2006 20-F - Sappi

See “Inflation and Foreign Exchange” and note 31 to our Group annual financial statements included
elsewhere in this Annual Report. Our sales by source and destination in fiscal 2006 and fiscal 2005 were as
follows:
Sales by
Source
2006
41
Sales by
Source
2005
Sales by
Destination
2006
Sales by
Destination
2005
North America..................... 29% 29% 30% 30 %
Europe............................ 44% 45% 40% 40 %
Southern Africa.................... 27% 26% 15% 15 %
Far East and others................. — — 15% 15 %
Total.............................. 100% 100% 100% 100 %
Sappi Fine Paper has a total paper production capacity of 4.2 million metric tonnes per annum. We
are a global leader in the coated fine paper business with a capacity of 3.9 million metric tonnes of coated
fine paper per annum.
Our North American market share increased towards the end of fiscal 2005 to slightly above fiscal
2004 levels. This market share declined during 2006, due to a surge in US imports. After declining during
fiscal 2005, our European market share increased during fiscal 2006; although still not at the same levels as
seen during fiscal 2004. We are one the world’s largest producers of chemical cellulose. The Group is
100% integrated on a net basis in terms of pulp usage, meaning that, while some of our facilities are
market buyers of pulp and others are market sellers, in the aggregate we produce slightly more pulp than
we utilise. By region, the Southern African operations are net sellers of pulp, Sappi Fine Paper North
America is fully integrated and the European operations are approximately 46% self-sufficient for pulp in
Continental Europe, but entirely dependent on market pulp in the United Kingdom. We supply
approximately 70% of the wood requirements for our South African businesses from sources we own or
manage. Both our North American and European operations are dependent on outside suppliers of wood
for their production requirements.
Despite a decline in fiscal 2006 we have, in recent years, sought to internationalise our shareholder
base and increase our exposure in the world’s major financial markets. On November 5, 1998, our
American Depository Receipts commenced trading on the New York Stock Exchange. We believe that, as
at the end of fiscal 2006, based on registered addresses and disclosure by nominee companies, excluding
the shares owned by a subsidiary of Sappi, our beneficially held shareholding by Region is as follows:
North America............................................... 30%
Europe & Elsewhere.......................................... 10%
Southern Africa.............................................. 60%
Principal Factors Impacting on our Results
2006 2005
46 %
12 %
42 %
The results of operations of our business are affected by numerous factors. Given the high fixed cost
base of pulp and paper manufacturers, industry profitability is highly sensitive to changes in prices. Prices
are significantly affected by changes in industry capacity and output levels, customer inventory levels and
cyclical changes in the world economy. Profitability in our industry is, however, also influenced by factors
such as sales volume, the level of raw material, energy and other input costs, exchange rates, and
operational efficiency.
The principal factors that have impacted our business during the financial periods presented in the
following discussion and analysis and that are likely to continue to impact our business are:
a) Cyclical nature of our industry and its impact on sales volume;