as it leveraged its strong brand equity, leading market position and low cost base. After an excellent 2011, the pulp business was negatively impacted by lower average Northern Bleached Hardwood Kraft (NBHK) pulp prices in 2012 when compared with 2011, unplanned production outages in the first quarter as well as the severe flooding in Minnesota which led to the closure of the pulp and paper mill at Cloquet for a total of seven days in June. The flood had a financial impact of US$9 million to the group. The outlook for pulp prices and NBHK in particular, is for a prolonged period of lower than average prices as significant new hardwood pulp capacity is expected to be added in the next few years in Latin America. Given this context, the investment in the Cloquet pulp mill in order to convert the existing mill to manufacture dissolving wood pulp is well timed. Groupwide, our long term contracts for dissolving wood pulp link the pricing to NBSK, a pulp typically sold at a premium to NBHK and a grade of pulp in which there is relatively little new capacity to be added in the next few years. The process of converting the 450,000 ton paper pulp mill at Cloquet to a 330,000 ton dissolving wood pulp facility started in June 2012 and is due to be completed in the third financial quarter of 2013 at a cost of US$170 million. The casting release paper business felt the impact of the economic troubles in Europe and the slowdown in the Chinese economy most directly, both in terms of lower sales volumes as well as pricing pressure due to the stronger US Dollar exchange rate. Continuing pattern development and market development are key to a recovery in demand during these uncertain economic conditions. Fine paper Share of sales 2012: US$4,788 million Fine paper Share of division’s net operating assets 2012: US$2,695 million 30% 34% 70% 66% North America Europe sappi Integrated Report 2012 37
Page 1 and 2: Sappi Group (Sappi Limited) INTEGRA
Page 4: About this report Introduction Our
Page 7 and 8: 2012 was a year that positioned us
Page 9 and 10: global Sales by source 2012: US$6,3
Page 11 and 12: Non-financial highlights Specific p
Page 13 and 14: performance the region as a whole.
Page 15 and 16: The restructuring of our paper oper
Page 17 and 18: Group overview continued Q&A with R
Page 19 and 20: Focus on product development Produc
Page 21 and 22: 4 electricity steam black liquor pu
Page 23 and 24: commitment Europe Our European empl
Page 25 and 26: iodiversity Sustainable fibre suppl
Page 27 and 28: Exciter value delivery was US$23.9
Page 29 and 30: market leaders > Print is particula
Page 31 and 32: Focus on innovation Knowledge, insi
Page 33 and 34: Pulp Share of sales paper pulp + di
Page 35 and 36: governance Deenadayalen (Len) Konar
Page 37 and 38: guidance Executive management Mark
Page 39: Review of operations Sappi Fine Pap
Page 43 and 44: Focus on skills development Sappi c
Page 45 and 46: accelerate Capacity (’000) Divisi
Page 47 and 48: progress The year ahead The demand
Page 49 and 50: US$ million September 2012 Septembe
Page 51 and 52: Share statistics 2012 2011 2010 200
Page 53 and 54: Chief financial officer’s report
Page 55 and 56: positive Section 2 Financial perfor
Page 57 and 58: improvement Operating profit exclud
Page 59 and 60: cost reduction Taxation The tax exp
Page 61 and 62: service Sappi Fine Paper North Amer
Page 63 and 64: priority Section 4 Cash flow In the
Page 65 and 66: Defined benefit liabilities US$ mil
Page 67 and 68: Group debt profile We show the majo
Page 69 and 70: performance Section 6 Share price p
Page 71 and 72: Governance and compensation Corpora
Page 73 and 74: encourage Audit committee The audit
Page 75 and 76: Group IT steering committee The Gro
Page 77 and 78: During 2012 a board committee was e
Page 79 and 80: Governance element Principle Summar
Page 81 and 82: External assurance providers Report
Page 83 and 84: Principle Chapter 7 - Internal audi
Page 85 and 86: Stakeholder engagement report Sappi
Page 87 and 88: Compensation report The two large s
Page 89 and 90: strategic The primary components of
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Component Purpose Characteristics V
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competitive The policy on fatalitie
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empower Service contracts Mr Boëtt
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The dissolving wood pulp capacity c
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Focus on local communities Our busi
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Directors’ approval The directors
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Audit committee report for the year
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Directors’ report for the year en
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Group income statements for the yea
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Group statements of cash flows for
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Group income statements in Rands (c
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Group statements of cash flows in R
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Notes to the group annual financial
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Annexure A - Investments at Septemb
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Glossary market pulp - pulp produce
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Glossary net operating assets - tot
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Notice to shareholders “Resolved
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Notice to shareholders “Resolved
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Notice to shareholders Annexure to
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Notice to shareholders The MOI prov
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Shareholder’s diary Annual genera
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Notes to proxy The form of proxy mu
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Inspired to co-create We operate wi
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2012 Integrated report - Sappi

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