2008 Annual report - Sappi

Interview with Ralph Boëttger, chief executive officer
Q // Ralph, after more than a year at the helm, how do you see the prospects of the group?
A // As I said last year, we have excellent people and the new management team has melded into a highly effective team, ready to
take the actions needed to change our fortunes. The focus on improving profitability and returns is becoming more apparent at all levels
of the business. We have a clear strategy and action plans and we are in the process of implementing these. Together with the
dedication of our people and the great support we get from our customers, this makes me confident about the group’s future.
Q // Has the European business met the groupʼs expectations?
A // Not during the last four years, mainly as a result of the tough market environment and declining prices at a time when input costs
were soaring. There are, however, some misperceptions about our European business, largely because we have in the last few
years highlighted our dissatisfaction with our profitability there. Even in its worst year, 2006, the business generated a small operating
profit and a good net cash flow. What is also not well known is that in the last six years, all or part of the group’s dividend has been
funded by the holding company of our European business. We are taking decisive action to return our European business to
acceptable profitability.
Q // How does the announced acquisition of M-realʼs coated graphic paper business fit
with the groupʼs strategy?
A // At the core of our strategy is the need and desire to be profitable and to generate acceptable returns for our shareholders. When
we reviewed our strategy this year with the new management team it was clear that improving the returns of our European business
(our largest business) was key to our future. We also clearly identified that the low returns and profitability in Europe arose from
overcapacity, a fragmented market and a strong Euro over the past few years.
We are convinced that the acquisition will help us deal with these issues and will position us to restore good returns in our European
business. Separately, the Euro has weakened in recent months, which will also help.
Q // Sappi has highlighted the impact of wood, energy and chemical costs on the group.
What have you done to manage them?
A // We have tackled them in many ways. A year ago we appointed a group procurement
executive to ensure that we applied the best available practices and that each of our
businesses learned from the others. We have found alternative fuels, reduced wastage
of our products, used substitute inputs and increased our utilisation of rail trucks.
We have also identified energy projects that will reduce the group’s dependency on
fossil fuels and bought-in electricity. In addition, our recently commissioned Saiccor Mill
expansion has materially increased our energy self-sufficiency in Southern Africa.
Right now we are of the view that the tide has turned and that we will see a gradual
reduction in many of the costs partly as a result of the fall in the oil price as well as
reduced demand for many of these inputs as the world economy slows.
Q // How sure are you that the prices for coated fine paper have finally improved
in Europe?
A // Price increases in Europe have been likened to the Coelacanth – after years of extinction
they have returned. On a more serious note – the price increases we implemented in
September have been realised and we expect further price increases early in 2009.
Recent consolidation and the closure and pending closure of high-cost or unprofitable
mills and machines, which will amount to approximately 11% of European capacity, is
expected to improve the supply/demand balance, hopefully creating an environment in
which we can make reasonable margins.
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