investing in growth
2017 Annual Integrated Report
sappi 2017 Annual Integrated Report
About this report
Our Annual Integrated Report for the year ended September 2017 provides both an assessment of our strategy
and delivery as well as an introduction of our strategic direction, mission and vision together with our value
statement. The report deals with key opportunities and risks in our markets as well as our performance against
financial and non-financial objectives, along with our priorities and expectations for the year ahead. While the
report addresses issues pertinent to a wide group of stakeholders, the primary audience is our shareholders.
Our global and regional sustainability reports address the wider audience in more detail on key material issues.
The scope of this report includes all of our operations, as set
out on page 20. We aim to present information that is material,
Empowerment (BBBEE) performance is assessed by an external
ratings agency.
comparable, relevant and complete. The issues and indicators we
cover reflect our significant economic, environmental and social
impacts, and those we believe would substantively influence the
assessments and decisions of investors. The materiality of the
information presented has been determined on the basis of extensive
ongoing engagement with our stakeholders and has been assessed
against the backdrop of current business operations, as well as
prevailing trends in our industry and the global economy.
In preparing this report, we have tracked environmental findings and
research, public opinion, employee views and attitudes, the interests
and priorities of environmental and social groups, as well as the
activities, profiles and interests of investors, employees, suppliers and
customers, communities, governments and regulatory authorities.
This report is aligned with the King IV Code on Corporate Governance
(King IV).
Board approval
The Sappi Limited board acknowledges its responsibility for ensuring
the integrity of the Annual Integrated Report and, to the best of its
knowledge and belief, the Sappi Limited Annual Integrated Report
for 2017 addresses all material issues and presents fairly the integrated
performance of the organisation and its impacts. The report has been
prepared in line with best practice and the board confirms that it has
approved this Annual Integrated Report and authorised it for release
on 09 December 2017.
External assurance
Currently, assurance of sustainability information is conducted by our
internal audit team. Their verification process includes reviewing the
procedures applied for collecting and/or measuring, calculating and
validating non-financial data, as well as reviewing reported information
and supporting documentation. During 2017 we conducted a readiness
review for external assurance and intend to have internal verification
for our key sustainability metrics in 2018.
In practice, most of our key operations undergo external verification
including the Eco-Management Audit System (EMAS) in Europe and
globally, ISO 14001 environmental certification, ISO 9001 quality
certification and OHSAS 18001 certification.
We are also assessed in terms of the forest certification systems
we use, and in South Africa, our Broad-based Black Economic
In addition, our global governance, social and environmental
performance is assessed annually in terms of our listing on the Socially
Responsible Investment (SRI) Index of the JSE Securities Exchange
(JSE).
Collectively, these external assessments and certifications as well
as interaction with our stakeholders give us confidence that our
performance indicators are reliable, accurate and pertinent. The Social,
Ethics, Transformation and Sustainability Committee reviews
the efficacy of conducting external assurance annually. The committee
considered external verification in the year under review, but is satisfied
that the sustainability information presented in this report has been
provided with a reasonable degree of accuracy.
Due to our delisting from the New York Stock Exchange
in 2013, we no longer publish an annual report on Form 20-F.
For information on the combined assurance framework relevant to the
disclosure in this report, and for the Independent Auditor’s Report,
please refer to page 67 of this report and page 6 in the Group
Annual Financial Statements. This year’s report does not include
summarised financials. However, the full Annual Integrated Report with
financials is available on www.sappi.com in electronic and PDF format.
For important information relating to forward-looking
statements, refer to the inside back cover. We present this
Annual Integrated Report as a basis for engagement and welcome
any feedback. Please direct any comments or questions to Sappi
Corporate Affairs using the details provided on page 130.
GalerieArtTM coated fine paper manufactured at Sappi’s European
mills is made from pulp bleached without the use of chlorine. The
wood for this pulp is sourced from sustainably managed forests,
plantations and controlled sources. These mills are third party
certified according to internationally recognised standards including
ISO 9001 quality and ISO 14001 and EMAS environmental
certification. GalerieArtTM is acid free and fully recyclable.
Printed on 135, 250 and 350g/m2.
Stay informed: For a more comprehensive overview of our social, ethics, transformation and sustainability
performance, please refer to:
Annual Integrated Report and Group
Annual Financial Statements:
generated at BeQRious.com
www.sappi.com/annual-reports
Quarterly results announcements and
analyst presentations:
generated at BeQRious.com
www.sappi.com/quarterly-reports
Group Sustainability Report:
www.sappi.com/sustainability
generated at BeQRious.com
Group and regional sustainability reports
We will once again publish a Group Sustainability
Report for 2017 in accordance with the Global
Reporting Initiative’s G4 guidelines. Additionally,
each of our regions will publish separate
sustainability reports for FY2017. These reports
will be available early in 2018 on www.sappi.com.
1
Navigation aids:
Online information
Further reading
One
Sappi
Sappi’s 3Ps
Prosperity
People
Planet
Through the power
of One Sappi – committed
to collaborating and partnering
with stakeholders – we aim
to be a trusted and sustainable
organisation with an exciting
future in woodfibre.
Contents:
Group overview
2 Our business model
4 Outcomes of our business
6 Our use of natural capital
8 Our strategy
10 Our performance in 2017
12 Letter to stakeholders
16 Q & A with the CEO
20 Where we operate
22 Product review
Sustainability
32 Our key relationships
44 Our global sustainability goals
45 Our key material issues
Governance and compensation
60 Our leadership
64 Corporate governance
72 King IV principles
76 Remuneration Report
89 Social, Ethics, Transformation and
Sustainability Committee Report
90 Risk management
Chief Financial Officer’s Report
97 Section 1 – Financial highlights
98 Section 2 – Financial performance – Group
103 Section 3 – Financial performance – Regional
105 Section 4 – Cash flow
106 Section 5 – Balance sheet
111 Section 6 – Share price performance
Five-year review
112 Five-year review
Share statistics
114 Share statistics
Glossary and notice to shareholders
116 Glossary
122 Notice to shareholders
130 Shareholders’ diary
130 Administration
131 Proxy form for the Annual General Meeting
132 Notes to proxy
IBC Forward-looking statements
sappi 2017 Annual Integrated Report 2
Our business model
Inputs
Prosperity
Financial capital
We manage our financial capital, including shareholders’ equity, debt
and reinvested capital to maintain a solid balance between
growth, profitability and liquidity.
• Total assets: US$5,247 billion
• Net debt: down US$86 million to US$1.32 billion
• Cash and cash equivalents: US$550 million
Manufactured capital
Investing in building, maintaining, operating and improving
this infrastructure requires significant financial capital,
together with human and intellectual capital.
• Nine paper mills, two specialised cellulose and paper mills, one
specialised cellulose mill, two speciality paper mills, and one sawmill
Intellectual capital
Our technology centres and research and development (R&D)
initiatives promote a culture of innovation to support the development
of commercially and environmentally sustainable solutions for the
company.
Our intellectual capital is closely aligned with our human capital.
• R&D spend: US$29.5 million (including Exciter projects)
• Technology centres in each region
• Technology investments in 2017
People
Human capital
By creating a safe and healthy workplace for our people
in which diversity is encouraged and valued, and providing
them with ongoing development opportunities, we enhance
productivity and our ability to service global markets.
• 12,158 employees including 851 fixed-term contractors
• US$514 average training spend per employee
Our processes
Material issues
• Stakeholder relationships
• Governance
• Cost containment and capital allocation
• Growth in the packaging sector
• Declining for graphics paper
• Growing popularity of cellulosic-based
fibres
• Adjacent markets
• Safety
• Labour relations
• Community investment
• Sustainability of our woodfibre base
and climate change
• Emissions regulations and carbon tax
• Energy
• Water
Social capital
Building relationships with our key stakeholders in a spirit of trust
and mutual respect enhances both our licence to trade and our
competitive advantage, thereby enabling shared value creation.
• Ongoing stakeholder engagement
• CSR spend: US$5.3 million
Dissolving
wood pulp
Planet
Natural capital
Recognising that our business depends on natural capital, we focus
on managing and mitigating our impacts.
• 2,734MW energy purchased, 1,893MW generated
• Specific energy usage: 22.77GJ/adt
• Specific process water extracted 33.74m3/adt
• 479,000ha owned or leased plantations with approximately
27.4 million tons of standing timber
• Contracted supply covers a further almost 92,000ha
Specialities
and packaging
papers
sappi 2017 Annual Integrated Report 3
We have aligned our long-established
approach to sustainable development
– Prosperity, People and Planet –
with the IIRC’s six capitals model.
Outputs
• 6.4 million tons of saleable production
• Reduction in net debt
• Profits up by 6%
• Dividends up by 36%
• Produced first nanocellulose at our pilot plant
• Launched sugar extraction demonstration plant
• Assessing results of anaerobic digestion pilot plant
• Combined own employee and contractor
LTIFR: 0.44 (three own employee fatalities,
one contractor fatality)
• 62% of training spend allocated to skills
development and 38% to compliance
• Positive, measurable impact on communities
• 45.2% renewable energy, of which 73.6% own
black liquor – increase in energy self-sufficiency
of 8.7% over five years
• 92% of water drawn returned to the environment
• 73.5% of fibre used certified
• 1,515,014 tons of waste, of which almost
465,395 tons sent to landfill
The papermaking and
specialised cellulose
(dissolving wood pulp)
processes
Governance
• Board of directors with diverse
experience and expertise
• Social, Ethics, Transformation and
Sustainability Committee ensures
sustainability is integrated into
business strategy
• Other board committees cover all
governance aspects
• New Code of Ethics launched in 2016
Unlocking the
chemistry of trees
in adjacent markets
Nanocellulose, sugars, lignins, furfural,
biocomposites, bio-energy
Papermaking
Outcomes
are presented on the following page Ú
sappi 2017 Annual Integrated ReportGroup overview 4
Outcomes of our business
Our
shareholders
received
US$59 million
in dividends
In Southern Africa, our operations
provide employment for just over
10,300 contractor employees.
sappi 2017 Annual Integrated Report 5
In Southern Africa, our operations
provide employment for just over
10,300 contractor employees.
Our
shareholders
received
US$59 million
in dividends
sappi 2017 Annual Integrated ReportGroup overview 6
Our use of natural capital
sappi 2017 Annual Integrated Report 7
sappi 2017 Annual Integrated ReportGroup overview 8
Our strategy
Through intentional evolution we will continue to grow Sappi into a profitable
and cash-generative, diversified woodfibre group – focused on dissolving wood
pulp, paper and products in adjacent fields.
At Sappi we do business with integrity and courage; making smart decisions
which we execute with speed. Our values are underpinned by an
unrelenting focus and commitment to safety.
One
Sappi
Achieve cost advantages
• Ongoing fixed cost savings year-on-year
• Ongoing variable cost savings year-on-year
• Investments in infrastructure and energy projects at core mills
• Continuously improve cost position
• Continue to maximise global benefits
• Best-in-class production efficiencies
2017 achievements
2018 objectives
Rationalise declining
businesses
Maintain a healthy
balance sheet
Accelerate growth
in higher margin growth
segments
• Continuously balance graphic paper demand and supply
and demand in all regions
in all regions by converting capacity where possible to higher
• Continue to convert low contributing
profitable specialities and packaging paper grades
• Maximise production at low-cost mills
• Continuously balance paper supply
graphic capacity to higher profitable
specialities and packaging paper
grades
• Maintained target of net debt/EBITDA of <2x
• Reduced net debt by US$86 million to US$1,322 million
• Paid back US$400 million bond with cash reserves
• Strong cash generation
• Maintain net debt/EBITDA below 2x
• Continuously improve working capital
• Advancing the expansion of specialities and packaging paper
grades in Europe and North America through conversions
• Grow dissolving wood pulp capacity
• Acquired Rockwell solutions
• Strong pipeline of biotech business opportunities
• Maintain global leadership position in dissolving wood pulp
• Identified various growth opportunities in dissolving wood
pulp and specialities and packaging papers
matching customer demand
• Continue to expand and grow
specialities and packaging paper
grades in all regions targeting 25%
of group EBITDA
• Completed the construction of the nanocellulose pilot plant
• Commence commercialisation
• Commissioned the construction of a sugars extraction plant
of biotech opportunities
and acquired complementary clean-up technology (Xylex)
sappi 2017 Annual Integrated Report 9
Performance to targets
ROCE
(%)
17.5
18.0
12.4
>12.0
20
15
10
5
0
Net debt/EBITDA
EBITDA margin
(%)
1.9
1.7
<2.0
2.8
3
2
1
0
20
15
10
5
0
14.4
14.8
15.0
11.6
2015
2016
2017
Target
2015
2016
2017
Target
2015
2016
2017
Target
2017 achievements
2018 objectives
• Ongoing fixed cost savings year-on-year
• Ongoing variable cost savings year-on-year
• Investments in infrastructure and energy projects at core mills
• Continuously improve cost position
• Continue to maximise global benefits
• Best-in-class production efficiencies
• Continuously balance graphic paper demand and supply
and demand in all regions
in all regions by converting capacity where possible to higher
profitable specialities and packaging paper grades
• Continue to convert low contributing
graphic capacity to higher profitable
specialities and packaging paper
grades
• Maximise production at low-cost mills
• Continuously balance paper supply
• Maintained target of net debt/EBITDA of <2x
• Reduced net debt by US$86 million to US$1,322 million
• Paid back US$400 million bond with cash reserves
• Strong cash generation
• Maintain net debt/EBITDA below 2x
• Continuously improve working capital
• Advancing the expansion of specialities and packaging paper
grades in Europe and North America through conversions
• Acquired Rockwell solutions
• Strong pipeline of biotech business opportunities
• Maintain global leadership position in dissolving wood pulp
• Identified various growth opportunities in dissolving wood
pulp and specialities and packaging papers
• Completed the construction of the nanocellulose pilot plant
• Commissioned the construction of a sugars extraction plant
and acquired complementary clean-up technology (Xylex)
• Grow dissolving wood pulp capacity
matching customer demand
• Continue to expand and grow
specialities and packaging paper
grades in all regions targeting 25%
of group EBITDA
• Commence commercialisation
of biotech opportunities
F
o
c
u
s
a
n
d
c
o
m
m
i
t
m
e
n
t
t
o
f
s
a
e
t
y
sappi 2017 Annual Integrated ReportGroup overview
10
Our performance in 2017
The successful execution of our strategy
delivered a further increase in earnings
in 2017.
2,500
2,000
1,500
1,000
500
0
30
25
20
15
10
5
0
Net debt (US$ million)
7
4
2
,
2
6
4
9
,
1
1
7
7
,
1
8
0
4
,
1
2
2
3
,
1
2013 2014 2015 2016 2017
EBITDA margin by
region (%)
We invested capital in lowering our cost base at a number of mills during the
year and repaid debt in order to lower our future debt service costs. We have also
started investing for growth in our specialities and packaging papers business, with
investments in both Europe and North America to convert graphic paper machines
to specialities and packaging papers grades. The previous investments in dissolving
wood pulp and specialities and packaging papers again delivered strong
performances in the year.
REDUCTION OF GHG EMISSIONS
(tCO2)
Energy intensity (GJ/adt)
Reduction of GHG emissions
(tCO2)
0
.
1
3
8
.
9
2
1
.
0
3
8
.
9
2
8
.
8
2
6
.
2
2
7
.
2
2
8
.
2
2
8
.
2
2
7
.
2
2
4
.
5
1
2
.
5
1
2
.
5
1
6
.
5
1
3
.
5
1
9
.
2
3
6
.
1
3
6
.
1
3
5
.
1
3
7
.
1
3
35
30
25
20
15
10
5
0
60
57
500,000
400,000
300,000
5
4
5
,
3
1
4
200,000
100,000
0
(100,000)
(200,000)
0
5
2
,
4
0
1
6
3
2
,
7
3
6
3
1
,
4
2
)
1
4
7
,
7
3
1
(
9
9
6
,
3
0
1
)
6
2
9
,
1
8
(
)
8
9
7
,
4
3
(
)
5
3
(
)
3
3
6
,
9
5
(
)
3
3
7
,
2
5
(
2015
■ Scope 1 GHG ■ Scope 2 GHG
2014
2013
2016 2017
5
.
9
2
9
.
8
2
Southern
Africa
Europe
North
America
Global
■ 2013 ■ 2014
■ 2015
■ 2016 ■ 2017
1
.
9
3
.
9
1
.
0
1
2
.
0
1
4
.
4
1
8
.
4
1
Our European business was able to offset lower average paper prices and
significant cost pressure from higher paper pulp and latex prices through increased
specialities and packaging papers sales volumes and excellent cost control.
North
America
Europe Southern
Africa
Sappi
group
■ 2016 ■ 2017
Dividend of
15 US cents
declared
Our North American business delivered a steady performance in difficult paper
markets characterised by declining paper prices for much of the year and declines
in overall paper demand in the United States of America. Gains in coated paper
market share, higher dissolving wood pulp pricing, increased specialities and
packaging papers sales and the realisation of cost savings enabled the business to
improve slightly on last year’s performance.
The Southern African business benefited from increased dissolving wood pulp
sales volumes and prices, as well as good local demand for packaging papers.
These negated the impact of a stronger Rand on the business.
sappi 2017 Annual Integrated Report Percentage renewable energy (%)
Sales (US$ million)
100
80
60
40
20
0
5
.
0
8
6
.
0
8
7
.
8
7
5
.
6
7
5
.
4
7
8,000
6,000
4,000
2,000
0
7
7
3
,
1
5
5
1
,
3
3
9
3
,
1
7
1
5
,
1
7
0
1
,
3
7
3
4
,
1
7
7
3
,
1
0
6
6
,
2
3
5
3
,
1
7
6
3
,
1
2
8
5
,
2
2
9
1
,
1
0
6
3
,
1
4
6
5
,
2
2
7
3
,
1
8
.
5
4
4
.
4
4
7
.
4
4
2
.
5
4
0
.
4
4
6
.
3
2
3
.
3
2
3
.
3
2
3
.
4
2
0
.
3
2
5
.
0
4
1
.
0
4
3
.
1
4
7
.
8
3
3
.
5
3
11
EBITDA excluding special items
(US$ million)
1
398
2
398
386
339
800
600
400
5
350
1
343
6
296
303
281
200
226
0
Southern
Africa
Europe
North
America
Global
■ 2013 ■ 2014
■ 2015
■ 2016 ■ 2017
2013 2014 2015 2016 2017
2013 2014 2015 2016 2017
■ North America ■ Europe ■ Southern Africa
■ Unallocated ■ Paper ■ Specialised cellulose
Specific water returned
to extracted (m3/adt)
Operating profit excluding special
items by product (%)
EPS and EPS
excluding special items (US cents)
5
3
.
6
3
9
9
.
3
3
1
7
.
5
3
5
5
.
2
3
2
3
.
4
3
7
2
.
1
3
4
9
.
4
3
4
7
.
1
3
4
7
.
3
3
2
1
.
1
3
40
30
20
10
0
2013 2014 2015 2016 2017
■ Specific process water extracted (m3/adt)
■ Specific effluent discharged (m3/adt)
■ Ratio of effluent to extracted water
Lost-time injury frequency
rate 2012 to 2017 (Year-to-date)
0.8
8
6
.
0
0.6
1
7
.
0
6
5
.
0
9
5
.
0
8
5
.
0
7
4
.
0
1
4
.
0
8
3
.
0
6
3
.
0
4
3
.
0
R
F
T
L
I
0.4
0.2
0
1.0
0.9
0.8
0.7
0.6
0.5
70
60
50
40
30
20
10
0
2013 2014 2015 2016 2017
■ Own LTIFR ■ Contractor LTIFR
■ Own II
■ Contractor II
36
1,771
2017
US$526
million
1,408
63 64
6057
3234
26
22
80
60
40
20
0
(20)
(40)
(4)
(35)
64
● Specialised cellulose
● Paper
2013 2014 2015 2016 2017
■ EPS ■ EPS excluding special items
In a world increasingly exposed to the effects
of climate change, both energy efficiency and
water use are key metrics for us as we seek
to maintain a sustainable business.
We continue to investigate and invest in processes that can make us more efficient
in this regard.
We regret to have to report one contractor and four own employee (one of which
was post year-end) fatalities in our forestry and mill operations respectively. After
four years with no fatalities in our pulp and paper mills we have had four in the space
of four months in three separate incidents. As a company we do not accept that
injuries and accidents are inevitable. We have been, and continue to be, committed
to our Project Zero goal of zero injuries.
sappi 2017 Annual Integrated ReportGroup overview 12
Letter to stakeholders
from the Chairman and CEO
Sir Nigel Rudd
Independent Chairman
Steve Binnie
Chief Executive Officer
In 2017, we achieved all of our short-term
targets and made significant strides towards our
2020Vision. We now have greater flexibility
to increase investments in strategic
growth.
Operating profit
excluding special items
to capital employed (ROCE) (%)
Net debt to EBITDA
excluding special items (Times)
Net operating assets
(%)
17.5
18.0
12.4
10.8
5.2
20
15
10
5
0
5
4
3
2
1
0
4.3
3.0
2.8
1.9
1.7
35
28
1,771
2017
US$3,664
million
1,408
37
2013 2014 2015 2016 2017
2013 2014 2015 2016 2017
● North America ● Europe
● Southern Africa
sappi 2017 Annual Integrated Report 13
Operating review
The group delivered a further increase in EBITDA as the
growth of the dissolving wood pulp (DWP) and specialities
and packaging papers businesses gained momentum. Higher
paper pulp prices, a key input cost, and the negative impact
of a stronger Rand/Dollar exchange rate created significant
challenges but ongoing initiatives to reduce variable costs
and lower interest charges contributed to the success.
Following the achievement of our targeted leverage of less than
two times net debt to EBITDA in the prior year, we increased
investments into growth projects. Principally these related to
conversions of paper machines in Europe and the United
States into specialities and packaging papers grades and
DWP debottlenecking projects in South Africa.
Both net profit for the year and EBITDA excluding special
items increased by 6% to US$338 million and US$785 million
respectively. The results benefited by approximately
US$20 million from an additional accounting week in the first
quarter, when compared to the prior year.
We have worked very hard to create a culture which prioritises
safety for our own employees and contractors at all times.
While there was an improvement in the lost-time injury
frequency rate for the group, we deeply regret having to report
four own employee fatalities, one of which was post our
year-end, and one contractor fatality in our operations. We
have brought in some external experts to advise us on where
we may further improve in our practices and procedures in
order to entrench the safety culture with the ultimate target
of zero harm.
We have built on our commitment to being an ethical corporate
citizen with a continued communication and training campaign
following our roll-out of the revised Code of Ethics in 2016. The
Code of Ethics recognises that we are a global company,
operating in many different countries and jurisdictions.
Presenting a coherent and consistent culture of the highest
integrity is a pillar of our strategy. We have to ensure we
interact ethically and honestly with our staff, customers and
other stakeholders. How we do business is never a short-term
consideration, but should rather contribute to our long-term
sustainability. For our Code to be effective, we have to live our
core values of doing business with integrity and courage;
making smart decisions which we execute with speed.
Good corporate governance is of prime importance to Sappi.
As such, we moved to implement the external auditor rotation
recommendation of King IV prior to its formal implementation.
A process in this regard commenced in 2015. KPMG was
selected after a thorough search for a globally capable firm
reflecting Sappi's global footprint. They have just completed
their first audit for Sappi. The Sappi board is concerned about
the recent allegations and investigations into KPMG and
continues to engage with them on this matter. The board had
a very serious debate as to whether we should appoint KPMG
as our auditors at the AGM on 07 February 2018. We have
expressed our concern to the senior management of KPMG
around their lack of basic risk controls and potential loss of key
staff. We have been assured by KPMG International that they
will support the local firm as necessary to alleviate any such
risks. As a result we decided to continue with KPMG in the
short-term. After the publication of the various enquiries and
reports into KPMG we will revisit our decision.
Our European business delivered good profitability once again,
with increased sales volumes and excellent cost control
offsetting the impact of lower average paper prices and
significant increases in paper pulp prices, a key raw material
input. The specialities and packaging papers business
continued to make good progress, with sales volumes for the
year up 15% over 2016. Our focus on the growing higher-
margin coated specialities and packaging papers such as
release liner, solid bleached board and functional papers
categories allows us to leverage our coating expertise and
we are working closely with customers to develop new and
innovative solutions to their packaging needs. Variable costs
declined marginally during the year. This despite a 26%
increase in the Euro list price of hardwood paper pulp and a
25% increase in latex costs, both major inputs to our paper
business. The ongoing initiatives to reduce usage and boost
efficiency were key to managing overall variable costs. Industry
demand for coated woodfree and coated mechanical paper
was slightly better than expected in 2017, particularly in the
export markets where coated woodfree shipments increased
year-on-year.
Coated paper pricing in the North American business declined
4% compared to 2016 due to an oversupplied market.
However, gains in market share, increased packaging paper
sales and reductions in variable costs helped offset the weaker
market conditions. The Cloquet pulp mill produced both DWP
and paper pulp for internal consumption in 2017 in order to
maximise the profitability of the business. As our customers’
demand for DWP increases we expect to slowly move towards
full DWP production over the next two years. The casting
release paper business remained affected by weaker demand
from China.
The South African paper operations delivered enhanced
profitability in 2017 notwithstanding the materially stronger
Rand/Dollar exchange rate during the year. Increased sales
volumes, and higher overall pricing more than offset the below
inflation variable cost increases. Local containerboard sales
were particularly strong and the growth in the domestic
agricultural sector, particularly for fruit exports, is positive for
this business.
Global demand for DWP continues to grow, and along with
a generally constrained cotton supply this resulted in slightly
higher average US Dollar market prices for DWP in 2017, and
along with improved sales volumes led to improved profitability
for our specialised cellulose business in 2017. Our specialised
cellulose business was once again the main contributor to our
success, delivering 49% of the group’s EBITDA excluding
special items, with strong margins. The stronger Rand/US
Dollar lowered margins somewhat in our South African mills,
though good cost control helped maintain their low-cost
competitive position.
sappi 2017 Annual Integrated ReportGroup overview 14
Letter to stakeholders continued
Strategic review
Our strategic 2020Vision was developed during the course
of 2015, and while the core focus remains on improving
profitability, cash generation and growth, we have turned
our attention to more specific growth targets and aspirations.
In 2017, we achieved all of our short-term targets and made
significant strides towards the 2020Vision. As we have
achieved our target of reducing leverage to below two times
we have revised the description of our objectives somewhat
to reflect the progress we have made.
In a difficult North American market, our cost-competitive
manufacturing facilities, excellent service to customers and
superior paper quality, allowed us to increase market share
in 2017.
In Europe we have focused both on cost containment and
our go-to-market strategy – Sappi&You – which has enabled
us to be a preferred supplier in the coated woodfree grades
in particular and has seen us increase market share in a
declining market.
Our strategy now encompasses the following four main
objectives:
• Achieve cost advantages – We will work to improve
operational and machine efficiencies, maximise procurement
benefits and optimise business processes in order to lower
costs.
• Rationalise declining businesses – Recognising the
decreasing demand for graphic papers, we continuously
balance paper supply and demand in all regions to
strengthen our leadership position in these markets, realising
their strategic importance to the group and maximising their
significant cash flow generation. Where possible we will
convert paper machines to higher margin businesses.
• Maintain a healthy balance sheet – This will reduce risk
and improve our strategic flexibility.
• Accelerate growth in higher margin growth segments
– We will invest in expanding our paper packaging grades,
enhancing our specialised cellulose portfolio and in the
extraction of value from our biorefinery stream.
Initiatives and actions undertaken to support our strategic
objectives are outlined below.
Achieve cost advantages
Reducing both variable and fixed costs throughout the
business is integral to improving margins and to the
sustainability of our operations, particularly in commodity type
businesses such as graphic papers, where declining demand
places additional pressure on margins and revenues. In 2016
we implemented a groupwide cost reduction project to lower
costs through greater emphasis on global procurement, as well
as local projects focused on efficiency and raw material usage.
Our initial target was to achieve US$100 million in annual
savings by 2020. We are pleased to report that in 2017 we
achieved more than US$100 million in savings compared to
our 2015 base year. These savings have allowed us to offset
the impact of rising paper pulp and latex prices and the impact
of lower graphic paper prices. In 2018 we are targeting a
further US$60 million in savings. During the year we
commenced the Somerset Mill woodyard upgrade to improve
reliability and enhance efficiency. In 2018 we will invest in
the Saiccor woodyard, upgrade PM9 at Gratkorn Mill and
will be focusing on a global logistics initiative, all of which
will lower costs.
In South Africa, we have become the sole local producer of
newsprint after the closure of the last competing machine. The
transfer of office paper production from Enstra Mill to Stanger
Mill post the disposal of Enstra Mill in December 2015 has
resulted in a more cost competitive product.
During the year we announced that in North America we will
be investing approximately US$165 million to convert PM1
at the Somerset Mill. The capacity of the machine will be
expanded and it will have the flexibility to produce both coated
graphics paper and paper packaging products. The project
is expected to be completed in April 2018 and will replace
approximately 150,000tpa of graphic paper with 350,000tpa
of speciality grades.
In Europe we will undertake a number of projects that will result
in a significant increase in our speciality packaging paper
capacity and capability. The Maastricht Mill will be converted
to focus predominantly on packaging grades and we will invest
at Ehingen and Alfeld to enhance the specialities offerings.
Lanaken Mill PM8 will progressively transition to coated
woodfree production over the next three years in line with
the expected decline in the coated mechanical market. In
total these European projects will cost approximately
US$140 million over a three-year period and will result in
the replacement of 200,000tpa of graphic paper with a similar
volume of speciality packaging paper.
Maintain a healthy balance sheet
A healthy balance sheet is an important prerequisite in order
for Sappi to make investments in higher-margin businesses.
The continued improvement in our operational performance
enabled us to reduce debt further and our net debt/EBITDA
leverage sooner than the targets we had set ourselves. As
a result we repaid US$400 million of debt from cash reserves
during the year, and our future net finance costs are expected
to be in the range of US$60 million to US$70 million/annum.
This is a significant reduction from the US$182 million spent
in 2015.
At a group level we are focused on optimising our working
capital management, containing capital expenditure to
US$450 million and generating sufficient free cash to pay
the annual dividend, while keeping the net debt/EBITDA
ratio below two times leverage.
Rationalise declining businesses
Graphic paper demand in Europe and North America continues
to be in long-term structural decline. Maintaining operating
rates and lowering costs, in order to maximise cash generation,
has been our strategy in these markets.
Accelerate growth in higher margin growth
segments
With debt and leverage at levels that provide us with the
necessary comfort and flexibility we started to accelerate
investments in higher margin products and businesses. As
sappi 2017 Annual Integrated Report
15
mentioned above, we are investing more than US$300 million
to convert graphic paper capacity to specialities and packaging
papers and we have also completed the acquisition of
Rockwell Solutions, a firm specialising in innovative barrier
packaging solutions. Concerns about climate change, recycling
and the environment are driving encouraging growth in
paper-based packaging and we continue to look for more
opportunities to expand our product offering in complementary
segments of the market.
In 2017 we have initiated debottlenecking projects at both
Saiccor and Ngodwana Mills with the aim to boost production
by 50,000tpa at Ngodwana Mill and 10,000tpa at Saiccor Mill.
Further significant expansion opportunities are also apparent in
our specialised cellulose business, with robust demand growth
expected from our major customers and from the DWP market
in general. We intend to announce details of our plans in this
regard during the first half of 2018.
Our new business development team, now named Sappi
Biotech, has had a busy and successful year. During the year
we commissioned a sugar extraction pilot plant at Ngodwana
Mill, and produced the first batch of cellulose nanofibrils (CNF)
and cellulose microfibrils (CMF) at our pilot plant at Maastricht
Mill. We also acquired technology from Plaxica, a firm based in
the United Kingdom which specialises in sugar extraction from
waste streams. Within the next four years we believe that
Sappi Biotech could contribute as much as 10% of the
group’s EBITDA.
Looking forward
Demand for DWP remains favourable and spot prices have
increased significantly in recent weeks. After the quarter-end
a severe storm caused significant damage to the harbour
and logistics infrastructure in Durban, South Africa. The
estimated impact on first-quarter profitability is approximately
US$4 million due to damaged inventory and lost production
at Saiccor.
A significant proportion of our DWP sales prices are based on
the prior quarter average market hardwood DWP price. For
the first quarter of 2018 average pricing is therefore likely to
be slightly lower than in the past quarter. The recent upward
momentum in market prices will only be realised in our second
quarter. Longer-term market dynamics remain favourable with
additional demand expected to exceed supply over the next
few years.
In Europe, local demand for graphic paper has stabilised
somewhat and sales to export markets continue to grow.
Paper pulp costs have continued to rise after year-end and
margins will be under pressure.
In the United States, closures of competing mills have
tightened the supply in a market that otherwise remains
difficult. Further price increases have been announced and
implemented after a long period of declining prices, and
we are more optimistic about the prospects in the
forthcoming year.
Demand for specialities and packaging papers continues to
grow, and we require the additional capacity from the
conversions of the paper machines at Maastricht and
Somerset Mills in order to continue to serve this growth.
These conversions have commenced and are set to be
completed in the second and third fiscal quarters of 2018
respectively.
Capital expenditure in 2018 is expected to increase to
US$450 million as we continue the conversions in both Europe
and North America, complete the Saiccor and Ngodwana
debottlenecking and start the upgrade of the Saiccor
woodyard. The increase in expansionary capital spending
during 2018 is focused on higher-margin growth segments
including DWP and specialities and packaging papers. This will
position us for stronger profitability from 2019 onwards.
The 2017 financial year included an extra trading week which
contributed approximately US$20 million to EBITDA in the
first quarter of 2017. In addition, the higher external pulp costs
and the aforementioned storm damage will have a negative
impact on current profitability. As a result we expect the
group’s first quarter operating performance to be below
that of the prior year.
Appreciation
Every business depends on a wide and varied group of
stakeholders that contribute in many ways to our development
and performance. Our interactions with these stakeholders,
their ideas, suggestions and support guides us and we thank
them for their contribution.
We are grateful for the support of our customers in all of our
different markets, with whom we continue to work together,
providing relevant products and services which provide
sustainable value.
Our employees have supported the strategic initiatives of the
group, and we thank them for this support and enacting our
One Sappi vision. We also thank them for embracing the
values and ethics that are vital to good corporate citizenship.
Our gratitude goes to the board for their continued
commitment to the group, their valuable insights and
encouragement and for holding us to the highest ethical
standards.
We welcomed Dr Boni Mehlomakulu to the board as an
independent non-executive director and as a member of the
Social, Ethics, Transformation and Sustainability Committee,
with effect from 01 March 2017.
In November we announced the retirement of Dr Rudolf
Thummer, independent non-executive director, with effect from
31 December 2017, having reached mandatory retirement age.
Dr Thummer has been a valued colleague for more than seven
years having been appointed to the board in February 2010,
and was appointed to the Social, Ethics, Transformation and
Sustainability Committee in February 2012. We would like to
thank him for the significant contribution which he has made
to the board since his appointment.
In conclusion, we value the support which our shareholders
have provided as we work to enhance sustainable long-term
shareholder returns. We look forward to their participation at
the AGM on 07 February 2018.
sappi 2017 Annual Integrated ReportGroup overview 16
Q & A with the CEO
Steve Binnie
Net profit for the year
increased by 6% to
US$338
million
EBITDA increased
by 6% to
US$785
million
Dividend declared
15 US
cents
Net debt declined to
US$1,322
million
Each of our regions improved
its operating performance
and cash generation
exceeded our own goals,
as a result, we now have
greater flexibility to
increase investments in
strategic growth.
sappi 2017 Annual Integrated Report 17
Demand for dissolving wood pulp
(DWP) continues to grow above your
stated market expectations – what expansion
plans do you have in your specialised
cellulose business?
Demand for DWP has indeed exceeded our longer-
term 4% to 5% growth per annum expectation, having
been closer to 10% per annum on average. Both cotton, which
competes with viscose, and cotton linter pulp, an alternative
feedstock to the viscose staple fibre (VSF) industry,
experienced either diminishing or, at most, stable supply over
the past few years facilitating increased demand for VSF and
consequently DWP. Our VSF customers have increased
demand during this time, and have additional expansion plans
over the next five years or more. Currently we produce
1.2 million tons per annum of DWP, with production capacity of
1.4 million tons per annum. We currently operate our Cloquet
Mill as a swing mill producing both paper pulp for internal use
and DWP. Based on expectations of overall market growth, we
believe that we need to be producing at least 1.7 million tons
per annum by 2020. Fully utilising our current capacity, and
debottlenecking our existing plants will enable us to produce
an additional 200,000tpa within the 2020 timeframe. In order to
meet the further 300,000tpa of demand we have been looking
for further investment opportunities, both internal and external
to our current operations. We hope to be able to detail these
plans during the first half of 2018.
Does the growth in Sappi’s specialities
and packaging papers sales volumes
this year indicate that your investment in this
market segment is justified?
Sales growth in this segment, both in Europe and
North America, has been above the overall market
growth rates, and we have reached the limit of our current
specialities and packaging papers capacity. The investments
announced in February 2017 to convert graphic paper
machines at our Maastricht and Somerset Mills are well
underway and are expected to be complete in the second and
third fiscal quarters respectively. These conversions will boost
our specialities and packaging papers capacity by
approximately 550,000tpa.
Our expertise in paper-based coatings, investment in R&D and
our commitment to develop product solutions alongside some
of the world’s leading fast moving consumer goods (FMCG)
companies have all contributed to our success in the past
few years. In the past year we also announced the acquisition
of Rockwell Solutions, a firm specialising in film coatings for
the packaging industry and which has recently developed a
non-solvent-based barrier for paper applications. Sappi has a
growing reputation for offering premium speciality papers and
boards for the packaging industry, but market requirements are
changing continuously and brand owners are aiming for more
sustainable solutions without compromising functionality.
Paper-based barrier solutions have gained more focus as a
sustainable alternative to film/foil laminate-based flexible
packaging materials. This acquisition will give Sappi valuable
insight into film products we will compete with, product
performance experience and a much deeper market insight.
Our focus is to introduce paper-based packaging solutions to
brand owners who are used to working with plastic packaging
solutions. Rockwell has been working on recyclable and
compostable barrier films, making them a complementary
solution to Sappi’s paper-based barrier solutions.
Post the reporting period Sappi announced an important
investment due to be finalised in calendar Q1 2018. More
details can be found at www.sappi.com. Sappi agreed to
acquire the specialities and packaging papers business of
Cham Paper Group Holding AG for CHF146.5 million. The
acquisition will add 160,000tpa of speciality paper to our
capacity. The transaction will increase profitability and unlock
the significant growth and innovation potential in this market.
sappi 2017 Annual Integrated ReportGroup overview
18
Q & A with the CEO continued
Did the rapid and sustained rise in
paper pulp prices surprise you in 2017?
What can you do to offset this cost pressure?
Both the magnitude and duration of the rise in paper
pulp prices, particularly hardwood paper pulp,
surprised us. Like many in the industry we believed that new
supply would outpace demand growth in 2017. This proved
to be wrong due to a number of factors. Firstly, demand was
stronger than expected, partly as a result of a decision by
Chinese authorities to curtail the import of low-quality waste
paper. This paper is used in many sectors of the paper market
that traditionally rely on recycled paper. Secondly, supply did
not grow as fast as predicted due to the late start-up of some
new pulp plants and operating problems at some other
facilities. For the moment the hardwood pulp market remains
tightly supplied and prices are expected to continue to rise into
the new year. Over the past year we have been successful in
offsetting much of the increased prices through various cost
containment initiatives, usage efficiency and by becoming more
flexible in our product makeup. More recently, we have also
been successful in raising paper prices in both Europe and
North America, which clearly helps minimise the impact. Lastly,
higher paper pulp prices support higher DWP prices as swing
producers who can switch between paper pulp and DWP
would be incentivised to produce paper pulp if the price
premium of DWP over paper pulp narrowed.
Sappi’s capital expenditure has
increased over the past two years,
and you indicated that 2018 will see a further
increase. Should investors be concerned
about leverage and dividends, and what
returns do you expect on major expansionary
projects?
We remain committed to maintaining our leverage
to below two times net debt to EBITDA. Our capital
expenditure plans take into account this leverage cap, as
well as our intention to pay a reliable dividend at a long-term
average cover ratio of three times. We focus on capital projects
that achieve our strategic objectives and, as a minimum, beat
our cost of capital. Typically, however, expansionary projects
should earn a return on capital employed of at least 12%.
sappi 2017 Annual Integrated Report
19
What are the major environmental and
sustainability trends that are shaping
your strategy and approach to risk?
There are two major trends shaping our strategic
thinking as well as our understanding of risks that may
impact our business. Firstly, consumers, brand owners and
governments are becoming more aware of the impact
packaging has on the environment. The advantage paper-
based packaging has over other competing materials such as
plastics and foils is the renewable nature of the raw material
and, in a well-designed product, the relative ease with which
the packaging can be recycled or even composted in some
circumstances. These factors are driving the development of
paper-based alternatives to many common packaging
solutions. As mentioned above, the Rockwell acquisition was
aimed squarely at addressing this opportunity. Secondly, the
textile industry, from raw material supplier through to final
retailer or brand owner are becoming increasingly sensitive
to the environmental and social impact of the various textile
choices available to them. These include impact of water
sources and quality, emissions, energy intensity, impact on
biodiversity and working conditions. To address this effectively,
NGOs, investors and responsible growers and manufacturers
are conducting lifecycle assessments and insisting on greater
supply chain transparency. While we believe that the viscose
textile value chain has a lot of positive benefits compared to
many other textiles, there are still areas that can be improved
on, and aligning ourselves with more responsible value chains
and constantly improving our own environmental performance
enable us to grow and reduce risk.
sappi 2017 Annual Integrated ReportGroup overview
20
Where we operate
Sappi is a global diversified woodfibre company focused on providing
dissolving wood pulp, specialities and packaging papers, graphic/printing
papers, as well as biomaterials and biochemicals to our direct and
indirect customer base across more than 150 countries.
Paper
per year
5.4 million tons
Paper pulp
per year
2.2 million tons
Dissolving wood
pulp per year
1.4 million tons
Globally we
have 12,158
employees
Our dissolving wood pulp (specialised cellulose) products
are used worldwide by converters to create viscose fibre for
fashionable clothing and textiles, pharmaceutical products, as well
as a wide range of consumer and household products. Quality
specialities and packaging papers are used in the manufacture
of such products as soup sachets, luxury carry bags, cosmetic
and confectionery packaging, boxes for agricultural products for
export, tissue wadding for household tissue products and casting
and release papers used by suppliers to the fashion, textiles,
automobile and household industries. Our market-leading range of
coated and uncoated graphic paper products are used by printers
in the production of books, brochures, magazines, catalogues,
direct mail, newspapers and many other print applications.
The wood and pulp needed for our products is either produced
within Sappi or brought from accredited suppliers. Across the
group, Sappi is close to ‘pulp neutral’, meaning that we sell almost
as much pulp as we buy.
Sappi Trading
Sales offices
Sappi Trading operates a network for
the sale and distribution of our products
outside our core operating regions of
North America, Europe and Southern
Africa. Sappi Trading also coordinates
our shipping and logistical functions for
exports from these regions.
Bogotá, Hong Kong,
Johannesburg, México
City, Nairobi, São Paulo,
Singapore, Shanghai,
Sydney, Vienna
Logistics offices
Durban, New York
6 paper mills
1 speciality paper mill
18 sales offices
5,201
employees
Europe
Mills
Alfeld Mill
Ehingen Mill
Gratkorn Mill
Kirkniemi Mill
Lanaken Mill
Products produced
Bleached chemical pulp for own consumption
Coated and uncoated specialities paper
Bleached chemical pulp for own consumption and
market pulp
Coated woodfree paper
Bleached chemical pulp for own consumption
Coated woodfree paper
Bleached mechanical pulp for own consumption
Coated mechanical paper
Bleached chemi-thermo mechanical pulp for own
consumption
Coated mechanical paper, coated woodfree paper
Kirkniemi
Maastricht Mill
Coated woodfree paper
Stockstadt Mill
Bleached chemical pulp for own consumption and
market pulp
Coated woodfree paper, uncoated woodfree paper
Capacity(1) (’000 tons)
Paper
Pulp
120
275
280
980
750
530
280
445
140
250
300
165
145
Alfeld
Stockstadt
Lanaken
Maastricht
Ehingen
Gratkorn
Total Sappi Europe
3,540
1,120
Produces 48% of group sales
sappi 2017 Annual Integrated Report
21
1 paper mill
1 speciality paper mill
1 paper and specialised
cellulose mill
6 sales offices
2,079
employees
North America
Mills
Products produced
Cloquet Mill
Somerset Mill
Dissolving wood pulp
Coated woodfree paper
Bleached chemical pulp for own consumption
and market pulp
Coated woodfree paper
Westbrook Mill
Coated specialities paper
Capacity(1) (’000 tons)
Pulp
340
525
Paper
340
790
40
Total Sappi North America
1,170
865
Produces 26% of group sales
Cloquet
Somerset
Westbrook
(1) Capacity at maximum continuous run rate.
*
Approximately 140,000ha of our land is set aside and maintained by Sappi Forests
to conserve the natural habitat and biodiversity found there.
** Plantations include owned and leased areas as well as projects.
*** Sappi ReFibre collects waste paper in the South African market which is used to
produce packaging papers.
Southern Africa
Plantations*
Products produced
KwaZulu-Natal
Mpumalanga
Sawmills
Plantations (pulpwood and sawlogs)**
Plantations (pulpwood and sawlogs)**
Sawn timber (m3)
Total Sappi Forests
Capacity(1) (’000)
2 paper mills
Ha
221
258
479
Standing tons
m3
11,017
16,380
27,397
102
102
Capacity(1) (’000 tons)
Mills
Products produced
Paper
Ngodwana Mill
Stanger Mill
Tugela Mill
Sappi ReFibre***
Unbleached chemical pulp for own
consumption
Mechanical pulp for own consumption
Kraft linerboard
Newsprint
Bleached bagasse pulp for own consumption
Office paper and tissue paper
Neutral sulfite semi-chemical pulp for own
consumption
Corrugating medium
Waste paper collection and recycling for own
consumption
240
140
110
195
Total Sappi Paper and Paper Packaging
685
Ngodwana Mill
Dissolving wood pulp
Saiccor Mill
Dissolving wood pulp
Total Sappi Specialised Cellulose
Total Sappi Southern Africa
685
Pulp
220
110
60
135
140
665
210
800
1,010
1,675
Produces 26% of group sales
1 specialised cellulose mill
1 paper and specialised
cellulose mill
1 sawmill
6 sales offices
479,000ha
forests
4,701
employees
Ngodwana
Lomati
Tugela
Stanger
Saiccor
sappi 2017 Annual Integrated ReportGroup overview
22
Product review
A total global DWP
capacity of
1.4 million tons
We currently supply 17% of global
demand from our three mills
located in Southern Africa and
North America.
A truly sustainable raw material, DWP is noted for its
versatility. We’re innovators in this market – capitalising on
years of experience to create personalised solutions for
customers across multiple sectors.
Coated mechanical paper
Graphic
papers
Coated woodfree paper
N
e
w
s
p
r
i
n
t
p
a
p
e
r
Coated and uncoated papers designed to get
the best results for you and your customers.
Our range of coated and uncoated graphic printing papers cover varying visual
and tactile qualities to ensure that whether you're looking for a high-end product
with extra wow factor, a comprehensive solution that caters to all of your
campaign's requirements, or a paper that helps you make a distribution savings
then we have the solutions.
Dissolving wood pulpGraphic paperssappi 2017 Annual Integrated Report
To reshape Sappi’s future, our
2020Vision draws on the power
of One Sappi as we expand
beyond pulp and paper to unlock
and commercialise the potential of
woodfibre-derived bioproducts.
As a longstanding leader and innovator in our industry,
we deliver customised solutions for your specific needs.
We don't just supply materials, we deliver sustainable and innovative solutions. Whether you are
a brand owner, converter, printer or designer, our specialities and packaging papers give you the
advantage you need.
Flexible packaging and label papers
Containerboard
Functional papers
Release liner
Technical papers
Casting and release papers
23
P
a
p
e
r
b
o
a
r
d
Tissue paper
Specialities and packaging paperssappi 2017 Annual Integrated ReportGroup overview 24
Product review continued
Dissolving
wood pulp
Specialities and
packaging
papers
Graphic
papers
Dissolving wood pulp
Dissolving wood pulp (DWP) is a highly purified form of cellulose extracted from
wood through specialised cellulose chemistry. DWP is the primary input into the
manufacture of viscose staple fibre (VSF) which is a natural substitute for cotton
and polyester in the textile industry.
Sappi produces DWP in Southern Africa and North America. Sappi is the world’s largest
manufacturer of DWP and exports almost all of the production from our Saiccor and Ngodwana
Mills in Southern Africa and Cloquet Mill in the United States. DWP can also be processed into
products used in food and beverages, health and hygiene products, wrapping and packaging,
pharmaceuticals and many more applications that touch our daily lives. With a total global DWP
capacity of over 1.3 million tons, we currently supply 17% of global demand from our three mills.
A truly sustainable raw material, DWP is noted for its versatility. We are innovators in this market –
capitalising on years of experience to create personalised solutions for customers across
multiple sectors.
Demand for DWP used in textiles, particularly for viscose, is both the largest market and fastest
growing, while end markets and demand growth for other, more highly purified forms of cellulose
can be characterised as smaller, and with slower growth rates. Based on the growth rate in the
overall textile market (driven by factors such as population growth and wealth effects) and the move
towards more comfortable, environmentally friendly natural fibres, we expect long-term growth of
4% to 5% per annum for DWP.
In 2013, Sappi converted facilities in both North America and Southern Africa from paper grade
pulp to DWP to capture the growth in this market and we have plans to invest further in the
forthcoming years. We are currently debottlenecking our Saiccor, Ngodwana and Cloquet Mills,
adding 90,000 tons by the end of 2019, and we maintain the flexibility to increase our production
in North America by utilising swing capacity at our Cloquet Mill, which will add 100,000 tons of
DWP production. Over and above these internal actions, we require 300,000tpa of additional
capacity to meet our growing customer needs. We are making good progress in identifying
how best to serve our customers.
Market prices for DWP are derived from several supply and demand factors. Swing capacity – mills
that can shift production between paper grade pulps, fluff pulps, and DWP – can and do optimise
their facilities largely depending on the price differential of the markets they choose to serve. DWP
is typically priced at a premium to paper grade pulps due to the lower yield per ton of wood and
typically lower production volumes. When the price differential becomes sufficiently wide, swing
producers may elect to produce DWP, the reverse also applies. The availability of cotton linter pulp,
a competing source of cellulose for VSF production, also plays a role in determining the DWP price.
In the last six years almost 50% of Chinese cotton linter pulp capacity closed due to the enforcement
of more stringent environmental standards. Lastly, our customers – VSF producers – and the prices
they realise on their products are governed by their own supply/demand dynamics and will influence
the DWP market price.
sappi 2017 Annual Integrated Report 25
In FY2017, 20% of Sappi’s sales were dissolving wood pulp.
Our markets in 2017 and outlook for 2018
Viscose production grew 11% in China in the first nine months
of 2017 relative to the same period last year as producers
added capacity. Consequently, demand for DWP grew at
a similar rate. Despite this rapid growth in demand and
production, prices for DWP declined from their highs in
November 2016 of US$990/ton to approximately US$830/ton
in June 2017 as a result of a slowdown in VSF production and
a rise in DWP inventories. Subsequently, viscose inventories
declined to historic lows, and prices for DWP increased for the
balance of the fiscal year and are currently at US$935/ton in
November 2017.
Sales volumes in fiscal 2016 were hampered by drought
conditions in Southern Africa and an extended shut at our
Ngodwana Mill. Production and sales volumes grew 6% in
2017. During the year, we began debottlenecking projects at
our Ngodwana and Saiccor Mills in Southern Africa. These
projects are expected to add approximately 60,000tpa to our
current capacity. We anticipate these projects to begin making
incremental tonnage in the latter half of fiscal 2018. At Cloquet
Mill, we aim to optimise profitability by utilising our swing
capability depending on the price differential between DWP
versus the price of buying market pulp for our two paper
machines. We will also be adding 30,000 tons at the Cloquet
Mill through debottlecking in a project that will be completed
in 2019.
We believe spot prices for DWP will continue to rise in the near
term, mostly due to swing capacity moving away from DWP
and toward hardwood paper pulp. Hardwood paper pulp
prices have been on a clear upward trend through 2017 due to
the closure of non-competitive and environmentally unfriendly
paper pulp capacity in China. Chinese paper producers are
also facing an import shortage on recovered paper forcing
them more toward virgin fibre for paper production. Rising
hardwood paper pulp prices should cause market prices
for DWP to follow. We anticipate cotton linter pulp availability
to continue to decline and, as such, demand for DWP will
continue to grow.
More recently, we have seen a push for viscose manufacturers
to source their DWP from sustainable forests – forests that
are PEFC, FSC and/or SFI certified. Sappi adheres to strict
sustainability guidelines put forth by these organisations to
ensure our products not only meet, but exceed current
environmental certification standards.
We expect demand to continue to grow, and we strive to serve
our customers with unmatched quality, consistency and scale.
The long-term market fundamentals for dissolving wood pulp
are very attractive. Our competitive and geographic positioning
provides us with the platform to grow the business further.
sappi 2017 Annual Integrated ReportGroup overview 26
Product review continued
Specialities and packaging papers
Specialities and packaging paper products are an exciting growth area in Sappi.
They offer customers an opportunity to add value to their products in niche markets
where requirements are more specific and tailor-made.
Converters and end-use customers choose Sappi’s coated and uncoated speciality paper, such as
paper used in flexible packaging, for food and luxury packaging for consumer goods and aspirational
products, as well as packaging paper to protect products. Demand for these papers is growing as
a result of the superior print quality and versatility the paper offers compared to non-paper options.
Converters and customers also appreciate paper’s haptic potential, further extending the marketing
message of a product’s campaign and creating an all-round sensory experience. Specialities
and packaging papers can be customised and personalised with printing (both digital and litho),
varnishing, foiling, embossing and folding. Environmental concerns, governmental regulations
and customer demands are all contributing to make this segment an exciting growth part of
Sappi’s business.
In FY2017, 18% of Sappi’s sales were
specialities and packaging papers.
Sappi offers products and solutions in many different segments including:
Flexible
packaging
Label papers
Functional
papers
Dissolving
wood pulp
Specialities
and packaging
papers
Graphic
papers
Flexible packaging with
coated and uncoated paper
for food and non-food
applications, such as sachets,
pouches and wrappers.
Label papers for pressure
sensitive and wet adhesive
applications.
Functional papers that offer
highly efficient paper-based
solutions with integrated
functionality, like paper with
barriers against mineral oil
residuals, oxygen, water
vapour and grease as well
as sealing properties.
Containerboard
Paperboard
Silicone base
papers
Containerboard, including
liner and fluting, for corrugated
boxes. Sappi’s products are
found in applications like
consumer packaging, shelf
ready packaging and transport
packaging for agricultural and
industrial uses.
Paperboard, such as solid
bleached board and folding
box board for luxury packaging
with more graphic
applications. Packaging for
cosmetic, perfume,
confectionery and premium
beverages use our products.
Release liner with silicon
base papers for self-adhesive
applications, such as graphic
art applications with outdoor
advertisement and adhesive
tapes and office material.
sappi 2017 Annual Integrated Report 27
Technical papers
Casting and release
papers
Tissue papers
Technical papers for
interleaving and thermal
coating, for example, tickets
for boarding pass and concert/
stadium tickets.
Casting and release papers
used by suppliers to the
fashion, textiles, automobile
and household industries. It is
used in the manufacture of
synthetic leather and
decorative laminate products,
creating textures that make
designs come to life.
Tissue paper used for toilet
tissue, kitchen towels,
serviettes and medical and
industrial wipes.
Global market size
One of our strategic pillars is to invest in adjacent areas with
strong potential for growth.
Four years ago, we invested €60 million to rebuild paper
machine number two at our Alfeld Mill, converting the coated
woodfree paper machine to coated specialities in order to
support growth in this market. Four years later, we find
ourselves capacity constrained at Alfeld Mill, with investments
underway at our Ehingen and Masstricht Mills to convert
printing paper capacity to specialities and packaging paper
in order to match our capacity with demand in both markets.
Specialities and packaging papers are also made in North
America at our Somerset, Westbrook and Cloquet Mills and
at Tugela and Ngodwana Mills in Southern Africa.
Sappi enjoys clear competitive advantages in this sector. We
are experts at coating surfaces. We have a deep understanding
of what happens to a substrate when a coating is applied, and
we have experience in specialised chemistry to modify coatings
to match a wide variety of customer preferences. We
manufacture from a suite of machines from Europe, North
America and Southern Africa, ensuring scale-based efficiencies
and security of production, lower production costs, and
passing savings on to our customers.
Sappi is geared to serve diverse customer markets with smart
sustainable solutions for light and heavyweight packaging that
can be recycled and is biodegradable.
Our markets in 2017 and outlook for 2018
Demand for Sappi’s wide range of products continues to grow
in the specialities and packaging papers market, reflecting the
increasing needs from customers for more sustainable and
environmentally-friendly packaging solutions. We estimate
global growth across the spectrum of our product focus is
growing at approximately 3% per year. However, in fiscal 2017,
demand for our products grew 15% relative to last year as we
grew market share and developed new products to meet
changing market demands. Average realised prices were flat
relative to last year for the European portion of this business
due to the translation impact of a stronger Euro on export
sales. EBITDA margins were better than those achieved last
year due to higher volumes and lower costs.
Our specialities and packaging business in North America also
experienced good growth this year. Demand for our coated
one-side label paper grew from a small base and we gained
market share during the year. Margins grew relative to last year
from better volumes and lower costs, whereas realised prices
were flat. In 2017, we began work at our Somerset Mill to
transition PM1 to make specialities and packaging papers.
During the next three years, we expect to reduce coated
woodfree sales by approximately 150,000tpa and to increase
specialities and packaging paper sales by 350,000tpa.
In the containerboard market in Southern Africa, Sappi largely
serves the agricultural sector with cartonboard to protect fresh
produce as it is exported around the world. Volumes were 1%
better than last year and average pricing was 9% higher than
last year. As this market is expected to grow by 4% to 5% per
annum going forward, we have plans to grow our capacity in
order to meet that demand.
We have witnessed a growing need for more sustainable
and environmentally-friendly packaging solutions from a wide
variety of industries and sectors forced to review the effects
that their packaging materials have on the environment.
When a producer reviews the packaging component of its
entire product, it generally regards the packaging aspect as
a high-risk/low-cost part of its operation. With this newfound
spotlight on packaging of products, and the role packaging
paper can play, not only in regard to environmental standards,
but in the other functions packaging papers can play –
from moisture controls, barrier papers, heat-sealing, or
even grease resistant barriers – we will be an innovative
and trusted supplier, working with customers to find the
solutions they require.
sappi 2017 Annual Integrated ReportGroup overview 28
Product review continued
Dissolving
wood pulp
Specialities and
packaging
papers
Graphic
papers
Graphic papers
Publishers, advertising agencies, designers and corporate end-users who want to
make an impact with their brands know paper is an integral part of the marketing
and now science tells us why.
Sappi’s global position – coated woodfree
paper (’000 tons)
Sappi’s global position – coated
mechanical paper (’000 tons)
APP
Sappi
3,170
3,055
Verso Corporation
1,810
UPM
1,530
Oji Paper
1,305
Chenming Paper
Stora Enso
Lecta (CVC)
1,200
1,175
1,145
Nippon Paper
1,055
Burgo
960
UPM
Verso Corp
Sappi
Burgo
1,030
940
Catalyst Paper
800
Kubler
595
Nippon Paper
Lecta (CVC)
Leipa
530
520
SCA
490
Oji Paper
460
Resolute FP
440
2,740
Verso Corp
Lecta (CVC)
0
1,000
2,000
3,000
4,000
0
1,000
2,000
3,000
Neuroscientists find that people absorb content through touch as well as sight, and touch influences
our decisions powerfully at a subconscious level. The physicality of ink on paper elicits human
emotions in ways that computer screens do not, because paper’s tactile quality engages the brain
differently. Online, our eyes skim and scan information in a distinctive pattern. On paper, the pattern
is much different. As we read, our fingers infuse the experience with touch-information that subtly
shapes our perception of the content. On paper, we read more deeply, more responsively, and
transfer more of what we read to long-term memory. Studies of direct mail, for example, show print
ads generate more emotional response than digital ads and are remembered longer, and specific
tactile qualities like warmth, weight, and texture influence cognitive response in ways that lie just
beneath our conscious recognition. This use of paper and print is important to marketers who want
their brands noticed, and remembered.
Our markets in 2017 and outlook for 2018
Average EBITDA margins were flat relative to last year. Lower average selling prices and rising paper
pulp and latex costs offset gains from 2% growth in volume. During the FY2017, we announced that
we would begin investing in our specialities and packaging papers businesses in Europe and North
America. In Europe, we will collectively spend approximately US$140m over three years at our
Maastricht, Ehingen, Alfeld and Lanaken mills to enable us to make approximately 200,000tpa of
solid bleached board, folding boxboard and white top liner, as well as increase the flexibility of our
assets to serve the market for our customary printing papers. In North America, we plan to spend
approximately US$165m at our Somerset Mill to allow for the production of SBS board on PM1.
Both these projects are aligned to our strategy of rationalising declining businesses and accelerating
growth in high margin products.
Our outlook for 2018 is for average realised prices to be higher than that of FY2017. We announced
and implemented price increases in both Europe and North America in the latter half of fiscal 2017
and more have been announced for January 2018. Mill closures from two of our North American
competitors and our own conversion of PM1 at Somerset Mill, which will take place in mid-2018,
will keep utilisation rates high. Increased paper pulp prices, a key input cost and good export
demand are driving coated woodfree prices higher in Europe. In both Europe and North America,
cost control remains a primary focus.
sappi 2017 Annual Integrated Report 29
In FY2017, 62% of Sappi’s sales were in four different grades of graphic papers discussed below:
Coated woodfree paper
Share of sales
46%
Printers and publishers use coated woodfree paper for a variety of
marketing promotions including brochures, catalogues, calendars,
annual reports, direct mail, textbooks and magazines. Coated paper
is brighter, smoother and tends to have greater opacity than uncoated
grades. In FY2017, 46% of Sappi’s sales were in this segment, typically
through large paper merchants.
Demand trends: Advertising spend follows consumer behaviour and
as consumers are spending more time using digital and electronic
platforms, advertisers are shifting their budgets away from printed
materials. Although global demand for coated woodfree paper is
expected to decline 1% to 2% year-on-year, we do, however, believe
that there will always be a place for quality coated woodfree paper in
the advertising mix.
Coated mechanical paper
Sales volumes: Sappi’s sales of coated woodfree
paper were 1% less than last year. Sales volumes
rose approximately 3% in 2017, while global
demand fell by approximately 1.6%.
Share of sales
10%
Coated mechanical paper is primarily used in magazines, catalogues
and other advertising materials. In FY2017, 10% of Sappi’s sales
constituted coated mechanical paper. Customers for this paper are
typically large merchants, large printers and publishers of weekly or
monthly magazine titles.
Demand trends: Demand for coated mechanical paper is more closely
linked to that of demand for magazines. As readership, subscriptions,
circulation, pagination and advertising revenue per page continue to
decrease, demand for this paper is forecast to decline more rapidly
than for coated woodfree paper.
Sales volumes: Sappi’s sales of coated mechanical
paper were 8% lower than last year. Sales volumes
were approximately 4% lower than fiscal 2016, while
the global market contracted by approximately 4.5%.
Uncoated woodfree paper
Share of sales
5%
Uncoated woodfree paper is used in letterhead, envelopes, business
stationery, photocopy paper, cut-size, preprint, and office paper, with
certain brands used for books, brochures and magazines. Uncoated
paper absorbs ink faster, which means the text or images are not as
crisp. In FY2017, 5% of Sappi’s sales were made up of uncoated
woodfree paper. Typically large paper merchants are our main
customers in this sector.
Demand trends: Demand for uncoated woodfree paper is expected to
remain flat over the next several years. Demand is expected to fall in
mature markets, where adoptions of paperless solutions are expected
to continue. Much of that decline is expected to be offset by growth in
emerging economies.
Sales volumes: The uncoated woodfree market
was relatively stable this financial year, with a modest
decline of 0.5%.
Newsprint paper
Share of sales
1%
Newsprint, 1% of Sappi’s sales, is manufactured from mechanical and
bleached chemical pulp, with uses including advertising inserts and
newspapers.
Demand trends: Demand for newsprint is highly dependent on newspaper circulation and retail advertising. Though demand for
newsprint continues to decline at a global level, our newsprint volumes were 10% higher in fiscal 2017 relative to last year, due to a
capacity closure by a competitor in the local South African market.
sappi 2017 Annual Integrated ReportGroup overview 30
Cross section of cellular components of wood cambium cells –
heartwood and sapwood.
31
Technology We control
our own future
by investing in innovation, in research and
development and in new fields of enterprise.
We collaborate to build our expertise and
acquire technical know-how that will
support our high margin growth
strategy.
32
Our key relationships
We believe that building relationships with our stakeholders
in a spirit of trust and mutual respect enables more tangible
business value creation: Firstly, by communicating our
performance as well as the business decisions and activities
that have a material impact on our activities, we enhance our
licence to trade. Secondly, by understanding the rights, needs
and expectations of our stakeholders; integrating their inputs;
as well as measuring and monitoring our activities; we ensure
alignment with our strategic goals, including shared value.
Recognising the strong link between stakeholder inclusiveness
and materiality, we use stakeholder engagement as a tool to
assist in the identification and prioritisation of material issues.
Materiality takes into account substantial economic,
environmental and social factors in addition to financial factors.
By determining our most material issues through stakeholder
engagement, we clarify and confirm the strategic themes that
ascertain our most significant risks and opportunities and
manage expectations and priorities, thereby facilitating our
licence to operate, enhancing our organisational effectiveness
and ultimately, driving the long-term success of our business.
Accordingly, we engage with a broad range of stakeholders
through a variety of formal and informal channels – from
ongoing engagement across all our stakeholder groupings,
including investors, government, industry bodies, customers,
communities and NGOs, to collective public meetings with
stakeholders by our mills, as well as surveys of selected groups
such as employees, customers and investors and audits with
suppliers. We view stakeholder engagement not as a once-off
annual intervention but as an ongoing dynamic process able to
respond to the changing nature of issues of interested and
affected parties.
Our approach to engagement with all stakeholder groupings
is based on the principles of:
• Materiality – identifying the material concerns
of stakeholder groupings
• Relevance – focusing on those issues of material concern
to our stakeholders and to Sappi and identifying how best
to address them for our mutual benefit
• Completeness – understanding the views, needs,
performance expectations and perceptions associated with
these material issues and assessing them against prevailing
local and global trends, and
• Responsiveness – engaging with stakeholders on these
issues and giving regular, comprehensive, coherent
feedback.
Our main stakeholder groupings, as set out in our Group
Stakeholder Engagement Policy (available on www.sappi.com),
are set out in this section, together with selected examples
of engagement undertaken during the reporting period. As
a global business, with our products sold into more than
150 countries, our ability to connect with stakeholders as One
Sappi, motivated by our revised mission, strategy and shared
values, gives us a clear advantage and for our stakeholders a
connection they can trust to add value.
A key development in FY2017 aimed at enhancing stakeholder
engagement was the relaunch of our website www.sappi.com
with significant updates and now being optimised for mobile
access. Regional information is now all consolidated in one
hub, in line with our One Sappi strategy.
The website features full descriptions of products and services offered; comprehensive award-winning
educational materials for customers; in-depth sustainability reporting; easy access to corporate social
responsibility efforts like Ideas that Matter; dynamic portals for customers and investors and a prominent social
media presence. The site is being updated on an ongoing basis in line with our engagement principles
of completeness, relevance, materiality and responsiveness.
sappi 2017 Annual Integrated Report 33
Employees
Management approach
We invest in future talent while challenging our people so that they are able to seize the
opportunities presented by global megatrends. We make resources available to enable
our people to grow intellectually, fulfil their potential and drive innovation within Sappi.
Areas of mutual interest
• Strategy, priorities and performance of the company
• Internal and external activities of the company, our staff and our communities
• Organisational developments, particularly in respect of restructuring
• Ongoing training and skills development
• Creation of a dynamic and encouraging environment through a focus on safety, health,
wellness and recognition programmes
• Commitment to sustainability
• Group values and Code of Ethics.
Ongoing avenues of engagement
Engagement in 2017
• Our group and regional CEOs engage with staff through regular site
visits, presentations and discussions; suggestion lines exist at some
facilities, and unions have formal channels through which they
engage with management.
We encourage full engagement between managers and their staff.
Other avenues of engagement include:
– Global, regional and local newsletters
– Our global intranet
– Letters, roadshows and presentations by the group CEO as well
as regional CEOs
– Operating unit meetings, briefings and workshops, and
– Various forums (SA):
» National Employment Equity and Learning Forum
» Shop Steward Forum
» National Partnership Forum
» Transformation Steering Committee
• Global Employee Engagement Survey (every second year)
• Wellbeing committees at mills and business units
• Health and safety committees at mills
• Global Technical Innovation Awards and Global Sappi Limited CEO
Award for Excellence
• Regional recognition awards:
– SEU: the annual Coryphaena Award
– SNA: the quarterly Risk Taking and Ingenuity Awards
– SSA: the Excellence in Achievement Awards (EAA), and
– Sappi Trading: the SMART Awards
• We completed an engagement survey in all regions to assess levels of
connection to our business
• In all regions, we encouraged employees to participate in outreach and
community projects. For example, in Southern Africa, employees are encouraged
to participate in Mandela Day
• In Europe, we:
– Linked the eco-effectiveness campaign to the annual Sappi safety week
so that corporate responsibility is seen within its broadest context, and
– Continued to attract top internal talent to the SEU Leadership Academy. The
group of 16 employees who started in September 2016 and will complete in
October 2017, while a new intake of 25 employees began in June 2017
• In North America, we:
– Continued with our Sustainability Ambassador, Enhancing Development and
Growth through Engagement (EDGE) and Leadership Excellence and
Development (LEADS) programmes. The latter focused on resourcefulness
while our sustainability ambassadors developed training modules to broaden
understanding of the business units within SNA (pulp, coated, packaging and
casting and release papers)
– Established a peer recognition programme called TOUTS which enables
employees to offer feedback and recognition to one another
– Launched the Employee Ideas that Matter (EITM) initiative which builds on the
successful Ideas that Matter (ITM) programme by supporting worthy causes
identified by Sappi employees, and
– Introduced the Udemy online learning tool which was rolled out in Southern
Africa in 2016
• In Southern Africa, we:
• Ongoing training and development initiatives, training targets in each
– Embedded the utilisation of online video-based training though the
region
• Targeted training and engagement programmes in each region
regarding sustainability
• In Europe, we train and develop young apprentices
• In Southern Africa (SA), we operate bursary and training
programmes and support Further Education and Training (FET)
colleges
• In SA, our employees also have access to the Earthkind Agent
eLearning game by which they are exposed to Sappi’s sustainability
information in a new and innovative platform. A tablet version of the
game enables children and family and friends of employees to
access the game.
deployment of five core programmes to all employees in skills technical and
higher-level roles
– Renewed focus on the Young Talent programmes as a mechanism to address
our technical skills shortages. These programmes include engineers in
training, apprenticeships, mill and forestry technical trainees, corporate
functions learners, learnerships for people with disabilities and bursaries
– Initiated a 21 module, 10-month Sappi Manager in Training programme, and
– Successfully deployed Anti-Bribery, Competition Law and Code of Ethics
courses, all in online format.
Value add
• Engaged employees are pivotal to the success of our business – alignment with our strategic direction enables our people to contribute more
positively to the business as well as their personal and career development
• By building our human capital, we enable delivery of our 2020Vision and establish a base of the technical skills needed by the industry.
sappi 2017 Annual Integrated ReportSustainability 34
Our key relationships continued
Unions
Management approach
Given today’s challenging global economic conditions and the current socio-economic
dynamics in the South African labour market, we prioritise our relationship with our
employees and their representatives. Protecting the right to freedom of association and
collective bargaining are fundamental to the manner in which Sappi does business.
Globally, approximately 60% of our workforce is represented by unions.
Areas of mutual interest
In addition to meeting with local union leadership for the purposes of remuneration,
working hours, and other conditions of service as well as resolving grievances, Sappi
relies on local unions to demonstrate their commitment to the safety and wellbeing of
their members through active support, participation in and contributions to company
safety and wellness initiatives, as well as various forms of community outreach.
Ongoing avenues of engagement
Engagement in 2017
• SEU: Negotiations occur at the various country and industry-specific collective
labour associations, and the contract terms range from one to two years. The
labour framework in Europe consists of works councils and collective labour
agreements and differs from country to country
Overall, FY2017 was characterised by amicable, but
tough negotiations and relatively good relationships with
organised labour across the geographies. More comprehensive
details are provided on page 52 of this report.
• SNA: The majority of our hourly employees – generally production unit
employees – are represented by the United Steelworkers (USW) union,
but employees are also represented by various craft, guard and railroad unions.
In this region, labour agreements are usually for three years
• SSA: Our wage negotiations with recognised trade unions take place at the
Pulp and Paper and Sawmilling Chambers under the auspices of the Bargaining
Council for the Wood and Paper Sector in South Africa, and our agreements
are generally annual. In this region, we also engage on broader issues with the
recognised trade unions at the National Employment Equity and Skills
Development Forum, the Shop Steward Forum and the National Partnership
Forum.
Value add
Meaningful engagement on a number of issues affecting both business and employees results in:
• Improved relationships
• More stable labour force
• Safer work conditions and safer behaviour from employees, and
• Enhanced productivity.
sappi 2017 Annual Integrated Report 35
Communities
Management approach
Having a mutually respectful relationship with the communities in which our business is situated is
critical to our success. We work to incorporate the communities close to our operations into our
journey of intentional evolution, which recognises the importance of conserving natural resources,
uplifting people so that they are able to develop and create opportunities in their immediate
environment as well as thrive in our increasingly inter-connected world and also through sharing
value.
Social projects are reviewed on a case-by-case basis and we encourage projects which facilitate
partnerships and collaboration between communities, government and the private sector.
Areas of mutual interest
Key issues discussed on a regular basis include employment, job creation and business
opportunities, economic and social impacts/contributions and community support. Environmental
issues relate to biodiversity conservation as well as water usage and quality, effluent quality and air
emissions.
Ongoing avenues of engagement
Engagement in 2017
There are various formats of community engagement meetings held by our mills in the regions
where they operate. These range from broad liaison forums for business, local government and
communities to legally mandated environmental forums which form part of the licensing
conditions of mills. In Southern Africa, there are local farmer and community forums related to
our forestry communities. We also support direct community engagement initiatives.
Globally, we engage with local communities through support of and sponsorship for local events
and initiatives and we encourage employees to participate in outreach and community projects.
• SEU: Each Sappi mill and sales offices support various local education, cultural and
environmental projects based on annual requests and identified needs. We also have
established extensive internship programmes at all of our mills.
• SNA:
– Each business location has a team of sustainability ambassadors who are responsible for
supporting sustainability communication, conducting training and fostering community
engagement through local projects
– Education programmes are supported at targeted colleges and universities as are
programmes to encourage study in fields relevant to our operations
– Corporate sponsorships support organisations like Living Lands & Waters focused on
environmental stewardship and education.
• SSA: We support:
– SANBI (South African National Biodiversity Institute)
– Birdlife SA
– WWF-SA
– The Honorary Rangers of the Kruger National Park
– The UCT Animal Demography Unit (ADU) indigenous tree mapping project
– Mountain biking which promotes access to our plantations and enables us to
communicate with an influential and growing group of stakeholders regarding the positive
messages around our forestry operations
– The development of early childhood education capacity within our communities
– The promotion of an asset-based community development approach within our forestry
communities to enable new businesses to develop and existing businesses to improve.
• In Europe all mills continued to offer paper and financial
sponsorship to local schools, sport and hobby clubs, forest
products industry students, local safety/environmental
organisations, and also support local charities
• In North America, we:
– Supported the Hurricane Harvey relief effort by matching
employee donations to the American Red Cross
– Continued with the Ideas that Matter programme which
recognises and rewards designers who support good
causes. Since 1999 the programme has funded over
500 non-profit projects and has contributed more than
US$13 million to a wide range of causes around the
world that use design as a positive force for good in
society
• In Southern Africa, we continued to work with local
government and communities to accelerate afforestation in
the northern region of the Eastern Cape through our Sappi
Khulisa enterprise and supplier development scheme. We
also continued to be active in land reform
• We created two technical training facilities using our existing
infrastructure at Ngodwana and Saiccor Mills in May 2017.
The centres will cater for basic handyman training for local
unemployed youth with a view of enabling them to create
micro-enterprises. In addition, Sappi’s intake of apprentices
will be doubled and the centres will provide high-quality
specialised technical training to mill employees. The first
handyman trainees joined in October as a pilot and the
centres will be fully operational by January 2018
• We expanded our Abashintshi forestry community
engagement programme to cover all our
operations (44 communities).
More detailed information about our initiatives can be
found on pages 52 to 53 of this report.
Value add
Engagement with communities:
• Enhances our licence to operate
• Promotes socio-economic development which could in the long term lead to increased demand for our products
• Helps to develop the rural economy, and
• Initiates real social mobilisation and change for the better.
sappi 2017 Annual Integrated ReportSustainability 36
Our key relationships continued
Customers
Management approach
We adopt a partnership approach, whereby we develop long-term relationships with
global, regional and local customers. We also accommodate more transactional
customers. We offer customers innovative products and high levels of service that
enable them to meet the needs of the rapidly changing world of tomorrow. We also
review our go-to-market strategy where relevant to ensure that we align our interests
and the interests of our end-users. Where relevant, we will also conduct R&D and
develop products to suit customers’ specific needs.
Areas of mutual interest
• High service levels
• Provision of technical information and support to our paper and specialised
cellulose (SC) customers
• Information about organisational developments, and the fibre sourcing and
production processes behind our brands
• Information and campaigns to promote paper and paper packaging
• Information and campaigns to promote print as a communication medium
• New products that meet rapidly changing market demand.
Ongoing avenues of engagement
Engagement in 2017
• The group follows an approach of regular engagement with
customers by senior and executive management in support
of the ongoing engagement by the relevant sales and
marketing teams. In North America, we also meet annually
with the Sappi Merchant Association
• Trade shows and exhibitions
• Online, print education and technical platforms include:
– SEU: The Sappi Houston online knowledge platform
– SNA: Environmental Quotient (eQ) and Education,
Training and Consulting (ETC). Free and fully searchable,
the Sappi ETC site covers everything from basic paper
and sustainability resources to advanced print and
design techniques, including colour management, printer
technical tips, special effects, varnishes, folding,
designing for direct mail, and
– SSA: Our paper and paper pulp product offerings are
supported by strong technical teams at each mill and
the technology centre in Pretoria.
• We introduced several new products
• We showcased our packaging papers from Europe and North America at
FachPack 2017 and Labelexpo Europe 2017. At the former, we featured
solutions and information for brand owners, packaging companies, converters,
printers and print finishers, designers and advertising agencies. Our primary
focus at the latter, under the theme ‘People, Paper, Possibilities’ was our
innovations in the Release Liner and Label Paper product groups
• In Europe, we:
– Held the eighth annual Sappi Football Cup, which challenges our customers,
printers and publishers to show their skills in table football. Qualifying matches
follow the rules issued by the International Table Soccer Federation. Sappi
Europe welcomed this year’s 13 qualifying teams to Brussels, Belgium to
compete for the Sappi Cup Table Football Tournament title on 20 April 2017.
In total, 26 players from an original pool of close to 180 teams made the trip,
representing Austria, CEE – Hungary and Serbia, France, Germany, Italy,
Poland, Spain, and Switzerland
– Provided our customers with information and solutions through the
Sappi&You online portal which continued to gain traction
– Are supporting printers’ needs for digital transformation through OctoPrint
by becoming a software solution provider and selling software licences and
services, and
– Continued to enable customer engagement through our eco-effectiveness
campaign which promotes individual action and recognition to make efforts
to be sustainable and effective. It is about highlighting those who make the
efforts to help improve our eco-effectiveness. Investments and innovations are
also made to meet customer expectations of increased efficiencies, reduced
impacts and products which will enhance their own social responsibility
journey. The personal stories from Sappi’s eco-effectiveness campaign
can be found at: http://www.sappi.com/eco-effective-stories
sappi 2017 Annual Integrated Report 37
Ongoing avenues of engagement
• We provide extensive technical support:
Engagement in 2017
• In North America:
– Globally, a series of technical brochures is available on
– Our Sustainability Customer Council continued to provide candid feedback
our website www.sappi.com
– We host customer and investor visits to the various mills
– In Europe and Southern Africa, we publish paper
profiles and information sheets for our papers. These
give details regarding the composition of our papers, as
well as key environmental parameters related to our pulp
and paper production processes and information on
environmental management systems and woodfibre
sourcing policies, and
– In North America, we use GreenBlue’s Environmental
Paper Assessment Tool (EPAT) which enables buyers to
evaluate our performance on a mill-by-mill basis
• Our customers can also make use of the following:
– In terms of specialised cellulose, technical centres of
excellence are located at Saiccor and Cloquet Mills
– A competence centre for speciality papers and paper
and valuable input on emerging issues. The council comprises Sappi
customers, representing multiple customer segments of the coated papers
and casting and release papers business, including merchants, printers,
publishers, corporate paper buyers and graphic designers. Online and print
education platforms in this region include the Environmental Quotient (eQ) and
Education, Training and Consulting (ETC)
– We continued to support the Paper and Packaging Board (P+PB), of which
we are a member, in rolling out a public, consumer-facing integrated
marketing campaign on behalf of the paper and packaging industry
• We announced the winners of the 2017 Sappi North America Printer of the Year
competition, chosen as the most outstanding print submissions from nearly
1,500 entries, and
• We also continued to support the ‘Paper Checkoff’, a consumer campaign
aimed at helping reverse the decline in printing and writing papers as well as
boost demand for paper-based packaging using TV, print, billboards and the
internet.
laboratory at Alfeld Mill, and
• In Southern Africa, we:
– In North America, the Sustainability Customer Council
provides candid feedback and helps to identify
emerging issues.
– Sponsored the graphic design category in the Student Gold Pack Awards
held under the auspices of the Institute of Packaging SA and we also
sponsored paper for the Citrus Research Institute annual report in addition to
sponsoring their annual symposium, and
– Sponsored the ‘Help Colour My Dreams’ initiative, in partnership with the
Nashua Children’s Charity Foundation (NCCF) which supports 75 charities.
For every ream of Nashua-wrapped A4 paper produced by Sappi and sold
through Nashua franchises, a certain amount of money was donated to the
initiative.
Value add
Ongoing engagement with our customers enables us to:
• Meet their needs for products with an enhanced environmental profile
• Innovate to align with evolving market trends
• Heightened awareness of the importance of sustainability
• Promote our customers’ own sustainability journeys
• Keep abreast of market developments, and
• Showcase our products and promote the Sappi brand.
At Labelexpo 2017, Sappi presented two new Face Stock label papers in the form of Parade
Face Stock C1S and Parade Face Stock Vellum, both of which are approved for direct contact with
food and conform to DIN EN 71 for toy safety. The range of applications for these self-adhesive label
papers include decorative labels for tins, glass containers, single-use and multi-use bottles and stickers
or price labels (such as those found in the fruit and vegetable aisle) and more. Thanks to their excellent
surface properties, these label papers ensure a brilliant appearance and excellent print results. Single-
side-coated semi-gloss-paper Parade Face Stock C1S can be processed with all standard printing
processes, while Parade Face Stock Vellum meets the requirements for a high-quality result in thermal
transfer printing. Parade Face Stock C1S is available in a weight of 80g/m2, and Parade Face Stock
Vellum in grammages of 70 and 80g/m2. Both papers are also available in FSC®-certified versions.
sappi 2017 Annual Integrated ReportSustainability 38
Our key relationships continued
Industry bodies
Management approach
We partner with industry and business bodies to showcase the role of business in
building society, to provide input into issues and regulations that affect and are relevant
to our businesses and industries. We also support and partner with industry initiatives
aimed at addressing broad-ranging social issues and promoting the use of our
products.
Areas of mutual interest
• Issues that affect the sustainability of our industry – woodfibre base, carbon taxes,
energy and emissions, etc
• Energy issues in general and in particular government proposals on carbon taxation
• The impact of increased regulations on business
• The benefits of our industry and our economic contribution to society
• Social and environmental credentials of our products.
Ongoing avenues of engagement
Engagement in 2017
• Sappi has been a signatory to the UN Global Compact since 2008
• We continued to support targeted
• In Europe and North America, close engagement is maintained directly and through the
respective industry bodies CEPI and AF&PA. In Europe we also engage with FSC®, WWF
International and with the Programme for the Endorsement of Forest Certification (PEFC™). In
North America, Sappi is a member of the economic chamber of both FSC® US and SFI®
and actively engages with these organisations through a variety of working groups and
committee activities. In Southern Africa, Sappi is a member of the local WWF organisation
as well as FSC®.
SEU
• Confederation of European Paper Industries (CEPI)
• Eurograph
• European Joint Undertaking on Bio-based Industries
• Print Power
• The Alliance of Energy-Intensive industries
• The Two Team Project (focusing on breakthrough technology concepts in the industry which
could enable a more competitive future)
• TwoSides.
SNA
• American Forests and Paper Association (AF&PA)
• Paper and Paper Packaging Board
• Agenda 2020 Technology Alliance
• Sustainable Packaging Coalition (SPC)
• Forest Products Working Group
• The Recycling Partnership
• TwoSides.
communication campaigns help to promote
the value of paper-based communication and
support the efforts of marketers and
communicators in their search for responsible
choices. Examples include support for the
TwoSides organisations in Europe, North
America, South America, South Africa and
Australia and the Print Power campaign in
Europe
• Sappi Forests continues to be involved in the
development of an FSC® National Forest
Steward Standard for South Africa, as well as
a PEFC™ standard for the country
• Under the umbrella of the European Pulp and
Paper Chemicals Group AISBL (EPCG), SEU is
working on an industry solution for an online
information exchange between chemical
suppliers and pulp and paper manufacturers
• SEU contributed to the report European
industry in the 21st century: New models for
resource productivity published by the
University of Cambridge’s Institute for
Sustainability Leadership (CISL)
• SEU has been intensively working with CEPI
to ensure that the revised criteria of the EU
Ecolabel remain achievable
sappi 2017 Annual Integrated Report 39
Engagement in 2017
• In 2016, in response to a sovereign ratings
downgrade in South Africa, the CEO initiative,
of which Sappi is a member, was established.
The initiative launched three major
workstreams in 2016: one focusing on youth
employment, which endeavours to create one
million internships for unemployed youth
across the private sector; the second, the
investment workstream, seeks to bring private
money into sectors such as agriculture and
tourism, while also developing black
industrialists and the third, the small and
medium-sized enterprises (SMEs) fund aims
to provide capital to existing fund managers
already investing in SMEs. The latter
workstream progressed further in 2017.
Ongoing avenues of engagement
SSA
• Business Unity South Africa
• Business Leadership South Africa
• Energy Intensive Users’ Group
• Fibre Processing and Manufacturing Skills Education and Training Authority (SETA)
• Forestry South Africa
• Forest Stewardship Council® (FSC®)
• Packaging SA
• Paper Manufacturers’ Association of South Africa (PAMSA)
• Paper Recycling Association of South Africa (PRASA)
• Printing SA (PIFSA) Manufacturing Circle
• South African Chamber of Commerce and Industry (SACCI) and local chambers of commerce
and industry
• The CEO initiative
• TwoSides.
Sappi Forests is a member of the Institute for Commercial Forestry Research (ICFR) and is a
founding member of the Tree Protection Co-operative Programme (TPCP) based in the Forestry
and Bio-technical Institute (FABI) (http://www.fabinet.up.ac.za/) at the University of Pretoria.
Through the TPCP we also belong to the internationally collaborative programme Biological
Control of Eucalyptus Pests (BiCEP) (http://bicep.net.au/) at the Australian Centre for Industrial
and Agricultural Research (ACIAR).
In addition, we belong to the Eucalyptus Genome Network (EUCAGEN) based at the University
of Pretoria and to CAMCORE, an international non-profit organisation dedicated to the
conservation and utilisation of subtropical and tropical tree species.
Sappi Speciality Papers is a member of the Save Food initiative which aims to eliminate food
waste and loss globally.
Sappi Limited supports the Technical Association of the Pulp and Paper Industry (TAPPI).
Value add
• Work with industry and business associations through collective initiatives to support societal change and deal with societal challenges
• Collaborate on legislative trends such as carbon tax and carbon budgets
• Maintain and expand markets for our products
• Demonstrate the value-add of the forest products industry
• Dispel myths and promote understanding of our industry.
sappi 2017 Annual Integrated ReportSustainability 40
Our key relationships continued
Investors
Management approach
Our aim is to provide investors (shareholders and bondholders) and analysts with
transparent, timely, relevant communication that facilitates informed decisions.
Areas of mutual interest
• Information on Sappi’s strategy
• Return on investment
• Transparent information about risks, opportunities and ESG performance.
Ongoing avenues of engagement
Engagement in 2017
In 2017, we continued to engage with our investors through
the avenues set out on the left.
• Our investor relations (IR) team engages with shareholders and analysts on an
ongoing basis. This team has direct access to the executive directors and any
issues shareholders raise that would be relevant for the board are channelled
through the IR team. Our Chairman also engages with shareholders on relevant
issues
• We conduct ad hoc mill visits and road shows, and issue announcements
through Stock Exchange News Service (SENS), in the press and on our
website www.sappi.com
• We publish our Annual Integrated Report and sustainability report on the
company website
• Shareholders can attend and participate in the AGM as well as the four
quarterly financial results briefings
• Our CFO and Head of Treasury engage with bondholders, banks and rating
agencies on an ongoing basis regarding the performance of the company
• We participate in the Carbon Disclosure and Forest Footprint Disclosure
projects every year, making our submissions publicly available.
Value add
• Understanding of and support for our strategic direction
• Enhanced reputation
• Greater investment confidence
• Broader licence to invest.
sappi 2017 Annual Integrated Report 41
Suppliers
and contractors
Management approach
We are committed to establishing mutually respectful relationships with our suppliers
and encouraging them to join our commitment to economic, social and environmental
responsibility and to creating an environment that shares our commitment to doing
business with integrity and courage, making smart decisions which we execute with
speed. We aim to build long-term value partnerships.
Given our focus on zero harm in the workplace, we work with our contractors to ensure
that they follow Sappi’s safety systems.
Areas of mutual interest
• Transparent information
• Forest certification
• Increased value and decreased costs
• Corporate responsibility
• Security of fibre supply, income generation and job creation.
Ongoing avenues of engagement
Engagement in 2017
• In SA, the intake at our Khulisa Ulwazi (Growing Knowledge)
training centre aimed at developing small growers and other
forestry value chain participants more than doubled to over
1,000 people
•
In SSA, contractors participated in creating and living
our Stop and Think before you Act safety initiative,
described on page 51.
• SEU: A joint sourcing partnership assists in negotiating better terms with timber
and other suppliers. In addition, the Confederation of European Paper
Industries (CEPI), of which Sappi Europe is a member, participates in actions
supporting and promoting the development of sustainable forestry management
tools – including forest certification – all over the world, particularly in less
developed countries
• SNA: The Sappi Forestry Programme assists forest landowners to meet their
objectives for managing their woodland. Sappi’s trained foresters are able to
develop a forest management plan geared to the interests of the landowner
including wildlife management and aesthetics, marketing of timber to generate
maximum return
• SSA: Qualified extension officers provide growers in our Sappi Khulisa
enterprise and supplier development scheme with ongoing growing advice
and practical assistance.
Value add
• Security of woodfibre supply
• Improved supplier relations
• Better understanding of the requirements of the Sappi group
• Expanded basket of certified fibre.
sappi 2017 Annual Integrated ReportSustainability 42
Our key relationships continued
Civil society (Media)
Management approach
We maintain an open relationship with the media, believing that an informed media is
better able to serve public reporting and debate on any issue.
We continue to update the media regarding our strategic shifts to extract value from
woodfibre in line with future trends as well as Sappi’s positive impact in the communities
where we operate. We engage with civil society organisations on issues of mutual
interest and belong to key organisations relevant to our operations.
Areas of mutual interest
• Business developments
• The future of our industry
• Our impacts on our communities
• Protecting biodiversity/the environment.
Ongoing avenues of engagement
Engagement in 2017
• We join key credible organisations as members
• We develop personal relationships and engage on an ongoing basis
Engagement in 2017 took place through the
avenues outlined on the left.
• We provide support to and sponsorship for key organisations on issues of mutual interest
•
In SSA, our forestry operations belong to a number of fire associations, given that fire
is a key risk on our plantations. Our innovative Abashintshi project continued to gain
traction, helping to prevent the spread of fires. This has also been helped by the African
Honey Bee project on our plantations. For further details, go to page 53 of this report.
Value add
• Opportunity to inform and educate media
• Transparent, two-way communication and opportunity for dialogue.
sappi 2017 Annual Integrated Report 43
Government and
regulatory bodies
Management approach
We engage with government departments and regulatory bodies to provide input into
issues and regulations that affect our industry. We also engage with regional and local
governments and local authorities to obtain support for our operations and show how
our activities contribute to local economic and social development.
Areas of mutual interest
• Energy issues in general and in particular government moves on carbon taxation
• The impact of increased regulations on business
• The social and economic benefits of our industry nationally as well as at a local level.
Ongoing avenues of engagement
Engagement in 2017
Consultations take place on an ongoing basis
with government departments and regulatory
bodies in each region.
Across all regions we continue to engage with region-wide, national, state and local authorities to
ensure that our interests are raised and protected.
In South Africa, we continued to engage with government organisations regarding the
transformation agenda and in particular the new Broad-based Black Economic Empowerment
(BBBEE) Forestry Charter following the gazetting of the Amended Forestry Sector Code in April.
We trust that the delayed biomass energy project at Ngodwana Mill will move ahead by the end
of November 2017.
Value add
Engagement helps to promote understanding of the issues and challenges we face and resolve certain challenges.
Value added statement
(%)
Value added statement
(%)
Value added statement
(%)
3
8
5
5
8
5
12
1,771
2017
1,408
52
1,771
2016
1,408
54
1,771
2015
1,408
57
32
33
26
● To employees as salaries, wages and other benefits
● Reinvested to grow the business
● To lenders of capital as interest
● To government as taxation
● To shareholders as dividends
● To employees as salaries, wages and other benefits
● Reinvested to grow the business
● To lenders of capital as interest
● To government as taxation
● To employees as salaries, wages and other benefits
● Reinvested to grow the business
● To lenders of capital as interest
● To government as taxation
sappi 2017 Annual Integrated ReportSustainability 44
Our global sustainability goals
In line with our 2020Vision and One Sappi strategic approach, in 2015 we established ambitious global
sustainability targets. Regional targets are aligned to these goals. The base year is 2014, with five-year targets
from 2016 to 2020.
Our performance in 2017, together with commentary, is set out below:
PROSPERITY
Global target
2014 base
2017 performance
2017
compared to 2014
2020 goal
ROCE
PEOPLE
10.8%
18%
67% improvement
12% ROCE minimum
Global target
2014 base
2017 performance
LTIFR (Combined own and
contractor employees)
0.53
Sustainable engagement –
increase level of survey
participation
Not measured
(2015: 74%)
0.44
85%
PLANET
2017
compared to 2014
2020 goal
17% improvement
Target zero LTIFR
with minimum 10%
improvement year-on-year
Not applicable
76%
Global target
2014 base
2017 performance
2017
compared to 2014
2020 goal
Energy efficiency (Specific
total energy)
22.77GJ/adt
22.77GJ/adt
Constant*
Certified fibre
79%
73.5%
5.5% decline
5% improvement
over the period
Maintain or improve
percentage
* The base figure for specific total energy has changed as we are now using net, rather than gross, calorific values. (It was previously 22.92GJ/adt.)
Prosperity
ROCE: The 67% improvement compared to 2014 base
reflects the ongoing successful implementation of our One
Sappi strategy and 2020Vision. The ongoing viability of our
business and generation of value for all our stakeholders
depends on our ability to generate profits and earn a return
in excess of our cost of capital.
People
Safety: While our LTIFR improved marginally (2016: 0.46),
safety performance was highly disappointing, with one fatality
in Europe and three in Southern Africa.
Sustainable engagement: The high rate of participation
(85%) in our engagement survey means we have already
achieved our 2020 goal. In addition to measuring engagement,
the survey also identifies perceived gaps in our human capital
strategy and we are currently assessing these.
Planet
Specific total energy: Energy self-sufficiency remained stable
and there was a slight increase in renewable energy.
Certified fibre: In Europe we exceeded our certified fibre
procurement goal by just over 4%. In North America, certified
fibre content was down from earlier years due to changes in
wood procurement strategies to acquire woodfibre from
sources closer to the mills. As reported last year, it was also
due to a change in production strategy at Cloquet Mill which
involved a change from buying 100%-certified market pulp to
making our own pulp (doing so means we are limited to the
amount of certified fibre available in the local wood basket). In
Southern Africa, we increased the percentage of certified fibre
supplied to our mills by 1.1%.
sappi 2017 Annual Integrated Report 45
Sappi Limited is a member of Business Leadership South
Africa (BLSA), a voluntary organisation of the approximately
70 largest listed companies on the JSE Limited. It serves as
the voice of big business in South Africa facilitating
engagement with the government, ratings agencies and other
local and global stakeholders and also promoting the positive
role of business in society. BLSA is actively working to end
corruption and Sappi will be signing BLSA’s pledge after
year-end. This echoes and reinforces our own Code of Ethics
by committing us to:
• Actively combating corrupt practices wherever we
encounter them
• Not acting anti-competitively
• Having zero tolerance for corruption in our midst, and
• Protecting whistle-blowers and providing information.
Ò Material issue: A sound ethical culture
Background
Employees make better decisions in less time with business
ethics as a guiding principle which increases productivity and
overall employee morale. Ethics – or lack thereof – can
significantly impact reputation and affect stakeholders’ views
of a business which in turn can impact profitability and licence
to trade.
Ø Our response
Given that Sappi operates in a number of different geographies
and given our One Sappi approach, a Code of Ethics that
provides simple-to-follow guidance to all our employees is a
priority. Following the roll out of our revised Code of Ethics in
six different languages in September 2016, we continued with
a communication campaign to raise awareness of the Code.
Videos, including a video on the Foreign Corrupt Practices Act,
were used by the different regions to promote ethical
awareness during the year.
The Code makes reference to group policies, where major
risks and heightened levels of compliance are required. In
familiarising themselves with the Code, employees have been
encouraged to read the different policies. Story pictures have
been created and distributed to the mills to assist those unable
to read the policies. Ethics messages are displayed on media
screens, in lift lobbies and on Sappi desk calendars to keep
ethical conduct top of mind.
In addition, globally, employees have been exposed to online
training relating to competition law, anti-bribery and corruption
online training.
Our key material issues
Governance
Ò Material issue: Corruption affecting the
national interest
Background
In South Africa, a widespread patronage network which is
chipping away at state institutions is undermining the country’s
credibility and is causing global investor concern. Transparency
International’s 2016 International Corruption Perceptions Index,
published at the beginning of 2017 evaluates corruption in
176 countries. The index ranks countries based on how
corrupt their public sector is perceived to be. A country’s score
indicates the perceived level of corruption on a scale of 0 to
100, where 0 means that a country is perceived as highly
corrupt and 100 means it is perceived as very clean. While
no country has a perfect score – the global average score is
43 – over two-thirds of countries score below 50, including
South Africa, indicating a serious corruption problem.
In 2016, South Africa was ranked as the 64th most corrupt
country in the world out of 176 countries with a score of
only 45 out of 100. In terms of the other countries in which we
have significant operations, the scores were as follows: Finland
scored 89 (ranked 3rd); the Netherlands scored 83 (ranked
8th); Germany scored 81 (ranked 10th); Belgium scored
77 (ranked 15th); Austria scored 75 (ranked 17th) and the
United States of America scored 74 (ranked 18th)1.
Ø Our response
As indicated by the Corruptions Perceptions Index scores,
apart from South Africa, the countries in which we operate are
relatively corruption-free. However, we share investor concerns
about the situation in South Africa and we remain hypervigilant
in this regard. Our auditors, KPMG, have been implicated in
allegations related to patronage and corruption which have
caused us to reassess their provision of services to Sappi.
We have engaged with KPMG International in this regard.
We currently await the findings of the various inquiries and
reports into KPMG. We will then revisit our decision to retain
KPMG as auditors.
1 https://www.transparency.org/country
sappi 2017 Annual Integrated ReportSustainability 46
Our key material issues continued
Prosperity
Ò Material issue: Costs and capital allocation
Background
In the highly capital-intensive pulp and paper industry, cost
containment and strategic capital allocation are key pillars of
competitive advantage.
Ø Our response
Cost containment
Reducing variable and fixed costs throughout the business is
integral to improving margins, particularly in commodity-type
businesses such as printing paper, where declining demand
places additional pressure on margins and revenues. In 2016,
we launched a global procurement and efficiency savings
initiative which has put Sappi on track to achieve targeted
groupwide cost reductions of US$100 million per annum
by 2020.
In addition to our usual cost management and continuous
improvement initiatives during FY2017, we realised
US$157 million in savings – US$57 million more than
anticipated, and three years early.
Capital allocation
Our 2020Vision strategy is focused on opportunities to
substantially increase our group EBITDA. By making smart
investment decisions – in line with our values of making smart
decisions which we execute with speed – and investing in our
business to pursue growing areas of demand, we can remain
profitable and competitive in the global marketplace.
Given robust demand for specialities and packaging paper
grades, we are leveraging our existing manufacturing base by
converting existing paper machines to higher margin products,
including specialities and packaging paper grades.
In Europe, we are investing US$140 million over the next
three years in projects that will increase our specialities and
packaging papers capacity and capability, as well as support
our drive to be the lowest-cost producer of graphic papers.
Maastricht Mill in the Netherlands is being converted to
focus predominantly on specialities grades and the specialities
paper offering at Ehingen and Alfeld Mills in Germany will
be expanded.
Lanaken Mill in Belgium will progressively transition to coated
woodfree production over the next three years in line with the
expected decline in the coated mechanical market.
The displaced graphic paper volumes will be assigned to
other mills.
These projects will enable us to make better use of our assets
to drive growth in our specialities and packaging papers
business, as well as to reduce our coated graphic papers
capacity by about 200,000 tons by 2020.
In North America, we are investing US$165 million in
upgrading and enhancing the flexibility of Paper Machine 1 at
Somerset Mill in Maine, to enable growth in paper-based
packaging. The overall capacity of the mill, currently the largest
coated mill in North America, will increase by 180,000tpa and
the upgrade is expected to be completed in 2018.
In Southern Africa, we are investing US$55 million in an
upgrade to the woodyard at Saiccor Mill which will:
• Improve mill logistics by enhancing the mill’s capability of
segregating woodchip species – important because there
is a distinct difference in cooking times between various
species of wood based on their lignin, cellulose and
hemicellulose contents
• Improve the mill’s wood screening systems for reduced silica
levels and overall enhanced chip quality, and
• Enable future expansion.
Improving logistics and screening systems will ultimately lead to
enhanced pulp quality, increased pulp yield and a reduction in
consumption of bleaching chemicals. The modifications will be
made with minimal impact on production.
Ò Material issue: Growth in the packaging sector
Background
The demand for all types of products being shipped in
eCommerce is expanding in line with the rapidly accelerating
digital economy. At the same time, the global population and
demand for natural resources are increasing and this is placing
pressure on society to repurpose materials like paper and
packaging. In addition, there are growing concerns about the
impact of fossil-based packaging on the world’s oceans.
These factors are positive for the global sustainable packaging
market which is poised to grow at a compound annual
growth rate (CAGR) of around 7.7% over the next decade
to reach approximately US$440.3 billion by 2025 according
to a recent report2.
In recent years, we have evolved from being a pure substrate
supplier to a provider of complete paper and carton packaging
solutions. Our focus is on innovative products designed to find
intelligent answers to issues and trends in the packaging
market, thereby growing the contribution of this sector of
our business to 25% of EBITDA by 2020.
2 http://www.prnewswire.com/news-releases/global-4403-billion-sustainable-packaging-market-analysis--trends-2013-2016--industry-forecast-to-2025---
research-and-markets-300421046.html
sappi 2017 Annual Integrated Report 47
One such topical issue that our packaging papers are
addressing is the issue of food waste. Four years ago, Sappi
was the world’s first manufacturer to present a new speciality
paper with a mineral oil barrier integrated directly in the paper,
as well as including heat sealing properties. In FY2017, we built
on this successful foundation by:
• Establishing a collaboration agreement with the global
manufacturing Felix Schoeller Group (Felix Schoeller) based
in Germany. Felix Schoeller produces high-quality papers for
analogue and digital photographic print, non-wovens for the
wallpaper industry, as well as release liners and décor
papers. In addition, the company has been developing
flexible food packaging for some years and has built
particularly strong process technology expertise in the
production of photographic and digital printing papers.
The agreement covers the joint development of sustainable
barrier paper solutions for flexible packaging applications.
The collaboration has already resulted in the development
of a paper-based, sealable packaging solution with high
barriers against water vapour, oxygen and grease. This
was presented to trade customers at Interpack 2017,
the world’s largest trade fair
• Acquiring the barrier film technology of Rockwell Solutions.
This will enable us to offer our customers an even wider
range of barrier coated solutions and could enable us
to support market needs for more sustainable and
recyclable packaging solutions by offering a replacement
to fossil-based packaging material. In addition, the
acquisition has enhanced our insight into the packaging
market in terms of product performance, cost benchmark
and market dynamics
• Extending the manufacture of Algro Design and Algro Design
Duo bleached board grades to Maastricht Mill. By producing
this high-quality carton at two locations, we can now
respond even more quickly to customer requirements
• Introducing new face stock label papers Parade Face Stock
C1S and Parade Face Stock Vellum, both of which are
approved for direct contact with food and conform to DIN
EN 71 for toy safety. The range of applications for these
self-adhesive label papers includes decorative labels for tins,
glass containers, single-use and multi-use bottles and
stickers or price labels, such as those found in the fruit
and vegetable aisle and more. Parade Face Stock C1S is
available in a weight of 80g/m2, and Parade Face Stock
Vellum in grammages of 70 and 80g/m2
• Launching a new Clay Coated Kraft (CCK) carrier paper,
Sappi Sol DNC. The satin finish of this paper significantly
improves surface quality and results in lower overall silicone
consumption, a condition that is important to label
converters, and
• Developing Ultraflex, a hybrid flute and liner which offers
converters strength with the ability to print, while making
ordering more efficient. Research is currently under way
to impart the paper with antimicrobial properties.
At Interpack 2017, Sappi was presented with the
international WorldStar Packaging Award for foodstuffs.
This follows our receipt of the 2016 German Packaging
Award in the ‘New Materials’ category.
Ò Material issue: Declining demand for
graphics paper
Background
News, entertainment and information are increasingly
consumed via computers, tablets and mobile phones instead
of paper with an obvious impact on demand for
graphics paper.
Ø Our response
Part of our longer-term strategy is to reduce our exposure
to graphic paper. We manage our capacity to strengthen
our leadership position in this market, realising its strategic
importance to the group and maximising its significant cash
flow generation. Accordingly, we continue to develop and
enhance our portfolio of products to meet the needs of
customers who recognise the value of print.
In FY2017, we added Somerset 9-point (9pt) Gloss to
our Somerset Mill product line. The new line offers an 8% yield
advantage over competitive 9pt grades and increased cost
savings for customers.
In this market, we continue to provide innovations, including
Spraytec technology which produces a unique gloss surface
with an enhanced bulky feel to the paper. The result is an
uncompromised, high bulk paper with a glossy and even
print surface.
In Europe, Sappi&You, our updated customer portal and the
shift towards a direct-to-market strategy is paying dividends
by positioning Sappi as the preferred go-to partner in print.
Research from Millward Brown Digital, an industry-leading research company, analysed more than 100 market mix client studies.
The print campaign analysis shows magazines increase both upper-and-lower funnel metrics, from awareness through to
purchase intent, for all four studied advertiser categories – consumer packaged goods, auto, entertainment and financial services.
In addition, research from Nielsen Catalina Solutions (NCS), which compiled data from more than 1,400 product studies, showed
that magazines had the highest return on advertising spend by a wide margin. For each US$1 invested in magazine media, the
advertisers averaged a US$3.94 return, according to NCS3.
3 http://www.magazines.org.au/news/the-state-of-the-magazine-market-usa/
sappi 2017 Annual Integrated ReportSustainability 48
Our key material issues continued
Ò Material issue: Growing demand for
cellulosic-based fibres
Background
As viscose technology improves and gains market acceptance,
so the economic and environmental case versus cotton and
petroleum-based fibres grows. The popularity of cellulosic-
based fibres is based on their high levels of absorbency,
breathability and softness, as well as wash and wear
characteristics.
A potential shortage of cotton supply is expected to
accelerate demand for dissolving wood pulp (DWP). The initial
US Department of Agriculture cotton projections for 2017/18
indicate that world cotton consumption will rise slightly and
exceed production for the third consecutive season4.
This supply/demand deficit is expected to be exacerbated by
Chinese cotton policies. India, China and the United States of
America are the world’s largest suppliers of cotton by a long
way. In 2016/2017, China was the world’s second largest
producer of cotton5 accounting for 34% of global supply.
The country has historically supported spinners with a rebate
on domestically purchased cotton. The policy was amended in
2014, to subsidise cotton farming. However, only Xinjiang
province was offered subsidies, as China looked to unwind its
stored inventories. In March 2017, it was announced that
China would set target prices for cotton in Xinjiang province
every three years instead of annually, even as domestic and
global prices have soared.
The Chinese National Development and Reform Commission
has now set a limit for how much cotton grown in Xinjiang
can benefit from future subsidies, which could mean supply
constraints going forward. In addition, the focus on growers
in Xinjiang has led farmers in other provinces to switch to other
crops, with negative implications for supply6.
4 agfax.com/2017/05/15/cotton-outlook-world-consumption-to-exceed-
production-in-201718/
5 https://www.statista.com/statistics/263055/cotton-production-worldwide-
by-top-countries/
6 http://www.reuters.com/article/us-china-cotton-prices/china-rejigs-cotton-
policy-for-top-grower-xinjiang-idUSKBN16O0G0
7 https://www.imf.org/en/News/Articles/2017/05/08/NA050917-Asia-
Dynamic-Economies-Continue-to-Lead-Global-Growth
8 https://www.imf.org/en/Publications/WEO/Issues/2017/09/19/world-
economic-outlook-october-2017
9 https://www.marketresearchengine.com/reportdetails/nanocellulose-
market-report
Ø Our response
Textiles are the primary market for our DWP, which is sold
globally for use in viscose staple fibre (rayon) and solvent spun
fibres (lyocell), and we continue to supply smaller quantities into
the other DWP market segments. Sappi is the world’s biggest
producer of DWP, and we expect global demand for textiles
continuing to grow, particularly in markets in Asia, as the region
continues to be the leader of global growth in the short and
longer term – the IMF predicts that growth in this region will
remain strong at 5.4% in 20187. This is well above the IMF’s
predicted global growth rate of 3.7% for the same period8.
Against this backdrop, we are expanding our DWP capacity at
Ngodwana and Saiccor Mills by up to 100,000tpa and are
debottlenecking capacity at both mills.
Ò Material issue: Our strategic move into
adjacent markets: nanocellulose, sugars,
lignins and bio-energy
Background
Key components of woodfibre (%)
1
1
23
30
45
● Cellulose
● Hemicellulose
● Lignin
● Resins
● Inorganics
The key components of woodfibre include cellulose,
hemicellulose, lignin and extractives. Both cellulose
and hemicellulose are polysaccharides containing many
different sugar monomers which can be extracted from
pulping streams. New revenue opportunities include
possibilities to extract biobased materials from the
pre-hydrolysate kraft stream, such as hemicellulose sugars
and lignin, for beneficiation to higher-value biochemicals.
Ø Our response
Our aim is to leverage the key components of woodfibre to
extract more value from each tree and in doing so, strengthen
our overall core business model. Accordingly, in July 2016, we
established a new business unit, Sappi Biotech, to accelerate
our response to consumer trends for renewable products with
a low carbon footprint, continue to innovate in new growth
segments and take global responsibility for the
commercialisation of new products.
Nanocellulose
Nanocellulose from woodfibres provides a new material
platform for sustainable production of a wide range of
high-performance products. The global nanocellulose
market is expected to exceed more than US$700 million by
2023; growing at a CAGR of more than 33% in the given
forecast period9.
sappi 2017 Annual Integrated Report 49
Demand and value are forecast on the basis of various
key applications of nanocellulose, such as composites and
packaging, paper and paper board, biomedicine, and other
applications, including as a viable alternative to expensive
high-tech materials such as carbon fibres and carbon
nanotubes.
In March 2016, we successfully commissioned our
nanocellulose pilot plant at Brightlands Chemelot Campus
in Sittard-Geleen, the Netherlands. The plant has successfully
produced a high quality wet micro-fibrillated and nano-
fibrillated cellulose. Further commissioning will take place in Q4
2018 in order to produce dry re-dispersible nanocellulose.
To accelerate our work in this fast-developing field, we are
growing our nanocellulose competency at three of our global
research and development facilities and have commenced with
numerous industry collaboration projects in order to promote
the benefits of nanocellulose in a wide range of applications
including construction chemicals, personal and homecare
products, plastic composites, paint, coatings, specialities
and packaging papers.
Our nanocellulose process uses unique chemistry whereby
wood pulp fibres can be easily broken down into
nanocellulose without producing the large volumes of
effluent associated with existing techniques using high
amounts of energy. In addition, the chemicals used in the
process can easily be recycled and reused without
generating large amounts of effluent.
Sugars
In April 2017, we launched a trial sugar extraction
demonstration plant at Ngodwana Mill in Mpumalanga province
(South Africa). The demonstration plant is a joint development
project with Valmet. It has been designed in accordance with
all applicable industrial codes and regulations and will extract
and make available industrial-scale samples of sugar rich
pre-hydrolysate liquors. The plant can be operated
independently from the day-to-day pulp mill and does not pose
a productivity risk to Ngodwana Mill. The project team is
resourced with skilled scientists and engineers from Sappi and
Valmet and our development partners.
Following the successful commissioning of the demonstration
unit, we strengthened our biotech division and bolstered our
biorefining expertise through the acquisition of the Xylex® and
Versalac® technologies (including the patents, know-how and
equipment) owned by Plaxica Limited. Plaxica Limited is a
United Kingdom technology licensing company founded in
2008 as a spin-out from Imperial College, London, and is
situated in the Wilton Technology Centre in the United
Kingdom. A number of key technical staff of Plaxica have
joined the biotech division.
We have a high degree of confidence that the demonstration
plant’s hydrolysate extraction capabilities together with the
proprietary low-cost Xylex® technology acquired by Plaxica
– rated as one of the most advanced to offer optimum
efficiency and economics for separation and clean-up of
C5 sugars from pulp mill hydrolysates – will enable us to
realise our stated objective to participate in the downstream
value chains which include furfural, glycols and xylitol.
The plant will also help us to:
• Evaluate the potential of the process to offer access to
higher value pulp markets
• Demonstrate and optimise the extraction of co-product
streams from the PHK process for sale or conversion to
higher value biochemicals, and
• Establish an operating model that could be replicated at any
future pulp line.
The sugars we are targeting are known as ‘second
generation sugars’ – in other words, they are not derived
from a crop like sugar cane. Second generation sugars are
attractive because they do not compete with first
generation sugars which are sourced from agricultural
crops. This is extremely important because of a rapidly
growing global population and worldwide pressure on
agricultural resources.
Furfural
Furfural is used as a solvent for refining lubricating oils,
as a fungicide and weed killer and in the production of
tetrahydrofuran, an important industrial solvent. It was one of
the first biorenewable chemicals produced from biomass and
has an established and growing market, where it competes
with oil-based chemicals. It can be produced from the
hemicellulose fraction of a number of biomass sources or
agricultural residues such as bagasse and corncobs.
The xylose fraction in the pulping liquors from various mills has
been identified as a possible source of furfural. The conversion
and extraction of furfural from pulping liquors would be an
additional source of income and could also improve the energy
efficiency and environmental footprint of our pulp mills.
Sappi has partnered with Dalin Yebo to develop a business
case for conversion and extraction of furfural from PHK liquor
at Ngodwana Mill and acid sulphite liquor at Saiccor Mill. The
project will include the design and construction of a pilot plant
to remove and convert xylose into furfural.
The first phase of the project, which launched in July 2017,
will include the collection of historical data, plant information
and sampling campaigns to determine the best location in
the process at Saiccor Mill to produce furfural. From here,
a portable pilot plant will be constructed to determine the
feasibility of producing furfural on a small scale and a full-scale
demonstration plant could be built, depending on the results.
sappi 2017 Annual Integrated ReportSustainability 50
Our key material issues continued
Lignin
We are the world’s largest producer of lignosulphonate from
our operations in Southern Africa and Europe. The material is
both used internally for bio-energy generation or beneficiated
and processed to technical lignins for sale to global lignin
markets. Here they are commonly used as surfactants,
binders, dispersers and emulsifying agents.
Development work to use lignin from Stanger and Tugela Mills
in Southern Africa in phenolic resins, polyurethane foams and
polyester resins is underway at our Technology Centre in
Pretoria. The work is being done in collaboration with an
industrial chemist consultant and relevant industry leaders
in South Africa.
In 2017, our biotech division appointed CellMark, a global
sales, marketing, financing and logistics business, as the
non-exclusive sales agent for Sappi Biotech’s Hansa lignin
products, produced in liquid and powder formats at Tugela
Mill. The mill produces a total of 90,000tpa of liquid sodium
lignosulphonate per year and we currently have the capacity
to dry 25,000tpa of powder (±50,000 tons liquid input).
We are currently assessing the use of lignin in energy storage
applications.
Biocomposites
In 2016, in conjunction with Intertek, we developed a
composite called Symbio which is based on cellulose fibres
found in trees and polypropylene. Cellulose fibres can
significantly increase the rigidity of plastic despite keeping
weight low, simultaneously giving the material renewable
properties. Higher rigidity also means a potentially lower
carbon footprint, as less materials are used.
Symbio has now reached a stage where we are conducting
trials with customers for special grades which have been
developed for the automotive, audio, furniture and toy
industries.
Bio-energy
As the world looks to move away from fossil-based fuels in
view of the need to reduce carbon footprint and mitigate global
warming, so bio-energy is becoming increasingly important.
The South African government’s Renewable Energy
Independent Power Producer Programme (REIPPPP) is the
result of the national need to increase energy capacity and
reduce carbon emissions. Sappi submitted the Energy
Biomass Project at Ngodwana Mill to REIPPP and was
selected as preferred bidder. The project involves the supply of
biomass from local plantations to Ngodwana Mill. This is then
used as boiler fuel to produce steam which in turn would
generate 25MW of electrical energy which would be fed into
the national grid. To date, regulatory approval has stalled on
the issue of price, but we now expect negotiations to be
concluded before the end of calendar 2017.
Ò Material issue: Innovation
Background
The world is increasingly recognising the value of products
based on woodfibre, so that opportunities are opening up to
supply products, processes and services based on this
renewable, biodegradable natural resource.
Ø Our response
Our R&D initiatives focus on consolidating and growing our
position in our targeted markets segments; driving cost
competitiveness and cost reduction; as well as optimising our
equipment and forestry assets.
Our total R&D spend in 2017 was US$29.5 million, including
spend of approximately US$9.8 million on our Exciter
programme which focuses on core business (Exciter I)
and new and adjacent business (Exciter II).
Cost vs value of Exciter projects
Cumulative global value generated vs total expenditure
(Percentages – total value vs total expenditure)
)
0
0
0
’
$
S
U
(
d
e
r
e
v
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e
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e
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e
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t
s
e
v
n
I
250
225
200
175
150
125
100
75
50
25
0
5
0
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F
6
0
Y
F
7
0
Y
F
8
0
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F
9
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2
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F
3
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F
4
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F
5
1
Y
F
6
1
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F
■ Total (costs)
■ Total (value)
Fiscal year
7
1
Y
F
In FY2017, the focus for Exciter I projects (core business) was
focused on market growth, cost reduction, continuous
improvement and efficiency optimisation.
In terms of Exciter II projects, the emphasis was mainly
on nanocellulose and biorefinery developments. A major
highlight was the opening and commissioning of the sugar
demonstration plant at Ngodwana Mill in April 2017
(described on page 49).
sappi 2017 Annual Integrated Report
51
People
Ò Material issue: Safety
Background
Safety is first and foremost a human issue. Unsafe practices
and conditions can have devastating consequences on
people’s lives and families. Globally, the pulp and paper
industry and forestry in particular, is viewed as potentially
hazardous.
Ø Our response
At Sappi we believe that every life matters. Accordingly, we
strive to ensure that all workplaces are safe and that all
employees act in a safe manner. However, we recognise that
about 85% of accidents are due to the behaviour of people
and that safe conditions do not necessarily create a safe
workplace. Only when we change the hearts and minds of
every employee and contractor will we have a safe workplace.
We have a goal of zero harm in the workplace, which is
supported by a culture that seeks to minimise risk. In addition
to our overall safety goal, all regions have established specific
safety targets to be achieved by 2020 and each region has
compiled specific action plans to achieve these targets.
With shock and regret we report that tragically, there were
three own employees (two in Southern Africa and one in
Europe) and one contractor (Southern Africa) fatalities during
the year. Unfortunately, in November there was an additional
incident where one of our mill colleagues in Europe was fatally
injured. We are doing everything possible to support the
families and to provide support to colleagues who were
affected by these tragic losses. The severity of these accidents
was reflected in the increased Injury Index (II) for own
employees and contractors.
At Ngodwana Mill, where two of the fatalities in FY2017 took
place, a shift change programme based on sound fatigue
management principles on identification of accident trends
associated with the current shift system has been investigated.
Once accepted by the workers unions and implemented,
learnings from this programme will be rolled out to other mills.
Our further action plan for Southern Africa going forward is to
critically assess the current programme and to modify it where
necessary with the assistance of DuPont Sustainable
Solutions. Their review will involve a ‘deep dive’ to understand
operational risk profile and practices. It will cover operational
data, management systems, a culture survey and onsite visits.
The fatality in Europe in FY2017 took place during an activity
previously assessed as low risk. To rectify the situation, while
there continued to be an average of 18 safety-based audits per
calendar day, the identified actions from these audits increased
to almost 27 actions to improve safety per day. We anticipate
that this will improve safety performance in the region going
forward.
Globally, safety performance was highly unsatisfactory. Only
Sappi North America (SNA) ended the year with a lower
lost-time injury frequency rate (LTIFR) than that achieved in
FY2016. A month after year-end, SNA received the American
Forests and Paper Association (AF&PA) 2017 Leadership in
Sustainability Award for Safety.
A programme at Sappi Forests initiated to re-energise safety,
yielded highly positive results. In February 2017, Sappi Forests
announced a new safety target for the business: to be Twice
as Safe by 2020 which meant reducing fatalities to zero and
putting an end to the culture of unacceptable risk tolerance.
The solution was to implement a fit for purpose, audience-
appropriate communications strategy to roll out a ‘Stop and
Think before you Act’ (STA) initiative in Sappi Forests, including
contractor operations while improving communication and
relationships. This was important, because Sappi Forests’
operations are almost 100% outsourced to 76 private
contractors who employ 10,334 people (including
subcontractors).
Low literacy rates required a new approach to communication.
Research showed that the audience loved stories and
Sappi Forests adopted a storytelling approach to safety
communication using graphics and symbols. The audience
connected exceptionally well with the material, and they
understood and accepted that behaviour is your own choice.
Many asked for posters and also implemented STA at home.
The use of a standard set of symbols throughout all safety
communication created a universal language that was
consistent. Colour-blind stakeholders were catered for by using
symbols in the graphics. Sappi Forests’ key audiences and
contractor staff responsible for training were trained at ‘Train
the Trainer’ sessions.
The 12th Global Safety Awareness week was held during
the week of 12 June 2017. The theme for this year was
‘1ife Matters’ and it illustrated that to Sappi every life
is important including that of our contractors and
stakeholders. The initiative was well supported with senior
managers visiting all the Sappi sites. The safety theme
for FY2018 is ‘Own Safety, Share Safety’ – in other
words, every individual should be responsible not only
for his/her own safety but also of his/her colleague’s
and family’s safety.
sappi 2017 Annual Integrated ReportSustainability 52
Our key material issues continued
Ò Material issue: Labour relations
Background
Sound labour relations are important in creating a harmonious
working environment, enhancing productivity and maintaining
a healthy turnover rate.
Ø Our response
The Sappi employment landscape includes interaction with
trade unions at all our manufacturing sites across the group.
This interaction is based on transparent communication and
mutual respect.
Sappi promotes freedom of association and engages
extensively with representative trade unions. Globally,
approximately 60% of Sappi’s workforce is unionised,
with 72.6% belonging to a bargaining unit.
Overall, FY2016 was characterised by amicable, but tough
negotiations, and relatively good relationships with organised
labour across the geographies.
In Europe, approximately 68% of our employees belong to a
union and are represented through Work Councils. European
Works Council meetings take place twice a year at which
Sappi is represented by the Chief Executive Officer and Human
Resource Director. The main purpose of the meetings is to
inform and consult on business results/market developments
and pan-European organisational topics.
The overall labour relations climate in this region continued
to be constructive and we concluded collective labour
agreements (CLA) at Lanaken and Maastricht Mills.
In North America, approximately 65% of our employees are
members of a union and there are 11 collective bargaining
agreements with hourly employees in place.
There were no major disputes in this region and labour
agreements were successfully concluded during FY2017.
In Southern Africa, approximately 48.5% of the total
workforce is unionised.
We are currently reviewing our relationship/recognition
agreement with the majority union, CEPPWAWU. The
agreement will become a joint agreement and will include two
other recognised trade unions in the region (Solidarity and
UASA). We expect the agreement to be finalised by the end
of November 2017.
The mills continued to enjoy labour stability owing to ongoing
positive engagement with union leadership facilitated by
structures such as the National Partnership Forum which
includes senior members of management and senior union
leaders. They hold regular meetings where business, safety
and union challenges are discussed. In addition, in each
business unit where there is a representative trade union and
the majority of employees are unionised, shop steward
committees have been established and meet with local
management on a regular basis to discuss matters of mutual
interest.
While collective bargaining during FY2017 was extremely
tough, we once again successfully concluded wage
negotiations without industrial action in all sectors – forestry,
pulp and paper, as well as sawmilling.
Ò Material issue: Sharing value
Background
Globally, companies are expanding the definition of corporate
citizenship to include both corporate social investment or
responsibility and the concept of corporate shared value (CSV).
This involves developing profitable business strategies that
deliver tangible social benefits. In other words, identifying
societal challenges within a company’s sphere of operation and
finding ways of addressing these for the mutual benefit of
communities and the company.
Ø Our response
We have expanded our focus to embrace the concept of CSV
more fully. We take a very active approach to CSV both
regionally and globally, driving key initiatives in support of our
three primary stakeholder groups – employees, customers and
the local communities in which we operate.
Projects are aligned with and support business priorities and
needs, taking into account feedback from our stakeholders.
While each region has its own programmes, these conform to
common themes which are aligned with our business needs
and priorities and which include education, local community
support, the environment and health and welfare. We
encourage employees to participate in outreach and
community projects.
In addition, support for activities associated with access to
Sappi land and conservation efforts, such as biodiversity and
species mapping, mountain biking and recreational birding
continues to grow.
The fact that Sappi is headquartered and listed in South Africa,
coupled to the significant development needs of the country,
dictates a higher focus on CSV activities by Sappi in
Southern Africa.
Our CSV initiatives in 2017 are described in more detail in our
Group Sustainability Report, available at www.sappi.com, but
initiatives in North America and Southern Africa give some
idea of this approach.
Building on our long-standing, respected Ideas that Matter
programme for print designers in North America, we
launched a new programme, Employee Ideas that Matter
(EITM). Through the EITM programme, we highlight the
sappi 2017 Annual Integrated Report 53
concept of CSV by providing funding to the non-profit
organisations our employees are most passionate about,
thereby helping to improve lives and to promote employee
morale. We have pledged US$25,000 annually to proposals
submitted by Sappi employees in SNA.
In 2015, SSA’s forestry division in KwaZulu-Natal set out
to establish what it could do to simultaneously provide
communities with opportunities and reduce the numbers
of fires in its plantations.
Research showed high unemployment within communities
in Sappi regions and expectations that the company would
provide more jobs than were possible, thus highlighting a
critical need for enterprise development. This resulted in the
implementation of a 12-month pilot community engagement
and social mobilisation project, which involved the appointment
of 18 unemployed youngsters called the Abashintshi (isiZulu for
‘change agents’).
Based on the asset-based community development (ABCD)
methodology and with the objective of establishing and helping
activate entrepreneurial enterprises among their communities,
the Abashintshi were taught how to facilitate life skills and
entrepreneurship training, activate the Ifa Lethu Legacy
programme with elders, and offer holiday programmes for
school children. They also provided Sappi with a new channel
of communication, which has helped to improve the company’s
reputation significantly.
The Abashintshi Social Mobilisation Project won a gold
award in the ‘Shared Value’ category of the 2017 Loeries
Awards, South Africa’s premier advertising and brand
awards. The project also won a merit award in the 2017
International Association of Business Communicators
(IABC).
Approximately 230 small businesses have either been started
up or rejuvenated with the assistance of the Abashintshi while
fires declined in the target areas by 89% in just two years.
The programme has subsequently been extended to
43 communities in KwaZulu-Natal and Mpumalanga
and today involves 88 Abashintshi.
Social investment spend in 2017
Total
Europe
North America (ITM US$250,000)
Southern Africa
Additional once-off spend by Sappi Forests
on capex items for villages including solar
geysers, etc.
Spend 2017
€100,000
US$537,000
ZAR56 million
ZAR7 million
Planet
Ò Material issue: Woodfibre
Background
The global demand for woodfibre is expected to increase for
the foreseeable future, driven partly by the demand for wood
pellets rather than finite fossil fuels as a green energy source.
This is expected to accelerate as more and more countries
commit to mitigation actions on climate change.
In addition, climate change has the potential to seriously
impact our fibre base. In all three regions where Sappi
operates, climate change could alter the frequency and
intensity of forest disturbances such as insect outbreaks,
invasive species, wildfires, and storms. These disturbances
could reduce forest productivity and change the distribution
of tree species. Given that woodfibre is a key input to our
manufacturing operations, maintaining continuity of supply and
containing costs is integral to our sustainability as a business.
Our position
In Europe, we mitigate fibre supply risk through shareholdings
in wood sourcing cooperatives and in this region and
North America, through a combination of approaches which
include both short- and long-term wood supply agreements.
In North America, our US$25 million capital project to update
Somerset Mill woodyard has reduced white wood losses and
costs while enhancing efficiency gains through the increased
production of woodchips. The commissioning of the new
woodyard will be complete by the end of November 2017.
Our new woodyard at Saiccor Mill in Southern Africa,
(described on page 15) will also result in efficiency gains.
Given Sappi Europe’s general risk mitigation strategy of
sourcing pulp and woodfibre from a variety of sources and
regions, we do not anticipate any material impact to raw
material supply from climate change in the short to medium
term. In North America, our operations do not currently
face material risks associated with climate change. With the
exception of fibre from Brazil for Westbrook Mill, we source
from northern hardwood and softwood wood baskets that
have not suffered under any drought conditions or from fire.
In Southern Africa, the fact that we own and lease
387,291 hectares (ha) of plantations with approximately
27.4 million tons of standing timber gives us a competitive
advantage. We also have access to wood from a further
92,000ha via contracted timber suppliers. Our aim is to
produce low-cost wood with the required pulping
sappi 2017 Annual Integrated ReportSustainability
54
Our key material issues continued
characteristics and increase yield per hectare. We actively
pursue this aim, particularly through genetic improvement of
planting stock.
Work to enhance the genetic improvement and sustainability
of our fibre base in SSA in FY2017 included:
• Progress in our Eucalyptus (E.) grandis x E. urophylla (GU)
backcrossed genomic mapping project, which is aimed at
developing DNA marker tools to enhance our tree breeding
efforts, by speeding up the tree selection process. The
project culminated in the testing of specific markers that are
linked to or contain the genes controlling traits of interest
such as growth, wood density, various sugars or metabolite
levels. Based on the presence of these molecular markers in
the DNA, just over 100 trees were selected for two wood
property traits. These trees have now been sampled and are
currently being pulped to confirm the marker predictions.
• Genomic selection, another marker-assisted breeding tool
that we are in the process of developing, aims at increasing
selection intensity and shortening the breeding cycle to
improve our genetic gains. Working with E. dunnii, our most
important eucalypt species, we have focused on developing
genomic selection models for approximately 15 growth and
wood property traits. The next step will involve validating
these models in related and unrelated E. dunnii populations
in order to confirm our predictions.
• Furthering our understanding of the molecular basis for
resistance to Fusarium circinatum, a fungal disease that
impacts pine species. In this regard we have been looking at
the expressed genes of a resistant (Pinus [P.] tecunumanii)
and a susceptible (P. patula) pine species after infection with
the pathogen in order to develop models for resistance
versus susceptibility.
• Developing a pine hybrid in response to a severe threat from
our softwood supply from the Pitch Canker Fungus (PCF).
By crossing the highly PCF susceptible P. patula, until
recently Sappi’s most important pine species, with the
closely related but PCF tolerant P. tecunumanii, a disease
tolerant hybrid known as PPT was created. The hybrid
holds numerous benefits:
– 45% more productive than pure P. patula
– Better field survival
– Easier to propagate in the nursery
– More broadly adapted to a greater range of sites
– Higher density and more uniform wood qualities
– Rapid establishment on site, and
– Good drought tolerance.
The value of the hybrid to Sappi has been estimated at
ZAR73 million over a 20-year rotation, for the 3,500 hectares
of PPT already commercially planted. More will be added
every year over the next 20 years as the majority of the area
currently planted to P. patula in the Mpumalanga province is
gradually replaced with PPT. An additional benefit of the
increased yield from PPT is the opportunity to reduce the
area needed for softwoods in Mpumalanga, allowing more
of Sappi’s land to be converted to hardwoods, thereby
increasing hardwood fibre output for the production of
dissolving wood pulp.
• Upgrading the existing nursery at Ngodwana and adding
cutting facilities. This has helped to enhance the
sustainability of our fibre base in two ways:
– Firstly, by mitigating against crop losses in the nursery
during the cold winter period, and
– Secondly, by helping to meet our need for increased
deployment of hybrid cuttings, rather than pure species
seedlings, as the former are generally more disease
resistant and faster growing and can only be economically
deployed using cuttings.
The deployment of hybrids has become a priority in order to
meet the requirement for more hardwoods, necessitated by
the conversion of Ngodwana Mill to dissolving wood pulp,
and also to mitigate the risks associated with climate change
and increased pests and disease introductions.
Together with Clan Nursery, which was upgraded in 2015,
this means that our nurseries now have capacity for
54 million plants per annum, with an equal split between
seedlings and cuttings. In FY2017, our nurseries supplied
approximately 38,000 plants to our own operations,
14,000 to projects such as Sappi Khulisa and 2,000 to
outside operations.
The full rebuild of Ngodwana Nursery will be completed by
the end of December 2017.
In terms of climate change, we mitigate risk to our
plantations by:
• Deploying a diverse range of commercial species and
hybrids across a wide range of climatic conditions
• Continually monitoring and reviewing forest best
practices in light of changing environmental factors,
thus helping to mitigate any increased threat from
water shortages or drought
• Maintaining wide genetic variability in planting
material, including drought resistant breeds
• Measuring permanent sample plots annually
(eucalypts) or bi-annually (pines) to determine the
effect of drought for use in long-term planning
• Proactively implementing innovative pest and disease
programmes
• Maintaining a broad genetic base, thereby facilitating
response to new challenges such as pests, disease
and climate change while providing continuous
genetic improvement over the long term, and
• Implementing an extensive fire protection strategy, as
climate change exacerbates the potential for fires.
In Southern Africa, we work to mitigate fibre supply risk and
drive shared value by expanding access to the forestry sector
in a number of ways, including:
• Sappi Khulisa (‘Khulisa’ means ‘to grow’ in isiZulu), our
enterprise development initiative, previously known as
Project Grow. This initiative, which began in 1983, is aimed
at community tree farming and has successfully uplifted
sappi 2017 Annual Integrated Report impoverished communities in KwaZulu-Natal and the
Eastern Cape. The total area currently managed under this
programme amounts to 22,362ha. In FY2017, under the
programme, 448,221 tons (2016: 395,232 tons) worth
approximately ZAR362 million was delivered to our
operations. Since 1995, a total volume of 3,313,581 tons,
to the value of ZAR1.6 billion, has been purchased from
small growers in terms of this programme.
As rotation times, and the associated cash flows, in forestry
are long, growers receive advances. In addition, qualified
extension officers advise on all aspects of tree farming.
In recent years, we have expanded Sappi Khulisa beyond
the borders of KwaZulu-Natal to the Eastern Cape. We have
signed a Memorandum of Understanding with the Eastern
Cape Rural Development Agency (ECRDA) to facilitate
forestry development in this region. To date, the total area
planted covers 4,782ha and a further 4,812ha is in the
environmental impact assessment phase, with records of
decision awaited on a further 1,250ha. For further details,
please see our Sappi FAQs Khulisa Umnotho, available on
www.sappi.com.
• We are also active in land reform. As at the end of
September 2017, Sappi was involved in 60 land reform
projects. Many of these properties previously belonged to
commercial farmers who had supply agreements with
Sappi. To ensure sustainable production from these
properties, we have entered into supply agreements with the
new beneficiaries and have also provided assistance. This
depends on the requirements of the project, but ranges from
a pure supply agreement to a comprehensive Forestry
Enterprise Development Agreement (FEDA). The latter is a
supply agreement but also incorporates development
objectives whereby Sappi provides technical and business
training as well as administrative support.
• To further assist with the development of small growers and
other forestry value chain participants, we have established
a training centre at Richmond in KwaZulu-Natal (KZN). The
training centre has Khulisa Ulwazi (‘Growing Knowledge’)
as its slogan and is providing training to small growers, land
reform beneficiaries and small-scale contractors in the
technical and business aspects of forestry and small
business management. In FY2017, the centre more than
doubled its intake of trainees. To date, over 1,000 people
have been trained.
55
Ò Material issue: Emissions regulations and
carbon tax
Background
In light of evidence that anthropogenic greenhouse gas (GHG)
emissions are driving global warming, governments around
the world are assessing national carbon taxes in an attempt to
promote low-carbon economies.
Ø Our response
We acknowledge that our industry is energy intensive, but
believe that this is mitigated by our high use of renewable
energy (black liquor in particular) and by the important role that
sustainably managed natural forests and plantations play in
mitigating global warming.
Globally, our renewable energy stands at 45.2%, of which just
over 73% is own black liquor, a by-product of the pulping
process in our integrated mills. Black liquor contains more
than half of the energy content of the digested wood. As a
renewable biomass-derived fuel, black liquor supplants fossil
fuels, with a corresponding reduction in greenhouse gas
emissions.
Biomass-derived energy like black liquor is fundamentally
different from fossil fuel-derived energy because biomass
recycles carbon whereas fossil fuels introduce carbon, that had
previously been ‘locked away’, to the atmosphere. Biomass is
deemed ‘carbon neutral’ – the carbon dioxide (CO2) generated
during combustion is equivalent to that which was originally
bound from the atmosphere through photosynthesis.
In terms of carbon taxes, we continue to monitor the situation
in each region where we operate. In North America and
Europe, carbon taxes do not appear to be an imminent risk.
In Southern Africa, the Department of Environmental Affairs
has accepted our proposed carbon budget which is valid
until 2020.
In terms of global warming, the challenge is to not only
reduce future carbon emissions, but to actively remove
existing carbon from our atmosphere. Sustainably
managed forests and plantations like Sappi’s play a vital
role in this regard by:
• Balancing the earth’s water-cycle essential for cooling
the climate
• Stabilising the climate by removing CO2 from the
atmosphere and fixing it into soils and biomass, and
• Storing carbon – 50% of a tree’s biomass is carbon
which remains stored, acting as a ‘carbon sink’,
unless the tree decays or is burned.
Global forests are estimated to hold more CO2 than the
atmosphere10.
10 http://www.weforest.org/page/why-it-matters
sappi 2017 Annual Integrated ReportSustainability 56
Our key material issues continued
Ò Material issue: Energy
Purchased energy costs as a percentage of cost of
sales (COS) (%)
In addition, both Sappi Europe and Sappi Southern Africa are
ISO 50001 certified. To achieve accreditation, an organisation
has to prove that it is continuously reducing the amount of
energy consumed.
14
12
10
8
6
4
2
0
2013
■ Southern Africa
2014
■ Europe
2015
■ North America
2016
2017
■ Global
Background
Energy is a key input for our industry. Aggressively managing
energy usage leads to a reduction in carbon emissions and
enhanced cost efficiencies. In South Africa, where national
energy demand outstrips supply at times, energy security is
also an issue.
Ø Our response
Energy in relation to cost of sales increased slightly in Europe.
Although energy intensity remained stable, energy costs
increased by 11.13% year-on-year, leading to purchased
energy as a percentage of cost of sales rising from 9.37% in
2016 to 10.47% in 2017. Even though globally, our energy
costs as a percentage of cost of sales have declined over
five years due to actions taken, it makes business sense for
Sappi to aggressively manage energy usage and promote
the generation of renewable energy. Environmental impact
is reduced not only by the amount of energy, but also by the
type of energy consumed. We have made significant efforts
to reduce reliance on fossil fuels, thereby reducing fossil-
related greenhouse gas (GHG) emissions and separating our
operations from the volatility of energy prices.
We are succeeding in this regard, as indicated by our
high use of renewable energy (see page 44) and by
the following.
Over five years, we have increased global levels of energy
self-sufficiency by 8.7%, while over the same period, globally,
specific direct (Scope 1) GHG emissions have reduced by
4.6% and specific indirect (Scope 2) GHG emissions have
decreased by 7.42%. Overall, there has been a reduction of
5.4% in GHG emissions intensity over five years.
Our energy efficiency is enhanced through our extensive
use of cogeneration and through our ongoing drive to install
more efficient equipment and make process improvements,
for example:
• Globally, we have combusted 20.43% more waste for
on-site heat use over the last five years, and
• In FY2016, we announced the establishment of a pilot scale
plant at Saiccor Mill to assess the use of anaerobic
technology to treat evaporator condensate which we
progressed in FY2017. The technology uses organic matter
in the condensate to generate methane gas. Methane gas, in
turn, can be used to generate electricity or generate steam.
The pilot study showed that the technology can be
successfully used to biologically convert the organic material
present in the condensate into biogas (methane). The energy
potential associated with the use of the generated biogas is
1.7MW electrical and 1.8MW thermal. The generated biogas
has the potential to replace 17 tons of coal per day.
The assessment has now been completed and we are
currently evaluating the implementation of the technology.
Percentage energy self-sufficiency (%)
8
.
3
6
0
.
4
6
9
.
9
5
9
.
8
5
5
.
6
5
5
.
1
4
2
.
1
4
7
.
1
4
5
.
9
3
3
.
6
3
4
.
9
3
9
.
9
3
0
.
1
4
9
.
0
4
6
.
7
3
2
.
3
2
4
.
2
2
8
.
1
2
6
.
2
2
5
.
1
2
70
60
50
40
30
20
10
0
Southern
Africa
■ 2013 ■ 2014
■ 2015
Europe
North
America
Global
■ 2016 ■ 2017
sappi 2017 Annual Integrated Report 57
Reduction of energy consumption
(GJ/adt)
0.10
0.07
(0.02)
(0.06)
(0.15)
23.0
22.5
22.0
2013
2014
2015
2016
2017
Ò Material issue: Water
Background
The United Nations estimates that global demand for water will
grow by 50% by 2030.11 At the same time, globally, over 80%
of the wastewater generated by society flows back into the
ecosystem without being treated or reused12. In addition, partly
to help maximise yields to meet demand, usage of chemical
fertilisers and pesticides has increased in recent years, both in
industrial and small farming, making agriculture a potential
source of environmental pollution.
Ø Our response
In terms of the concerns outlined in the paragraph above:
• Our production processes depend on water, as does
woodfibre, our primary input. Globally, we return 93% of the
water we extract back into the environment after it has been
treated and cleaned. Of the 7% balance, approximately 4%
exits the mill in the form of production, while the remaining
3% is lost to the environment
• Globally, over five years, we have achieved a positive result in
effluent concentration by reducing chemical oxygen demand
(COD) by 12.9% and total suspended solids (TSS) by 35.5%
• Our plantations are not irrigated and fertiliser is generally only
used once in each rotation
• Our Technology Centre in Pretoria (South Africa) is currently
assessing the wastewater biorefinery (WWBR) concept,
which involves the recovery of valuable products (eg sugars,
lignin or biogas) from waste streams. An additional benefit is
also the improvement of effluent quality, prior to discharge
into the environment. The WWBR aims to process complex
input streams to multiple products, while reducing the costs
associated with conventional water treatment. While
chemical and physical processes are traditionally used to
reduce the toxicity of effluent streams, enzymes could
potentially also be employed to reduce toxicity and increase
substrate availability (in the case of bioreactors). This could,
in turn, reduce the COD loading or aid in the production of
biogas.
Of all the regions where Sappi has operations, South Africa,
which is a water-stressed country and which has been
experiencing its worst drought in many years, has been most
severely affected.
To mitigate the impact of low flows on the Umkomazi River, the
prime source of water to Saiccor Mill, in FY2016 we completed
a project to raise the Comrie Dam wall, upstream of Saiccor
Mill, tripling the amount of water in the dam. We have now
been awarded a water use licence from the regulatory
authorities.
At Ngodwana, Tugela and Stanger Mills, we are focusing on
internal modifications which involve the more efficient use
of water.
Following the conversion of the PM8, Lanaken Mill
(Belgium) will be switching from the use of softwood to
hardwood pulp, making wastewater treatment more
challenging. Accordingly, in January 2018, the mill will
be building a new anaerobic wastewater treatment
plant. This will produce 280% more biogas, which will
generate electricity and heat. Once the plant is
completed in June 2018, the old anaerobic tanks will be
converted into aerobic tanks to increase the capacity
and quality of wastewater treatment. As a comparison,
we will go from a wastewater treatment capacity
comparable with municipal wastewater of 300,000
residents to a capacity for 900,000 residents. Finally, in
a third step, from September to October 2018, coating
waste water will move to an existing separator and
biological treatment, in order to free up capacity for
effluent of the paper machine. A final step involving
advanced oxidation will remove non-biodegradable COD.
11 UNHABITAT (2016), World Cities Report 2016: Urbanization and development: http://wcr.unhabitat.org/wp-content/uploads/sites/16/2016/05/WCR-%20
Full-Report-2016.pdf
12 http://www.un.org/en/events/waterday/
sappi 2017 Annual Integrated ReportSustainability 58
59
Light photomicrograph of pine tree wood
cross section seen through a microscope.
Safety at Sappi comes before
everything else. We do
not accept that injuries and accidents are
inevitable. We remain fully committed to
our project zero goal of zero injuries
and have increased our focus on improved
personal behaviour and making safe choices.
60
Our leadership
Non-executive directors
Sappi board committee memberships:
Audit Committee
Human Resources and Compensation Committee
Nomination and Governance Committee
Social, Ethics, Transformation and Sustainability Committee
Sir Nigel Rudd (70)
Independent Chairman
Qualifications: DL, Chartered Accountant
Nationality: British
Appointed: April 2006
Sappi board committee memberships:
Nomination and Governance Committee
(Chairman)
Robert John DeKoch (Bob) (65)
Non-independent
Qualifications: BA (Chemistry), MBA
Nationality: American
Appointed: March 2013
Sappi board committee memberships:
Michael Anthony Fallon (Mike) (59)
Independent
Qualifications: BSc (Hons) (First Class)
Nationality: British
Appointed: September 2011
Sappi board committee memberships:
Human Resources and Compensation
Committee (Chairman)
John David McKenzie (Jock) (70)
Lead independent director
Qualifications: BSc Chemical Engineering
(cum laude), MA
Nationality: South African
Appointed: September 2007
Sappi board committee memberships:
Dr Bonakele Mehlomakulu (Boni) (45)
Independent
Qualifications: PhD (Chemical Engineering),
MSc (Organic Chemistry)
Nationality: South African
Appointed: March 2017
Sappi board committee memberships:
Mohammed Valli Moosa (Valli) (60)
Non-independent
Qualifications: BSc (Mathematics)
Nationality: South African
Appointed: August 2010
Sappi board committee memberships:
Social, Ethics, Transformation and
Sustainability Committee (Chairman)
sappi 2017 Annual Integrated Report 61
Godefridus Peter Franciscus Beurskens
(Frits)* (70)
Independent
Qualifications: BSc Mechanical Engineering,
MSc Industrial Engineering and Management
Science
Nationality: Dutch
Appointed: October 2011
Sappi board committee memberships:
* Mr Beurskens retired from the Sappi board at the
end of February 2017.
Bridgette Radebe* (57)
Independent
Qualifications: BA (Pol Sc and Socio)
Nationality: South African
Appointed: May 2004
Sappi board committee memberships:
* Mrs Radebe retired from the Sappi board at the end
of February 2017.
Dr Deenadayalen Konar (Len) (63)
Independent
Qualifications: BCom, MAS, DCom, CA(SA),
CRMA
Nationality: South African
Appointed: March 2002
Sappi board committee memberships:
Audit Committee (Chairman)
Nkateko Peter Mageza (Peter) (63)
Independent
Qualifications: FCCA (UK)
Nationality: South African
Appointed: January 2010
Sappi board committee memberships:
Karen Rohn Osar (68)
Independent
Qualifications: MBA, Finance
Nationality: American
Appointed: May 2007
Sappi board committee memberships:
Robertus Johannes Antonius Maria
Renders (Rob Jan) (64)
Independent
Qualifications: MSc (Mechanical Engineering),
MDP
Nationality: Dutch
Appointed: October 2015
Sappi board committee memberships
Dr Rudolf Thummer* (70)
Independent
Qualifications: Dr Techn, Dipl-Ing
Nationality: Austrian
Appointed: February 2010
Sappi board committee memberships:
* Dr Thummer will retire from the Sappi board in
December 2017.
sappi 2017 Annual Integrated ReportGovernance and compensation 62
Our leadership
Executive directors
Stephen Robert Binnie (Steve) (50)
Chief Executive Officer
Qualifications: BCom, BAcc, CA(SA), MBA
Nationality: British
Appointed: September 2012
Sappi board committee memberships:
Attends meetings of all other board
committees by invitation.
Glen Thomas Pearce (54)
Chief Financial Officer
Qualifications: BCom, BCom (Hons), CA(SA)
Nationality: South African
Appointed: July 2014
Sappi board committee memberships:
Expected to attend Audit Committee meetings
by invitation.
Executive management
Berend John Wiersum (Berry) (62)
Chief Executive Officer of Sappi Europe
Qualifications: MA (Medieval and Modern
History)
Mark Gardner (62)
President and Chief Executive Officer of Sappi
North America
Qualifications: BSc (Industrial Technology)
Alexander van Coller Thiel (Alex) (56)
Chief Executive Officer of Sappi Southern
Africa
Qualifications: BSc Mechanical Engineering,
MBA (Financial Management and IT)
sappi 2017 Annual Integrated Report 63
Executive management continued
Andrea Rossi* (63)
Group Head Technology
Qualifications: BSc Eng (Hons), C Eng, FCMI
* Mr Rossi relinquishes the role of Group Head
Technology in December 2017.
Maarten van Hoven (44)
Group Head Strategy and Legal
Qualifications: BProc, LLM (International
Business Law)
Gary Bowles (57)
Executive Vice President Specialised Cellulose
Group Head Technology from January 2018
Qualifications: BSc Electrical Eng, GCC, PR
Eng, PMD, EDP
Fergus Marupen (52)
Group Head Human Resources
Qualifications: BA Hons (Psychology), BEd
(Education Management), MBA
sappi 2017 Annual Integrated ReportGovernance and compensation 64
Corporate governance
Sappi is committed to high standards of corporate governance which form the foundation for the long-term
sustainability of our company and creation of value for our stakeholders. Good governance at Sappi contributes
to living our values through enhanced accountability, a transparent and ethical culture, strong risk management,
a focus on performance, legitimacy and effective control of the business. The group endorses the
recommendations contained in the King Code of Governance Principles for South Africa 2016 (King IV) and
applies the various principles. An application register of how Sappi applies the King IV principles is provided
on pages 72 to 75 of this report.
The group is listed on the JSE Limited and complies in all material respects with the JSE listings requirements, regulations
and codes.
The board of directors
The basis for good governance at Sappi is laid out in the board charter, which sets out the division of responsibilities between the
board and executive management. The board collectively determines strategies, approves major policies and plans, is responsible
for risk management, and provides oversight as well as monitoring, to help to ensure accountability. The board is satisfied that it has
fulfilled its responsibilities in accordance with its charter for the reporting period.
For further information about the board and the board charter please refer to www.sappi.com.
The composition of the board and attendance at board meetings and board committee meetings is set out in the table below for the
year ended September 2017:
Name
Status
Board
Audit
B
B
E
C
SR Binnie
GT Pearce
Sir Nigel Rudd
PF Beurskens(1)
RJ DeKoch
MA Fallon
D Konar
JD McKenzie
NP Mageza
B Mehlomakulu(2)
MV Moosa
KR Osar
B Radebe(3)
RJAM Renders(4)
R Thummer
Chief Executive Officer
Chief Financial Officer
Independent non-executive
Chairman
Independent non-executive
Non-executive
Independent non-executive
Independent non-executive
Lead independent director
Independent non-executive
Independent non-executive
Non-executive
Independent non-executive
Independent non-executive
Independent non-executive
Independent non-executive
6/6
6/6
6/6
0/3
6/6
6/6
6/6
6/6
6/6
3/3
6/6
5/6
2/3
6/6
6/6
ü
ü
ü
ü
ü
Board committees
Nomination and
Governance
Human Resources
and Compensation
Social, Ethics,
Transformation and
Sustainability (SETS)
5/5
5/5
4/5
ü
B
C
3/3
3/3
ü
B
E
4/4
4/4
ü
3/3
5/5
5/5
5/5
4/5
2/2
ü
ü
3/3
3/3
ü
ü
ü
ü
C
4/4
4/4
4/4
4/4
ü
ü
ü
ü
ü
E
3/3
3/3
3/3
3/3
C
3/3
(1) Mr GPF Beurskens retired from the board of Sappi Limited and from the Audit Committee with effect from 28 February 2017.
(2) Dr B Mehlomakulu was appointed to the Sappi Limited board and member of the SETS Committee with effect from 01 March 2017.
(3) Mrs B Radebe retired from the board of Sappi Limited and from the SETS Committee with effect from 28 February 2017.
(4) Mr RJAM Renders was appointed as a member of the Audit Committee with effect from 01 March 2017.
ü Indicates board committee membership, C indicates board committee chairman, B indicates attendance by invitation and E indicates attendance ex officio.
The figures in each column indicate the number of meetings attended out of the maximum possible number of meetings during the period indicated.
sappi 2017 Annual Integrated Report
65
Induction and training of directors
Following appointment to the board, directors receive induction and training tailored to their individual needs, when required.
Sappi board and management committees
A number of board and management committees have been established, as follows:
Board of directors
Strategic leadership and guidance
Ultimate oversight, accountability and responsibility
The board delegates certain oversight responsibilities to board committees
The board assigns responsibility for management of the group to the CEO
Nomination and
Governance Committee
Board size, composition
and diversity
Selection and recruitment
of directors
Evaluation of board performance
Human Resources and
Compensation Committee
Directors’ remuneration
Succession planning
Remuneration policy
Incentive schemes
Audit and Risk Committee
Financial and sustainability systems
and reporting
Risk management
Compliance and ethics
Combined assurance
Internal and external audit
IT governance
Social, Ethics,
Transformation and
Sustainability Committee
Corporate social responsibility
Ethics
Environment
Safety
Broad-based Black Economic
Empowerment
Executive Committee
Executive directors (CEO and CFO)
Other senior executives
Execute strategic decisions approved
Executive Committee
Executive directors (CEO and CFO)
Other senior executives
Execute strategic decisions
approved by the board
by the board
Disclosure
Committee
Internal Controls
Steering
Committee
Accounting
Standards
Committee
Group Risk
Management
Committee
Regional
sustainability
councils
Treasury
Committee
IT Steering
Committee
Technical
Committees
Management committees
Board committees
The board has established committees to assist it to discharge
its duties. The committees operate within written terms of
reference set by the board.
Audit Committee
The Audit Committee consists of five independent non-
executive directors and assists the board in discharging
its duties relating to:
• Safeguarding and efficient use of assets
• Oversight of the risk management function
• Oversight of information and technology risks, related
controls and governance
• Oversight of non-financial risks and controls, through
a combined assurance model
• Operation of adequate systems and control processes
• Reviewing financial information and the preparing of accurate
financial reports in compliance with applicable regulations
and accounting standards
• Reviewing sustainability information included in the Annual
Integrated Report
• Reviewing compliance with the group’s Code of Ethics and
external regulatory requirements
• Oversight of the external auditors’ qualifications, experience
and performance
• Oversight of the performance of the internal audit function
• Oversight of the performance of the finance function
• Oversight of taxation policies, congruent with responsible
corporate citizenship, and
• A formal review of the committee’s operating effectiveness
and performance every two years by way of an assessment
with feedback being provided to the board.
The Audit Committee confirms that it has received and
considered sufficient and relevant information to fulfil its duties,
as set out in the Audit Committee Report in the Group
Annual Financial Statements.
The external and internal auditors attended Audit Committee
meetings and had unrestricted access to the committee and
Chairman. The external and internal auditors met privately with
the Audit Committee during 2017.
Dr D Konar has been designated as the Audit Committee
financial expert and attended the Annual General Meeting
in 2017.
sappi 2017 Annual Integrated ReportGovernance and compensation 66
Corporate governance continued
Nomination and Governance Committee
The Nomination and Governance Committee consists of
three independent directors and considers the leadership
requirements of the company including a succession plan for
the board. The committee identifies and nominates suitable
candidates for appointment to the board in line with Sappi’s
policy on the promotion of gender and race diversity at board
level, for board and shareholders’ approval. The committee
considers the independence of candidates as well as directors.
The committee makes recommendations on corporate
governance practices and disclosures, and reviews compliance
with corporate governance requirements. The committee has
oversight of appraising the performance of the board and all
the board committees. The results of this process and
recommended improvements are communicated to the
chairman of each committee and the board. The functioning
and performance of Sappi’s board and board committees were
assessed internally in 2017 and established that the board and
board committees functioned well.
Human Resources and Compensation Committee
The Human Resources and Compensation Committee consists
of four independent directors. The responsibilities of the
Human Resources and Compensation Committee are, among
others, to provide oversight of the group’s human capital,
determine the group’s human resource policy and strategy,
assist with the hiring, and setting of terms and conditions
of employment of executives, the approval of retirement
policies, and succession planning for the CEO and
management. The committee ensures that the compensation
philosophy and practices of the group are aligned to its
strategy and performance goals. It reviews and agrees the
various compensation programmes and in particular the
compensation of executive directors and senior executives as
well as employee benefits. It also reviews and agrees executive
proposals on the compensation of non-executive directors for
approval by the board and ultimately by shareholders.
The Remuneration Report can be found on pages 76
to 88.
Social, Ethics, Transformation and Sustainability
Committee
The Social, Ethics, Transformation and Sustainability (SETS)
Committee comprises at least three independent non-
executive directors and the CEO. Other executive and Group
Management Committee members attend SETS Committee
meetings by invitation. Its mandate is to oversee the group’s
sustainability strategies, ethics management, good corporate
citizenship, labour and employment practices, as well as its
contribution to social and economic development and, with
regard to the group’s Southern African subsidiaries, the
strategic business priority of transformation.
Regional sustainability councils provide strategic and
operational support to the SETS Committee in dealing with
day-to-day sustainability issues and helping to develop and
entrench related initiatives in the business.
For more information on sustainability at Sappi refer to
pages 32 to 57 and for a summary of the group’s initiatives
at www.sappi.com.
Management committees
The board assigns responsibility for the day-to-day
management of the group to the CEO. To assist the CEO in
discharging his duties, a number of management committees
have been formed. Some of these committees also provide
support for specific board committees.
Executive Committee
This committee comprises executive directors and senior
management from Sappi Limited as well as the CEOs of the
three main regional business operations and the specialised
cellulose business. The CEO has assigned responsibility to the
Executive Committee for a number of functional areas relating
to the management of the group, including the development
of policies and alignment of initiatives regarding strategic,
operational, financial, governance, sustainability, social and risk
processes. The Executive Committee meets at least five times
per annum.
Disclosure Committee
The Disclosure Committee comprises members of the
Executive Committee and senior management from various
disciplines. Its objective is to review and discuss financial and
other information prepared for public release. It is the ultimate
decision-making body, apart from the board, with regard to
disclosure.
Treasury Committee
The Treasury Committee meets monthly to assess financial
risks on treasury-related matters.
Technical Committees
The Technical Committees focus on global technical alignment,
performance and efficiency measurement as well as new
product development.
Group Risk Management Team
The board mandates the Group Risk Management Team
(GRMT) to establish, coordinate and drive the risk management
process throughout Sappi. It has established a risk
management system to identify and manage significant risks.
The GRMT reports regularly on risks to the Audit Committee
and the board. Risk management software is used to support
the risk management process.
sappi 2017 Annual Integrated Report 67
Internal Control Steering Committee
The Internal Control Steering Committee supported by the
internal control function provides regular oversight and
guidance to the business on internal controls and combined
assurance for financial, strategic and operational risks.
Group IT Steering Committee
The Group IT Steering Committee promotes IT governance
throughout the group and is the highest authority responsible
for this aspect of Sappi’s business, apart from the board. The
committee has a charter approved by the Audit Committee and
the board. An IT governance framework has been developed
and IT feedback reports are presented to the Audit Committee
and the board. Sappi IT has implemented a standardised
approach to IT risk management through a groupwide risk
framework supported by the use of risk management software.
Financial statements
The directors are responsible for overseeing the preparation
and final approval of the Group Annual Financial Statements, in
accordance with International Financial Reporting Standards
issued by the International Accounting Standards Board.
The group’s results are reviewed prior to submission to the
board, as follows:
• All quarterly results – by the Disclosure Committee and Audit
Committee, and
• Interim and final results – by external audit as well.
Sappi’s internal controls and combined assurance
framework
Risks facing the group are identified, evaluated and managed
by implementing risk mitigations, such as insurance, strategic
actions or specific internal controls. Sappi maintains a robust
framework of risks and controls which assists in the application
of the King IV guidelines, including controls addressing our
material matters and the main drivers of Sappi. The framework
comprises both financial and non-financial controls, which
relate to achieving our strategy, within our risk appetite
and tolerance levels, across the economic, social and
environmental context in which the organisation operates as
well as each of the six capitals set out in the IIRC’s model.
More information on these capitals in the context of Sappi’s
sustainable business model can be found on pages 2 to 5.
The group’s internal controls and systems are designed in
accordance with the COSO control framework, to provide
reasonable assurance as to the integrity and reliability of the
annual financial statements, the Annual Integrated Report and
operational management information used for decision making,
that assets are adequately safeguarded against material loss
and that transactions are properly authorised and recorded.
Internal controls also provide assurance that the group’s
resources are utilised efficiently and that the activities of the
group comply with applicable laws and regulations.
Sappi operates a combined assurance framework, which
aims to optimise the assurance coverage obtained from
management, internal assurance providers and external
assurance providers, on the risk areas affecting the group.
Feedback as to the effectiveness of internal controls is
obtained from various assurance providers in a coordinated
manner which avoids duplication of effort. Combined
assurance helps to identify gaps or improvement areas in the
internal control framework.
The assurance obtained informs executive management and
the Audit Committee about the effectiveness of the group’s
internal controls in respect of significant risks. The Audit
Committee, which is responsible for the oversight of risk
management and combined assurance at Sappi, considers
the risks and the assurance provided through the combined
assurance framework and periodically provides direction as
to the type, nature, extent and approach of the assurance
required. The Audit Committee advises the board on the state
of risks and controls, as well as assurance, in Sappi’s operating
environment. This information is used as the basis for the
board’s review, sign-off and reporting to stakeholders, via
the Annual Integrated Report and Group Annual Financial
Statements, on risk management and the effectiveness of
internal controls and assurance within Sappi.
Sappi’s combined assurance framework comprises three
lines of defence, with oversight provided by the board
and board committees. This is in keeping with enterprise
risk management best practice and is depicted on the
following page:
sappi 2017 Annual Integrated ReportGovernance and compensation 68
Corporate governance continued
Oversight by the board, audit (risk) and other committees
First line of defence
Business management and
operations supported by
appropriate governance, risk
management, and internal control
structures and processes
Executive, corporate
and regional lead teams
Second line of defence
Independent risk monitoring at
group and regional level by group
and regional risk, internal control,
and compliance functions
Third line of defence
Independent assurance provided
by external audit, internal audit
and other external assurance
providers
Group Risk
Management
Team
Disclosure
Committee
Corporate and regional business
functions, eg sales, finance,
IT, HR, purchasing
Regional risk
management
forums
Business units,
eg forestry, mills, sales offices
Business unit operations,
eg production, engineering,
controlling, materials management
Group Internal
Controls Steering
Committee
Group legal
compliance
programme
Group IT
governance
and security
functions
Internal
controls self-
assessment
Regional
SHEQ
management
Internal
audit
+
External
auditors
Combined
assurance
As part of combined assurance in respect of internal controls,
Sappi has obtained assurance on the data in the Annual
Integrated Report from the following sources:
• Financial data is independently audited by KPMG Inc
• Limited reviews of sustainability information have been
undertaken by central technical management and internal
audit
• Specific Planet (environment) related processes are subject
to review by third parties during the year
• A preliminary sustainability external readiness review was
undertaken by KPMG Inc in 2017 with a focus on Scope 1
and 2 emissions information as well as safety information,
and
• No other external assurance was obtained on the
consolidated sustainability indicators reported, although
certain local data is subject to external audits.
Internal audit
The group has an effective risk-based Internal Audit
Department which is suitably resourced. It has a specific
charter from the Audit Committee and independently appraises
the adequacy and effectiveness of the group’s governance,
risk management, systems, internal controls and accounting
records. Internal audit coordinates combined assurance and
reports the findings to local and divisional management, the
external auditors as well as to the Audit Committee.
sappi 2017 Annual Integrated Report 69
The Head of Internal Audit reports to the Audit Committee, meets with board members, has direct access to executive management
and is invited to attend certain management meetings. The role of internal audit at Sappi is set out in the following diagram:
Internal audit value proposition
Stakeholders
Management
Board and Audit Committee
Employees
Other
Objectives
Operating
Reporting
Compliance
Strategic
Area
Governance
Risk
Controls
Support
Internal audit activities
Support
Advisory and assistance
Forensic, hotline and ethics management
Projects, new business processes
Ad hoc management requests
Governance, risk, controls consulting
King IV, governance disclosures
Secondments to business
Internal control support (risk and control framework,
Sappi internal controls system, segregation of duties)
Assurance (risk-based)
Financial processes and systems
Business processes and systems
Operational and strategic risks
IT (value, general computer controls, security, operations)
Ethics, risk, legal compliance
Sustainability data
Combined assurance
Annual opinion
Core principles
Integrity
Competence and due
professional care
Objective and
independent
Aligned with strategies,
risks and objectives
Appropriately
positioned and
resourced
Quality and continuous
improvement
Effective
communication
Risk-based
assurance
Insightful, future-
focused and
proactive
Promotes
organisational
improvement
sappi 2017 Annual Integrated ReportGovernance and compensation 70
Corporate governance continued
Code of Ethics
Sappi requires its directors and employees to act with integrity,
to be courageous, to make smart decisions and to execute
with speed, in all transactions and in their dealings with all
business partners and stakeholders. These values underpin
the group’s Code of Ethics, and commit the group and its
employees to sound business practices and compliance with
applicable legislation. Actions are taken against employees
who do not abide by the spirit and provisions of our code.
Online Code of Ethics and anti-bribery and corruption training
was provided to employees across the group in 2017.
The SETS Committee provides oversight for social, ethics,
transformation and sustainability matters throughout the group.
Refer to www.sappi.com for the Code of Ethics.
Legal compliance programme
A legal compliance programme designed to increase
awareness of, and enhance compliance with, applicable
legislation is in place. The group compliance officer reports
twice per annum to the group Audit Committee. The resourcing
of the compliance function was boosted by the appointment of
a compliance manager in 2016. Sappi is in the process of
enhancing the legal compliance programme by the acquisition
and implementation of suitable compliance software and an
additional external legal compliance update service. In addition,
online training has been provided to employees across the
group on relevant core legal compliance topics.
Conflict of interests
The group has a policy that obliges all employees to disclose
any interest in contracts or business dealings with Sappi to
assess any possible conflict of interest. The policy also dictates
that directors and senior officers of the group must disclose
any interest in contracts as well as other appointments to
assess any conflict of interest that may affect their fiduciary
duties. During the year under review, apart from those
disclosed in the financial statements, none of the directors had
a significant interest in any material contract or arrangement
entered into by the company or its subsidiaries.
Insider trading
The company has a code of conduct for dealing in company
securities and follows the JSE Limited Listings Requirements in
this regard. For further information refer to www.sappi.com.
During 2017, apart from the ongoing focus on financial
controls, internal audit undertook reviews of non-financial risk
areas and provided advisory services for a number of regional
and global harmonisation projects such as requisition to pay
and sales order to cash as well as shared service centre
processes.
Internal audit maintains an internal quality assurance
programme. An external quality assurance review is undertaken
periodically. In 2015, an external validation was conducted by
the Institute of Internal Auditors (IIA). A Generally Conforms
rating was received, which is the highest of the three levels of
conformance to the IIA’s standards.
Board assessment of the company’s risk
management, compliance function and
effectiveness of internal controls and combined
assurance
The board is responsible for the group’s systems of internal
financial and operational control. As part of an ongoing
comprehensive evaluation process, control self-assessments,
independent reviews by internal audit, external audit and other
assurance providers, were undertaken across the group to test
the effectiveness of various elements of the group’s financial,
disclosure and other internal controls as well as procedures
and systems. Identified areas of improvement are being
addressed to strengthen the group’s controls further. The
board has assessed the combined assurance provided in
2017. The results of the reviews did not indicate any material
breakdown in the functioning of these controls, procedures
and systems during the year. The internal controls in place,
including the financial controls and financial control
environment, are considered to be effective and provide a
sound basis for the preparation of the Group Annual Financial
Statements, Annual Integrated Report and other reports used
internally for management decision making.
Group Company Secretary
The Group Company Secretary does not fulfil executive
management functions outside of the duties of Group
Company Secretary and is not a director. During the year, the
board has assessed the independence, competence,
qualifications and experience of the Group Company Secretary
and has concluded that she is sufficiently independent (ie
maintained an arm’s length relationship with the executive
team, the board and individual directors), qualified, competent
and experienced to hold this position. The Group Company
Secretary is responsible for the duties set out in section 88 of
the Companies Act 71 of 2008 (as amended) of South Africa.
Specific responsibilities include providing guidance to directors
on discharging their duties in the best interests of the group,
informing directors of new laws affecting the group, as well as
arranging for the induction of new directors.
sappi 2017 Annual Integrated Report Reporting on compliance and ethics concerns
Sappi employees and stakeholders can report any potential
illegal or non-compliant behaviour they observe directly to
(senior) management, internal audit or legal counsel, or
alternatively, report anonymously, via telephone or an online
form. Whistle-blower ‘hotlines’ have been implemented in all
the regions in which the group operates. The hotline service,
operated by independent service providers, enables all
stakeholders to anonymously report environmental, safety,
ethics, accounting, auditing, control issues or other concerns.
Retaliation against whistle-blowers is not tolerated. The follow
up on all reported matters is coordinated either by legal
counsel or internal audit and reported to the Audit Committee.
The majority of calls and ethics reports received related to the
Southern African region. Please refer to the whistle-blower
hotline and ethics report graphs for information on the number
of hotline calls per 1,000 employees, the categories of hotline
calls and ethics reports, and the outcome of the investigations.
The hotline report rates, categories of reports and outcomes
of cases broadly align with international whistle-blower
benchmark data.
Stakeholder communication
The board is responsible for presenting a balanced and
understandable assessment of the group’s position in reporting
to stakeholders. The group’s reporting addresses material
matters of significant interest and is based on principles
of openness and substance over form. Various policies have
been developed to guide engagement with Sappi’s
stakeholders such as the Group Stakeholder Engagement
Policy and Group Corporate Social Responsibility Policy. Sappi
has a policy addressing Alternate Dispute Resolution (ADR)
and relevant ADR clauses are generally included in contracts
with customers and suppliers. There have been no requests for
information for the period under review in terms of the
Promotion of Access to Information Act (South African
legislation).
For more information on our key relationships at Sappi
refer to pages 32 to 43.
71
Hotline report rate per 1,000 employees
3.7
3.5
3.8
2.5
2.9
2013
2014
2015
2016
2017
4
3
2
1
0
Analysis of hotline and ethics reports
by category (%)
4
59
37
5
53
5
54
42
41
100
48
52
80
60
40
20
0
2013
■ Corruption, fraud and theft
■ Environment, health and safety
2014
2015
■ Employment-related matters
2016
10
56
34
2017
2
4
42
52
For a summary of how Sappi applies the King IV principles,
please refer to www.sappi.com.
Analysis of hotline and ethics
report case outcomes (%)
6
42
52
1
5
53
41
3
6
55
6
3
56
36
35
100
80
60
40
20
0
2014
2013
■ Cleared, no action or unresolved
■ Termination ■ Criminal charges
2015
2016
■ Disciplined, counselled or other management action
2017
sappi 2017 Annual Integrated ReportGovernance and compensation 72
King IV principles
General comments
Sappi is committed to high standards of corporate governance which form the foundation for the long-term sustainability of our
company and creation of value for our stakeholders. Good governance at Sappi contributes to living our values through enhanced
accountability, a transparent and ethical culture, strong risk management, a focus on performance, legitimacy and effective control
of the business.
Sappi endorses the governance outcomes of ethical culture, good performance, effective control and legitimacy, promoted by the
King IV Report on Corporate Governance for South Africa (released November 2016).
The purpose of this register is to provide an overview of Sappi’s application of the principles contained in King IV. The register should
be read in conjunction with the Sappi Annual Integrated Report.
Leadership
Principle 1
The governing body should lead ethically
and effectively.
Organisational ethics
Principle 2
The governing body should govern the
ethics of the organisation in a way that
supports the establishment of an ethical
culture.
Responsible corporate citizenship
Principle 3
The governing body should ensure that
the organisation is and is seen to be a
responsible corporate citizen.
The directors hold one another accountable for decision making based on
integrity, competence, responsibility, fairness and transparency through their
commitment to lead Sappi. The Chairman oversees this process on an ongoing
basis.
The board sets the example and tone for an ethical culture in Sappi based on
our core values of doing business with integrity and courage; making smart
decisions, which we execute with speed. The board is assisted with ongoing
oversight of ethics management through SETS and the Audit Committee.
Sappi’s ethics values and norms are clearly articulated in the Code of Ethics and
supporting policies. There are processes in place to ensure that employees,
business associates, contractors and suppliers are familiar with Sappi’s ethics
norms as set out in the Codes of Ethics. These include:
• Reference to the Code of Ethics in employment and supply contracts
• Publication of the Code of Ethics online on external (https://www.sappi.com/
sappi-code-of-ethics) and internal website, and
• Ongoing training and induction of employees.
Other arrangements to manage ethics include:
• Annual fraud and ethics and fraud risk assessments (with due consideration for
stakeholders)
• Safe reporting (hotline) mechanisms are in place, and
• Periodic employee control environment surveys.
The board, assisted by the SETS Committee, provides strategic direction for
Sappi to be a responsible corporate citizen and to respond appropriately to the
economic, social and environmental outcomes of its activities. Sappi is
committed to the United Nations Global Compact. Our key corporate citizenship
considerations include:
• Protecting people and the environment underpins our approach to
sustainability. Sappi places the highest priority on the health and safety of
our workforce and on the protection of the environment, and
• Human rights: Sappi is committed to the principles of the United Nations
Global Compact, the Universal Declaration of Human Rights, and the
International Labour Organisation.
The board reviews annually the corporate responsibility strategy, priorities
and action plans of the company.
sappi 2017 Annual Integrated Report 73
Strategy and performance
Principle 4
The governing body should appreciate
that the organisation’s core purpose, its
risks and opportunities, strategy,
business model, performance and
sustainable development are all
inseparable elements of the value
creation process.
Reporting
Principle 5
The governing body should ensure that
reports issued by the organisation enable
stakeholders to make informed
assessments of the organisation’s
performance, and its short-, medium-
and long-term prospects.
Primary role of the board
Sappi’s strategic direction, mission and vision together with our value statement
are described in our Annual Integrated Report. The report deals with key
opportunities and risks in our markets as well as our performance against
financial and non-financial objectives, along with our priorities and expectations
for the year ahead.
Sappi’s approach to sustainable development – Prosperity, People and Planet is
aligned with the IIRC’s six capitals model. Currently, natural capital, financial
capital and human capital are the most important in our drive to position Sappi
as a profitable and cash-generative, diversified woodfibre group.
The Audit Committee is responsible for the integrity and transparency of reporting
and oversees the issue of the annual financial statements and integrated reports.
The Annual Integrated Report aims to present material information in an
integrated manner and provide users with holistic, clear, and concise information
about Sappi’s performance, measured against its objectives and Sappi’s short-,
medium- and long-term prospects.
Principle 6
The governing body should serve as the
focal point and custodian of corporate
governance in the organisation.
The board is the focal point and custodian of corporate governance. The board’s
role and responsibilities and the way it executes its duties and decision making
are set out in the board charter and the terms of reference and work plans of its
various committees.
Composition of the board
Principle 7
The governing body should comprise the
appropriate balance of knowledge, skills,
experience, diversity and independence
for it to discharge its governance role
and responsibilities objectively and
effectively.
Committees of the board
Principle 8
The governing body should ensure that
its arrangements for delegation within its
own structures promote independent
judgement, and assist with balance of
power and the effective discharge of its
duties.
The Nomination and Governance Committee, considers, on an annual basis,
the board and committee compositions in terms of balance of skills, experience,
diversity, independence and knowledge, The board is satisfied that there is
a balance of skills, experience, diversity, independence and knowledge needed
to discharge its role and responsibilities.
The King IV requirements for director independence, board composition, chair
and lead independent director, induction and training, managing conflicts and
nomination and appointment are met.
Refer to Corporate governance section on page 64 of this report for further
information about board members.
The board may delegate to individual members, groups of members, standing or
ad hoc committees. The standing committees of the board comprise the Audit
Committee, the Nomination and Governance Committee, the Human Resources
and Compensation Committee, and the Social, Ethics, Transformation and
Sustainability Committee.
The composition of the board and its committees are in line with King IV. There is
a clear balance of power to ensure that no individual has undue decision making
powers. Each committee has formal terms of reference, approved by the board,
recording the responsibilities delegated to it. Each committee has sufficient
capability and capacity to function effectively.
Refer to our Annual Integrated Report on www.sappi.com/reports for information
on the members of each committee and attendance and to our website for the
terms of reference for each committee of the board.
sappi 2017 Annual Integrated ReportGovernance and compensation 74
King IV principles continued
Board performance evaluation
Principle 9
The governing body should ensure that
the evaluation of its own performance
and that of its committees, its chair and
its individual members, support
continued improvement in its
performance and effectiveness.
The Nomination and Governance Committee evaluates the performance of the
board and the board committees annually. The performance of individual
directors is normally evaluated prior to reappointment. The Chairman’s
performance is evaluated by the board annually under the leadership of the lead
independent director.
Appointment and delegation to management
Principle 10
The governing body should ensure that
the appointment of, and delegation to,
management contribute to role clarity
and the effective exercise of authority
and responsibilities.
Risk governance
Principle 11
The governing body should govern risk
in a way that supports the organisation
in setting and achieving strategic
objectives.
Technology and information governance
Principle 12
The governing body should govern
technology and information in a way that
supports the organisation in setting and
achieving strategic objectives.
The board is satisfied that key functions are appropriately resourced and that the
board’s delegation to management contributes to an effective arrangement by
which authority and responsibilities are exercised.
The board charter provides direction on the powers reserved for the board:
matters that have specifically been reserved for board decision making or
consent and the approval authority of board committees in respect of the
company and its subsidiaries are contained in the limits of authority document
adopted by the board.
The CEO is appointed by and reports to the board and is responsible for leading
the implementation of strategy and policy. The King IV requirements for the CEO
in terms of appointment, roles and responsibilities, succession planning, and
performance evaluation are complied with.
Sappi has a Company Secretary with the necessary experience, expertise and
qualifications, as well as at the appropriate level of seniority to discharge the role
effectively. The King IV recommendations for Company Secretary in respect of
appointment, reporting lines, independence, duties and performance evaluation
are met.
The Audit Committee assists the board with the governance of risk.
For more detail on Sappi’s risks and the management thereof, refer to the
Risk management section on pages 90 to 93 of this report.
Sappi’s 2020Vision (and associated strategy, performance, and sustainability) is
highly dependent on technology and information.
The board is accountable for the governance of technology and information
management. Management committees have been established to assist the
CEO and board by implementing policy on technology and information
management:
• Group Technical Committees focus on global technical alignment, performance
and efficiency measurement as well as new product development, and
• Group IT Steering Committee promotes IT governance throughout the group.
Sappi has adopted Control Objectives for Information and Related
Technologies (COBIT) – the global good practice framework for IT management
and IT governance.
sappi 2017 Annual Integrated Report 75
Compliance governance
Principle 13
The governing body should govern
compliance with applicable laws, and
adopted non-binding rules, codes and
standards in a way that supports the
organisation being ethical and a good
corporate citizen.
Remuneration governance
Principle 14
The governing body should ensure that
the organisation remunerates fairly,
responsibly and transparently so as to
promote the achievement of strategic
objectives and positive outcomes in the
short-, medium- and long-term.
Assurance
Principle 15
The governing body should ensure that
assurance services and functions enable
an effective control environment, and
that these support the integrity of
information for internal decision making
and of the organisation’s external
reports.
Stakeholders
Principle 16
In the execution of its governance role
and responsibilities, the governing body
should adopt a stakeholder-inclusive
approach that balances the needs,
interests and expectations of material
stakeholders in the best interests of the
organisation over time.
Responsibilities of institutional investors
Principle 17
The governing body of an institutional
investor organisation should ensure that
responsible investment is practised by
the organisation to promote good
governance and the creation of value by
the companies in which it invests.
Sappi’s commitment to act as a responsible corporate citizen includes
compliance with all laws and regulations in the countries and jurisdictions where
Sappi operates.
A group legal compliance programme is in place to mitigate the risk of non-
compliance with the laws and also to ensure appropriate responses to changes
and developments in the regulatory environment.
Significant legal and regulatory matters and compliance risks are reported to the
Audit Committee.
During 2017, there were no material penalties, sanctions or fines for
contraventions of, or non-compliance with, statutory and regulatory obligations.
The Human Resources and Compensation Committee ensures that directors,
executives and employees are remunerated fairly and responsibly so as to
promote the delivery of strategic objectives and the creation of value in
a sustainable manner.
Refer to the Remuneration Report (included in the Annual Integrated Report
on pages 16 to 88 of this report for further information.
The Audit Committee is responsible for oversight of assurance on the
effectiveness of governance, risk management and control at Sappi. Sappi
operates a combined assurance framework, which aims to optimise the
assurance coverage obtained from management, internal and external assurance
providers, on the risk areas affecting the group.
Refer to the Corporate governance section of pages 64 to 75 of this report
for more information on Sappi’s combined assurance framework including
external audit, internal audit, and the provision of assurance over external reports.
The board has adopted a stakeholder-inclusive approach and the One Sappi
strategy is built on collaborating and partnering with stakeholders. Sappi strives
to understand, be responsive to, and balance stakeholder legitimate and
reasonable needs, interests and expectations. Key stakeholders have been
identified.
A Group Stakeholder Engagement Policy has been established. Information
on how we have approached our stakeholder relations can be found in
Our key relationships section on pages 32 to 43 of this report.
Not applicable – Sappi is not an institutional investor.
sappi 2017 Annual Integrated ReportGovernance and compensation 76
Remuneration Report
The Remuneration Report details the company’s compensation
policy for executive directors, executive committee members
and non-executive directors.
The information provided in the report has been approved
by the board as per the recommendation by the Human
Resources and Compensation Committee.
This report is split into three sections: section A details our
remuneration background statement disclosures, section B
gives an overview of our remuneration policy and section C
addresses the implementation of the remuneration policy
in 2017.
Section A: Remuneration
background statement disclosures
I am pleased to present the committee’s report on directors’
remuneration. Our report and disclosures fully comply with
regulatory and statutory provisions relating to reward
governance in all the countries in which we operate. We
have changed the structure of this report to align with the
principles and recommended practices of King IV.
This demonstrates our continued commitment to good
corporate governance.
Sappi Limited Annual General Meeting (AGM) was held
on 08 February 2017 and the requisite ordinary resolution
endorsing the remuneration policy was passed. The resolution
was passed by a 95% majority in comparison to 81% at the
previous AGM.
As described in the respective reports by our Chairman,
Sir Nigel Rudd, and CEO, Steve Binnie, Sappi’s performance
in the year under review was strong, and in terms of
shareholder return outperformed its peers. EBITDA was
US$785 million. Bonus performance outcome, against the
targets that were set, are outlined in this report. Performance
outcomes are reflected in the remuneration received by
executive directors. This recognises the group’s financial,
environmental and safety performance, as well as performance
against personal, operational and strategic objectives.
The performance period for the 2013 Performance Share Plan
(PSP) ended on 30 September 2017. Half of the award was
based on cash flow return on net assets (CFRONA) and the
other half on total shareholder return (TSR) performance.
Sappi’s performance on CFRONA, when measured against the
peer group for the above four-year performance period, ranked
second out of 16 companies.
The peer group is detailed on page 86 and represents
industry players in graphic papers, dissolving wood pulp
and specialities and packaging papers. In terms of the vesting
schedule, 100% on the CFRONA portion vested. In terms of
the TSR performance condition, Sappi ranked first out of the
16 companies. 100% on the TSR portion vested. The result
has been a net vesting of 100% of the 2013 share awards.
Our remuneration policy is continuously benchmarked against
the relevant industry peers to ensure that it motivates our
senior team to achieve the group’s objectives and deliver
sustained returns and value creation for our stakeholders.
The committee also believes that the remuneration of
executives during 2017 reflects our successes to date in the
delivery of our strategy. I trust that you will support the
remuneration resolutions at this year’s AGM.
Statement of voting at AGM
The AGM of Sappi Limited was held on 08 February 2017 and
the requisite ordinary resolution endorsing the remuneration
policy was passed. The resolution was passed by a 95%
majority. See the voting results below.
Mike Fallon,
Chairman of Human Resources and
Governance Committee
Ordinary resolution number 6: Non-binding endorsement of remuneration policy
For
435,285,251
94.71%
Against
24,297,880
5.29%
Abstain
609,513
0.11%
Shares voted
459,583,131
82.89%
At the February 2015 and 2016 AGMs, the results for the requisite ordinary resolution endorsing the remuneration policy were
83.5% and 81.2% respectively.
sappi 2017 Annual Integrated Report 77
Human Resources and Compensation Committee
The purpose of the committee is to oversee remuneration
matters for all controlled subsidiaries of Sappi Limited. Its key
objectives are to:
• Make recommendations on remuneration policies and
practices, including Sappi’s employee share schemes
• Ensure effective executive succession planning, and
• Review compliance with all statutory and best practice
requirements on labour and industrial relations management.
At the end of the year, the committee consisted of four
independent non-executive directors:
• Mr MA Fallon – Chairman
• Mr JD McKenzie
• Mr NP Mageza, and
• Mr RJ Renders.
The Chairman of the company, Sir Nigel Rudd, attends
committee meetings ex officio while the group Chief Executive
Officer, Mr SR Binnie together with Group Head Human
Resources, Mr F Marupen attend meetings by invitation.
Mrs AJ Tregoning, Company Secretary, attends the meeting as
secretary to the committee.
The Human Resources and Compensation Committee met
four times during the year and held one telephone conference.
Attendance at meetings by individual members is detailed
on page 64.
None of the committee members has any significant personal
financial interest, or conflict of interest, or any form of cross
directorship, or day-to-day involvement in the running of the
business.
Executive directors and managers are not present during
committee discussions relating to their own compensation.
The Human Resources and Compensation Committee ensures
that the compensation practices and structures within the
group support the group’s strategy and performance goals.
The policy also enables the attraction, retention and motivation
of executives and all employees.
The key activities of the committee during 2017 are
summarised as follows:
• Reviewed and approved the vesting, or otherwise, of the
Performance Share Plan awards which were awarded on
02 December 2012
• Approved the allocation of 2016 Performance Share Plan
awards to executive directors and all other eligible
participants
• Reviewed and approved salary increases and bonus
payments for executive directors and other key senior
managers for 2017
• Recommended fee levels for non-executive directors of the
Sappi Limited board for consideration and recommendation
to shareholders for approval
• Approved the allocation model and the comparator peer
group for the 2017 Performance Share Plan
• Reviewed the Remuneration Report, including the content of
the company compensation policy and practices, which was
put to shareholders for a non-binding vote at the AGM in
February 2017
• Approved the 2018 Management Incentive Scheme rules
and reviewed the Share Incentive Plan rules, including
changes to the Performance Share Plan, and
• Reviewed the succession and retirement plans for key
management positions.
Independent advice
Management engaged the services from the following
organisations to assist in compensation work during the course
of the year:
• Mercer Kepler, United Kingdom
• KPMG Services, South Africa, and
• PricewaterhouseCoopers Tax Services, South Africa.
Compliance statement
The Human Resources and Compensation Committee is
committed to maintaining high standards of corporate
governance and supports and applies the principles of good
governance advocated by the South African Institute of
Directors (IoD) and King IV. Our remuneration approach and
disclosures fully comply with regulatory and statutory
provisions relating to reward governance in all the countries in
which we operate. The committee ensures compliance with
legal and regulatory requirements as they pertain to
compensation.
Management and the non-executive Chairman, from time to
time, meet with some of our largest shareholders to discuss
compensation practices in the group.
The Human Resources and Compensation Committee is of the
view that the objectives stated in the remuneration policy have
been achieved for the period under review. The committee is
satisfied that it has fulfilled its responsibilities in accordance
with its terms of reference and with the status of remuneration
and incentives in the group.
Areas of focus for 2018
Key activities for the committee in 2018 will be, inter alia,
the approval of the remuneration and bonuses for executive
directors and senior management. The committee will also take
a view on fees to be paid to non-executive directors.
Focus will be placed on the key principles of King IV and
Sappi’s commitment to these principles.
In addition to the annual work plan as approved by the
committee, the chairman of the committee and senior
executives from Sappi will, if required, also be visiting key
shareholders to discuss issues of mutual concern.
sappi 2017 Annual Integrated ReportGovernance and compensation 78
Remuneration Report continued
Section B: Overview of the
remuneration policy
Compensation strategy and policy
Our compensation packages:
• Are designed to attract, retain and motivate executives and
all employees to deliver on performance goals and strategy
• Encourage behaviour consistent with the group’s risk and
reward philosophy
• Have an appropriate and balanced reward mix for executive
directors and other executive managers based on base pay,
benefits and short- and long-term incentives within the
context of the industry sector
• Are applied consistently across the group to promote
alignment and fairness, and
• Are simple, transparent and aligned with the interests of
• Through the executive Management Incentive Scheme,
shareholders
• Reflect the views of our investors, shareholder bodies and
stakeholders
• Are structured in a way that superior rewards are only paid
for exceptional performance and that poor performance
does not earn an incentive award
provide for a voluntary deferral of 40% of the CEO’s annual
bonus, and 30% of the executive managers’ annual bonuses
(to purchase Sappi shares), as this is to ensure a long-term
focus on the company’s performance by the individual
concerned and establish a personal stake in the company.
Summary of reward components of executive directors and other members of the Group Executive
Committee
The compensation of executive directors and other Executive Committee members comprises fixed and variable components.
Purpose
Operations
Opportunity
Fixed
Component – Base salary
• To reflect market value of
the role, individuals’ skills,
contribution, experience and
performance
• To attract and retain key
talent.
Component – Benefits
• To provide protection and
market competitive benefits
to aid recruitment and
retention.
• Paid monthly in cash
• Reviewed annually with any increases to be effective
from 01 January each year
• Base salary reviews take into account prevailing
market practices, economic conditions and the levels
of base salary increase mandates provided to the
general employee population.
• Increases are applied in
line with outcomes of
performance discussions
with the individuals
concerned.
• Private medical insurance
• Income in the event of death or disability
None
These are:
• Appropriate in terms of level of seniority
• Market-related
• Death benefit is a multiple of base salary, and
• Non-pensionable.
sappi 2017 Annual Integrated Report 79
Purpose
Operations
Opportunity
Fixed
Component – Pension
• Make ongoing company
contributions during
employment
• To provide market-related
benefits
• Facilitate the accumulation
of savings for post-
retirement years.
• Comprises defined benefit and defined contribution
• Executive members of
plans
• A large number of defined benefit plans are closed to
new hires
• Employees in legacy defined benefit plans continue to
accrue benefits in such plans for both past and future
service
• Retirement plans differ by region.
defined contribution plans
receive a company
contribution of up to
18.47% of salary
• Executive members of
defined benefit plans receive
company contributions of up
to 31.24% of salary. This
applies to only one
Executive Committee
member. The contribution
varies based on the actuarial
valuation of the reserves of
the relevant schemes.
Component – Annual cash incentive
Variable
• Focus participants on
targets relevant to the
group’s strategic goals
• Drive performance
• Motivate executives to
achieve specific and
stretching short-term goals
• Reward individuals for their
personal contribution and
performance
• Deferred share proportion of
the annual bonus aligns
interests with shareholders.
• All measures and objectives are reviewed and set at
the beginning of the financial year
• Payments are reviewed and approved at year-end by
the committee based on performance against the
targets
• Threshold is required to be met for any bonus payment
to occur
• Target level of bonuses varies from 65% to 85%
of base salary
• Weightings for 2017 were: EBITDA – 48%; working
capital – 24% and safety – 8%; individual – 20%
• Bonuses are paid in cash. The group CEO and
Executive Committee members have volunteered to
purchase shares with 40% and 30% of their after-tax
cash bonus respectively. The right to sell the shares is
deferred for up to three years, subject to individual
members not being terminated for cause
• Non-pensionable.
• The maximum bonus for
executive directors is
116% of base salary
• Executive Committee
members and other senior
managers may earn a
maximum bonus of up to
95% of base salary
• The number of shares
arising from the deferred
executive Management
Incentive Scheme – will be
increased by 20% of the
original number of shares
purchased provided the
employee holds all the
shares for a period
of three years.
sappi 2017 Annual Integrated ReportGovernance and compensation 80
Remuneration Report continued
Purpose
Operations
Opportunity
Component – Long-term share incentive plans
Variable
• Align the interests of the
executive members with
those of the shareholder
• Reward the execution of the
strategy and long-term
outperformance of our
competitors
• Encourage long-term
commitment to the
company
• Is a wealth creation
mechanism for executive
members if the company
outperforms the peer group.
• Conditional grants awarded annually to executive
None
directors, Executive Committee members and other
key senior managers of the company
• Straight-line vesting after four years
• Performance is measured relative to a peer group of
16 other industry-related companies
• The number of conditional shares allocated varies from
162,000 conditional share awards to the CEO and
between 45,000 and 90,000 conditional share awards
to Executive Committee members
• Measures for 2015 awards were relative TSR – 50%
and relative CFRONA – 50%.
Component – Broad-based black economic empowerment
• Provide black managers
with the opportunity to
acquire equity in the
company
• Established to meet the requirements of the Forestry
None
Sector Charter BBBEE codes
• Eligible employees receive an allocation based on
seniority of ‘A’ ordinary shares
• Attract, motivate and retain
• Shares vest 40% after three years and 10% each year
black managers.
thereafter
• Shares can only be taken up after September 2019
• Managers receive the net value in shares or cash at the
end of the lock-in period.
Component – Service contracts
• Provide an appropriate level
of protection to both the
executive and to Sappi.
• Executive Committee members have notice periods
of 12 months or less
• Separation agreements, when appropriate, are
negotiated with the individual concerned with prior
approval being obtained in terms of our governance
structures.
• In circumstances where
there is a significant
likelihood of a transaction
involving the Sappi group
or a business unit, limited
change in control
protections may be agreed
and implemented if deemed
necessary for retention
purposes.
sappi 2017 Annual Integrated Report 81
Service contracts
Messrs Binnie and Pearce have an ongoing employment
contract which requires six months’ notice of termination by
the employee and 12 months’ notice of termination by
the company.
Other than in the case of termination for cause, the company
may terminate the executive directors’ service contracts by
making payment in lieu of notice equal to the value of the
base salary plus benefits which they would have received
during the notice period.
Depending on their location, Executive Committee members
have ongoing employment contracts which require between
three to six months’ notice of termination by the employee and
six to 12 months’ notice of termination by the company.
Executive directors are required to retire from the company
at the age of 63 years. The retirement age of Executive
Committee members is generally between the ages of
63 and 65 years, and differs by region.
Choice of performance measures and approach to target setting
Short-term incentive
The table below shows the metrics for 2017, why they were chosen and how targets are set.
Metric
EBITDA
48
Weighting
Relevance
How do we set the targets?
A key indicator of the underlying profit
performance of the group, reflecting
both revenues and costs. Aligns closely
with our strategic goals of achieving
cost advantages and growth. More
efficient water, energy and raw material
usage is also encouraged.
A key indicator of accounts payable,
accounts receivable and stock levels.
Achieving optimum working
capital levels in the business requires
efficient use of resources throughout
the supply chain and influences cash
management, a key pillar of our
strategy.
One of the key indicators of whether
the business is meeting its sustainability
goal of zero harm.
An indicator of the contribution made
by each executive director.
Targets and ranges are set each year
by the board taking account of required
progress towards strategic goals, and
the prevailing market conditions.
Targets and ranges are set each year
by the board taking account of the
required progress towards strategic
goals, and the prevailing market
conditions.
The committee considers input from
the Social, Ethics, Transformation and
Sustainability Committee, and sets
appropriate standards and goals.
Targets and ranges are set each year
by the committee, based on the
specific priorities, and areas of
responsibility of the role.
Working capital
24
Safety
Individual
performance*
8
20
* Individual performance for relevant managers includes a number of key non-financial targets in relation to the environment, energy consumption, water usage
and waste management.
sappi 2017 Annual Integrated ReportGovernance and compensation 82
Remuneration Report continued
Performance Share Plan (PSP)
The table below shows the metrics for 2017 grants, why they were chosen and how targets are set.
Metric
Relevance
How do we set the targets?
Total shareholder
return (TSR)
TSR measures the total returns to Sappi’s
shareholders, so provides close alignment with
shareholder interests.
Cash flow return
on net assets
(CFRONA)
A key indicator of the effective use of capital.
The committee sets the performance
requirements for each grant. A peer group of
packaging and paper sector companies is used.
Nothing vests in positions 10 to 17 of the peer
group. Vesting increases from 25% at position 9
to 100% for positions 1 to 5.
The committee sets the performance
requirements for each grant. A peer group of
packaging and paper sector companies is used.
Nothing vests in positions 10 to 17 of the peer
group. Vesting increases from 25% at position 9
to 100% for positions 1 to 5.
Remuneration scenarios at different performance
levels
The chart below illustrate the total potential remuneration
(base pay and short-term incentives) for executive directors at
different performance levels.
Statement of fair and responsible remuneration
The group’s compensation policy for the remuneration of
executive directors and other senior executives is set taking
appropriate account of remuneration and employment
conditions of other employees in the group.
Remuneration levels
(CEO and CFO) (% of base pay)
118
100
100
84
140
120
100
80
60
40
20
0
1
9
.
Target
Stretch
■ Base pay ■ Short-term incentive (MIS)
Performance Share Plans (PSPs) are excluded from these
scenarios as their vesting depends on performance conditions
being met. Vesting is based on a linear vesting schedule.
The committee annually receives a report from management
on pay practices across the group, including salary levels and
trends, collective bargaining outcomes and bonus participation.
At the time that salary increases are considered, the committee
additionally receives a report on the approach management
proposes to adopt for general staff increases. Both these
reports are taken into account in the committee’s decisions
about the remuneration of executive directors and other senior
executives.
In some countries where the group operates, more formal
consultation arrangements with employee representatives
are in place relating to employment terms and conditions, in
accordance with local legislation and practice. The group also
conducts employee engagement surveys every two years
which gauge employees’ satisfaction with their working
conditions. The Sappi board is given feedback on these
survey results.
sappi 2017 Annual Integrated Report 83
Approach to remuneration benchmarks
Executive compensation is benchmarked on data provided in
national executive compensation surveys, for countries in
which executives are domiciled, as well as information
disclosed in the annual reports of listed companies on the JSE
Limited. Sappi participates in global remuneration surveys and
uses data from global remuneration surveys, ie PwC, Mercer,
et al to determine appropriate remuneration levels.
Ensuring an appropriate peer group in order to retain the
integrity and appropriateness of the benchmark data is a key
task of the Human Resources and Compensation Committee.
Executive pay is benchmarked every alternate year.
The remuneration package for a newly appointed executive
director would be set in accordance with the terms of the
group’s approved remuneration policy in force at the time
of appointment. The variable remuneration for a new executive
director would be determined in the same way as for existing
executive directors. For internal and external appointments, the
group may meet certain relocation expenses, as appropriate.
Remuneration policy for non-executive directors (fees)
Element
Purpose
How it works?
Fees
Non-executive
Chairman (fees)
Other non-executive
directors (fees)
• To attract and retain
high-calibre chairmen,
with the necessary
experience and skills
• To provide fees which
take account of the time
commitment and
responsibilities of the role.
• To attract and retain
high-calibre non-
executives, with the
necessary experience and
skills
• To provide fees which
take account of the time
commitment and
responsibilities of the role.
• The Chairman receives an
all-inclusive fee.
• The non-executives are
paid a basic fee
• Attendance fees are also
paid to reflect the
requirement for non-
executive directors to
attend meetings in various
international locations
• The chairmen of the main
board committees and
the independent directors
are paid additional fees to
reflect their extra
responsibilities.
• The Chairman’s fees are
reviewed periodically by
the committee
• Fees are set by reference
to market median data for
companies of similar size
and complexity to Sappi.
• Non-executive directors’
fees are reviewed
periodically by the
Chairman and Human
Resources and
Compensation Committee
• Fees are set by reference
to market median data for
companies of similar size
and complexity to Sappi.
sappi 2017 Annual Integrated ReportGovernance and compensation 84
Remuneration Report continued
Sappi may reimburse the reasonable expenses of board
directors that relate to their duties on behalf of Sappi (including
tax thereon if applicable). Sappi may also provide advice and
assistance with board directors’ tax returns where these are
impacted by the duties they undertake on behalf of Sappi.
All non-executive directors have letters of appointment with
Sappi Limited for an initial period of three years. In accordance
with best practice, non-executive directors are subject to
re-election at the AGMs after the three-year period.
Appointments may be terminated by Sappi with six months’
notice. No compensation is payable on termination, other than
accrued fees and expenses.
Voting on remuneration
As required by King IV, Sappi’s remuneration policy and
implementation report as detailed in this Remuneration Report,
need to be tabled for separate non-binding advisory votes by
shareholders at the upcoming AGM. In the event that either the
remuneration policy or the implementation report, or both, are
voted against by 25% or more of the voting rights entitled to be
exercised by shareholders at such AGM, then the committee
will ensure that the following measures are taken in good faith
and with best reasonable efforts:
• An engagement process to ascertain the reasons for the
dissenting votes, and
• Appropriately addressing legitimate and reasonable
objections and concerns raised which may include
amending the remuneration policy or clarifying or adjusting
remuneration governance and/or processes.
You can also view the full remuneration policy on
www.sappi.com.
Section C: Remuneration
implementation report
Compensation structure
Total compensation comprises fixed pay (ie base salary and
benefits) and variable performance-related pay, which is divided
further into short-term incentives with a one-year performance
period and long-term incentives which have a four-year
performance period.
Compensation mix
The compensation mix for executive directors and Executive
Committee members is shown in the schematics alongside.
The term ‘target’ in terms of short-term incentives refers to the
annual bonus award if all performance criteria were met at
100% achievement.
The long-term incentive awards are based on the face value of
the performance plan shares issued in December 2016 (share
price at date of allocation: ZAR86.25 December 2016).
Executive directors (average)
(Number of employees at
30 September 2017 = 2) (%)
33
41
1,771
2017
1,408
26
● Total guaranteed package (base salary and benefits)
● Short-term incentives (on-target)
● Face value of performance shares issued in December 2016
Executive committee (average)
(Number of employees at
30 September 2017 = 7) (%)
33
44
1,771
2017
1,408
23
● Total guaranteed package (base salary and benefits)
● Short-term incentives (on-target)
● Face value of performance shares issued in December 2016
Base salary
The Compensation Committee approved the level of base
salary for each executive director, Executive Committee
member and other key senior managers.
Increases are effective from 01 January each year. There are
no automatic annual base salary adjustments.
sappi 2017 Annual Integrated Report 85
The bonus payment opportunity available to executive directors
and Executive Committee members is as follows:
The 2017 salary increases were based on individuals’
performances and contributions, internal relativities, inflation
rates in the countries of operation, general market salary
movement and overall affordability.
The same salary increase percentages were applied in
determining the salaries for executive directors’ and Executive
Committee members’ increases as was the mandate for
general staff, dependent on location.
Executive director
Regional CEO
Mr Binnie received a salary increase of 7% on the South
African portion of his salary and 1% on the off-shore portion of
his salary. Mr Binnie’s salary with effect from 01 January 2017
was US$440,214 per annum.
Other prescribed officers
(ie Executive Committee
members)
On-target
bonus
Stretch
target
85%
of base salary
116%
of base salary
70%
of base salary
95%
of base salary
65%
of base salary
88.5%
of base salary
As a result of the good performance of Sappi and the resultant
upgrade by ratings agencies, Mr Binnie also received a market
adjustment in June 2017 which resulted in an increase in both
the South African and the off-shore portions of his salary (see
remuneration disclosure tables). The Mercer and Remchannel
salary benchmarks also supported this adjustment.
Mr Pearce received a salary increase of 6.5% on the South
African portion of his salary and 1% on the off-shore portion of
his salary. Mr Pearce’s salary with effect from 01 January 2017
was US$306,284 per annum.
Retirement benefits
Retirement benefits are largely in the form of defined
contribution schemes. In some instances, legacy defined
benefit schemes exist. Almost all the defined benefit schemes
are closed to new hires.
Mr Binnie and Mr Pearce are both members of defined
contribution funds and the total employee and company
contribution is ZAR350,000.
No additional payments were made to any retirement fund on
behalf of the executive directors.
Short-term incentive
Performance-related annual bonuses may be paid to executive
directors and other executive and senior managers under the
Management Incentive Scheme. The scheme is designed to
incentivise the achievement of predefined annual financial
targets and personal objectives which are critical measures
of business success.
For the 2017 financial year, the financial business performance
criteria were: EBITDA (48%), working capital (24%) and safety
(8%) – which accounted for 80% of the bonus calculation, with
the remaining 20% being based on individual performance
during the course of the year.
A performance threshold of 85% of EBITDA for the group is
required before any bonus can be paid to participants in the
group scheme.
Furthermore, if a region does not achieve the 85% bonus
threshold target, no bonus is paid to participants in the region
irrespective of overall group performance. The group and all
other regions met the performance threshold which entitled
them to a bonus payment for fiscal 2016.
The group’s performance for the 2017 financial year:
Performance criteria
Target
2017
Actual
achievement
EBITDA
Working capital
Safety
Total
48
24
8
80
59.4
27.8
–
87.2
Mr Binnie will receive a bonus award of US$440,139 and
Mr Pearce will receive a bonus award of US$283,986 to be
paid in December 2017.
The terms and conditions of the annual incentive scheme for
executive directors and Executive Committee members affords
the company the right to seek redress and recoup from an
individual where for any reason the board determines, within
a 12-month period of such payment, that the performance
goals (whether for the participant or for the group) were in
fact not achieved following the restatement of financial results
or otherwise.
Changes to the short-term incentive scheme
There were no changes to the 2017 Management Incentive
Scheme (MIS) rules compared to 2016.
sappi 2017 Annual Integrated ReportGovernance and compensation 86
Remuneration Report continued
Long-term incentive
The Sappi PSP provides for annual awards of conditional
performance shares which are subject to meeting performance
targets measured over a four-year period. These awards will
only vest if Sappi’s performance, relative to a peer group of
16 other industry-related companies is ranked at median or
above the median.
The performance criteria are relative total shareholder return
(TSR) and relative cash flow return on net assets (CFRONA).
The peer group for the 2017 PSP award will consist of the
following 16 industry-related companies:
• Fortress Paper
• Lenzing
• Rayonier Advance Materials
• Ahlstrom-Munksjo
• Borrogaard
• Domtar
• West Rock
• Norske-Skog
• UPM-Kymmene
• Holmen
• Metsá Board
• Verso
• Mondi Plc
• International Paper
• Stora Enso, and
• Resolute Forest Products.
Performance Share Plan (PSP)
The vesting schedule for 2013 allocation for both TSR
and CFRONA:
Position
1 – 5
6 – 7
8 – 9
10 – 17
Vesting
100%
75%
50%
0%
For the four-year period ended September 2017, Sappi’s
performance relative to the peer group measured on TSR
was ranked first out of 16 companies, which meant that
100% TSR component shares vested on the due date in
December 2017.
The determination of the vesting of the shares was provided
by Mercer Kepler, an independent third party.
Sappi’s performance relative to the peer group measured on
CFRONA for the same period resulted in 100% of this portion
of the awards vesting, as Sappi’s performance was ranked in
second place. The determination of the vesting of this portion
of the shares was verified by KPMG auditors.
In aggregate, therefore 100% of the total 2013 awards vested.
Mr Binnie was awarded two sets of conditional awards that
mature in 2017, one in December 2013 and one in July 2014.
Of the 310,000 conditional performance plan shares, 310,000
will vest in December 2017.
In December 2013, Mr Pearce was granted 33,000 conditional
performance plan shares of which 33,000 will vest in
December 2017.
The historical vesting of PSP awards:
Share awards
2013
%
2014
%
2015
%
2016
%
2017
%
TSR
CFRONA
Aggregate
0
75
37.5
0
100
50
0
100
50
100
100
100
100
100
100
Mr Binnie was awarded 162,000 conditional performance plan
shares in December 2016 in line with the plan rules.
Mr Pearce was awarded 75,000 conditional performance plan
shares in December 2016, in line with the plan rules.
Changes to the long-term incentive scheme
The committee also approved the linear vesting schedule for
the 2015 allocations which will be applicable from the 2019
and onwards vesting. This will have the impact that at median
performance, 25% of vesting will happen. The vesting schedule
is as follows:
Position
1 – 5
6
7
8
9
10 – 17
Vesting
100%
80%
65%
45%
25%
0%
sappi 2017 Annual Integrated Report 87
Employee Share Ownership Plan (Broad-based
Black Economic Empowerment)
The Employee Share Ownership Plan (Sefate) was established
in 2009 to meet the requirements of Broad-based Black
Economic Empowerment established in the Forestry Sector
Charter and in line with the codes set out by the South African
Department of Trade and Industry.
There are two schemes which make up Sappi’s Employee
Share Ownership Plan (ESOP) and Management Share
Ownership Plan (MSOP). There were 5,607 participants in the
schemes at the end of September 2014. Eligible employees
receive an allocation based on seniority, of ‘A’ ordinary shares
and ordinary shares. Shares vest 40% after three years and
10% each year thereafter.
Shares may, however, only be taken up after September 2019.
Employees receive the net value in shares or cash at the end
of the lock-in period.
Dilution
If all outstanding options and plans’ shares were to be
exercised or vest as at September 2017, the resulting dilution
effect would be 2.79% (2016: 3.18%) of issued ordinary share
capital excluding treasury shares. To the extent possible,
treasury shares will continue to be used to meet future
requirements for shares arising from the exercise of options
and vesting of awards.
Share ownership guidelines and restrictions
The CEO, Mr Binnie, volunteered to hold a target number of
shares equal to 2x his annual base salary by December 2020.
He currently holds shares to the value of approximately 130%
of his annual base salary. There is no requirement for the Chief
Financial Officer and the Executive Committee members to
hold a specific number of shares during their employment
with the company.
Remuneration disclosure of executive directors and prescribed officers
Executive directors’ emoluments for 2017 (US Dollar)
Executive director
SR Binnie
GT Pearce
Base
salary
Other
payments
Retirement
funding and
medical
insurance
Annual
cash bonus
Total
2017
464,563
302,683
12,944
8,295
76,580
61,090
440,139
283,986
994,226
656,054
Total
2016
928,537
648,452
• Base salary – the actual salary earned during 2017.
• Retirement benefits – the annual contribution paid by the company into a defined benefit fund on behalf of the members
determined as a percentage of their base salary.
• Other payments – expenses allowances.
• Annual cash bonus – the actual bonus earned in 2017 based on the rules of the Management Incentive Scheme.
• Long-term incentive – conditional performance plan shares awarded in 2017 financial year which will vest in 2021.
• Local earnings are translated into the reporting currency (US Dollar) using the average exchange rate over the financial year.
The average rate for SA Rand appreciated by 10.5%.
sappi 2017 Annual Integrated ReportGovernance and compensation 88
Remuneration Report continued
Prescribed officers/Executive Committee members (US Dollar)
Prescribed officers are members of the group Executive Committee. The table below sets out the remuneration for prescribed
officers for 2017:
Prescribed officer
Base
salary
Other
payments
Retirement
funding and
medical
insurance
Annual
bonus
Total
2017
Total
2016
Officer 1
Officer 2
Officer 3
Officer 4
Officer 5
Officer 6
Officer 7
713,361
534,626
315,836
325,362
161,408
204,802
176,898
2,764
233,429
522,618
1,472,172
1,584,363
–
9,237
9,682
4,888
6,254
5,140
54,754
59,159
–
44,891
87,767
48,381
276,294
224,665
162,220
115,370
160,033
125,925
865,674
608,897
497,264
326,557
458,856
356,344
943,971
576,708
469,449
312,732
444,066
345,312
Statement by the board regarding compliance with the remuneration policy
The board annually receives a report from the Human Resources and Compensation Committee on pay practices across the group,
including salary levels and trends, collective bargaining outcomes and bonus participation.
The board endorses the Human Resources and Compensation Committee position that Sappi’s remuneration policy for the
remuneration of executive directors and other senior executives is set taking appropriate account of remuneration and employment
conditions of other employees in the group and external factors. It is the view of the board that this policy as detailed herein, drives
business performance and value creation for all stakeholders.
sappi 2017 Annual Integrated Report 89
Social, Ethics, Transformation and Sustainability
Committee Report
Introduction
The Social, Ethics, Transformation and Sustainability (SETS)
Committee presents its report for the financial year ended
September 2017. This committee is a statutory committee with
a majority of independent non-executive members, whose
duties are delegated to them by the board of directors. The
committee conducted its affairs in compliance with a board-
approved terms of reference, and discharged all its
responsibilities contained therein.
The committee was established during the 2012 financial year
in response to the requirements of section 72(4) of the South
African Companies Act 71 of 2008, read with regulation 43
of the Companies Regulations, 2011. These regulations
required the establishment of a social and ethics committee,
to which were added the transformation and sustainability
oversight roles previously contained in the Sustainability and
Human Resources and Transformation Committees.
During the course of the financial year, the committee formally
met three times at which meetings it deliberated on all aspects
relating to its terms.
Objectives of the committee
The role of the SETS Committee is to assist the board with the
oversight of the company and to provide guidance to
management’s work in respect of its duties in the fields
of social, ethics, transformation and sustainability. The
committee relies on international best practice as well as the
laws and regulations under which Sappi’s businesses operate
to ensure that the group not only complies with, but also fully
implements all requirements. The committee addresses issues
relating to corporate social investment, ethical conduct,
diversity, transformation and empowerment initiatives and
targets and ongoing sustainability practices to ensure that our
business, our environment and our people can prosper on an
ongoing basis. The responsibilities include monitoring the
company’s activities, having regard to any relevant legislation,
other legal requirements and prevailing codes of best practice.
The committee meets a minimum of three times each year.
Membership of the committee
The members of the SETS Committee during the 2017
financial year were:
Mr MV Moosa (Chairman from 01 March 2016)
Mr SR Binnie
Mr RJ DeKoch
Dr B Mehlomakulu (from 01 March 2017)
Mrs B Radebe (until 28 February 2017)
Dr R Thummer
Three members of the committee are independent non-
executive directors, one is a non-executive director and one
the Chief Executive Officer. In addition, the Chairman of the
board attends committee meetings ex officio. The regional
Chief Executive Officers, the Group Head Strategy and Legal,
the Group Head Technology, the Group Head Human
Resources, the Group Head Corporate Affairs and the Group
Head Investor Relations and Sustainability attend meetings by
invitation.
Committee activities reviewed and actioned
during the year
• Reviewed and revised the committee terms of reference and
annual work plan
• Approved the public affairs and CSR programmes and policy
• The corporate social development programme
• Sappi’s standing in terms of:
– The principles set out in the United Global Compact
Principles
– The OECD recommendations regarding corruption
– The Employment Equity Act
– The Broad-based Black Economic Empowerment
(BBBEE) Act
• Reviewed the Code of Ethics, ethics programme and their
effectiveness
• Obtained feedback from the ethics reporting hotlines
• Reviewed the South African Skills Audit as well as the
training and development plan
• Reviewed the staff training progress
• Reviewed the company performance relative to the
Employment Equity Act, Broad-based Black Economic
Empowerment (BBBEE) Act and the company’s
transformation strategies
• Reviewed the Sappi Southern Africa Transformation Charter
• Reviewed Sappi’s policy and standing in terms of the
International Labour Organisation (ILO) protocol on decent
work and working conditions
• Reviewed the group safety programmes, safety performance
and actions being taken to improve the safety performance
of the group
• Reviewed the Group Unfair Discrimination and Equality
Policy
• Reviewed the Group Sustainability Charter and Group
Environmental Policy
• Reviewed the material indicators of the group’s
environmental performance
• Reviewed regional sustainability performance against goals
for 2017
• Reviewed regional and global public policy matters affecting
the group and its operations as they relate to sustainability
• Reviewed the various production unit operating efficiencies,
reliability and unscheduled downtime metrics for 2017
• In-depth review of the ethics mandate of the committee with
reference to King IV and the Companies Act
• In-depth review of water risks and management for the
group, and
• Reviewed the SETS Committee Report for the Annual
Integrated Report as well as sustainability information
presented in the Annual Integrated Report.
Conclusion
The committee confirms that the group gives its social, ethics,
transformation and sustainability responsibilities the necessary
attention. Appropriate policies and programmes are in place
to contribute to social and economic development, ethical
behaviour of staff towards colleagues and other stakeholders,
fair labour practices, environmental responsibility and good
customer relations.
There were no substantive areas of non-compliance with
legislation and regulation, nor non-adherence with codes of
best practice applicable to the areas within the committee’s
mandate that were brought to the committee’s attention.
The committee has no reason to believe that any such
non-compliance or non-adherence has occurred.
MV Moosa
Chairman
Social, Ethics, Transformation and Sustainability Committee
sappi 2017 Annual Integrated ReportGovernance and compensation 90
Risk management
Philosophy
The Sappi group has an established culture of managing key
risks. It has a significant number of embedded processes,
resources and structures in place to address risk management
requirements. These range from its internal audit systems,
insurance, IT security, compliance and governance processes,
quality management and a range of other line management
interventions.
The Group Risk Management Policy is aimed at enhancing
value for all of Sappi’s stakeholders. In the broadest sense,
effective risk management ensures continuity of operations,
service delivery, achievement of objectives (strategic and
otherwise), and the protection of the interests of the group.
To achieve objectives, the risk management process is aligned
with and compatible with Sappi’s strategy. This policy takes
into account the recommendations set out in ISO standard
31000 (a guidance only standard) – ‘Risk management –
Principles and guidelines’, as well as King IV.
The Sappi Limited board of directors is responsible for the
governance of risk. The Sappi Limited Audit Committee, in its
capacity as a board committee, is tasked with assisting the
board in carrying out its risk management responsibilities at the
group level. Notwithstanding the above, the responsibility for
the implementation of risk management processes rests with
the line management in each region, division and operation/
business unit.
Top 10 key risks
1.
We operate in a cyclical industry and as such,
global economic conditions may cause substantial
fluctuations in our results.
Our products are significantly affected by cyclical
changes in industry capacity and output levels as well as
by the impact on demand from changes in the world
economy. Because of supply and demand imbalances in
the industry, these markets historically have been cyclical
with volatile prices. In addition, turmoil in the world
economy has historically led to sharp reductions in
volume and pressure on prices in many of our markets.
We are continuously taking action to improve efficiencies
and reduce costs in all aspects of our business. We will
continue to monitor the supply/demand balance, which
might require us to impair operating assets and/or
implement further capacity closures.
2.
The markets for pulp and paper products are highly
competitive, and some of our competitors have
advantages that may adversely affect our ability to
compete with them.
There is a trend towards consolidation in the pulp and
paper industry creating larger, more focused companies.
We continue to drive good customer service, innovation
and efficient manufacturing and logistics. We are focused
on improving the performance and competitiveness
of our businesses. We continue to drive down costs
across all our businesses.
Group internal audit provides independent assurance on the
risk management process.
3.
For an analysis of the principal financial risks to which Sappi is
exposed, please see note 31 contained in the Group Annual
Financial Statements, which is available on the group’s website
at www.sappi.com.
For a detailed discussion of the group’s risk factors, please see
the separate 2017 Risk Management Report, which is available
on the group’s website at www.sappi.com.
We require a significant amount of financing to
fund our business and service our debt. Our ability
to generate sufficient cash depends on many
factors, some of which are beyond our control.
Our ability to fund our working capital, capital
expenditure, research and development requirements
and to make payments on our debt principally depends
on cash available from our operating performance, credit
facilities and other debt arrangements.
sappi 2017 Annual Integrated Report
91
4.
Our year-end cash balance and our committed revolving
credit facilities provide us with adequate headroom to
fund our short-term requirements. Our extended debt
maturity profile indicates no material short-term
refinancing requirements. We are also focusing on profit
improvement in our operations by reducing fixed and
variable costs, spending capital prudently and managing
working capital levels.
During the third quarter we repaid the 2017
US$400 million bonds utilising our existing cash
resources. This will lower the ongoing net interest charge
by approximately US$21 million per annum.
New technologies or changes in consumer
preferences may have a material adverse effect on
our business.
Trends in advertising, electronic data transmission and
storage, the internet and mobile devices continue to
have adverse effects on traditional print media and other
paper applications, including our products and those
of our customers. Digital alternatives to many traditional
paper applications, including print publishing and
advertising and the storage, duplication, transmission
and consumption of written information more generally,
are now readily available and have begun to adversely
affect demand for certain paper products. For example,
advertising expenditure has gradually shifted away from
the more traditional forms of advertising, such as
newspapers, magazines, radio and television, which tend
to be more expensive, toward a greater use of electronic
and digital forms of advertising on the internet, mobile
phones and other electronic devices, which tend to be
less expensive. We have been and are implementing
strategic initiatives to improve profitability, including
restructuring and other cost-saving projects, measures
to enhance productivity, as well as an expansion of our
higher-margin speciality businesses. Our entrenched
leading market share and low production cost, positions
us well to take advantage of the growth in the dissolving
wood pulp market and to continue generating good
margins.
During the year, we strengthened our biotech division
and bolstered our biorefining expertise through the
acquisition of the Xylex® and Versalac® technologies
owned by Plaxica Limited. This acquisition is another
definitive step towards building a meaningful bioproduct
business in executing our 2020Vision.
We invested in our specialities and packaging papers
business through the acquisition of the barrier film
technology of Rockwell Solutions Limited, a well-known
producer of heat sealable, peelable lidding films. Gaining
access to the technology of Rockwell Solutions enables
Sappi to accelerate the development of our own
solutions and will allow us to offer our customers an even
wider range of barrier coated packaging solutions.
The cost of complying with environmental, health
and safety laws may be significant to our business.
Our aim is to minimise our impact on the environment.
The principles of ISO 14000, Forest Stewardship
Council® (FSC®), SFI®, PEFCTM and other recognised
programmes are well entrenched across the group. We
have also made significant investments in operational
and maintenance activities related to reductions in air
emissions, wastewater discharges and waste generation.
(For further detail, see the Sustainability section on
page 32.) However, we are subject to a wide range
of environmental, health and safety laws and
regulations in the various jurisdictions in which we
operate. We closely monitor the potential for changes in
pollution control laws, including GHG emissions
requirements, and take action with respect to our
operations accordingly. We invest to maintain
compliance with applicable laws and cooperate across
regions to apply best practices in a sustainable manner.
Fluctuations in the value of currencies, particularly
the Rand and the Euro in relation to the US Dollar,
have in the past had, and could in the future have,
a significant impact on our earnings in these
currencies.
We are exposed to economic, transaction and
translation currency risks. The objective of the group in
managing transactional currency risks is to ensure that
foreign exchange exposures are identified as early as
possible and actively managed. In managing
transactional currency risks, the group first makes use of
internal hedging techniques (hedging to the functional
currency of the entity concerned) with external hedging
5.
6.
sappi 2017 Annual Integrated ReportGovernance and compensation
92
Risk management continued
being applied thereafter. External hedging techniques
consist primarily of foreign exchange contracts and
currency options. Foreign currency capital expenditure
on projects is covered as soon as practical (subject to
regulatory approval). For further detail, see note 31
contained in the Group Annual Financial Statements,
which are available online at www.sappi.com.
9.
10.
7.
8.
The inability to obtain energy, raw materials or
water at reasonable prices, or at all, could
adversely affect our operations.
We require substantial amounts of wood, chemicals,
energy and water for our production activities. The prices
for and availability of these items may be subject to
change, curtailment or shortages. To mitigate the risk,
we are improving procurement methods, finding
alternative lower-cost fuels and raw materials, minimising
waste, improving manufacturing and logistics efficiencies
and implementing energy reduction initiatives, such as
increasing renewable energy, promoting cogeneration,
investigating biofuel opportunities, promoting water-
efficient production processes and infrastructure
upgrades.
A limited number of customers account for a
significant amount of our sales. Therefore, should
adverse changes in economic market conditions
have a negative impact on them, it could materially
adversely affect our results of operations and
financial position.
We sell a significant portion of our products to several
significant customers. During FY2017, however, no
single customer individually represented more than
10% of our total sales. Any adverse development
affecting our significant customers or our relationships
with such customers could have an adverse effect on
our credit risk profile, our business and results of
operations. We are, on a continuous basis, working to
expand and diversify our customer base.
A large percentage of our employees are
unionised, and wage increases or work stoppages
by our unionised employees may have a material
adverse effect on our business.
A large percentage of our employees are represented by
labour unions under collective bargaining agreements,
which need to be renewed from time to time. In addition,
we have in the past and may in the future seek, or be
obligated to seek, agreements with our employees
regarding workforce reductions, closures and other
restructurings. We may become subject to material cost
increases or additional work rules imposed by
agreements with labour unions, which could increase
expenses in absolute terms and/or as a percentage
of net sales. A concerted effort is being made across
all our regions to interact and engage with our union
representatives and organised labour on a frequent basis
and to work on building constructive work relationships.
Injuries and fatalities.
We operate a number of manufacturing facilities and
forestry operations. The environment at these facilities
is inherently dangerous. The health and safety of our
own employees and contractors remain a top priority.
We minimise on-the-job injuries and fatalities by:
• Performing root cause analyses of all major incidents
and fatalities, which are reviewed at all levels of the
business including the board
• Group and industry-wide sharing of all incidents and
associated mitigating steps, thereby helping to ensure
that all our regions remain in the top 10% quartile for
our industry
• Enforcing compliance with behaviour-based safety
(BBS) principles
• Providing continuing education and having a
disciplined approach to all transgressions of our safety
policies, inclusive of our contractors, and
• Encouraging a reporting culture of near miss incidents.
sappi 2017 Annual Integrated Report
93
Insurance
The group has an active programme of risk management in
each of its geographical operating regions to address and
reduce exposure to property damage and business interruption
incidents. All production units are subject to regular risk
assessments by external risk engineering consultants, the
results of which receive the attention of senior management.
The risk mitigation programmes are coordinated at group level
in order to achieve a standardisation of methods. Work on
improved enterprise risk management is ongoing and aims
to lower the risk of incurring losses from incidents. Asset
insurance is renewed on a calendar year basis. The self-insured
retention portion for any one property damage occurrence is
US$24 million (€20.5 million) with the annual aggregate set at
US$39 million (€33 million). For property damage and business
interruption insurance, cost-effective cover to full replacement
value is not readily available.
A loss limit cover of US$886 million (€750 million) has been
deemed to be adequate for the reasonable foreseeable loss
for any single claim.
Risk appetite and tolerance
Sappi has a board-approved framework for risk appetite
and tolerance.
Risk appetite is the total exposed amount that Sappi wishes to
undertake on the basis of risk return trade-offs for one or more
desired and expected outcomes. This is the quantum of risk
that the board believes will provide an adequate margin
of safety within the company’s risk capacity while still enabling
the achievement of the strategic objectives.
Risk tolerance is the amount of uncertainty Sappi is prepared
to accept in total or, more narrowly, within a certain business
unit, a particular risk category or for a specific initiative/risk.
This is the maximum level of loss or reduced earnings that can
be absorbed without compromising key objectives, eg return
on investment.
sappi 2017 Annual Integrated ReportGovernance and compensation 94
A cross-section of branches clearly distinguishes
layers: bark, cambium and wood core.
95
Growth Our actions to grow
profitability, target
higher-margin growth segments,
product innovation and development and
require us to be agile to respond to market
demand.
96
Chief Financial Officer’s Report
Glen Pearce
Net profit for the year
increased by 6% to
US$338
million
EBITDA increased
by 6% to
US$785
million
Dividend declared
15 US
cents
Net debt declined to
US$1,322
million
As we continue on our
2020Vision journey, we have
moved into an exciting new
phase. We are satisfied
with the level of our
gearing on the balance
sheet and it enables us
to focus on investing
for growth.
sappi 2017 Annual Integrated Report 97
Section 1
Financial highlights
(US$ million)
Sales
EBITDA excluding special items
Operating profit excluding special items
Profit (loss) for the year
EBITDA excluding special items to sales (%)
Operating profit excluding special items to sales (%)
Operating profit excluding special items to capital employed (ROCE) (%)
Net cash generated
Net debt
Basic earnings (loss) per share (US cents)
2017
5,296
785
526
338
14.8
9.9
18.0
108
1,322
63
2016
% change
5,141
739
487
319
14.4
9.5
17.5
359
1,408
60
3
6
8
6
n/a
n/a
n/a
(70)
(6)
5
We provided the foundation for future measured expansion,
in targeted growth product segments, during fiscal 2017.
The announcement of the conversion of coated graphic
capacity to speciality products, and the debottlenecking of
dissolving wood pulp production supported our 2020Vision.
The global cost control initiative exceeded expectations and
good cash generation enabled us to repay the US$400 million
2017 bonds with available cash reserves. External economic
factors which have a significant influence on the business were
unfavourable and include a stronger Rand and higher paper
pulp costs. Increased consolidated sales volumes and effective
cost control measures reversed the unfavourable external
factors contributing to margin improvement and an increase
in EBITDA.
Consolidated net selling prices per ton improved by
1% on the back of increased dissolving wood pulp prices and
a favourable mix. The improvement was tempered by reduced
net selling prices of coated graphic product in Europe and
North America. Sales volumes increased by 2% as we
increased market share in our traditional coated graphic
markets and grew the specialities segment. Variable cost per
ton increased due to higher purchased pulp costs, particularly
during the latter half of the year and a stronger Rand. Cost
cutting initiatives across all regions reduced the full impact of
fixed-cost increases. EBITDA margins excluding special items
increased from 14.4% to 14.8%, and along with increased
volumes resulted in EBITDA excluding special items improving
to US$785 million.
Finance costs were 66% of the prior period as the benefits
of repaying debt takes effect. The additional profitability has
increased the tax charge to US$108 million at a rate of
24% of profit before taxation. Profit for the year increased
to US$338 million (LY = US$319 million) with earnings per
share excluding special items improving from 57 US cents to
64 US cents. A dividend of 15 US cents per share has been
declared at a four times earnings cover.
Cash generation for the year of US$108 million
(LY = US$359 million) includes a dividend payment of
US$59 million, tax payments of US$100 million and increased
capital expenditure of US$357 million.
Segment reporting
Our reporting is based on the geographical location of our
businesses, ie Europe, North America and Southern Africa.
The dissolving wood pulp business has become increasingly
important to the group. As such, selected product line
information in the form of dissolving wood pulp and paper is
reviewed by our Executive Committee in addition to the
geographical basis upon which the group is managed. This
additional information is presented to assist our stakeholders
in obtaining a complete understanding of our business.
Exchange rates and their impact on the
group’s results
The group reports its results in US Dollar and, as such, the
main foreign exchange rates used in the preparation of the
financial statements were:
Income statement
average rates
Balance sheet
closing rates
2017
2016
2017
2016
€1 = US$
US$1 = ZAR
1.1055
13.3813
1.1111
1.1814
14.7879 13.5561
1.1226
13.7139
Two of our three geographic business units (Europe and
Southern Africa) have home or ‘functional’ currencies of Euro
and Rand respectively. The results and cash flows of these
two non-US Dollar units are translated into US Dollar at the
average exchange rate for the reporting period in order to
arrive at the consolidated US Dollar results and cash flows.
When exchange rates differ from one period to the next, the
impact of translation from the functional currency to reporting
currency can be significant.
sappi 2017 Annual Integrated ReportChief Financial Officer’s Report 98
Chief Financial Officer’s Report continued
Section 2
Financial performance – Group
The discussion in this section focuses on the group financial
performance in 2017 compared with 2016. A detailed
discussion, in local currencies, of each of our three operating
regions follows in section 3.
Sales volume
In 2017, sales volume increased by 157,000 tons, or
2%, compared with 2016. The regional contributions to sales
volume are shown below:
Income statement
Our group financial results can be summarised as follows:
Sales volume
(Metric tons ’000)
2017
2016
%
change
(Metric tons ’000)
2017
2016
%
change
Sales volume
7,410
7,253
2
US$
million
US$
million
%
change
Sales revenue
Variable manufacturing and
delivery costs
Fixed costs
Sundry items(1)
Operating profit
excluding special items
Special items
Operating profit
Net finance costs
Taxation
Net profit
EPS excluding special
items (US cents)
5,296
5,141
(3,147)
(1,601)
(22)
(3,061)
(1,571)
(22)
526
–
526
(80)
(108)
338
64
487
57
544
(121)
(104)
319
57
(1) Sundry items include all income and costs not directly related to
manufacturing operations such as debtor securitisation costs,
commissions paid and received and results of equity-accounted
investments.
3
3
2
–
8
(100)
(3)
(34)
4
7
12
North America
Europe
Southern Africa
Group
Paper and pulp (excluding
dissolving wood pulp)
Dissolving wood pulp
Forestry
1,359
3,343
2,708
7,410
5,124
1,184
1,102
1,329
3,252
2,672
7,253
5,096
1,111
1,046
2
3
1
2
1
7
5
In North America, the increased coated paper market share,
growth in the specialities and packaging papers products and
the additional dissolving wood pulp volumes, improved total
sales volumes by 2% to 1,359,000 tons.
European volumes increased by 3% with good growth in the
coated woodfree and specialities and packaging papers
product segments. The mechanical coated business has been
under sustained pressure as sales volumes reduced.
Volumes in Southern Africa increased by 1%. During the prior
fiscal period, dissolving wood pulp volumes were negatively
impacted by production problems and the effects of a drought,
which were not repeated in the current fiscal. This was offset
by a reduction in paper sales volumes following the
discontinuation of waste paper sales to the Enstra Mill (sold in
the previous period).
sappi 2017 Annual Integrated Report 99
Optimising our capacity utilisation is a key focus area of the
business and was successfully achieved across all regions.
The table below reflects the breakdown of variable and delivery
costs by type.
Sales volume to capacity (%)
2017
2016
Variable manufacturing and
delivery costs (US$ million)
2017
2016
%
change
North America
Europe
Southern Africa
Group
97
94
95
95
96
92
96
94
Sales revenue
Sales revenue increased by 3% from US$5.1 billion in 2016 to
US$5.3 billion in 2017. The increase was due to the higher
sales volumes discussed above, higher sales prices and
improved sales mix.
Variable and delivery costs
Variable and delivery costs increased by US$86 million, or 3%,
from 2016. Higher sales volumes and an increase in purchased
pulp and chemical prices contributed to the increase in costs.
Wood
Energy
Chemicals
Pulp and other
Delivery
Group
603
372
787
944
441
624
355
726
925
431
3,147
3,061
(3)
5
8
2
2
3
Fixed costs
Fixed costs increased by US$30 million, or 2%, from fiscal
2016. This increase was mainly due to the stronger Rand
resulting in an increase in US Dollar costs. Excluding the
currency impact fixed cost decreased by US$3 million. This
achievement is further evidence of the efforts to lower costs
and improve efficiencies across the group.
The net paper and dissolving wood pulp purchases and sales
of the Sappi group are detailed in the graph below.
Details of the make-up of fixed costs are provided in the
table below.
Sappi Group pulp balance
(US$ million)
Net pulp
sales
130
791
416
(505)
Fixed costs (US$ million)
2017
2016
Personnel
Maintenance
Depreciation
Other
Group
930
212
255
204
894
201
250
226
1,601
1,571
%
change
4
5
2
(10)
2
800
600
400
200
0
(200)
(400)
(600)
Europe
North America Southern Africa
Sappi group
■ Net purchases
■ Net sales
sappi 2017 Annual Integrated ReportChief Financial Officer’s Report 100
Chief Financial Officer’s Report continued
Financial performance – Group continued
EBITDA and operating profit excluding
special items
The group benefited from improved results of the North
American, European and Southern African businesses. The
results were, however, negatively impacted by the stronger
Rand. EBITDA excluding special items increased to US$785
million, 6% higher than the US$739 million achieved in 2016.
Similarly, operating profit excluding special items improved from
US$487 million last year to US$526 million in 2017.
The EBITDA bridge reflected in the graph below shows the
impact on profitability from higher sales volumes, higher sales
prices, improved sales mix, a reduction in variable costs and
a reduction in fixed costs which were partially offset by
unfavourable exchange rate movements.
Reconciliation of EBITDA excluding special items:
2017 compared to 2016(1) (US$ million)
Sales volume
1,000
900
800
700
600
3
1
15
30
(37)
785
34
739
FY16
EBITDA
Sales
volume
Price
and mix
Fixed
costs
Variable
and
delivery
costs
Other Exchange
FY17
EBITDA
rate(2)
(1) All variances were calculated excluding Forestry.
(2) ‘Exchange rate’ reflects the impact of changes in the average rates of
translation of foreign currency results.
The tables below show the EBITDA and operating profit
excluding special items of the business for both 2017 and
2016 and the margins of each.
EBITDA excluding special items by
region (US$ million)
2017
2016
North America
Europe
Southern Africa
Corporate and other
Group
126
262
396
1
785
124
261
352
2
739
EBITDA margin by region
(%)
29.5 28.9
9.1
9.3
10.1 10.2
14.4
14.8
30
25
20
15
10
5
0
North America
Europe
Southern
America
Sappi
group
■ 2016 ■ 2017
EBITDA excluding special items
by product category (US$ million)
2017
2016
Specialised cellulose
(dissolving wood pulp)
Paper
Other
Group
386
398
1
785
339
398
2
739
sappi 2017 Annual Integrated Report 101
Operating profit excluding special
items by region (US$ million)
2017
2016
North America
Europe
Southern Africa
Corporate and other
Group
47
140
337
2
526
49
131
305
2
487
The charts below illustrate that although the paper business
only provides 36% of the operating profit, it contributes 51% of
the group’s EBITDA excluding special items. Consequently, it
still generates the majority of cash for Sappi and remains an
important strategic component of our business.
Operating profit excluding special
items by product (%)
Operating profit margin by region
(%)
36
25.6
24.6
30
25
20
15
10
5
0
3.6
3.5
5.1
5.5
North America
Europe
Southern Africa
■ 2016 ■ 2017
1,771
2017
US$526
million
1,408
64
● Specialised cellulose
● Paper
EBITDA excluding special items
by product (%)
9.5 9.9
Sappi
group
Operating profit excluding special items
by product category (US$ million)
2017
2016
51
Specialised cellulose
(dissolving wood pulp)
Paper
Other
Group
334
190
2
526
294
191
2
487
1,771
2017
US$785
million
1,408
49
● Specialised cellulose
● Paper
For information regarding the financial performance of the
regions, please refer to section 3 of this report.
sappi 2017 Annual Integrated ReportChief Financial Officer’s Report 102
Chief Financial Officer’s Report continued
2017
2016
Total
Financial performance – Group continued
Key operating targets
Our financial targets and performance against them are
dealt with in Our strategy section on pages 8 and 9.
Special items
Special items consist of those items which management
believes are material, by nature or amount, to the results for the
year and require separate disclosure. A breakdown of special
items for 2017 and 2016 is reflected in the table below:
Special items – gain
(US$ million)
Plantation price fair value adjustment
Net restructuring provisions
Profit on disposal and written off
assets
Asset impairments
Employee benefit liability settlement
Black economic empowerment
charge
Fire, flood, storm and other events
Total
21
(1)
(2)
(6)
–
(1)
(11)
–
64
(4)
15
(2)
8
(1)
(23)
57
The net impact of special items in 2017 was US$nil. The major
components are described below:
• A positive non-cash US$21 million plantation price fair value
adjustment was recognised following increases to the market
price of timber
• Asset impairments of US$6 million were recorded in Europe
and Southern Africa related to certain intangible assets and
capitalised project costs, and
• Fire, flood, storm and other events includes fire and cossid
moth damaged timber in Southern Africa of US$5 million and
the cost of turbine failures at our Alfeld and Stockstadt Mills
of US$4 million each.
Finance costs
(US$ million)
Net interest expense
Net foreign exchange gains
Net fair value (gain) loss on financial
instruments
Total
2017
2016
92
(12)
–
80
124
(2)
(1)
121
Finance costs are significantly lower than the prior period.
The repayment of the US$400 million public bonds during
the call window period in April 2017 from available cash
resources and the refinancing of debt last year contributed
to the reduced charge.
Taxation
A regional breakdown of the tax charge is provided below.
(US$ million)
Europe
North America
Southern Africa
Profit
before tax
Tax (charge)
relief
56
33
357
446
2
(10)
(100)
(108)
Effective
tax rate
%
3
(31)
(28)
(24)
In Europe, the total tax relief of US$2 million consists of a
deferred tax relief and a current tax charge. The deferred tax
relief is caused mainly by the recognition of a US$16 million tax
asset in The Netherlands.
The North American effective tax rate approximates 31% and
is lower than the statutory rate of 38% due to the impact of
non-taxable items.
The Southern African tax rate of 28% is equivalent to the
statutory tax rate of 28%.
Net profit, earnings per share and dividends
After taking into account finance costs and taxation, our net
profit and earnings per share for 2017, with comparatives for
2016, were as follows:
(US$ million)
Operating profit
Finance costs
Profit before taxation
Taxation
Profit for the period
2017
2016
526
80
446
108
338
544
121
423
104
319
Weighted average number of shares
in issue (millions)
533.9
529.4
Basic earnings per share
(US cents)
63
60
The directors have decided to declare a dividend
of 15 US cents representing a four times earnings cover
adjusted for non-cash items and a 36% improvement on the
11 US cents declared last year. The group aims to declare
ongoing annual dividends, and over time achieve a long-term
average to dividends ratio of three to one.
sappi 2017 Annual Integrated Report 103
Section 3
Financial performance – Regional
Below we discuss the performance of the regional businesses. The discussion is based on performance in local currencies as we
believe this facilitates a better understanding of the revenue and costs in the European and Southern African operations.
North America
(Metric tons ’000)
Sales volume
Sales
Variable manufacturing and delivery costs
Contribution
Fixed costs
Sundry costs and consolidation entries
Operating profit excluding special items
EBITDA excluding special items
2017
2016
%
change
1,359
1,329
2
US$
million
2017
1,360
(814)
546
(485)
(14)
47
126
US$
million
2016
1,367
(822)
545
(486)
(10)
49
124
%
change
US$
per ton
2017
US$
per ton
2016
%
change
(1)
(1)
0
(0)
40
(4)
2
1,001
(599)
402
(357)
(10)
35
93
1,029
(619)
410
(366)
(7)
37
93
(3)
(3)
(2)
(2)
43
(5)
0
The North American operations showed resilience in the face of reducing coated paper market demand by increasing market share.
Net selling prices of coated paper were under pressure due to market overcapacity, and although there was some recovery in the
final quarter, selling prices were still some 4% lower than the previous year. Dissolving wood pulp selling prices increased by 6%
and reduced the impact of the lower coated prices.
Improved usage variances and lower wood and energy costs resulted in variable costs per ton reducing by 3%. The reduction in
variable costs per ton was lower than the selling price reduction, but good fixed cost control and higher volumes improved fixed
cost absorption rates resulting in EBITDA margins remaining in line with the previous year.
Europe
(Metric tons ’000)
Sales volume
Sales
Variable manufacturing and delivery costs
Contribution
Fixed costs
Sundry costs and consolidation entries
Operating profit excluding special items
EBITDA excluding special items
2017
2016
%
change
3,343
3,252
3
€
million
2017
2,320
(1,509)
811
(673)
(11)
127
239
€
million
2016
2,324
(1,490)
834
(692)
(24)
118
235
%
change
€
per ton
2017
€
per ton
2016
%
change
(0)
1
(3)
(3)
(54)
8
2
694
(451)
243
(201)
(4)
38
71
715
(458)
257
(213)
(8)
36
72
(3)
(2)
(5)
(6)
(50)
6
(1)
The growth in specialities and packaging papers volumes and increased woodfree coated volumes to export markets, more than
compensated for the reduced mechanical coated volumes. Pricing pressure across all segments reduced net selling prices by 3%.
Variable costs were well controlled with energy and wood costs reducing favourably. There were substantial improvements in
production efficiencies which contributed to the lower variable costs. Fixed costs were well controlled and reduced by 3% relative
to the previous period. Consequently the EBITDA margin of the region remained in line with the previous year at 10%.
sappi 2017 Annual Integrated ReportChief Financial Officer’s Report 104
Chief Financial Officer’s Report continued
Financial performance – Regional continued
Southern Africa
(Metric tons ’000)
Sales volume
Sales*
Variable manufacturing and delivery costs
Contribution
Fixed costs
Sundry costs and consolidation entries
Operating profit excluding special items
EBITDA excluding special items
* Excludes forestry.
2017
2016
%
change
1,606
1,626
(1)
ZAR
million
2017
17,489
(9,769)
7,720
(4,991)
1,781
4,510
5,299
ZAR
million
2016
16,799
(9,449)
7,350
(4,688)
1,848
4,510
5,205
%
change
ZAR
per ton
2017
4
3
5
6
(4)
0
2
10,890
(6,083)
4,807
(3,108)
1,109
2,808
3,300
ZAR
per ton
2016
10,331
(5,811)
4,520
(2,883)
1,137
2,774
3,201
%
change
5
5
6
8
(2)
1
3
The average rate of the Rand strengthened by 10% for the year and had a negative impact on the results of the Southern African
operations. Growth in dissolving wood pulp sales volumes of 8% were offset by the discontinuation of waste paper sales volumes
resulting in total volumes reducing by 1%. Net selling prices of dissolving wood pulp increased in US Dollar terms, but reduced in
local currency. Increased paper prices and an improved mix caused total net selling prices to increase. Wood, energy and chemical
cost increases caused variable costs per ton to increase by 5%. Inflationary pressure on personnel and maintenance costs
increased fixed costs by 6%. The net result of the above is an increase in EBITDA to ZAR5,299 million with annual operating profit
of ZAR4,510 million remaining in line with last year.
The region’s capital expenditure focused on debottlenecking processes and increasing our energy self-sufficiency during the year.
Major sensitivities
Some of the more important factors which impact the group’s EBITDA excluding special items, based on current anticipated
revenue and cost levels, are summarised in the table below.
Sensitivities
Net selling prices
Dissolving wood pulp prices
Variable costs
Sales volume
Fixed costs
Paper pulp price
ZAR/US$ (weakening)
EUR/US$ (weakening)
Change
1%
US$10
1%
1%
1%
US$10
10 cents
10 cents
* Based on currency impact on translation of EBITDA.
Europe
€ million
North
America
US$ million
Southern
Africa
ZAR million
Translation
impact
US$ million*
Group
US$ million
24
–
13
8
6
6
–
–
14
2
7
5
4
2
–
(4)
187
133
91
84
47
11
82
–
–
–
–
–
–
–
(2)
(24)
55
12
29
21
14
9
3
(28)
The table demonstrates that EBITDA excluding special items is most sensitive to changes in the selling prices of our products.
The calculation of the impact of these sensitivities assumes all other factors remain constant and does not take into account
potential management interventions to mitigate negative impacts or enhance benefits.
sappi 2017 Annual Integrated Report 105
Section 4
Cash flow
In the table below, we present the group’s cash flow statement
for 2017 and 2016 in a summarised format.
(US$ million)
2017
2016
Operating profit excluding
special items
Depreciation and amortisation
EBITDA excluding special items
Contributions to post-employment
benefits
Other non-cash items
Cash generated from operations
Movement in working capital
Finance costs
Taxation
Dividend paid
Capital expenditure
Net proceeds on disposal of assets
Acquisition of subsidiary
Other
Net cash generated
526
259
785
(43)
6
748
(27)
(81)
(100)
(59)
(357)
4
(11)
(9)
108
487
252
739
(51)
5
693
4
(91)
(56)
–
(241)
44
–
6
359
Net cash generated of US$108 million was lower than the
previous year of US$359 million despite cash generated from
operations of US$748 million being higher than the prior year
of US$693 million. Higher working capital movements,
increased cash taxes, the resumption of the dividends and
increases in capital expenditure account for the reduced cash
generated.
The increased capital expenditure was due to various upgrade
and conversion projects throughout the group. The
debottlenecking of dissolving wood pulp production at
Ngodwana and Saiccor Mills, and the initial costs for the
conversion of coated graphic capacity to speciality paper
production in Europe and North America, are included in the
total expenditure of US$357 million for the year.
The group acquired a flexible packaging company, Rockwell
Solutions, in the United Kingdom resulting in an outflow of
US$11 million.
Investment in fixed assets
versus depreciation (US$ million)
552
600
400
200
0
295
248
241
357
2013
2014
2015
2016
2017
■ Cash flow capex ■ Depreciation
sappi 2017 Annual Integrated ReportChief Financial Officer’s Report 106
Chief Financial Officer’s Report continued
Section 5
Balance sheet
Summarised balance sheet
(US$ million)
2017
2016
Property, plant and equipment
Plantations
Net working capital
Other assets
Net post-employment liabilities
Other liabilities
Employment of capital
Equity
Net debt
Capital employed
2,681
458
436
254
(309)
(451)
3,069
1,747
1,322
3,069
2,501
441
394
284
(411)
(423)
2,786
1,378
1,408
2,786
During the year, there were increases to input costs which were
offset by higher average fair value rates. These were partially
offset by the damages recorded during the year. As we
manage our plantations on a sustainable basis, the growth
for the year was offset by timber felled during the year.
Our plantations are valued on the balance sheet at fair value
less the estimated costs of delivery, including harvesting and
transport costs. In notes 2.3.5 and 11 to the financial
statements, we provide more detail on our accounting policies
for plantations, how we manage our plantations as well as the
major assumptions used in the calculation of fair value.
Working capital
The component parts of our working capital at the 2017 and
2016 fiscal year-ends are shown in the table below.
Sappi has 16 production facilities in eight countries, capable of
producing approximately 3.5 million tons of pulp and 5.4 million
tons of paper.
Net working capital
(US$ million)
For more information on our mills, their production
capacities and products, please refer to pages 20 and 21.
During 2017, capital expenditure for property, plant and
equipment was US$357 million. The capacity replacement
value of property, plant and equipment for insurance purposes
has been assessed at approximately US$21 billion.
Property, plant and equipment
The cost and depreciation related to our property are set out in
the table below.
Book value of property, plant and equipment
(US$ million)
Cost
Accumulated depreciation
and impairment
Net book value
2017
2016
8,681
8,130
6,000
2,681
5,629
2,501
Plantations
We regard ownership of our plantations in Southern Africa as
a key strategic resource as it gives us access to low-cost fibre
for pulp production and ensures continuity of supply on an
important raw material input source.
We currently have access to approximately 479,000 hectares
of land of which approximately 340,000 hectares are planted
with pine and eucalyptus. These plantations provide
approximately 64% of the wood requirements for our mills
in Southern Africa.
Inventories
Trade and other receivables
Trade and other payables
Net working capital
2017
2016
636
668
(868)
436
606
642
(854)
394
Optimising working capital remains a key focus area for us and
appropriate targets are incorporated into the management
incentive schemes for all businesses. The working capital
investment is seasonal and typically peaks during the third
quarter of each financial year.
Net working capital increased to US$436 million in 2017 from
US$394 million in 2016. The material movements in working
capital are discussed below:
• Inventories increased by US$30 million, mainly due to
a currency translation impact of US$16 million and an
increase in finished goods
• Receivables increased by US$26 million, mainly due to
a currency translation impact of US$18 million and an
increase in trade receivables due to the higher sales in
the last quarter, and
• Payables increased by US$14 million. After taking into
consideration the currency translation impact of
US$26 million, payables decreased by US$12 million.
The decrease in payables is largely due to a reduction in
interest accruals, and the reduction of restructuring
provisions.
sappi 2017 Annual Integrated Report 107
Post-employment liabilities
We operate various defined benefit pension/lump sum plans,
post-employment healthcare subsidies and other employee
benefits in the various countries in which we operate.
A summary of defined benefit assets and liabilities (pension
and post-employment healthcare subsidies) is as follows:
Defined benefit liabilities
(US$ million)
2017
2016
Defined benefit obligation
Fair value of plan assets
Net balance sheet liability
(1,448)
1,139
(309)
(1,525)
1,114
(411)
Cash contributions to defined benefit
plans/subsidies
Income statement charge (credit)
to profit or loss*
Cash contributions deemed
‘catch-up’**
39
30
18
46
17
27
* The income statement charge in 2016 was lower than in 2017 due to
ad hoc credits from settlements and curtailments.
** ‘Catch-up’ is cash contributions paid to defined benefit plans in excess
of current service cost.
The liabilities from all our plans (funded plans and unfunded)
reduced by US$77 million compared with last year. The main
cause of the overall decrease in gross liabilities was the result
of higher discount rates used due to rising yields in respective
bond markets, and in some regions, reductions in post-
retirement longevity projections.
Fair value of plan assets rose by US$25 million over the year
due to favourable investment returns of assets in our funded
plans from outperforming equity markets.
Included in the liability and asset movements above is
a US$9 million loss resulting from currency movements.
The reduction in liabilities and increase in assets both
contributed to a reduction in the net overall net liability by
US$102 million as at September 2017. A reconciliation
of the movement in the balance sheet over the year is shown
alongside and disclosed in more detail in note 28 of
the Group Annual Financial Statements.
Sappi Limited defined benefit pensions
balance sheet movement (US$ million)
24
(36)
303
(96)
8
203
350
300
250
200
150
100
50
0
2016
net
liability
Pension
charge
Employer
contributions
paid
Actuarial
gains
Translation
effect
2017
net
liability
Sappi Limited post-retirement medical aid subsidy balance sheet
movement (US$ million)
108
6
(3)
0
(5)
106
120
100
80
60
40
20
0
2016
net
liability
Benefit
charge
Employer
contributions
paid
Actuarial
gains
Translation
effect
2017
net
liability
Equity
Year-on-year, equity increased by US$369 million to
US$1,747 million as summarised below:
Equity reconciliation
(US$ million)
Equity as at September 2016
Profit for the year
Dividend paid
Share-based payments
Actuarial gains on post-employment benefit funds
Movement in hedging reserves
Other movements
Equity as at September 2017
2017
1,378
338
(59)
9
68
11
1
1,747
sappi 2017 Annual Integrated ReportChief Financial Officer’s Report 108
Chief Financial Officer’s Report continued
Balance sheet continued
Equity increased by US$369 million driven largely by the profit for the year of US$338 million and actuarial gains on post-
employment benefit funds of US$68 million, offset by the dividend of US$59 million.
Debt
Debt is a major source of funding for the group. In the management of debt, we focus on net debt, which is the sum of current and
non-current interest-bearing borrowings and bank overdrafts, net of cash and cash equivalents.
Debt funding structure
The Sappi group principally takes up debt in two legal entities. Sappi Southern Africa Limited issues debt in the local Southern
African market for its own funding requirements and Sappi Papier Holding GmbH (SPH), which is the international holding company,
issues debt in the international money and capital markets to fund our non-Southern African businesses. SPH’s long-term debt
is supported by a Sappi Limited guarantee and the financial covenants on certain of its debt are based on the ratios of the
consolidated Sappi Limited group. The covenants applicable to the debt of these two entities and their respective credit ratings
are discussed below.
The diagram below depicts our debt funding structure.
Sappi Limited guarantee*
Sappi Limited
Sappi Southern
Africa (SSA)
South African debt
Sappi Papier
Holding (SPH)
Non-South African debt
Sappi
Europe
Sappi
North America
Sappi
Trading
* Sappi Limited provides guarantees for long-term non-South African debt.
Below we highlight the main financing activities that occurred
during the year:
• The SPH US$400 million 2017 bond matured on 15 July
2017, but a call window opened at par in April 2017 and the
bond was fully repaid from cash resources on 18 April 2017
• The SPH €330 million securitisation programme matures in
August 2018 and in order to retain the long-term treatment
of this debt the facility had to be extended before August
2017. The facility was therefore renewed in June 2017 and
has a new maturity date of August 2020, and
• The announced conversion project at the Somerset Mill is
being financed with a new €150 million term loan. As with
other previous capital projects the facility was arranged with
the Oesterreichische Kontrollbank, the Austrian development
bank (OeKB). This long-term facility is structured as
a seven-year term facility with drawings taking place until
June 2018, in line with the progress of the project.
Structure of net debt and liquidity
We consider the liquidity position to be very good, with cash
holdings exceeding short-term obligations by US$417 million
at fiscal year-end. In addition, Sappi has US$623 million
of unutilised committed credit facilities, including the revolving
credit facility at SPH of €465 million (US$549 million).
sappi 2017 Annual Integrated Report 109
The structure of our net debt at September 2017 and 2016 is
summarised below:
(US$ million)
2017
2016
Movement in net debt
The movement of our net debt from fiscal 2016 to fiscal 2017
is explained in the table below:
Long-term debt
Senior unsecured debt
Securitised funding
Less: Short-term portion
Net short-term debt (cash)
Overdrafts and short-term loans
Short-term portion of long-term debt
Less: Cash
1,739
1,436
364
(61)
(417)
72
61
(550)
1,535
1,732
314
(511)
(127)
65
511
(703)
Net debt
1,322
1,408
(US$ million)
Net debt as at September 2016
Net cash generated
Currency and other movements
Net debt as at September 2017
2017
1,408
(108)
22
1,322
Group debt profile
We show the major components and maturities of our net debt at September 2017 below. These are split between our debt in
South Africa and our debt outside South Africa.
Maturity (Sappi fiscal years)
(US$ million)
South African
Bank debt
Bonds
Gross debt
Less: Cash
Net South African debt (cash)
Non-South African
Securitisation (US$)
Securitisation (EUR)
OeKB term loan 1
OeKB term loan 2
Other bank debt
2022 Bonds (EUR)
2023 Bonds (EUR)
2032 Bonds (US$)
IFRS adjustments
Gross debt
Less: Cash
Net non-South African debt
Net group debt
Interest
rates
(local
currencies)
Fixed/
variable
Amount
2018
2019
2020
2021
Thereafter
30
92
121
(216)
(95)
127
237
96
70
75
532
413
221
(20)
1,750
(334)
1,416
1,322
7.85%
7.86%
Fixed*
Fixed*
37
(216)
(179)
30
55
–
84
–
–
24
72
24
0.4
127
237
24
8
0.3
24
8
0.3
1.38%
2.62%
1.25%
2.20%
0.54%
3.38%
4.00%
7.50%
Variable
Variable
Fixed
Fixed
Variable
Fixed
Fixed
Fixed
53
1
532
413
221
(20)
(0.3)
(334)
(238)
(417)
25
25
396
481
33
33
1,201
1,201
* Floating rate bonds/bank loans swapped to fixed.
sappi 2017 Annual Integrated ReportChief Financial Officer’s Report 110
Chief Financial Officer’s Report continued
South African covenants
Separate covenants also apply to the revolving credit facility
of our Southern African business.
These covenants are calculated on a last four quarter basis
and require that at the end of March and September, with
regard to Sappi Southern Africa Limited and its subsidiaries:
• The ratio of net debt to equity is not at the end of March
and September greater than 65%, and
• At the financial year-end, the ratio of EBITDA to net interest
paid for the year is not less than 2-to-1.
Below we show that for the year ended September 2017 the
South African financial covenants were comfortably met.
South African covenants
2017
Covenant
Net debt to equity
EBITDA to net interest
Net cash
Net interest
received
<65%
>2.00
Credit ratings
Global Credit Ratings: South African national rating
Sappi Southern Africa Limited: A+(za)/A1+(za)/Stable Outlook
(June 2017)
Moody’s
Sappi corporate family rating: Ba2/NP/Positive Outlook
(May 2017)
SPH debt rating:
• 2022/2023 Bonds and RCF: Ba2/Positive Outlook
(May 2017)
• 2032 Bonds: B1
S&P Global Ratings
Corporate credit rating: BB/B/Stable Outlook (January 2017)
SPH Debt rating:
• 2022/2023/2032 Bonds and RCF: BB Stable Outlook
(January 2017)
Balance sheet continued
The majority of our non-South African long-term debt is
guaranteed by Sappi Limited, the group holding company.
A diagram of the debt maturity profile for Sappi fiscal years
is shown below.
Debt maturity profile (US$ million)
600
500
400
300
200
100
0
Including
2022
450m
bond
36
96
Including 2023
350m
bond
(203)
2032
US$221m
bond
USD million
(303)
2018 2019 2020 2021 2022 2023 2024 2025 2032
■ Cash ■ Short-term ■ Securitisation ■ SSA ■ SPH term debt
Covenants
Non-South African covenants
Financial covenants apply to US$166 million of our non-South
African bank debt, the €465 million revolving credit facility and
our securitisation borrowings.
The covenants are described below and are calculated on
a last four quarter basis and require that at the end of each
quarter:
• The ratio of group net debt to EBITDA be not greater than
4.00-to-1 at the end of September 2016, reducing over
the term of the facility to 3.75-to-1 by June 2019, and
• The ratio of group EBITDA to net interest expense be not
less than 2.50-to-1 at the end of September 2016, and
remain at this level over the term of the facility.
The table below shows that at September 2017 we were well
in compliance with these covenants.
Non-South African covenants
2017
Covenant
Net debt to EBITDA
EBITDA to net interest
1.58
9.24
<4.00
>2.50
In addition to the financial covenants referred to above, our
bonds and certain of our bank facilities contain customary
affirmative and negative covenants restricting, among other
things, the granting of security, incurrence of debt, the
provision of loans and guarantees, mergers and disposals and
certain restricted payments. As regards dividend payments, in
terms of the international bond indentures, any cash dividends
paid may not exceed 50% of net profit excluding special items
after tax and certain other adjustments, calculated on
a cumulative basis.
sappi 2017 Annual Integrated Report 111
Section 6
Share price performance
Sappi ordinary shares – (JSE:SAP)
(ZAR)
120
100
80
60
40
20
2015
t
p
e
S
c
e
D
r
a
M
n
u
J
2016
t
p
e
S
c
e
D
r
a
M
2017
n
u
J
t
p
e
S
Conclusion
Good cost management, including increased market share in
our graphics segments and growth in our specialities and
packaging papers and dissolving wood pulp segments,
provided the necessary platform to remain on target to deliver
our 2020Vision. The four main objectives of our strategy were
evident during the year. We exceeded our global cost initiative
targets which contributed to increasing our EBITDA margins to
14.8%. We rationalised the business by announcing the
conversion of coated graphic capacity in Europe and North
America to packaging paper capacity. The balance sheet was
strengthened by utilising cash reserves to repay the
US$400 million 2017 bonds, and we accelerated growth in
high-margin products by initiating debottlenecking projects at
Saiccor and Ngodwana Mills to increase production of
dissolving wood pulp.
Strong cash generation reduced our leverage to 1.7 times net
debt/EBITDA. We start fiscal 2018 on a sound platform.
GT Pearce
Chief Financial Officer
07 December 2017
sappi 2017 Annual Integrated ReportChief Financial Officer’s Report 112
Five-year review
for the year ended September 2017
(US$ million)
2017
2016
2015
2014
2013
Income statement
Sales
Variable manufacturing and delivery costs
Fixed costs
Sundry expenses (income)(1)
Operating profit excluding special items
Special items – (gains) losses
Operating profit
Net finance costs
Profit (loss) before taxation
Taxation charge
Profit (loss) for the year
EBITDA excluding special items
Balance sheet
Total assets
Non-current assets
Current assets
Current liabilities
Shareholders’ equity
Net debt
Gross interest-bearing debt
Cash
Capital employed
Cash flow
Cash generated from operations
Decrease (increase) in working capital
Finance costs paid
Finance revenue received
Taxation paid
Cash generated from operating activities
Net cash generated (utilised)
Cash effects of financing activities
Capital expenditure (gross)
To maintain operations
To expand operations
Exchange rates
US$ per one EUR exchange rate – closing
US$ per one EUR exchange rate – average
(financial year)
ZAR to one US$ exchange rate – closing
ZAR to one US$ exchange rate – average
(financial year)
5,296
3,147
1,601
22
526
–
526
80
446
108
338
783
5,247
3,378
1,869
1,043
1,747
1,322
1,872
(550)
3,069
748
(27)
(96)
15
(100)
481
108
(279)
357
140
217
5,141
3,061
1,571
22
487
(57)
544
121
423
104
319
739
5,177
3,171
2,006
1,474
1,378
1,408
2,111
(703)
2,786
693
4
(107)
16
(56)
550
359
(130)
241
155
86
5,390
3,414
1,613
6
357
(54)
411
182
229
62
167
625
4,913
3,174
1,739
1,092
1,015
1,771
2,227
(456)
2,786
544
(11)
(148)
13
(16)
382
145
(127)
248
175
73
6,061
3,887
1,837
(9)
346
32
314
177
137
2
135
658
5,465
3,505
1,960
1,223
1,044
1,946
2,474
(528)
2,990
566
34
(170)
8
437
243
(36)
295
148
147
5,925
3,768
1,943
34
180
161
19
186
(167)
15
(182)
528
5,727
3,787
1,940
1,212
1,144
2,247
2,599
(352)
3,391
447
(20)
(171)
7
(17)
246
(247)
(8)
552
116
436
1.181
1.123
1.120
1.269
1.352
1.106
13.556
1.111
13.714
1.150
13.914
1.358
11.229
1.312
10.093
13.381
14.788
11.964
10.566
9.278
(1) Sundry items include all income and costs not directly related to manufacturing operations such as debtor securitisation costs, commissions paid and
received and results of equity-accounted investments.
sappi 2017 Annual Integrated Report 113
(US$ million)
2017
2016
2015
2014
2013
Statistics
Number of ordinary shares (millions)(1)
In issue at year-end
Basic weighted average number of shares in issue
during the year
Per share information (US cents)
Basic earnings (loss)
Diluted earnings (loss)
Headline earnings (loss)
Diluted headline earnings (loss)
EPS excluding special items (US cents)
Net asset value
Profitability ratios (%)
Operating profit to sales
Operating profit excluding special items to sales
EBITDA excluding special items to sales
Operating profit excluding special items to capital
employed (ROCE)
Net debt to EBITDA excluding special items
Interest cover
Return on average equity (ROE)
Debt ratios (%)
Net debt to total capitalisation
Efficiency ratios
Asset turnover (times)
Inventory turnover ratio
Liquidity ratios
Current asset ratio
Trade accounts receivable days outstanding
(including receivables securitised)
Cash interest cover (times)
Other non-financial information(2)
Sales volumes
Number of full-time equivalent employees
Lost-time injury frequency rate (including contract
employees)
Energy
Specific net purchased energy (GJ/adt)
Renewable energy to total energy (%)
Water
Specific process water drawn (m3/adt)
Specific process water returned (m3/adt)
Waste
Specific total landfill (ton/adt)
Emissions
535.0
533.9
63
62
64
63
64
327
9.9
9.9
14.8
18.0
1.7
9.1
21.6
43.1
1.0
7.0
1.8
45
8.1
530.6
526.4
524.2
521.5
529.4
525.7
522.5
521.3
60
59
58
57
57
260
10.6
9.5
14.4
17.5
1.9
7.3
26.7
32
31
32
31
34
193
7.6
6.6
11.6
12.4
2.8
4.4
16.2
26
26
31
31
22
199
5.2
5.7
10.9
10.8
3.0
3.6
12.3
(35)
(35)
(10)
(10)
(4)
219
0.3
3.0
8.9
5.2
4.3
3.1
(13.6)
50.5
63.6
65.1
66.3
1.0
7.0
1.4
44
5.6
1.1
7.9
1.6
45
3.0
1.1
7.8
1.6
45
3.1
1.0
7.3
1.6
47
2.7
7,410
12,158
7,253
12,051
7,306
12,548
7,524
13,064
7,466
13,665
0.44
0.46
0.48
0.53
0.56
13.45
45.23
33.74
31.12
13.47
43.99
34.94
31.74
13.73
44.72
34.32
31.27
13.80
45.82
35.71
32.55
14.14
44.37
36.35
33.99
0.073
0.069
0.076
0.067
0.070
Specific Scope 1 emissions (ton CO2eq/adt)
Specific Scope 2 emissions (ton CO2eq/adt)
Refer to Share statistics on page 114 for other market and share-related information.
0.62
0.24
0.63
0.27
0.62
0.26
0.62
0.27
0.65
0.26
(1) Net of treasury shares (refer to note 18 to the Group Annual Financial Statements).
(2) Certain energy, water, waste and emissions data for the comparative years have been restated using the latest reporting standards and measurement
methodology.
Note: Definitions for various terms and ratios used above are included in the Glossary on page 116.
sappi 2017 Annual Integrated ReportFive-year review 114
Share statistics
for the year ended September 2017
Shareholding
Ordinary shares in issue
1 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 – 1,000,000
Over 1,000,000
Number of
shareholders
5,566
223
446
190
324
83
6,832
%
81.5
3.3
6.5
2.8
4.7
1.2
Number
of shares(1)
% of shares
in issue
3,093,227
1,678,002
11,258,624
13,865,237
103,771,633
401,353,472
0.6
0.3
2.1
2.6
19.4
75.0
100.0
535,020,195
100.0
(1) The number of shares excludes 22,182,378 treasury shares held by the group.
Shareholder spread
Type of shareholder
Non-public
Sappi Limited directors and prescribed officers
Associates of group directors
Trustees of the company’s share and retirement funding schemes
Share owners who, by virtue of any agreement, have the right to nominate board members
Share owners interested in 10% or more of the issued shares
Public (the number of public shareholders as at September 2017 was 6,821)
% of shares
in issue
0.3
0.3
–
–
–
–
99.7
100.0
Sappi has a primary listing on the JSE Limited and a Level 1 ADR programme that trades in the over-the-counter market in the
United States of America.
A large number of shares are held by nominee companies for beneficial shareholders. Pursuant to section 56(7) of the Companies
Act 71 of 2008, the directors have investigated the beneficial ownership of shares in Sappi Limited, including those which are
registered in the nominee holdings. These investigations revealed as of September 2017, the following are beneficial holders
of more than 5% of the issued share capital of Sappi Limited:
Beneficial holder
Public Investment Corporation
Shares
82,034,389
%
15.3
Further, as a result of these investigations, the directors have ascertained that some of the shares registered in the names of the
nominee holders are managed by various fund managers and that, as of September 2017, the following fund managers were
responsible for managing 5% or more of the share capital of Sappi Limited:
Fund manager
Public Investment Corporation
Prudential Investment Managers
BlackRock Inc
Old Mutual Plc
STANLIB Asset Management
Shares
74,737,258
51,813,987
32,311,957
28,814,593
27,225,483
%
14.0
9.7
6.0
5.4
5.1
sappi 2017 Annual Integrated Report 115
2017
535.0
327
630.7
3.1
54,760.0
20.3
118.5
9,206.0
681.0
10,438.0
797.0
6,953.0
509.0
9.28
10.78
3,633
2016
2015
2014
2013
530.6
260
544.7
0.9
526.4
193
351.0
1.1
524.2
199
296.9
2.0
35,428.6
4.2
102.8
15,642.5
4.4
66.9
10,500.0
6.1
57.0
7,226
522
7,942
522
3,982
282
11.39
8.78
2,796
4,069
286
5,279
448
3,610
267
10.94
9.14
1,539
4,337
385
4,755
425
2,525
247
6.73
14.86
2,025
521.5
219
323.3
3.1
8,634.7
8.8
62.6
2,549
249
3,300
389
2,204
228
negative
negative
1,317
Share statistics
Ordinary shares in issue (millions)(1)
Net asset value per share (US cents)
Number of shares traded (millions)
JSE
New York
Value of shares traded
JSE (ZAR million)
New York (US$ million)
Percentage of issued shares traded
Market price per share
– year-end
– highest
– lowest
JSE (South African cents)
New York (US cents)
JSE (South African cents)
New York (US cents)
JSE (South African cents)
New York (US cents)
Earnings yield (%)(2)
Price/earnings ratio (times)(2)
Total market capitalisation (US$ million)(2)
(1) The number of shares excludes 22,182,378 treasury shares held by the group.
(2) Based on financial year-end closing prices on the JSE Limited. Income statement amounts have been converted at average year-to-date exchange rates.
Note: Definitions for various terms and ratios used above are included in the Glossary on page 116.
sappi 2017 Annual Integrated ReportShare statistics
116
Glossary
General definitions
AF&PA – American Forest and Paper Association.
chemical pulp – A generic term for pulp made from woodfibre
that has been produced in a chemical process.
air dry tons (ADT) – Meaning dry solids content of 90% and
moisture content of 10%.
CHP – Combined heat and power.
biochemicals – Enzymes, hormones, pheromones etc, which
either occur naturally or are manufactured to be identical to
naturally occurring substances. Biochemicals have many
environment-friendly applications, such as natural pesticides
that work in non-lethal ways as repellents or by disrupting the
mating patterns of the pests.
biofuels – Organic material such as wood, waste and alcohol
fuels, as well as gaseous and liquid fuels produced from these
feedstocks when they are burned to produce energy.
biomaterials – New developments in wood processing
supports the move to a biobased economy that utilises
materials that are renewable and biodegradable and that do
not compete with food sources.
black liquor – The spent cooking liquor from the pulping
process which arises when pulpwood is cooked in a digester
thereby removing lignin, hemicellulose and other extractives
from the wood to free the cellulose fibres. The resulting black
liquor is an aqueous solution of lignin residues, hemicellulose,
and the inorganic chemicals used in the pulping process. Black
liquor contains slightly more than half of the energy content of
the wood fed into the digester.
bleached pulp – Pulp that has been bleached by means of
chemical additives to make it suitable for fine paper production.
casting and release paper – Embossed paper used to
impart design in polyurethane or polyvinyl chloride plastic films
for the production of synthetic leather and other textured
surfaces.
CEPI – Confederation of European Paper Industries.
chemical oxygen demand (COD) – The amount of oxygen
required to break down the organic compounds in effluent.
coated mechanical – Coated paper made from groundwood
pulp which has been produced in a mechanical process,
primarily used for magazines, catalogues and advertising
material.
coated papers – Papers that contain a layer of coating
material on one or both sides. The coating materials, consisting
of pigments and binders, act as a filler to improve the printing
surface of the paper.
coated woodfree – Coated paper made from chemical pulp
which is made from woodfibre that has been produced in a
chemical process, primarily used for high-end publications and
advertising material.
corrugating medium – Paperboard made from chemical and
semi-chemical pulp, or waste paper, that is to be converted to
a corrugated board by passing it through corrugating cylinders.
Corrugating medium between layers of linerboard form the
board from which corrugated boxes are produced.
CSI and CSR – Corporate social investment and corporate
social responsibility.
CSV – Corporate shared value involves developing profitable
business strategies that deliver tangible social benefits.
dissolving pulp – Highly purified chemical pulp derived
primarily from wood, but also from cotton linters intended
primarily for conversion into chemical derivatives of cellulose
and used mainly in the manufacture of viscose staple fibre,
solvent spin fibre and filament.
dissolving wood pulp – Highly purified chemical pulp derived
from wood intended primarily for conversion into chemical
derivatives of cellulose and used mainly in the manufacture of
viscose staple fibre, solvent spin fibre and filament.
sappi 2017 Annual Integrated Report 117
energy – Is present in many forms such as solar, mechanical,
thermal, electrical and chemical. Any source of energy can be
tapped to perform work. In power plants, coal is burned and its
chemical energy is converted into electrical energy. To generate
steam, coal and other fossil fuels are burned, thus converting
stored chemical energy into thermal energy.
fibre – Fibre is generally referred to as pulp in the paper
industry. Wood is treated chemically or mechanically to
separate the fibres during the pulping process.
fine paper – Paper usually produced from chemical pulp for
printing and writing purposes and consisting of coated and
uncoated paper.
fmcg – Fast-moving consumer goods. Examples include
non-durable goods such as packaged foods, beverages,
toiletries, over-the-counter medicines and many other
consumables.
Forestry SA – Largest forestry organisation representing
growers of timber in South Africa.
FSC® (Forest Stewardship Council®) – Is an independent,
non-governmental, not for profit organisation established to
promote the responsible management of the world's forests.
Over 190 million hectares of forest are FSC®-certified, in over
80 countries worldwide. https://ic.fsc.org/en
full-time equivalent employee – The number of total hours
worked divided by the maximum number of compensable
hours in a full-time schedule as defined by law.
greenhouse gases (GHG) – The GHGs included in the
Kyoto Protocol are carbon dioxide, methane, nitrous oxide,
hydrofluorocarbons, perfluorocarbons and sulphur
hexafluoride.
ISO – Developed by the International Standardisation
Organisation (ISO), ISO 9000 is a series of standards focused
on quality management systems, while the ISO 14001 series is
focused on environmental performance and management.
JSE Limited – The main securities exchange in South Africa.
kraft paper – Packaging paper (bleached or unbleached)
made from kraft pulp.
kraft pulp – Chemical wood pulp produced by digesting wood
by means of the sulphate pulping process.
Kyoto Protocol – A document signed by over 160 countries
at Kyoto, Japan in December 1997 which commits signatories
to reducing their emission of greenhouse gases relative to
levels emitted in 1990.
lignosulphonate – Lignosulphonate is a highly soluble lignin
derivative and a product of the sulphite pulping process.
linerboard – The grade of paperboard used for the exterior
facings of corrugated board. Linerboard is combined with
corrugating medium by converters to produce corrugated
board used in boxes.
liquor – White liquor is the aqueous solution of sodium
hydroxide and sodium sulphide used to extract lignin during
kraft pulping. Black liquor is the resultant combination of lignin,
water and chemicals.
Lost-Time Injury Frequency Rate (LTIFR) – Number of lost
time injuries x 200,000 divided by man hours.
managed forest – Naturally occurring forests that are
harvested commercially.
market pulp – Pulp produced for sale on the open market,
as opposed to that produced for own consumption in an
integrated mill.
mechanical pulp – Pulp produced by means of the
mechanical grinding or refining of wood or woodchips.
nanocellulose – Cellulose is the main component of plant
stems, leaves and roots. Traditionally, its main commercial use
was in producing paper and textiles. Nanocellulose opens up
opportunities for advanced, planet-friendly solutions in place of
environmentally harmful products.
natural/indigenous forest – A forest of naturally regenerating
native trees.
NBHK – Northern Bleached Hardwood Kraft pulp. One of the
varieties of market pulp, produced from hardwood trees (ie
birch or aspen) in Scandinavia, Canada and northern USA.
sappi 2017 Annual Integrated ReportGlossary and notice to shareholders 118
Glossary continued
NBSK – Northern Bleached Softwood Kraft pulp. One of the
main varieties of market pulp, produced from coniferous trees
(ie spruce, pine) in Scandinavia, Canada and northern USA.
The price of NBSK is a benchmark widely used in the pulp and
paper industry for comparative purposes.
newsprint – Paper produced for the printing of newspapers
mainly from mechanical pulp and/or recycled waste paper.
NGO – Non-government organisation.
NPO – Non-profit organisation.
OHSAS – Is an international health and safety standard aimed
at minimising occupational health and safety risks firstly, by
conducting a variety of analyses and secondly, by setting
standards.
OTC – Over-the-counter trading of shares.
packaging paper – Paper used for packaging purposes.
PAMSA – Paper Manufacturers’ Association of South Africa.
PEFC™ – The Programme for the Endorsement of Forest
Certification (PEFC) is an international non-profit, non-
governmental organisation dedicated to promoting Sustainable
Forest Management (SFM) through independent third-party
certification. PEFC™ is the world’s largest forest certification
system with over 300 million hectares of forest area under
PEFC™ standards. PEFC™ is represented in 49 countries
through national organisations such as SFI in North America.
https://www.pefc.org/
plantation – Large scale planted forests, intensively managed,
highly productive and grown primarily for wood and fibre
production.
PM – Paper machine.
power – The rate at which energy is used or produced.
pulpwood – Wood suitable for producing pulp – usually
not of sufficient standard for saw milling.
release paper – Based paper used in the production of
making release liners, the backing paper for self-adhesive
labels.
sackkraft – Kraft paper used to produce multi-wall paper
sacks.
Scope 1 and 2 GHG emissions – The Greenhouse Gas
Protocol defines Scope 1 (direct) and Scope 2 (indirect)
emissions as follows:
• Direct GHG emissions are emissions from sources that are
owned or controlled by the reporting entity, and
• Indirect GHG emissions are emissions from purchased
electricity, steam, heat or cooling.
SFI® (Sustainable Forestry Initiative) – Is a solutions-
oriented sustainability organisation that collaborates
on forest-based conservation and community initiatives.
The SFI® forest management standard is the largest forestry
certification standard within the PEFC programme with
over a hundred million hectares under management.
http://www.sfiprogram.org/
silviculture costs – Growing and tending costs of trees in
forestry operations.
solid waste – Dry organic and inorganic waste materials.
specialised cellulose – The business within Sappi
which oversees the production and marketing of dissolving
wood pulp (DWP).
specialities – A generic term for a group of papers intended
for commercial and industrial use such as flexible packaging,
metallised base paper, coated bag paper, etc.
specific – When data is expressed in specific form, this means
that the actual quantity consumed during the year indicated,
whether energy, water, emissions or solid waste, is expressed
in terms of a production parameter. For Sappi, as with other
pulp and paper companies, this parameter is air dry tons of
saleable product.
specific purchased energy – The term ‘specific’ indicates
that the actual quantity during the year indicated, is expressed
in terms of a production parameter. For Sappi, as with other
pulp and paper companies, the parameter is air dry tons of
product.
sappi 2017 Annual Integrated Report 119
Sustainable Forestry Initiative (SFI®) – The SFI® programme
is a comprehensive system of objectives and performance
measures which integrate the sustained growing and
harvesting of trees and the protection of plants and animals.
thermo-mechanical pulp – Pulp produced by processing
woodfibres using heat and mechanical grinding or refining
wood or woodchips.
ton – Term used in this report to denote a metric ton
of 1,000kg.
total suspended solids (TSS) – Refers to matter suspended
or dissolved in effluent.
uncoated woodfree paper – Printing and writing paper
made from bleached chemical pulp used for general printing,
photocopying and stationery, etc. Referred to as uncoated as it
does not contain a layer of pigment to give it a coated surface.
compound annual growth rate – Is the mean annual growth
rate of an investment over a specified period of time longer
than one year.
control – An investor controls an investee when it is exposed,
or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its
power over the investee.
diluted earnings per share – Is calculated by assuming
conversion or exercise of all potentially dilutive shares, share
options and share awards unless these are anti-dilutive.
discount rate – This is the pre-tax interest rate that reflects
the current market assessment of the time value of money
for the purposes of determining discounted cash flows. In
determining the cash flows the risks specific to the asset or
liability are taken into account in determining those cash flows
and are not included in determining the discount rate.
viscose staple fibre (VSF) – A natural fibre made from
purified cellulose, primarily from dissolving wood pulp (DWP)
that can be twisted to form yarn.
disposal date – The date on which control in respect of
subsidiaries, joint arrangements and significant influence in
associates ceases.
woodfree paper – Paper made from chemical pulp.
World Wildlife Fund (WWF) – The world’s largest
conservation organisation, focused on supporting biological
diversity.
General financial definitions
acquisition date – The date on which control in respect of
subsidiaries, joint control in respect of joint arrangements and
significant influence in associates commences.
associate – An entity over which the investor has significant
influence.
basic earnings per share – Net profit for the year divided
by the weighted average number of shares in issue during
the year.
commissioning date – The date that an item of property,
plant and equipment, whether acquired or constructed, is
brought into use.
fair value – The price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
financial results – Comprise the financial position (assets,
liabilities and equity), results of operations (revenue and
expenses) and cash flows of an entity and of the group.
foreign operation – An entity whose activities are based or
conducted in a country or currency other than that of the
reporting entity.
functional currency – The currency of the primary economic
environment in which the entity operates.
group – The group comprises Sappi Limited, its subsidiaries
and its interest in joint ventures and associates.
sappi 2017 Annual Integrated ReportGlossary and notice to shareholders 120
Glossary continued
joint arrangement – Is an arrangement of which two or more
parties have joint control.
joint venture – Is a joint arrangement whereby the parties that
have joint control of the arrangement have rights to the net
assets of the arrangement.
operation – A component of the group:
• That represents a separate major line of business or
significant influence – Is the power to participate in the
financial and operating policy decisions of an entity but is not
control or joint control of those policies.
Non-GAAP financial definitions
The group believes that it is useful to report certain non-GAAP
measures for the following reasons:
• These measures are used by the group for internal
performance analysis
geographical area of operation, or
• The presentation by the group’s reported business segments
• Is distinguished separately for financial and operating
purposes.
operating profit – A profit from business operations before
deduction of net finance costs and taxes.
presentation currency – The currency in which the financial
results of an entity are presented.
qualifying asset – An asset that necessarily takes a
substantial period (normally in excess of six months) to get
ready for its intended use.
recoverable amount – The recoverable amount of an asset
or cash-generating unit is the higher of its fair value less costs
of disposal and its value in use. In determining the value in use,
expected future cash flows are discounted to their net present
values using the discount rate.
related party – Parties are considered to be related if one
party directly or indirectly has the ability to control the other
party or exercise significant influence over the other party in
making financial and operating decisions or is a member of the
key management of Sappi Limited.
of these measures facilitates comparability with other
companies in our industry, although the group’s measures
may not be comparable with similarly titled profit
measurements reported by other companies, and
• It is useful in connection with discussion with the investment
analyst community and debt rating agencies. These
non-GAAP measures should not be considered in isolation
or construed as a substitute for GAAP measures in
accordance with IFRS.
asset turnover (times) – Sales divided by total assets.
average – Averages are calculated as the sum of the opening
and closing balances for the relevant period divided by two.
Black Economic Empowerment (BEE) charge –
Represents the IFRS 2 non-cash charge associated with the
BEE transaction implemented in 2010 in terms of BEE
legislation in South Africa.
capital employed – Shareholders’ equity plus net debt.
cash interest cover – Cash generated by operations divided
by finance costs less finance revenue.
segment assets – Total assets (excluding deferred taxation
and cash) less current liabilities (excluding interest-bearing
borrowings and overdraft).
current asset ratio – Current assets divided by current
liabilities.
share-based payment – A transaction in which Sappi Limited
issues shares or share options to group employees as
compensation for services rendered.
dividend yield – Dividends per share, which were declared
after year-end, in US cents divided by the financial year-end
closing prices on the JSE Limited converted to US cents using
the closing financial year-end exchange rate.
sappi 2017 Annual Integrated Report 121
earnings yield – Earnings per share divided by the financial
year-end closing prices on the JSE Limited converted to US
cents using the closing financial year-end exchange rate.
ordinary shareholders’ interest per share – Shareholders’
equity divided by the actual number of shares in issue at
year-end.
EBITDA excluding special items – Earnings before interest
(net finance costs), taxation, depreciation, amortisation and
special items.
price/earnings ratio – The financial year-end closing prices
on the JSE Limited converted to US cents using the closing
financial year-end exchange rate divided by earnings per share.
EPS excluding special items – Earnings per share excluding
special items and certain once-off finance and tax items.
ROCE – Return on average capital employed. Operating profit
excluding special items divided by average capital employed.
fellings – The amount charged against the income statement
representing the standing value of the plantations harvested.
ROE – Return on average equity. Profit for the period divided
by average shareholders’ equity.
headline earnings – As defined in Circular 2/2015, reissued
by the South African Institute of Chartered Accountants in
October 2015, which separates from earnings all separately
identifiable remeasurements. It is not necessarily a measure of
sustainable earnings. It is a Listings Requirement of the JSE
Limited to disclose headline earnings per share.
inventory turnover (times) – Cost of sales divided by
inventory on hand at balance sheet date.
net assets – Total assets less total liabilities.
net asset value per share – Net assets divided by the
number of shares in issue at balance sheet date.
net debt – Current and non-current interest-bearing
borrowings, and bank overdraft (net of cash, cash equivalents
and short-term deposits).
net debt to total capitalisation – Net debt divided by capital
employed.
net operating assets – Total assets (excluding deferred
taxation and cash and cash equivalents) less current liabilities
(excluding interest-bearing borrowings and overdraft).
ordinary dividend cover – Profit for the period divided by the
ordinary dividend declared, multiplied by the actual number of
shares in issue at year-end.
RONOA – Return on average net operating assets. Operating
profit excluding special items divided by average net operating
assets.
SG&A – Selling, general and administrative expenses.
special items – Special items cover those items which
management believe are material by nature or amount to the
operating results and require separate disclosure. Such items
would generally include profit or loss on disposal of property,
investments and businesses, asset impairments, restructuring
charges, non-recurring integration costs related to acquisitions,
financial impacts of natural disasters, non-cash gains or losses
on the price fair value adjustment of plantations and alternative
fuel tax credits receivable in cash.
total market capitalisation – Ordinary number of shares in
issue (excluding treasury shares held by the group) multiplied
by the financial year-end closing prices on the JSE Limited
converted to US cents using the closing financial year-end
exchange rate.
trade receivables days outstanding (including securitised
balances) – Gross trade receivables, including receivables
securitised, divided by sales multiplied by the number of days
in the year.
sappi 2017 Annual Integrated ReportGlossary and notice to shareholders 122
Notice to shareholders
Notice of Annual General Meeting
This document is important and requires your immediate
attention
If you are in any doubt as to what action you should take,
please consult your stockbroker, banker, attorney, accountant
or other professional advisor immediately.
Sappi Limited
(Registration number: 1936/008963/06)
(Sappi or the Company)
The eighty-first Annual General Meeting (AGM) of Sappi will be
held at Sappi’s registered office, in the Oxford Room, Ground
Floor, 108 Oxford Road, Rosebank, Johannesburg (entrance in
9th Street) on Wednesday, 07 February 2018 at 14:00. The
following business will be transacted and, if deemed fit,
the following resolutions will be passed with or without
modification.
The record date on which shareholders must be recorded as
such in the register maintained by the transfer secretaries of
the Company for the purposes of determining which
shareholders are entitled to attend and vote at the AGM is
Friday, 02 February 2018.
1.
Ordinary resolution number 1: Presentation of annual
financial statements
Ordinary resolution number 1 is proposed to present the
annual financial statements of the Company for the year
ended September 2017, including the directors’ report,
the report of the auditors and the report of the Audit
Committee.
The complete Group Annual Financial Statements
for the year ended September 2017 are available
on the Sappi website: www.sappi.com.
“Resolved that the Group Annual Financial Statements
for the year ended September 2017 of the Company,
including the directors’ report, the report of the auditors
and the report of the Audit Committee, be and are
hereby received and accepted.”
In order for this resolution to be adopted, the support of
more than 50% of the voting rights exercised on the
resolution by shareholders present or represented by
proxy at the AGM and entitled to exercise voting rights
on the resolution is required.
2.
Ordinary resolution number 2: Approval and
confirmation of appointment of directors appointed
subsequent to the last AGM and subsequent to the
financial year-end
“Resolved that the appointment of Dr B Mehlomakulu
with effect from 01 March 2017 is approved and
confirmed as required in terms of Sappi’s Memorandum
of Incorporation.”
The board recommends and supports the approval and
confirmation of her appointment. For Dr Mehlomakulu’s
brief biographical details, refer to note 1 under
‘notes’ on page 128.
In order for this resolution to be adopted, the support of
more than 50% of the voting rights exercised on the
resolution by shareholders present or represented by
proxy at the AGM and entitled to exercise voting rights
on the resolution, is required.
3.
Ordinary resolutions numbers 3.1 to 3.3: Re-election
of the directors retiring by rotation in terms of
Sappi’s Memorandum of Incorporation
The board has evaluated the performances of each of the
directors who are retiring by rotation, and recommends
and supports the re-election of each of them.
For brief biographical details of those directors,
refer to note 2 under ‘notes’ on pages 128 and 129.
It is intended that all the directors who retire by rotation
will, if possible, attend the AGM, either in person or by
means of video-conferencing.
In order for these resolutions to be adopted, in each
case the support of more than 50% of the voting rights
exercised on the resolution by shareholders present or
represented by proxy at the AGM and entitled to exercise
voting rights on the resolution is required:
Ordinary resolution number 3.1
“Resolved that Sir Nigel Rudd is re-elected as a director
of Sappi.”
Ordinary resolution number 3.2
“Resolved that Mr NP Mageza is re-elected as a director
of Sappi.”
Ordinary resolution number 3.3
“Resolved that Mr MV Moosa is re-elected as a director
of Sappi.”
4.
Ordinary resolution number 4: Election of Audit
Committee members
Ordinary resolution number 4 is proposed to elect the
members of the Audit Committee in terms of section
94(2) of the South African Companies Act 71 of 2008
(as amended) (the Companies Act) and the King IV
Report on Corporate Governance for South Africa
2016 (King IV).
Section 94 of the Companies Act requires that, at each
AGM, shareholders of the Company must elect an Audit
Committee comprising at least three members.
sappi 2017 Annual Integrated Report
123
6.
The Nomination and Governance Committee conducted
an assessment of the performance and independence of
each of the directors proposed to be members of the
Audit Committee and the board considered and
accepted the findings of the Nomination and
Governance Committee. The board is satisfied that the
proposed members meet the requirements of section
94(4) of the Companies Act, that they are independent
according to King IV and that they possess the required
qualifications and experience as prescribed in
regulation 42 of the Companies Regulations, 2011,
which requires that at least one-third of the members of
a company’s Audit Committee at any particular time
must have academic qualifications or experience in
economics, law, corporate governance, finance,
accounting, commerce, industry, public affairs or human
resource management.
Brief biographical details of each member of the Audit
Committee are included in the biographies of all directors
on our website www.sappi.com.
“Resolved that an Audit Committee be and is hereby
elected, by separate election to the committee of the
following independent directors:
4.1 Dr D Konar
4.2 Mr MA Fallon
4.3 Mr NP Mageza
4.4 Mrs KR Osar
4.5 Mr RJAM Renders
Chairman
Member
Member*
Member
Member
in terms of the Companies Act, to hold office until the
conclusion of the next AGM and to perform the duties
and responsibilities stipulated in section 94(7) of the
Companies Act and in King IV and to perform such other
duties and responsibilities as may from time to time be
delegated to it by the board.”
In order for these resolutions to be adopted, the support
in each case of more than 50% of the voting rights
exercised on the resolution by shareholders present or
represented by proxy at the AGM and entitled to
exercise voting rights on the resolution is required.
* Subject to his re-election as a director pursuant to ordinary
resolution number 3.2
5.
Ordinary resolution number 5: Appointment of
auditors
The board has evaluated the performance of KPMG Inc.
and recommends their re-appointment as auditors
of Sappi.
“Resolved that KPMG Inc. (with the designated
registered auditor to be Mr Coenie Basson) be re-
appointed as the auditors of Sappi for the financial year
ending September 2018 and to remain in office until the
conclusion of the next AGM.”
In order for this resolution to be adopted, the support
of more than 50% of the voting rights exercised on the
resolution by shareholders present or represented by
proxy at the AGM and entitled to exercise voting rights
on the resolution is required.
Ordinary resolutions numbers 6.1 and 6.2: The
provision of Sappi Limited shares as required by the
Sappi Limited Share Incentive Trust and the Sappi
Limited Performance Share Incentive Trust
The passing of resolutions 6.1 and 6.2 will enable the
directors to continue to meet the share requirements of
the Sappi Limited Share Incentive Trust and the Sappi
Limited Performance Share Incentive Trust (collectively
the Schemes), both of which Schemes were approved
by shareholders, are already in place and are subject to
the Listings Requirements of the JSE Limited (JSE).
The passing of resolution 6.2 will provide directors with
the ability to utilise shares repurchased from time to time
by a wholly owned subsidiary of Sappi and held in
treasury by such subsidiary company, for the purposes
of satisfying the share requirements of the Schemes, at
times when the directors consider that to be more
efficient than issuing new shares in the capital of Sappi.
The combined maximum number of shares which can be
issued pursuant to the Schemes is 42,700,870 shares.
As at year-end, 16,775,868 shares pursuant to offers
made under the Schemes after 07 March 2005, have
already been issued to, or transferred to the Schemes
since the approval by shareholders of the Sappi Limited
Performance Share Plan on 07 March 2005, leaving a
balance of up to 31,686,412 shares which can still be
issued or transferred to the Schemes. Of that number,
there are currently 13,484,755 Performance Share Plan
awards which are still subject to vesting and 1,425,789
options which have not yet been exercised.
Ordinary resolution number 6.1
“Resolved as an ordinary resolution that all the ordinary
shares required for the purpose of carrying out the terms
of the Sappi Limited Performance Share Incentive Trust
(“the Plan”), other than those which have specifically
been appropriated for the Plan in terms of ordinary
resolutions duly passed at previous general meetings of
Sappi, be and are hereby specifically placed under the
control of the directors who be and are hereby
authorised to issue those shares in terms of the Plan.”
Ordinary resolution number 6.2
“Resolved as an ordinary resolution that any subsidiary of
Sappi Limited be and is hereby authorised in terms of
the Listings Requirements of the JSE to sell at the price
at which the participant is allowed to acquire the
Company’s shares and to transfer to the Sappi Limited
Share Incentive Trust and/or the Sappi Limited
Performance Share Incentive Trust (collectively “the
Schemes”) those numbers of Sappi’s shares to be
acquired by that subsidiary from time to time (but not
sappi 2017 Annual Integrated ReportGlossary and notice to shareholders
124
Notice to shareholders continued
exceeding the maximum number of Sappi’s shares
available to the Schemes) as may be required by the
Schemes when a participant to whom Sappi’s shares
will be allocated has been identified.”
In order for these resolutions to be adopted, in each
case the support of more than 50% of the voting rights
exercised on the resolution by shareholders present or
represented by proxy at the AGM and entitled to exercise
voting rights on the resolution is required.
proxy at the AGM and entitled to exercise voting rights
on the resolution is required.
8.
Ordinary resolution number 8: Implementation report
“Resolved as an ordinary resolution, that the Company’s
Implementation report as contained in Section C of the
Remuneration Report on pages 84 to 88 of the
Annual Integrated Report, be and is hereby endorsed
by way of a non-binding advisory vote.”
7.
Ordinary resolution number 7: Remuneration policy
“Resolved as an ordinary resolution, that the Company’s
Remuneration policy as contained in Section B of the
Remuneration Report on pages 78 to 84 of the
Annual Integrated Report, be and is hereby
endorsed by way of a non binding advisory vote."
This non-binding advisory vote is being proposed in
accordance with the recommendations of King IV.
9.
In order for this resolution to be adopted, the support
of more than 50% of the voting rights exercised on the
resolution by shareholders present or represented by
This further non-binding advisory vote is being proposed
in accordance with the recommendations of King IV.
In order for this resolution to be adopted, the support of
more than 50% of the voting rights exercised on the
resolution by shareholders present or represented by
proxy at the AGM and entitled to exercise voting rights
on the resolution is required.
Special resolution number 1: Non-executive
directors’ fees
“Resolved that, with effect from 01 October 2017 and
until otherwise determined by Sappi in general meeting,
the remuneration of the non-executive directors for their
services shall be increased as follows:
1.
Sappi board fees(1)
Chairperson
If South African resident
If United Kingdom resident
If United States resident
If European resident
Lead independent director
If South African resident
If United Kingdom resident
If United States resident
If European resident
Other directors
If South African resident
If United Kingdom resident
If United States resident
If European resident
* Inclusive of all board committee fees.
(1) Fees per annum unless indicated otherwise.
From
To
ZAR2,689,110*
£302,980*
US$453,330*
€407,440*
ZAR2,823,570*
£307,520*
US$461,940*
€413,550*
ZAR587,080
£66,360
US$99,240
€89,240
ZAR392,360
£44,200
US$66,140
€59,450
ZAR616,430
£67,350
US$101,120
€90,580
ZAR411,980
£44,860
US$67,400
€60,340
sappi 2017 Annual Integrated Report
125
From
To
ZAR407,420
£44,880
US$68,520
€60,360
ZAR203,710
£22,570
US$33,420
€30,350
ZAR427,790
£45,550
US$69,820
€61,270
ZAR213,900
£22,910
US$34,100
€30,800
From
To
ZAR244,950
£26,660
US$39,150
€35,850
ZAR127,480
£18,690
US$23,920
€25,130
ZAR257,200
£27,060
US$39,890
€36,390
ZAR133,850
£18,970
US$24,370
€25,510
From
To
ZAR39,330
per meeting
£4,380
per meeting
US$6,610
per meeting
€5,890
per meeting
ZAR41,300
per meeting
£4,450
per meeting
US$6,740
per meeting
€5,980
per meeting
2.
3.
Audit Committee fees(1)
Board committee
Chairperson
If South African resident
If United Kingdom resident
If United States resident
If European resident
Other members
If South African resident
If United Kingdom resident
If United States resident
If European resident
(1) Fees per annum unless indicated otherwise.
Human Resources and Compensation Committee, Nomination
and Governance Committee, Social, Ethics, Sustainability
and Transformation Committee and any other committees(1)
Chairperson
If South African resident
If United Kingdom resident
If United States resident
If European resident
Other members
If South African resident
If United Kingdom resident
If United States resident
If European resident
(1) Fees per annum unless indicated otherwise.
4.
Additional meeting fees for board meetings in excess of five meetings
per annum whether attended in person or by teleconference/video-
conference
If South African resident
If United Kingdom resident
If United States resident
If European resident
sappi 2017 Annual Integrated ReportGlossary and notice to shareholders 126
Notice to shareholders continued
5.
Travel compensation
For more than 10 flight hours return
If South African resident
If United Kingdom resident
If United States resident
If European resident
From
To
US$3,500
per meeting
US$3,500
per meeting
US$3,500
per meeting
US$3,500
per meeting
US$3,600
per meeting
US$3,600
per meeting
US$3,600
per meeting
US$3,600
per meeting
10.
Sappi’s practice, as recorded previously, is to review
directors’ fees annually. Special resolution number
1 increases the remuneration currently paid to non-
executive directors and board committee members
by between approximately 1.5% and 5% per annum
depending generally on the domicile of the directors
and the currency in which they are paid, with effect from
01 October 2017. The fees were last increased with
effect from 01 October 2016 and have been reviewed to
ensure that Sappi’s fees remain generally comparable
with those of its peer companies in the various countries
in which its directors are domiciled.
The review also takes into account that the responsibility
of non-executive directors continues to increase
substantially flowing from legislative, regulatory and
corporate governance developments and requirements
in South Africa and elsewhere.
Non-executive directors’ fees are paid quarterly (in
March, June, September and December each year) and
the proposed increase, if approved, will be applicable to
payments to be made in December 2017 onwards.
Initially the December 2017 payment will be made on
the basis of the existing fee structure, and following
shareholder approval of the proposed increases, the
shortfall in the December 2017 payment will be made
up in the March 2018 payment.
The practice has been and will continue to be that
directors’ fees and board committee fees are paid to
non-executive directors only.
11.
In order for this resolution to be adopted, the support
of at least 75% of the voting rights exercised on the
resolution by shareholders present or represented by
proxy at the AGM and entitled to exercise voting rights
on the resolution is required.
Special resolution number 2: Loans or other financial
assistance to related or inter-related companies
The Companies Act provides, among other things,
that, except to the extent that the Memorandum of
Incorporation of a company provides otherwise, the
board may authorise the Company to provide direct
or indirect financial assistance (which includes lending
money, guaranteeing a loan or other obligation and
securing any debt or obligation) to a related or inter-
related company or corporation, provided that such
authorisation shall be made pursuant to a special
resolution of the shareholders adopted within the
previous two years, which approved such assistance
either for the specific recipient or generally for a category
of potential recipients and the specific recipient falls
within that category.
“Resolved that the directors of the Company be and are
hereby authorised, in accordance with the Companies
Act, to authorise the Company to provide direct or
indirect financial assistance to any company or
corporation which is related or inter-related to the
Company.”
In order for this resolution to be adopted, the support
of at least 75% of the voting rights exercised on the
resolution by shareholders present or represented by
proxy at the AGM and entitled to exercise voting rights
on the resolution is required.
Ordinary resolution number 9: Signature of
documents
“Resolved that any director of Sappi is authorised to sign
all such documents and do all such things as may be
necessary for or incidental to the implementation of the
resolutions passed at the AGM held on 07 February
2018 or any adjournment thereof.”
sappi 2017 Annual Integrated Report
127
In order for this resolution to be adopted, the support
of more than 50% of the voting rights exercised on the
resolution by shareholders present or represented by
proxy at the AGM and entitled to exercise voting rights
on the resolution is required.
12.
To receive a report from the Social, Ethics,
Transformation and Sustainability Committee
Shareholders are referred to the Social, Ethics,
Transformation and Sustainability Committee
Report on page 89.
Proxies
Shareholders are entitled to appoint one or more proxies to
attend, speak and on a poll to vote in their stead. A proxy need
not be a shareholder. For the convenience of shareholders, a
form of proxy is enclosed.
The attached form of proxy is only to be completed by
shareholders who hold Sappi shares in certificated form or
have dematerialised their shares (i.e. have replaced the paper
share certificates with electronic records of ownership under
JSE’s electronic settlement system (“Strate Limited”) and are
recorded in the sub-register in “own name” dematerialised form
(i.e. shareholders who have specifically instructed their Central
Securities Depositary Participant (“CSDP”) or broker to hold
their shares in their “own name” on Sappi’s sub-register).
Shareholders who have dematerialised their shares and who
are not registered as ‘own name’ dematerialised shareholders
and who wish to:
• attend the AGM must instruct their CSDP or brokers to
provide them with a letter of representation to enable them
to attend such meeting; or
• vote, but not to attend the AGM, must provide their CSDPs
or brokers with their voting instructions in terms of the
relevant custody agreement between them and their CSDPs
or brokers.
Such a shareholder must not complete the attached form
of proxy.
When authorised to do so, CSDPs or brokers recorded in
Sappi’s sub-register or their nominees should vote either by
appointing a duly authorised representative to attend and vote
at the AGM to be held on 07 February 2018 or any
adjournment thereof or by completing the attached form of
proxy and returning it to one of the addresses indicated on the
form of proxy in accordance with the instructions thereon.
Electronic participation by shareholders
Should any shareholder (or any proxy for a shareholder) wish to
participate in the AGM by way of electronic participation, that
shareholder should make application in writing (including
details as to how the shareholder or the shareholder’s
representative or proxy, can be contacted) to so participate to
the transfer secretaries, at their address as reflected on
page 130, to be received by the transfer secretaries at
least five business days prior to the AGM in order for the
transfer secretaries to arrange for the shareholder (or the
shareholder’s representative or proxy) to provide reasonably
satisfactory identification to the transfer secretaries for the
purposes of section 63(1) of the Companies Act and for the
transfer secretaries to provide the shareholder (or the
shareholder’s representative or proxy) with details as to how to
access any electronic participation to be provided. The
Company reserves the right to elect not to provide for
electronic participation at the AGM in the event that it
determines that it is not practical to do so. The costs of
accessing any means of electronic participation provided by
the Company will be borne by the Company.
It should be noted, however, that voting will not be possible
via the electronic facilities and for shareholders wishing to vote,
their shares will need to be represented at the meeting either in
person, by proxy or by letter of representation, as provided for
in the notice of meeting.
Questions
The board encourages shareholders to attend and to ask
questions at the AGM. In order to facilitate the answering of
questions at the meeting, shareholders who wish to ask
questions in advance are encouraged to submit their questions
in writing to the Group Company Secretary by 17:00 on Friday,
02 February 2018 at:
108 Oxford Road
(Entrance in 9th Street)
Rosebank
Johannesburg
2198
or
PO Box 31560
Braamfontein
2017
or
By email to Amanda.Tregoning@sappi.com
Sappi Southern Africa Limited
Secretaries: per AJ Tregoning
108 Oxford Road
Rosebank, Johannesburg 2198
07 December 2017
sappi 2017 Annual Integrated ReportGlossary and notice to shareholders
128
Notice to shareholders continued
2.
Directors retiring by rotation who are seeking
re-election
Sir Nigel Rudd (70)
(Independent Chairman)
Qualifications: DL, Chartered Accountant
Nationality: British
Appointed: April 2006
Sappi board committee memberships:
• Nomination and Governance Committee (Chairman)
• Attends Audit Committee, Human Resources
and Compensation Committee and Social, Ethics,
Transformation and Sustainability Committee meetings
ex officio
Other board and organisation memberships:
BBA Aviation plc (Chairman)
Business Growth Fund (Chairman)
Meggitt plc (Chairman)
Skills, expertise and experience:
Sir Nigel Rudd has held various senior management and
board positions in a career spanning more than 35 years.
He founded Williams plc in 1982 and the company went
on to become one of the largest industrial holding
companies in the United Kingdom. He was knighted by
the queen for services to the manufacturing industry in
the UK in 1996 and holds honorary doctorates from
Loughborough and Derby Universities. In 1995 he was
awarded the Founding Societies Centenary Award by the
Institute of Chartered Accountants. He is a Deputy
Lieutenant of Derbyshire and a Freeman of the City
of London.
Notes
1.
Approval and confirmation of appointment of
directors appointed since the last AGM and
subsequent to the year-end
Dr Bonakele Mehlomakulu (Boni) (45)
(Independent)
Qualifications: PhD (Chemical Engineering), MSc
(Organic Chemistry)
Nationality: South African
Appointed: March 2017
Sappi board committee memberships:
• Social, Ethics, Transformation and Sustainability
Committee
Other board and organisation memberships:
• Hulamin Limited
• Unisa Council
• Yokogawa South Africa
Skills, expertise and experience:
Dr Boni Mehlomakulu is the Chief Executive Officer of the
South African Bureau of Standards (SABS). Under her
leadership the institution has undergone a significant
transformation, gearing itself towards service relevance
within the 21st century. As a pioneer for continuous
learning, she holds a BSc (Hons) (Chemistry and Applied
Chemistry), MSc (Organic Chemistry) and a PhD
(Chemical Engineering) from the University of
Cape Town.
Dr Mehlomakulu’s career started at Sasol before joining
the Department of Science and Technology in various
management roles. In addition to her non-executive
directorship at Sappi Limited, her external industry
portfolios include being the deputy chair of Unisa
Council, non-executive director of Hulamin Limited and
Yokogawa South Africa, as well as a council member of
the International Standards Organisation (ISO, Geneva).
Past boards and directorships include PBMR Proprietary
Limited, Nuclear Energy Corporation of South Africa
(NECSA), Eskom Holdings SOC Limited and the
Technology Innovation Agency (TIA).
sappi 2017 Annual Integrated Report
129
Nkateko Peter Mageza (Peter) (63)
(Independent)
Qualifications: FCCA (UK)
Nationality: South African
Appointed: January 2010
Mohammed Valli Moosa (Valli) (60)
(Non-independent)
Qualifications: BSc (Mathematics)
Nationality: South African
Appointed: August 2010
Sappi board committee memberships:
• Audit Committee
• Human Resources and Compensation Committee
Sappi board committee memberships:
• Social, Ethics, Transformation and Sustainability
Committee (Chairman)
Other board and organisation memberships:
• Anglo American Platinum Limited
• Ethos Private Equity Proprietary Limited
• RCL Foods Limited (formerly Rainbow Chickens
Limited)
• Remgro Limited
• MTN Group Limited
Skills, expertise and experience:
Mr Mageza joined the Sappi board after having held
senior executive positions across a wide range of
industries. He is a former group Chief Operating Officer
and Executive Director of Absa Group Limited, Assistant
General Manager at Nedcor Limited and Chief Executive
Officer of Autonet, the Road Passenger and Freight
Logistics division of Transnet Limited.
Other board and organisation memberships:
• Anglo Platinum Limited (Chairman)
• Imperial Holdings Limited
• Sanlam Limited
• Sun International Limited (Chairman)
• WWF–SA (Chairman)
Skills, expertise and experience:
Mr Moosa has held numerous leadership positions
across business, government, politics and civil society
in South Africa. He was South African Minister of
Constitutional Development, the President of the
International Union for the Conservation of Nature, and
Chairman of the UN Commission for Sustainable
Development, and he served as a member of the
National Executive Committee of the African National
Congress until 2009.
sappi 2017 Annual Integrated ReportGlossary and notice to shareholders
130
Shareholders’ diary
Annual General Meeting
First quarter results released
Second quarter and half-year results released
Third quarter results released
Financial year-end
Preliminary fourth quarter and year results
Annual Integrated Report posted to shareholders and posted on website
07 February 2018
February 2018
May 2018
August 2018
September 2018
November 2018
December 2018
Administration
Sappi Limited
Registration number 1936/008963/06
JSE code: SAP
ISIN code: ZAE 000006284
Group Company Secretary and Corporate Counsel
Amanda Tregoning
Secretaries
Sappi Southern Africa Limited
108 Oxford Road
Rosebank
Johannesburg 2198
South Africa
PO Box 31560
Braamfontein 2018
South Africa
Tel +27 (0)11 407 8174
Email Amanda.Tregoning@sappi.com
www.sappi.com
Transfer secretaries
South Africa
Computershare Investor Services Proprietary Limited
Rosebank Towers
15 Biermann Avenue
Rosebank 2196
PO Box 61051
Marshalltown 2107
Fax +27 (0)11 688 5238
Email proxy@computershare.co.za
Tel +27 (0)11 370 5000
www.computershare.com
Corporate affairs
André Oberholzer – Group Head Corporate Affairs
Tel +27 (0)11 407 8044
Email Andre.Oberholzer@sappi.com
Investor relations
Graeme Wild – Group Head Investor Relations and
Sustainability
Tel +27 (0)11 407 8391
Email Graeme.Wild@sappi.com
JSE Sponsor
UBS South Africa Proprietary Limited
64 Wierda Road East
Sandton, 2196
South Africa
Tel +27 (0)11 322 7617
Email Jacques.Botha@ubs.com
United States ADR Depositary
BNY Mellon Share Owner Services
PO Box 30170
College Station, TX 77842-3170
USA
Email shrrelations@cpushareownerservices.com
Tel (US only) 1 888 BNY ADRS
Tel (Outside the US) +1 201 680 6825
www.mybnymdr.com
sappi 2017 Annual Integrated Report Glossary and notice to shareholders
131
sappi 2017 Annual Integrated Report
Proxy form for the Annual General Meeting
Sappi Limited
(Registration number: 1936/008963/06)
(Incorporated in the Republic of South Africa)
(“Sappi” or “the Company”)
Issuer code: SAP
JSE code: SAP
ISIN code: ZAE000006284
For use by shareholders who:
• hold shares in certificated form; or
• hold dematerialised shares (ie where the paper share certificates representing the shares have been replaced with electronic records of ownership under the electronic
settlement and depositary system (Strate Limited of the JSE Limited) and are recorded in Sappi’s sub-register with ‘own name’ registration) (ie shareholders who have
specifically instructed their Central Securities Depository Participant (CSDP) to record the holding of their shares in their own name in Sappi’s sub-register).
If you are unable to attend the eighty-first Annual General Meeting of the members to be held at 14:00 on Wednesday, 07 February 2018 at Sappi in the Oxford Room,
Ground Floor, 108 Oxford Road, Rosebank, Johannesburg, 2198, Republic of South Africa, you should complete and return the form of proxy as soon as possible, but in
any event to be received by not later than 14:00 South African time on Monday, 05 February 2018, to Sappi’s transfer secretaries, Computershare Investor Services
Proprietary Limited, by way of hand delivery to Rosebank Towers, 15 Biermann Avenue, Rosebank 2196, Republic of South Africa or by way of postal delivery to PO Box
61051, Marshalltown, 2107, Republic of South Africa or handed to the Chairman of the Annual General Meeting before the appointed proxy exercises any of the relevant
shareholder’s rights.
Shareholders who have dematerialised their shares and who do not have ‘own name’ registration and wish to attend the Annual General Meeting, must instruct their CSDP
or broker to provide them with the relevant letter of representation to enable them to attend such meeting, or, alternatively, should they wish to vote but not to attend the
Annual General Meeting, they must provide their CSDP or broker with their voting instructions in terms of the relevant custody agreement entered into between them and the
CSDP or broker. Such shareholders must not complete this form of proxy.
I/We
of
being a shareholder(s) of Sappi holding
Sappi shares and entitled to vote at the abovementioned Annual General Meeting, appoint
or failing him/her
or failing him/her
or failing him/her, the Chairman of the meeting as my/our proxy to attend and speak and, on a poll, to vote for me/us on the resolutions to be proposed (with or without
modification) at the Annual General Meeting of Sappi to be held at 14:00 on Wednesday, 07 February 2018 or any adjournment thereof, as follows.
Number of shares
For
Against Abstain
Ordinary resolution number 1 – Receipt and acceptance of 2017 annual financial statements, including directors’ report, auditors’ report
and Audit Committee report
Ordinary resolution number 2 – Approval and confirmation of appointment of Dr B Mehlomakulu as a director of Sappi
Ordinary resolution number 3 – Re-election of directors retiring by rotation in terms of Sappi’s Memorandum of Incorporation*
Ordinary resolution number 3.1 – Re-election of Sir Nigel Rudd as a director of Sappi
Ordinary resolution number 3.2 – Re-election of Mr NP Mageza as a director of Sappi
Ordinary resolution number 3.3 – Re-election of Mr MV Moosa as a director of Sappi
Ordinary resolution number 4 – Election of Audit Committee
Ordinary resolution number 4.1 – Election of Dr D Konar as chairman of the Audit Committee
Ordinary resolution number 4.2 – Election of Mr MA Fallon as a member of the Audit Committee
Ordinary resolution number 4.3 – Election of Mr NP Mageza as a member of the Audit Committee
Ordinary resolution number 4.4 – Election of Mrs KR Osar as a member of the Audit Committee
Ordinary resolution number 4.5 – Election of Mr RJAM Renders as a member of the Audit Committee
Ordinary resolution number 5 – Re-appointment of KPMG Inc. as auditors of Sappi for the year ending September 2018 and until the
next Annual General Meeting of Sappi
Ordinary resolution number 6.1 – The placing of all ordinary shares required for the purpose of carrying out the terms of the Sappi Limited
Performance Share Incentive Plan (“the Plan”) under the control of the directors to allot and issue in terms of the Plan
Ordinary resolution number 6.2 – The authority for any subsidiary of Sappi to sell and to transfer to the Sappi Limited Share Incentive
Scheme and the Sappi Limited Performance Share Incentive Plan (collectively “the Schemes”) such shares as may be required for the
purposes of the Schemes
Ordinary resolution number 7 – Non-binding endorsement of Remuneration policy
Ordinary resolution number 8 – Non-binding endorsement of Implementation report
Special resolution number 1 – Increase in non-executive directors’ fees
Special resolution number 2 – Authority for loans or other financial assistance to related or inter-related companies or corporations
Ordinary resolution number 9 – Authority for directors to sign all documents and do all such things necessary to implement the above
resolutions
Insert X in the appropriate block if you wish to vote all your shares in the same manner. If not, insert the number of votes in the appropriate block. If no indication is given, the
proxy will vote as he/she thinks fit.
Signed at
Assisted by me (where applicable)
on
Each shareholder is entitled to appoint one or more proxies (who need not be shareholders of Sappi) to attend, speak, and on a poll, vote in place of that shareholder at the
Annual General Meeting or any adjournment thereof.
* Refer notes to notice of meeting on page 122.
132
Notes to proxy
The form of proxy must only be used by certificated
shareholders or shareholders who hold dematerialised shares
with ‘own name’ registration. Other shareholders are reminded
that the onus is on them to communicate with their CSDP
or broker.
Instructions on signing and lodging the Annual General
Meeting proxy form
1.
A deletion of any printed matter (only where a
shareholder is allowed to choose between more than
one alternative option) and the completion of any blank
spaces need not be signed or initialled. Any alteration
must be signed, not initialled.
2.
The Chairman shall be entitled to decline to accept the
authority of the signatory:
2.1 Under a power of attorney, or
2.2 On behalf of a company,
3.
4.
5.
6.
if the power of attorney or authority has not been lodged
at the offices of the company’s transfer secretaries,
Computershare Investor Services Proprietary Limited,
Rosebank Towers, 15 Biermann Avenue, Rosebank
2196, Republic of South Africa or posted to
PO Box 61051, Marshalltown, 2107, Republic of
South Africa.
The signatory may insert the name(s) of any person(s)
whom the signatory wishes to appoint as his/her proxy in
the blank spaces provided for that purpose.
When there are joint holders of shares and if more than
one of such joint holders is present or represented, the
person whose name stands first in the register in respect
of such shares or his/her proxy, as the case may be,
shall alone be entitled to vote in respect thereof.
The completion and lodging of the form of proxy will not
preclude the signatory from attending the meeting and
speaking and voting in person thereat to the exclusion of
any proxy appointed in terms hereof should such
signatory wish to do so.
Forms of proxy must be lodged with, or posted to, the
offices of Sappi’s transfer secretaries, Computershare
Investor Services Proprietary Limited, at Rosebank
Towers, 15 Biermann Avenue, Rosebank 2196, Republic
of South Africa (for hand delivery) or PO Box 61051,
Marshalltown, 2107, Republic of South Africa (for postal
delivery), to be received by not later than 14:00 on
Monday, 05 February 2018 or handed to the Chairman
of the Annual General Meeting before the appointed
proxy exercises any of the relevant shareholder’s rights.
7.
8.
If the signatory does not indicate in the appropriate place
on the face hereof how he/she wishes to vote in respect
of a particular resolution, his/her proxy shall be entitled to
vote as he/she deems fit in respect of that resolution.
The Chairman of the Annual General Meeting may reject
any proxy form which is completed other than in
accordance with these instructions and may accept any
proxy form when he is satisfied as to the manner in
which a member wishes to vote.
Summary in terms of section 58(8)(b)(i) of the
SA Companies Act, 2008, as amended
Section 58(8)(b)(i) provides that if a company supplies a form
of instrument for appointing a proxy, the form of proxy supplied
by the company for the purpose of appointing a proxy must
bear a reasonably prominent summary of the rights established
by section 58 of the Companies Act, 2008, as amended, which
summary is set out below:
• A shareholder of a company may, at any time, appoint any
individual, including an individual who is not a shareholder
of that company, as a proxy, among other things, to
participate in, and speak and vote at, a shareholders’
meeting on behalf of the shareholder
• A shareholder may appoint two or more persons
concurrently as proxies, and may appoint more than one
proxy to exercise voting rights attached to different
securities held by the shareholder
• A proxy may delegate the proxy’s authority to act on behalf
of the shareholder to another person
• A proxy appointment must be in writing, dated and signed
by the shareholder; and remains valid only until the end of
the meeting at which it was intended to be used, unless the
proxy appointment is revoked, in which case the proxy
appointment will be cancelled with effect from such
revocation
• A shareholder may revoke a proxy appointment in writing
• A proxy appointment is suspended at any time and to the
extent that the shareholder chooses to act directly and in
person in the exercise of any rights as a shareholder, and
• A proxy is entitled to exercise, or abstain from exercising,
any voting right of the shareholder without direction.
sappi 2017 Annual Integrated Report
Glossary and notice to shareholders
Forward-looking statements
Certain statements in this release that are neither reported financial results nor other historical information are forward-looking
statements, including but not limited to statements that are predictions of or indicate future earnings, savings, synergies, events,
trends, plans or objectives. The words ‘believe’, ‘anticipate’, ‘expect’, ‘intend’, ‘estimate’, ‘plan’, ‘assume’, ‘positioned’, ‘will’, ‘may’,
‘should’, ‘risk’ and other similar expressions, which are predictions of or indicate future events and future trends and which do not
relate to historical matters, may be used to identify forward-looking statements. You should not rely on forward-looking statements
because they involve known and unknown risks, uncertainties and other factors which are in some cases beyond our control and
may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or
achievements expressed or implied by such forward-looking statements (and from past results, performance or achievements).
Certain factors that may cause such differences include but are not limited to:
• The highly cyclical nature of the pulp and paper industry (and the factors that contribute to such cyclicality, such as levels of
demand, production capacity, production, input costs including raw material, energy and employee costs, and pricing)
• The impact on our business of adverse changes in global economic conditions
• Unanticipated production disruptions (including as a result of planned or unexpected power outages)
• Changes in environmental, tax and other laws and regulations
• Adverse changes in the markets for our products
• The emergence of new technologies and changes in consumer trends including increased preferences for digital media
• Consequences of our leverage, including as a result of adverse changes in credit markets that affect our ability to raise capital
when needed
• Adverse changes in the political situation and economy in the countries in which we operate or the effect of governmental efforts
to address present or future economic or social problems
• The impact of restructurings, investments, acquisitions, dispositions and other strategic initiatives (including related financing), any
delays, unexpected costs or other problems experienced in connection with dispositions or with integrating acquisitions or
implementing restructuring and other strategic initiatives and achieving expected savings and synergies, and
• Currency fluctuations.
We undertake no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information
or future events or circumstances or otherwise.
www.sappi.com