2007 Annual Report - Sappi

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.
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