2006 20-F - Sappi

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In recent years the industry has experienced significant strategic changes. The high costs associated with building new paper mills and establishing and growing market share has led to companies focusing on acquisition, rather than construction, of new capacity. In China, however, rapid economic growth and government incentives spurred massive investment in the pulp and paper industry. Over the last 5 years, paper and board capacity increased 73%. This development has led to a reduction in events of significant dislocations in the supply/demand balance typically associated with the entry of new production capacity into established markets. With increased capacity in 2006 China is no longer a net importer of coated fine paper. Another result of this trend has been a greater concentration of production capacity among fewer producers. Many leading industry producers now focus on fewer core grades and have divested non-core assets that are not part of the industry or which have been considered not consistent with long-term strategies. The regional and global market shares of leading producers have increased significantly over the past decade. The following table shows a breakdown and description of the major product categories Sappi participates in, the products in these categories and the typical uses for such products. We have produced and sold each of these products in each of our last three fiscal years. Major Product Categories Fine Paper: Description and Typical Uses Coated paper Higher level of smoothness than uncoated paper achieved by applying a coating (typically clay based) on the surface of the paper. As a result, higher reprographic quality and printability is achieved. Uses include brochures, catalogues, corporate communications materials, direct mail promotions, educational textbooks, luxury advertising, magazine covers and upscale magazines. Uncoated paper Uses include business forms, business stationery, general printing paper, tissue and photocopy paper. Speciality paper Packaging products: Can be either coated or uncoated. Uses include bags, labels, packaging and release paper for casting textured finishes (e.g., artificial leather). Packaging paper Groundwood products: Heavy and lightweight grades of paper and board primarily used for primary and secondary packaging of fast moving consumer goods, agricultural and industrial products. Products include containerboard (corrugated shipping containers), sack kraft (multi-walled shipping sacks) and machine glazed kraft (grocers bags). Can be coated to enhance barrier and aesthetics properties. Newsprint Manufactured from groundwood and bleached chemical pulp. Uses include advertising inserts and newspapers. Demand is highly dependent on newspaper circulation and retail advertising. Coated groundwood paper A coated groundwood fibre based paper, primarily used for magazines, catalogues and advertising material. Manufactured from mechanical pulp. 11
Major Product Categories Description and Typical Uses Pulp: Paper pulp Main raw material used in production of printing, writing and packaging paper. Pulp is the generic term that describes the cellulose fibre derived from wood. These cellulose fibres may be separated by mechanical, thermo-mechanical or chemical processes. The chemical processes involve removing the glues (lignins) which bind the wood fibres to leave cellulose fibres. Paper made from chemical pulp is generally termed “woodfree”. Uses include paper, paperboard and tissue. Chemical cellulose Manufactured by similar processes to paper pulp, but purified further to leave virtually pure cellulose fibres. Chemical cellulose is used in the manufacture of a variety of cellulose textile and non-woven fibre products, including viscose staple fibre (rayon), solvent spun fibre (lyocell) and filament. It is also used in various other cellulose-based applications in the food, cigarette, chemical and pharmaceutical industries. These include the manufacture of acetate tow microcrystalline cellulose, cellophane, ethers and moulding powders. The various grades of chemical cellulose are manufactured in accordance with the specific requirements of customers in different market segments. The purity of the chemical cellulose is one of the key determinants of it’s suitability for particular applications with the purer grades of chemical cellulose generally supplied into the speciality segments. Timber products: Sawn timber for construction and furniture manufacturing purposes. The following table sets forth selected pulp and paper prices in certain markets for the periods presented. 12 Year Ended September 2006 2005 2004 Low High Low High Low High Coated Fine Paper 100 gsm delivered Germany (euro per metric tonne) (1) . . . . . . . . . . . 790 825 845 845 840 855 60 lb. delivered US (US$per short tonne) (2) . . . . . . . . . . . . . . . . . . . . 900 960 870 920 760 840 Uncoated Fine Paper 50 lb. delivered US (US$per short tonne) (3) . . . . . . . . . . . . . . . . . . . . Paper Pulp 700 850 700 770 575 750 NBSK (US$per metric tonne) (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chemical cellulose 595 715 585 655 540 660 92 alpha (US$per metric tonne) (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650 775 600 780 600 780 (1) 100 gsm sheets, RISI. (2) 60 lb. Coated Web, RISI. (3) 50 lb. Offset, RISI. (4) Northern Bleached Softwood Kraft Pulp CIF Northern Europe, RISI. (5) Selected indicative prices, Sappi.
Page 1 and 2: As filed with the Securities and Ex
Page 3 and 4: OUR USE OF TERMS AND CONVENTIONS IN
Page 5 and 6: FORWARD-LOOKING STATEMENTS In order
Page 7 and 8: 2 Year Ended September 2006 2005 (U
Page 9 and 10: Risk Factors In addition to other i
Page 11 and 12: New technologies or changes in cons
Page 13 and 14: Several customers account for a sig
Page 15: Maintain a global presence. One of
Page 19 and 20: market share was negatively affecte
Page 21 and 22: The chart below represents the oper
Page 23 and 24: The following table sets forth appr
Page 25 and 26: Paper North America’s on-line fin
Page 27 and 28: of 860,000 metric tonnes of triple-
Page 29 and 30: a capacity of 60,000 metric tonnes
Page 31 and 32: customers use our products in the p
Page 33 and 34: (1) The following table sets forth
Page 35 and 36: The mill markets paper and excess p
Page 37 and 38: Pulp Sappi Fine Paper North America
Page 39 and 40: equired for its operations. Sappi F
Page 41 and 42: • The National Environmental Mana
Page 43 and 44: PROPERTY, PLANT AND EQUIPMENT For a
Page 45 and 46: ITEM 5. OPERATING AND FINANCIAL REV
Page 47 and 48: ) Movement in market prices for our
Page 49 and 50: The recent price history for benchm
Page 51 and 52: Demand from all of the market segme
Page 53 and 54: Raw Material and Other Input Costs
Page 55 and 56: The exchange rate impact on raw mat
Page 57 and 58: Our South African businesses have f
Page 59 and 60: • Any debtors or creditors not in
Page 61 and 62: Year Ended September 2006 Compared
Page 63 and 64: US$28 million. Decreased selling pr
Page 65 and 66: enefit of the reversal of the Usutu
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accounting mismatch, as a result of
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South African residents, who are na
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The increase of US$11 million in fi
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June 2010. The OeKB A tranche and t
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impact on liquidity varies accordin
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Contractual Obligations We have var
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mill is located in Nanchang, the ca
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product pricing, raw material costs
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flows of the related underlying exp
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increases, health care cost trends,
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alance sheet date. Risks, uncertain
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If the Group had applied IFRS 3 ret
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IFRS. The Group did not apply the e
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Where BEE equity credentials are ob
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Environmental Matters We operate in
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Klaas de Kluis (70) (independent).
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Mark Richard Thompson (54) BCom, BA
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Audit Committee An Audit Committee
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estructuring initiatives that occur
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Levies Act, was paid via Internal R
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Pursuant to the Companies Amendment
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on Restitution of Land Rights and a
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(“the Depositary”) with respect
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• any proposal concerning the ado
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Voting Rights Subject to any rights
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equest not less than one-twentieth
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Financial Assistance The Bill enhan
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At the Annual General Meeting of Sh
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African shareholders will be paid t
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purpose of Capital Gains Tax in Sou
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Distributions. The gross amount of
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US Federal Income Tax Consequences
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PART II ITEM 13. DEFAULTS, DIVIDEND
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the controls may become inadequate
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ITEM 16E. PURCHASES OF EQUITY SECUR
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4.10 Credit Facility, dated May 7,
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SAPPI Group Annual Financial Statem
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SAPPI GROUP INCOME STATEMENT for th
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SAPPI GROUP CASH FLOW STATEMENT for
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1. BUSINESS SAPPI NOTES TO THE GROU
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SAPPI NOTES TO THE GROUP ANNUAL FIN
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4.2 Employee cost SAPPI NOTES TO TH
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SAPPI CONDENSED COMPANY BALANCE SHE
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SAPPI CONDENSED COMPANY STATEMENT O
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5. OTHER INCOME 2006 2005 ZAR milli
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2006 20-F - Sappi

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