2012 Integrated report - Sappi

Chief financial officer’s report continued
Section 33
Here we discuss the performance of the regional businesses.
The discussion is based on performance in local currencies as
we believe this facilitates a better understanding of the revenue
and costs in the European and Southern African operations.
Sappi Fine Paper Europe
2012 2011 % Change
Sales volume (metric tons ’000) 3,507 3,845 (9)
€ million
2012
€ million
2011 % Change
€ per ton
2012
€ per ton
2011 % Change
Sales 2,579 2,843 (9) 735 739 (1)
Variable manufacturing and delivery costs (1,690) (1,946) (13) (482) (506) (5)
Contribution 889 897 (1) 253 233 9
Fixed costs (771) (838) (8) (220) (218) 1
Sundry costs and consolidation entries (16) (10) n/a (4) (2) n/a
Operating profit excluding special items 102 49 108 29 13 123
The European business experienced difficult trading conditions
during financial 2012 with persisting overcapacity in the coated
paper market exacerbated by economic turmoil in many of our
major European markets. The business performed well under
these conditions and increased operating profit excluding special
items by 108% from €49 million in financial 2011 to €102 million
in financial 2012.
Sales volumes were down 9% on last year due to lower sales
of all major products and a reduction in uncoated woodfree
paper capacity after the Biberist Mill closure in August 2011.
Average selling prices in Euro terms were down 1% from fiscal
2011, which included slight decreases in average selling prices
for most coated paper products, offset somewhat by increased
average selling prices for speciality products.
Variable manufacturing and delivery costs decreased from fiscal
2011 by 13%, or 5% on a per ton basis. Prices of all major raw
materials, being wood, pulp and chemicals, reduced compared
with last year. Variable manufacturing costs per ton reduced by
6% from an average in financial 2011 of €449 to an average of
€424 in fiscal 2012. The business kept energy costs per ton in
line with 2011 despite prices of energy increasing during the year.
In addition, the region was able to achieve significant savings
from the variable cost reduction programme initiated during
financial year 2011. Delivery costs per ton remained at levels
similar to those of last year.
The reduction of 8% in fixed costs compared to financial 2011
also reflects the success of our cost reduction programme which
included the closure of the Biberist Mill. Cash fixed costs
reduced by 8% from €676 million in 2011 to €624 million in 2012.
Depreciation decreased from €162 million in 2011 to €147 million
in 2012. Going forward, variable and fixed cost control remains
a priority.
We plan to convert the PM2 at the Alfeld Mill from 150,000 tons
of coated fine paper to 135,000 tons of speciality paper per
annum. This conversion will not only increase our capacity in
a specialised, growing and higher margin business, but will also
improve our cost position in coated woodfree graphic paper and
further reduce our graphic paper capacity.
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