2007 Annual Report - Sappi

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Review of operations sappi forest products Sappi Forest Products is one of Africa’s leading forest products businesses. Its three divisions – Sappi Saiccor, Sappi Kraft and Sappi Forests – produce chemical cellulose, paper pulp, packaging paper, newsprint and plantation timber within Southern Africa. Mills/ Capacity factories/ (’000 tons) Divisions plantations Products produced Paper Pulp Employees* Cape Kraft Mill Waste-based linerboard and corrugating medium 60 Ngodwana Mill Unbleached kraft pulp for own consumption, bleached chemical pulp for own consumption and market pulp 410 Mechanical pulp for own consumption 100 Sappi Kraft and white top linerboard 240 Kraft Newsprint 140 Tugela Mill Unbleached kraft and semi-chemical pulp for own consumption 350 Kraft linerboard and corrugating medium 300 Other kraft packaging paper 90 2,320 Usutu Mill Unbleached kraft market pulp 190 580 Sappi Saiccor Saiccor Mill Chemical cellulose 600 1,160 Sappi Forests Capacity/ hectares ’000 KwaZulu Natal Plantations (pulpwood and sawlogs)** 240ha Mpumalanga Plantations (pulpwood and sawlogs)** 245ha Usutu Mill Plantations (pulpwood) ** 70ha Sawmills Sawn Timber 85m 3 1,300 Total Sappi Forest Products 830 1,650 5,360 * Rounded to nearest 10. ** Plantations include title deed and lease area as well as projects. 28 sappi limited | 07 | annual report
Overview The Forest Products business represented 20% of group sales in 2007 and generated 72% of operating profit excluding special items*. Operating profit excluding special items increased from US$115 million in 2006 to US$224 million in 2008, a return on net operating assets of 15%. Description Sappi Forest Products produces nearly 1.7 million tons of pulp – almost half the group’s output – and provides a pulp revenue stream that effectively hedges the purchases of pulp by our European division. This virtually eliminates the group’s overall exposure to changes in world pulp prices. Sappi Saiccor is the world’s largest manufacturer of chemical cellulose and has a low cost position. The uses of chemical cellulose range from the production of viscose and lyocell fibres, moulding powders, cellophane, cellulose acetate for filter tow used in cigarette filters, and excipients for pharmaceuticals. Sappi Kraft makes bleached and unbleached kraft pulp, containerboard, packaging paper and newsprint. Sappi Forests has some 550,000 hectares of land under direct and indirect management. More than 37 million tons of timber stands on this land. Sappi’s own land provides 70% of the wood needs of our Southern African businesses which amounts to some 6.2 million tons per annum. All the wood comes from FSC certified and ISO 9000 certified plantations. Sappi’s sawmill also produces sawn timber for the construction industry. Major factors in the improvement were strong demand and prices in the international pulp markets, good demand in Southern Africa for our newsprint and packaging paper and the weaker Rand compared to fiscal 2006. Our productivity improved during the year at all operations, but particularly in the Kraft and Usutu businesses. There is scope to improve Kraft productivity further which is planned for the year ahead. The recovery boiler at Usutu Mill will be renewed in 2008, leading to improved reliability at the mill. The project will require a seven-week shut of the mill. We are faced with high and rising costs including wood, coal and chemicals. Employment cost increases rose at above consumer price inflation during the year as a result of the buoyant South African economy and the shortage of technical skills in the country. We have stepped up on training programmes and have participated in an overseas recruitment initiative to attract qualified young South Africans back to South Africa. We had a number of management changes in the division following the retirement of the chief executive officer in December, all of which were internal. The team is settling well and looking at fresh ways of improving the business performance. * See note on segmental results for details of special items. sappi limited | 07 | annual report 29
Page 1 and 2: annual report 2007
Page 3 and 4: Our business Sappi is a global pape
Page 5 and 6: Our top risks These risks are furth
Page 7 and 8: Financial targets and performance*
Page 9 and 10: Our Charter commitments Examples of
Page 11 and 12: Business structure Johannesburg Asi
Page 13 and 14: Our brands and products Coated pape
Page 15 and 16: Non-executive directors continued D
Page 17 and 18: Divisional and corporate management
Page 19 and 20: In Europe we face major challenges.
Page 21 and 22: We expect to continue our improving
Page 23 and 24: Q: How will you improve delivery on
Page 25 and 26: Overview Description The main produ
Page 27 and 28: A major feature of the year has bee
Page 29: In the year ahead, we will continue
Page 33 and 34: Value added statement for the year
Page 35 and 36: Sappi has a global insurance struct
Page 37 and 38: Sales Sales volume (in metric tons)
Page 39 and 40: Divisional contributions to operati
Page 41 and 42: The impact of these changes on oper
Page 43 and 44: Cash flow analysis In the table bel
Page 45 and 46: project and again aim to fund this,
Page 47 and 48: In 2006, both Standard & Poor’s (
Page 49 and 50: y certain of the individual direct
Page 51 and 52: Not restated for IFRS* September Se
Page 53 and 54: September September September Septe
Page 55 and 56: Element/Best practice Sappi applica
Page 57 and 58: The board of directors The basis fo
Page 59 and 60: Our compensation philosophy is base
Page 61 and 62: stakeholders with whom they interac
Page 63 and 64: Auditor’s report Independent audi
Page 65 and 66: Directors’ report for the year en
Page 67 and 68: Directors and secretaries The names
Page 69 and 70: Group balance sheet at September 20
Page 71 and 72: Group statement of recognised incom
Page 73 and 74: Group balance sheet in Rands conven
Page 75 and 76: Notes to the group annual financial
Page 77 and 78: Fair value hedge A hedge of the exp
Page 79 and 80: (ii) Associates The results and ass
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• it transfers (or it assumes an
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2.3.8 Inventories Inventories are a
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2.3.13 Plantations Plantations are
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the year that are declared after th
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Owner-occupied investment propertie
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into account, unadjusted current ma
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The group is required to record pro
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second where a share-based payment
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3. Segment information continued Sa
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US$ million 2007 2006 4.1 Operating
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US$ million 2007 2006 6. Taxation c
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7. Earnings per share and headline
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US$ million 2007 2006 10. Property,
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2007 2006 US$ million Assets Liabil
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US$ million 2007 2006 12. Deferred
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14. Joint ventures and associates c
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US$ million 2007 2006 17. Trade and
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17. Trade and other receivables con
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19. Reconciliation of changes in eq
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US$ million 2007 2006 21. Interest-
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21. Interest-bearing borrowings con
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23. Provisions continued September
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US$ million 2007 2006 24. Notes to
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US$ million 2007 2006 27. Contingen
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28. Post-employment benefits - pens
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Europe US$ million Southern Africa
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29. Post-employment benefits other
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30. Share-based payment The Sappi L
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30. Share-based payment continued T
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30. Share-based payment continued T
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31. Financial Instruments The group
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31. Financial Instruments continued
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33. Events after Balance Sheet date
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35. Summary of differences between
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36. New United States accounting st
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37. Directors’ remuneration conti
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38. Directors’ interests The foll
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M R Thompson (1) E van As Total 200
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M R Thompson (1) E van As Total 200
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Company auditor’s report Independ
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Condensed company balance sheet at
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Notes to the condensed company fina
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Investments at September 2007 Share
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Non-GAAP financial definitions The
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- the general authority shall only
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corporate governance requirements.
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Franklin Abraham Sonn (68) BA Hons,
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Proxy form for annual general meeti
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Forward looking statements Certain
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2007 Annual Report - Sappi

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