2007 Annual Report - Sappi

In the year ahead, we will continue the marketing programmes
which made such a good start in 2007 and to expand the sales
of our new products, particularly Tempo when it is launched
in early calendar 2008.
There have been some modest price gains during the year,
however, our input costs are still high. Major steps have
been taken to improve our material usage, optimise energy
consumption and further reduce logistics costs, which has
resulted in the return to operating profitability of the business
during the year. Improvements in raw material usage more than
offset the raw material price increases during the period. Fixed
costs were almost flat in absolute terms.
The rebuild of the headbox of Somerset PM1 machine was
completed on time and budget with the expected product
characteristics and improved operating efficiency. Elsewhere
the focus was on spending a limited amount of capital well
and on improving machine efficiencies. There is also a close
correlation between consistent running of paper machines and
minimising raw material and energy costs and we expect
improved operating efficiency to help us contain input costs
going forward.
The largest disappointment was the volatile performance
of Muskegon Mill. Towards the end of the year a new mill
management team appears to have returned the mill to steadily
improving productivity, which will also lead to a much improved
cost position.
The North American market is tight and we will work hard to grow
our relationships with our customers throughout the supply chain
and to obtain their commitment to our comprehensive suite of
products and services to improve our and their profitability.
Southern Africa
The Southern African businesses returned to modest operating
profitability during the year compared to a break-even last year,
despite higher input costs (pulp and energy).
Volumes sold grew about 6% compared to the prior year with
an improved proportion of domestic sales. Domestic sales
prices increased at a similar rate to producer price inflation
during the year which, together with the improved regional mix,
helped regain positive margins.
The region has implemented Lean Manufacturing methods to
reduce waste and improve service delivery. The performance
of Stanger Mill has been disappointing largely as a result of the
escalation of input costs particularly the sugar cane bagasse
which is the fibre raw material for the pulp mill. Restoring
Stanger Mill’s financial performance is a priority for the current
financial year.
The North American launch of our global brand Tempo
will take place early next year.
sappi limited | 07 | annual report 27