2007 Annual Report - Sappi

Chairman’s statement
Eugene van As | Chairman
It is pleasing to report that the improvement in profitability,
which we saw towards the end of the previous financial year,
has continued this year, with operating profit excluding
special items improving for five consecutive quarters. This
is a good development, but the earnings of the group are still far
from satisfactory. However, if we are able to maintain this steady
improvement, we will meet our return on net assets target run
rate towards the end of the 2008 year.
Much has to be done, particularly in price recovery in Europe,
for this to be achieved.
The group’s operating performance
improved through improvements
in all regions – in particular, the
Forest Products business,
which contributed the bulk of the
operating profit.
During the year under review a large number of management
changes were made in our operating divisions as a number of
executives reached retirement age. The group now has a new
and much younger management team. It is pleasing that most
of the appointments could be made from within the group, and
with people who have extensive experience of Sappi and its
operations. In the last quarter the most important management
change was made with the appointment of Ralph Boëttger
as the new chief executive officer. I handed over executive
responsibility to him in August and he has moved rapidly to
weld together the management team and to focus on the
key areas of operating importance to the group. I returned to a
non-executive role in August 2007 and will retire from the board
in March 2008.
As a result of these appointments the average age of the
senior executive team, which was approximately 60, has
been reduced significantly, and Sappi has a management
team with a long-term horizon and a determination to make the
group successful.
The group’s operating performance improved through
improvements in all regions – in particular, the Forest Products
business, which contributed the bulk of the operating profit.
It benefited from surging pulp prices, as well as rising
container-board prices, and the weakening of the Rand/
US Dollar exchange rate, all of which benefited our margins.
Chemical cellulose demand was particularly strong, and this
bodes well for the major expansion at Saiccor which will come
on stream in May 2008. There is still much to be done to
improve productivity, and considerable up-side opportunity in
both Saiccor and Kraft as the de-bottlenecking at Saiccor
improves and operating performance in the Kraft mills improve.
This is good insurance against the new challenges that the
division now faces because of the very weak US Dollar and the
strength of the Rand. As everywhere, Forest Products faces
rising costs, and, in the booming market conditions in
South Africa, a shortage of technical skills.
Sappi North America returned to modest profitability for
the year. It still faces rapidly-rising costs as everywhere in
the business. Market conditions have improved, and more
particularly, Sappi North America has revitalised its brand
line-up, improved its product mix and re-established its service
level to customers, all of which resulted in a quite substantial
increase in market share by the end of the year. The business
has seen price recovery, particularly on web grade products in
the latter part of the year, and further price increases started
taking effect during September, but the full effect will only be
seen in the beginning of the coming year. Good work has been
done to improve the reliability of our operations and our cost
structure. Supply/demand is tight and therefore margins should
continue to improve.
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sappi limited | 07 | annual report