2007 Annual Report - Sappi

Review of operations • sappi forest products continued
We experienced the worst plantation fires ever in Southern
Africa during the dry winter months. The combination of extreme
dry and warm conditions with very strong winds resulted
in damage to 15,700 hectares of our plantation representing
about 5% of our planted area. The estimated cost to us of
the damage after insurance recovery was US$15 million before
tax. We are able to use some of the damaged wood in our
operations. Good rains in early October have alleviated the risk
of further fire damage this season.
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.
The continuing improvement in the safety of our own employees
has been pleasing. However, during the year five employees
of our contractors and one own employee died in work related
accidents. Considerable attention is being paid to bringing
our forestry contractors safety standards to those applied in our
own operations.
The Saiccor expansion and project is progressing well and is
expected to be commissioned in the second calendar quarter
of 2008. The project will add about a third to Saiccor’s capacity
of chemical cellulose taking it to 800,000 tons. The markets for
chemical cellulose are growing strongly.
Plantation accounting under IFRS requires us to fair value our
plantations at each period end and we therefore calculate
and report on the changes in value quarterly. During the year the
fair value increased US$54 million. Last year the gain was
US$34 million. In 2007 the gain was a result of rising wood
costs partly offset by higher fuel costs which increase the cost
of getting the wood to market.
Black Economic Empowerment (BEE)
New codes of practice were introduced by the South African
Department of Trade and Industry which set tighter targets
for the score and measurement. Although we have not yet
completed an independent evaluation of our score card we
expect the score to be lower than under the old method.
We view BEE as an imperative and continue to look for ways
to create real empowerment for people who have not had
opportunities for economic development. We have actively
participated in the drafting of a transformation charter for the
South African forestry industry. Our manufacturing and plantation
operations in rural areas provide excellent opportunities to
create economic growth in these areas, which are in particular
need of development.
30
sappi limited | 07 | annual report