2012 Integrated report - Sappi

Chief financial officer’s report continued
Section 3 continued
The Specialised Cellulose business experienced strong demand
and performed well during the year, but a 14% decline in the
average NBSK US Dollar pulp price, to which our dissolving
wood product pricing is linked, had a negative impact on selling
prices compared with last year. This negative price impact was
offset to some extent by the weak Rand exchange rate against
the US Dollar relative to last year. Average selling prices for
dissolving wood pulp only decreased by 2% in Rand terms.
Sales volume was robust and increased by 2%.
The recent restructuring initiatives implemented in the Paper
and Paper Packaging business were successful and reduced
fixed costs by 12% from 2011. In addition, the business improved
operational performance in a number of areas but still made an
operating loss. Market conditions were difficult with pressure
coming from imports of packaging, coated woodfree and
uncoated woodfree paper. Sales volume decreased by 4%
compared with 2011. Average selling prices for paper were
2% higher than last year, due to a combination of an improved
sales mix of higher priced products and price increases achieved
for certain major products.
Variable manufacturing and delivery costs per ton for our Pulp
and Paper business increased by 5% compared with 2011.
The business experienced sharp increases in the prices of raw
materials and input costs, particularly for energy, following
increases from the national energy supplier, and pulping
chemicals. The increases in input costs and raw material prices
were offset by the negotiation of improved contract rates and the
optimisation of transport logistics.
Fixed costs for the Southern African business decreased by
4% as a result of restructuring actions that commenced last year.
We remain positive that our restructuring initiatives and continued
focus on cost management will further reduce costs in 2013
and beyond.
Major sensitivities
Some of the more important factors which impact the group’s operating profit excluding special items, based on current anticipated
revenue and cost levels, are summarised in the table below:
Sensitivities
Change
Europe
€ million
North
America
US$ million
Southern
Africa
ZAR million
Group
US$ million
Net selling prices 1% 24 13 120 57
Variable costs 1% 14 7 71 33
Sales volume 1% 9 5 49 22
Fixed costs 1% 8 5 45 20
Oil price US$1 3 1 4 5
Pulp prices US$10 (6) 1 62 2
Wood prices 1% 2 2 7 6
ZAR/US$ 10 cents – – 77 9
Euro/US$ 10 cents – 2 – 2
The table illustrates that operating profit excluding special items
is most sensitive to changes in the selling prices of our products.
A rise in international pulp prices positively impacts the Southern
African and North American business as these operations are net
sellers of pulp whereas the European business, as net purchaser
of pulp, is adversely impacted by such a shift.
The calculation of the impact of these sensitivities assumes all
other factors remain constant and does not take into account
potential management interactions to mitigate negative impacts
or enhance benefits.
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