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a thriving
world
PROVIDING SOLUTIONS FOR
FUTURE GENERATIONS
Today, ‘connection’ is not only about
digital networks, but about the way
wealth is created, benefit is shared and
people and the planet we live on are
cared for. There is a growing realisation
that we need to find new, innovative
ways to achieve sustainable value
creation, growth, greater social equity all
while protecting and sustaining
biodiversity and natural ecosystems.
Meeting these challenges requires focus
and energy. At Sappi, we are doing so
based on our vision of a thriving
world—a better tomorrow than today.
That’s why we apply our expertise and
collective imagination to equipping our
people to prosper in the world of
tomorrow; establishing shared value
initiatives to uplift communities; using
natural resources in a responsible
manner, valorising waste streams and
promoting transparent supply chains.
Our overall objective is to expand and
enhance our value streams to create
sustainable products based on a
renewable natural resource—woodfibre.
The image on our front cover was
chosen because it represents the
collaborative manner in which we work
together to realise our 2020Vision, just
as honeybees work together for the
betterment of the entire colony and the
biodiversity they pollinate.
www.sappi.com
2018 Annual Integrated Report
The hexagon structures of the
honeycomb represent nature’s supreme
form of packaging: the hexagon is the
most efficient, least wasteful shape
found in nature, as no shape can create
more space with less material. It is also
one of the strongest. Scientific studies
on the geometry of the beehive have
indicated that this shape uses the least
amount of material to hold the most
weight. Once again, this resonates with
Sappi—our packaging solutions not only
protect and sustain, but lighter
packaging weights can also help to meet
the challenges of a carbon-constrained
world.
It’s one of the ways in which we are
promoting a sustainable, thriving world
to provide solutions for future
generations.
Our support of the African Honey Bee
(AHB) project, which is positively
impacting on communities in KwaZulu-
Natal province (South Africa), aligns with
our approach of helping communities to
help themselves. The AHB project is a
social enterprise enabling families from
disadvantaged rural communities to
build sustainable micro-beekeeping
businesses by leveraging the natural
resources available to them. Over the
past two years, AHB has trained
1,482 people in KZN. Of this number,
962—and counting—are actively keeping
bees and producing and selling honey.
Integrated
thinking
At Sappi, we believe in taking an
integrated approach to value creation.
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.
Financial capital
We manage our financial
capital, including
shareholders’ equity, debt
and reinvested capital to
maintain a solid balance
between growth, profitability
and liquidity.
Human capital
We require engaged and productive employees
to create value. 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.
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.
People
Sustainable
value
creation
Prosperity
Planet
Manufactured capital
Our operations require significant investments
in manufactured capital. Investing in building, maintaining,
operating and improving this infrastructure requires financial
capital, human and intellectual capital.
Natural capital
Recognising that our business depends
on natural capital, we focus on understanding,
managing and mitigating our impacts.
Contents
About this report
1
Group overview
2
Our mission, vision, values and strategy
3
Our strategy and performance
4
Our financial performance at a glance
5
Who we are
6
Strategy trends shaping our business
8
How we create value
10 Our business model
14
18 Q & A with the CEO
20 Where we operate
Letter to stakeholders
Performance during the year
24
Product review
32 Our key relationships
40 Our global 2020 sustainability goals
41
Sappi and the United Nations Sustainable
Development Goals at a glance
42 Our key material issues
60
Risk management
68
Chief Financial Officer’s Report
68
70
77
79
80
87
Section 1 – Financial highlights
Section 2 – Financial performance – Group
Section 3 – Financial performance – Regional
Section 4 – Cash flow
Section 5 – Balance sheet
Section 6 – Share price performance
Governance and compensation
90 Our leadership
94
Corporate governance
105 Remuneration Report
118 Social, Ethics, Transformation and
Sustainability (SETS) Committee Report
Five-year review
120 Five-year review
Share statistics
122 Share statistics
Glossary and notice to shareholders
126 Glossary
131 Notice to shareholders
140 Shareholders’ diary
140 Administration
141 Proxy form for the Annual General Meeting
142 Notes to proxy
IBC Forward-looking statements
How to navigate our report
Throughout our integrated report, the following
icons are used to show the connectivity
between sections:
Sappi’s 3Ps
Referencing
Prosperity
People
Planet
Page
Online
Risk
R
Mission,
vision,
values
Targets
T
Strategy
Achieve cost
advantages
Rationalise declining
businesses
Maintain a healthy
balance sheet
Accelerate growth
in higher margin
products
Sappi and the Sustainable Development Goals
NO
POVERTY
GOOD HEALTH
AND WELL-BEING
QUALITY
EDUCATION
CLEAN WATER
AND SANITATION
AFFORDABLE AND
CLEAN ENERGY
DECENT WORK AND
ECONOMIC GROWTH
INDUSTRY, INNOVATION
AND INFRASTRUCTURE
RESPONSIBLE
CONSUMPTION
AND PRODUCTION
CLIMATE
ACTION
LIFE
ON LAND
PEACE AND JUSTICE
STRONG INSTITUTIONS
PARTNERSHIPS
FOR THE GOALS
www.africanhoneybee.co.za
See Our key material issues on page 42 and
integrate these into our business.
Group Sustainability Report (www.sappi.com/sustainability) for more information on how we
About this
report
Our Annual Integrated Report for the
year ended September 2018 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.
Integrated thinking
and the 3Ps
At Sappi, we believe in taking an
integrated approach to value creation.
We understand that the long-term
sustainability of our business will only be
ensured by delivering sustained value
for our stakeholders. In understanding
our value creation process, we take an
integrated approach, considering
Prosperity, People and Planet – an
approach that is aligned with the
International Integrated Reporting
Council (IIRC’s) six capitals model.
Scope and boundary
The scope of this report includes all
our operations (see Where we operate
on page 20). We aim to present
information that is material,
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
sappi 2018 Annual Integrated Report
groups, as well as the activities, profiles
and interests of investors, employees,
suppliers and customers, communities,
governments and regulatory authorities.
satisfied that the sustainability
information presented in this report has
been provided with a reasonable degree
of accuracy.
This report is aligned with the King IV
Code on Corporate Governance
(King IV).
External assurance
We obtained external limited assurance
on selected sustainability key
performance indicators included in our
2018 Sappi Group Sustainability
Report. The independent practitioner’s
limited assurance report is included in
the 2018 Sappi Group Sustainabilty
Report.
Our sustainability information also
continues to be verified 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.
In addition, most of our key operations
undergo external verification including
the Eco-Management Audit System
(EMAS) in Europe, ISO 50001 energy
certification in Europe and Southern
Africa 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 empowerment (BBBEE)
performance is assessed by an external
ratings agency.
In 2018 Sappi Limited was a
constituent of the FTSE/JSE
Responsible Investment Index and the
FTSE/JSE Responsible Investment
Top 30 Index. Being included in these
indices means that our sustainability
performance has been externally
assessed.
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 SETS Committee is
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 Auditors’ Report,
see Group Annual Financial
Statements on www.sappi.com/
annual-reports. This year’s report does
not include summarised financials.
However, the full Annual Integrated
Report with financials is available
on www.sappi.com/annual-reports
in interactive and PDF-format.
Forward-looking statements
For important information relating to
forward-looking statements, refer to the
inside back cover.
Report suite
Annual Integrated Report and
Group Annual Financial Statements
(www.sappi.com/annual-reports)
Quarterly results announcements and
analyst presentations
(www.sappi.com/quarterly-reports)
Group Sustainability Report
(www.sappi.com/sustainability)
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
2018 Sappi Annual Integrated
Report 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
06 December 2017.
Sir Nigel Rudd Steve Binnie
Chairman
Chief Executive Officer
1
This report is printed on GalerieArt Silk
135 and 250 g/m2.
sappi 2018 Annual Integrated Report
group overview
Our mission, vision,
values and strategy
Our values
How we do
business is as
important as
what we do,
highlighted by
our value
statement:
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 on and
commitment to
safety.
Our mission
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.
Our 2020Vision
Sappi will be a diversified woodfibre group targeting a substantial
increase in EBITDA through an expanded product portfolio with
increased margins, providing enhanced rewards to all its
stakeholders.
Reward
We will ensure that the economies, regions and environments
in which we operate benefit from our presence. We will provide
enhanced rewards for our shareholders, our employees and
our other stakeholders.
People
We will create opportunities and make resources available to
enable our people to grow intellectually and bring new ideas to
fruition. We will also continue to invest in and support our
communities.
Leadership
We will support our existing leadership teams and individuals who
show promise to be tomorrow’s leaders in developing agile and
adaptive mindsets that enable us to meet and embrace change
to be responsive to the future demands in all our roles. We will
work to obtain enhanced margins across all businesses.
Manufacturing
We will continue to improve operational and machine efficiencies,
and to increase the knowledge-based value of our products to
use raw materials more efficiently and reduce our energy needs.
Research and development
We will focus our R&D on developing for commercialisation:
speciality paper products, enhancing our dissolving wood pulp
business, exploring the micro and nanoscale potential of
woodfibre and biorefining—extracting biochemicals locked up
in wood.
Environment
Shrinking our environmental footprint by reducing energy and raw
material consumption will continue to be key to how we produce
our products.
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.
2
sappi 2018 Annual Integrated Report
group overview
sappi 2018 Annual Integrated Report
group overview
Our strategy and performance
Our financial performance at a glance
Guided by our strategy, we measure our progress holistically against our mission, collaborating and partnering
with stakeholders as we strive to be a trusted and sustainable organisation with an exciting future in woodfibre.
2016
2017
2018
2019 Objectives notes
Sales (US$ million)
5,141
5,296
5,806
ROCE2 (%)
17.5
18.0
14.6
Net debt (US$ million)
1,408
1,322
1,568
EBITDA1 (US$ million)
739
785
762
Maximise sales on the back of acquisi-
tions and expansion during 2018
Continuously improving with a mini-
mum of 12%
Decrease year-on-year; manage with
growth ambitions
Grow on the back of higher sales
volumes
Net debt/EBITDA
EBITDA margin (%)
LTIFR1,2
1.9
14.4
0.46
1.7
2.1
Maintain ~2x
14.8
13.1
Improve to target of 15%
0.44
0.43
Target zero, with a minimum
10% improvement year-on-year
Sustainable engagement
(%)2
74
(2015)3
85
Not
measured3
Maintain or improve
Energy intensity (GJ/adt)2
22.62
22.57
22.38
5% improvement over the period
Certified fibre (%)2
73.0
73.5
75.2
Maintain or improve percentage
1 Linked to executive remuneration.
2 Identified sustainability goal, with targets set for 2020 in line with our vision.
See Our global 2020 sustainability goals on page 40 for more information.
3 Not measured; survey takes place every second year.
Performance against our strategic focus areas
Self assessment of 2018 performance
Legend:
Satisfactory performance
Progress to be made/Ongoing
Unsatisfactory performance
Strategic focus areas
2018 Performance
2019 Objectives
Achieve cost
advantages
• Ongoing variable cost savings year-on-year
• Investments in infrastructure and energy projects at
core mills
• Ongoing research to deliver cost improvements
• Continuously improve cost position
• Continue to maximise global benefits
• Best-in-class production efficiencies
Rationalise declining
businesses
• Balanced printing and writing papers supply and demand by
converting capacity to specialities and packaging papers
• Maximise production at low-cost mills
• Continuously balance paper supply and
demand in all regions
• Continue to transition printing and
writing papers capacity to higher margin
and growing specialities and packaging
papers
• Maintain net debt/EBITDA ~2x
• Continuously improve working capital
• Continue to monitor bond market for
opportunities
Maintain a healthy
balance sheet
• Maintained target of net debt/EBITDA of ~2x
• Strong cash generation
• Continued to monitor bond markets for opportunities
to refinance at lower cost
• Renewal of revolving credit facility (RCF)
• Achieved multiple price increases to offset rising costs
Accelerate growth in
higher margin growth
segments
• Continue to make investments in existing and adjacent areas
• Grow dissolving wood pulp capacity
matching market demand
• Continue to expand and grow
specialities and packaging papers in all
regions targeting 25% of group EBITDA
by 2020
• Commence commercialisation of
biotech opportunities
with strong potential growth
• Advanced the expansion of higher margin and growing
specialities and packaging papers in Europe and North
America through conversions
• Investments made in speciality packaging, including
Rockwell Solutions and Cham Paper Group
• Strong Mountained pipeline of biotech business
opportunities
• Maintained 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
3
EBITDA margin by region (%)
EPS and EPS excluding special items
(US cents)
9
.
8
2
0
.
4
2
8
.
4
1
1
.
3
1
3
.
9
8
.
8
2
.
0
1
1
.
0
1
30
25
20
15
10
5
0
80
60
40
20
0
4
23
3
6
2
2
2
4
6
3
6
0
6
0
6
0
6
7
5
North
America
Europe Southern
Africa
(cid:81) 2017 (cid:81) 2018
Sappi
group
2014 2015 2016 2017
2018
(cid:81) EPS (cid:81) EPS excluding special items
Dividends declared (US cents)
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0
0
.
7
1
0
.
5
1
0
.
1
1
2016
2017
2018
Sales by product (%)
1
18
1,771
2018
US$5,806
million
1,408
7
14
Operating profit excluding special
items by segment (%)
Employees by region
32
16
55
1,771
2018
US$480
million
1,408
2,131
5,308
1,771
12,645
employees
globally
1,408
52
5,206
5
(cid:81) Dissolving wood pulp
(cid:81) Speciality paper
(cid:81) Commodity paper
(cid:81) Coated paper
(cid:81) Uncoated paper
(cid:81) Other
(cid:81) Dissolving wood pulp
(cid:81) Specialities and
packaging papers
(cid:81) Printing and writing
papers
(cid:81) Europe
(cid:81) North America
(cid:81) Southern Africa
Regional performance overview
Europe
North America
Southern Africa
Our European business
maintained a good level of
profitability, with increased
sales volumes and prices,
along with an expanded
proportion of specialities and
packaging products offsetting
significant cost pressure from
purchased paper pulp costs.
The latter part of the year
however was particularly weak
across both coated grades
and all indications are that the
European economy is slowing,
and that the accumulative
impact of selling price increases
has affected downstream
demand.
Multiple coated paper selling
price rises, supported by
supply tightness in the market,
offset the negative sales
volume and cost impact of the
major project to convert PM1
at Somerset Mill, resulting in
an improved performance for
the year. Although the project
overran both time and cost,
the subsequent customer
qualification trials to date have
been successful. Dissolving
wood pulp (DWP) production
at Cloquet Mill was increased
in order to meet growing
customer demand.
Margins in the Southern African
business were under pressure
due to the stronger Rand/US
Dollar exchange rate during
the first three quarters of the
year. Delayed start-ups post
upgrade projects at Saiccor
and Ngodwana Mills resulted in
lower production and reduced
DWP sales volumes for the year
and exacerbated the situation.
Containerboard sales did well,
with both sales volumes and
prices improving as strong
growth in the agricultural sector
led to increased exports of fruit,
the primary driver of demand
for this product.
See Five-year review on page 120 for detailed performance metrics.
4
Who we are
Strategic trends shaping our business
sappi 2018 Annual Integrated Report
sappi 2018 Annual Integrated Report
group overview
group overview
sappi 2018 Annual Integrated Report
group overview
Global leader in
pulp and paper solutions
Founded in South Africa in 1936
JSE top 40
5.7 million tons per annum of
paper production capacity
2.3 million tons per annum of
paper pulp production capacity
Direct and indirect
customer base in over 150 countries
1.4 million tons per annum of
dissolving wood pulp production
capacity
Strong commitment to corporate
citizenship and sustainability
12,645 employees
FTSE/JSE Responsible Investment
Top 30
UNGC
Product development for
new woodfibre based biomaterials
and biochemicals markets
OHSAS 18001, ISO 9001 and
14001 certification in all mills
379,000ha owned and leased
sustainably managed forests in
South Africa
Sappi has 18 production facilities and 37 sales offices globally
Globally, emerging trends continue to shape the world at an unprecedented pace. How we respond
is an opportunity to create significant value for our stakeholders and ensure our sustainability.
Trend
Response
Our key material issues
• New Supplier Code of Conduct and
Group Woodfibre Procurement Policy
• High levels of forest certification
• Intentional evolution to grow Sappi into
a diversified woodfibre group
• Increased R&D spend
• Investment in AI, Industry 4.0 and block chain
technology research
• Safety
• Woodfibre certification
• Prosperity
• Investing in innovation
• Investing in innovation
• One Sappi approach to doing business
• Ethical behaviour and corruption
Transparent supply
chains
Forest products
industry renewal
Technological
innovation
Artificial
intelligence
Globalisation
Circular
economy
Urbanisation, growing
populations, geographic shifts
in economic power
Demographic
shifts
Ethical fashion
Social inequality
Resource scarcity
y
t
i
r
e
p
s
o
r
P
l
e
p
o
e
P
t
e
n
a
P
l
• Leverage the chemistry of trees to extract
maximum value from woodfibre and promote the
recyclability of our products
• Build DWP capacity to meet the needs of a more
affluent, populous market targeted to areas of
geographic opportunity
• Product development, sales and marketing aligned
to demographic purchasing patterns and shifts in
economic power
• Engage with customers and NGOs to drive
understanding of consumer issues
• Continue to promote sustainable supply chains
based on fairness in terms of labour and the
responsible management of natural resources
• Invest in shared value initiatives, creating local
economic opportunities and socio-economic
development
• Remunerate fairly, promote diversity and inclusion
• Promote responsible management of natural
resources throughout the supply chain and focus
on woodfibre as a renewable resource
Climate change
• Increase energy efficiency
• Reduce greenhouse gas emissions and waste to
landfill
• Ensure harvesting of woodfibre is balanced with
regrowth, thereby promoting carbon sequestration
• Mitigate the impacts of climate change through
world-class tree improvement programmes
• Offer lightweight packaging
• Extracting maximum value from woodfibre in adjacent
markets
• Growing demand for cellulosic based fibres
• Growth in the specialities and packaging papers sector
• Shared value
• Woodfibre certification
• Shared value
• Employee engagement
• Planet
• Energy
• Climate change
(cid:122) Head office
(cid:123) Production facility
• Sales office
o Other operation
See overleaf.
Anti-plastic
sentiment
• Provide alternative packaging solutions that are
recyclable and biodegradeable
• Growth in the specialities and packaging papers sector
5
6
7
sappi 2018 Annual Integrated Report
group overview
How we create value
We take an integrated approach to value creation. Guided by our values, our six value
streams enable the delivery of our mission.
Forests
Our 100% Forest Stewardship
Council® (FSC®)1-certified
plantations in South Africa give
us a low-cost woodfibre base
on which our business depends
and are thus a key pillar of
competitive advantage. Our
leading-edge tree improvement
programmes aim to grow better
trees faster, thereby ensuring
this advantage is maintained
and enhanced.
1 Sappi licence number: FSC-C015022.
100% FSC-certified
Manufacturing
excellence
We focus on enhancing
machine efficiencies, digitising
our processes to make the
smart factory a reality, reducing
variable costs through new
practices in logistics and
procurement, as well as
implementing go-to-market
strategies which lower the cost
of serving our customers and
increase customer satisfaction.
Bioproducts
We are unlocking the
chemistry of trees and
meeting the challenges of a
carbon-constrained world by
establishing a strong position in
adjacent businesses including:
nanocellulose, sugars and
furfural, lignosulphonates,
biocomposites and bio-energy.
Extracting more value from each
tree is strengthening our core
business model.
Operational
excellence
Xylitol and furfural
demonstration plant
sappi 2018 Annual Integrated Report
group overview
Dissolving wood
pulp
Dissolving wood pulp (DWP) is
a truly sustainable raw material.
Our customers transform our
DWP into products which
meet the needs of people
around the globe every day.
Products which enable fashion,
household comfort, personal
beauty and hygiene, as well as
a healthy lifestyle.
Specialities and
packaging papers
Printing and
writing papers
Our customers use our
specialities and packaging
papers to add value to niche
markets, enable product
differentiation and offer
environmentally conscious
consumers an alternative to
fossil-fuel based packaging.
Our focus on innovation helps
our customers to meet and
anticipate the challenges of
changing market dynamics.
While the digital age has
impacted on the use of paper,
our printing and writing papers
continue to meet the needs
of consumers and marketers
around the world. They
rely on paper for a tactile,
emotional experience no other
communication medium can
replicate.
Launched
Sappi Verve
Conversions of
Maastricht and
Somerset Mills
Paper remains a
relevant advertising
medium
Manufacturing excellence, research and development
Marketing and sales
1
Our values
2
Our inputs
3
Our value
streams
Our integrated approach to
sustainable development
acknowledges that we are
dependent on Prosperity, People
and the Planet in order to thrive.
We rely on certain inputs to
create value.
See page 10.
The value streams set out above
indicate the manner in which
we create value and serve our
customers, meeting their needs
today, tomorrow and well into
the future.
See above.
4
Our strategy
Our ability to deliver sustained
value depends on the successful
execution of our strategy.
See page 3.
5
Our outcomes
While we acknowledge that our
business activities have both
positive and negative outcomes,
we strive to maximise the positive
consequences of our value
streams in terms of Prosperity,
People and Planet.
See page 10.
6
Our key
relationships
Ongoing engagement with our
stakeholders conducted in a
spirit of trust and mutual respect
enables more tangible business
value creation.
See page 32.
7
Our global
sustainability
goals
Monitoring and reporting
transparently on our ambitious
Prosperity, People and Planet
targets aligns with our
2020Vision and One Sappi
strategic approach.
See page 40.
Our mission
All our activities aim to
realise our mission:
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.
Act with integrity
We strive to consistently deliver goods
and services of the highest standards;
doing the right thing the right way.
Be courageous
We take full responsibility for all our
decisions and actions; operating with
conviction and without hesitation.
Make smart decisions
We strive to be easy to do business with
and have a ‘can-do’ attitude, always
looking for the better, faster route to
create value for all.
Execute with speed
If something is worth doing it is worth
doing quickly, right the first time and
never cutting corners.
See page 2.
8
9
sappi 2018 Annual Integrated Report
group overview
Our business model
Inputs
Outputs
Prosperity
(FINANCIAL, INTELLECTUAL AND MANUFACTURED CAPITAL)
• Eighteen production facilities:
- Eight paper mills
- Four speciality paper mills and one other
operation
- One paper and speciality paper mill
- Two dissolving wood pulp and paper mills
- One dissolving wood pulp mill, and
- One sawmill
• Nanocellulose demonstration plant
• Sugar demonstration plant
• Biomass plant
• Cham Paper Group and Rockwell Solutions
acquisitions
• Total assets: US$5.67 billion
• Net debt: up US$246 million to US$1.57 billion
• Cash and cash equivalents: US$363 million
• R&D spend: US$41.6 million
• 6.4 million tons of saleable production
• Increase in net debt of 19%
• Profits down by 4%
• Dividends up by 13%
• New products to meet changing customer
expectations and market trends, our new
brands include: Atelier, Fusion
Uncoated, MF Bright,
MF Bright OF, Proto, Seal,
Spectro, Valida and Verve
Cham Paper
Group acquisition
US$132
million
People
(HUMAN CAPITAL)
• 12,645 employees including 624 fixed-term
contractors
• US$500 average training spend per employee
• Ongoing stakeholder engagement
• US$5.6 million invested in corporate
social responsibility
• Productivity: 3.63 hours per employee in terms of
air dry tons of saleable production
• Internal global awards (Technical Innovation
Awards and CEO Award for Excellence), together
with regional awards, drive excellence
and innovation
US$500
average training
spend per
employee
• Waste: 1,649,458 tons of waste, of which almost
422,376 tons sent to landfill
• Emissions: 4.3 million tCO2e direct (Scope 1) GHG
Planet
(NATURAL CAPITAL)
• Access to 516,000 ha plantations, of which
approximately
- 379,000 hectares are owned or leased, and
- 129,000 hectares are contracted supply
• 2,628 MW energy purchased,
1,889 MW generated on site
• Energy intensity: 22.38 GJ/adt
• 2.87 million litres of total water extracted for all
purposes
• 34.37 m3/adt specific process
water extracted
1,889 MW
generated
on site
10
sappi 2018 Annual Integrated Report
group overview
Actions to
enhance outcomes
• Focus on project delivery and
implementation
• Investment in R&D to ensure
cutting edge solutions for
customers
• Ongoing focus on balancing
competing stakeholder interests
to ensure sustainable growth
Outcomes
positive
negative
neutral
earth kind
• Our investors received US$81 million in dividends
-
• • Our high levels of innovation give our customers competitive
edge in global markets—we were the world’s first
manufacturer to present an innovative speciality paper with
a mineral barrier and heat sealing properties integrated
directly into the paper
• Globally we contributed US$136 million to government
taxation
• We paid US$1,026 million to employees as salaries, wages
and other benefits
• Lenders of capital received US$88 million as interest
• We invested US$538 million to grow business
• • Overspend on Cloquet Mill conversion project
• Project delays at Somerset and Ngodwana Mills
Two fatalities
•
• We play an active role in South Africa’s transformation
agenda and are classified as a Level 3 BBBEE contributor
• In Southern Africa our operations provide employment for
just over 10,000 contractor employees
• Our specialised sustainable packaging solutions:
- Preserve and protect
- Convey information, and
- Offer convenience
• Acquisition of Cham Paper Group – employees’ jobs were
saved and opens up opportunities as part of a global
organisation
• Shared Service Centres set up globally to improve
efficiency—negative impact on people not able to
relocate to new locations
• Continued investment in embedding a
safety culture across the group
• Focus on entrenching transformation within
our Southern African operations to support
inclusive growth
• Investment in training and development of
our employees
• Strong governance; Code of Ethics training
• New Group Supplier Code of Conduct
• 46.8% renewable energy, of which 71.5% own black liquor
• Training of smallholders to educate them on more sustainable
forestry practices
• 95% of water drawn returned to the environment
• Impact on GHG emissions offset by carbon sequestration
• 75.2% of fibre used certified
• World-leading tree improvement programmes have led to
shorter growth times and enhanced fibre gain
• One-third of owned and leased plantations set aside for
biodiversity conservation
• Negative impact on plantation biodiversity at stand level
(not plantation level)
• DWP used for clothing and household textiles, baby wipes
and wet wipes – reducing environmental impact
• Lighter weight packaging products – reduction of carbon
footprint
• Expanded packaging portfolio offers customers and
consumers more sustainable alternatives to
fossil fuel based packaging (plastics)
• Ecosystem services benefit various
stakeholders
11
• Increased energy self-sufficiency by 5.6%
over five years due to focus on reducing
purchased energy
• Established training centre for smallholders
in Southern Africa
• Participated in initiatives to enable
certification for small growers
• Adjusted our tree breeding strategy to
mitigate the impacts of climate change
• Revised our Group Woodfibre Procurement
Policy in line with stringent procurement
procedures
• Increased annual speciality paper capacity
by 160,000 tons (Cham Paper Group
acquisition) and DWP capacity by
60,000 tons (further expansion planned),
thereby increasing the range of sustainable
products available to environmentally
conscious consumers
sappi 2018 Annual Integrated Report
sappi 2018 Annual Integrated Report
courage
CHANGING AND EVOLVING
TO DELIVER WEALTH
Climbing a mountain requires
dedication, training, fitness, the
right equipment, teamwork,
We recognised that we had to
meticulous planning, but above
respond to the global changes
all courage. Because a
shaping our lives in
We might not have reached the
mountain, like the future, is
unprecedented ways and at an
top of the mountain yet, but we
never predictable.
accelerated pace. We also
have it firmly in our sights: We
understood that we needed to
have established a strong
Sappi recognised the need to
do business better tomorrow
platform for further value
change, respond to and take
than today. Our response was to
creation, one which has
advantage of new trends and
refocus our business and
positioned us well to meet and
realities; instant digital
intentionally evolve our strategy
exceed the forces of change
communication, the drive for a
—encapsulated in our
low carbon future, increasing
2020Vision and One Sappi
consumer preference for
approach.
ushered in by Industry 4.0,
together with any others on the
global horizon. A platform which
has enabled us to deliver wealth
renewable raw materials, radical
technological innovation, as well
as shifting global economic and
geopolitical realities. Such a
change does not just happen.
It takes careful planning, the
While this process of evolution
and will continue to underpin our
has not been radical, it has been
ability to grow and thrive
based on a bold departure from
tomorrow and well into the
traditional ways of thinking
future.
about the value streams inherent
12
right strategy, teamwork and
in woodfibre.
ultimately courage to execute.
13
sappi 2018 Annual Integrated Report
group overview
Letter to
stakeholders
from the Chairman and CEO
Presenting a
coherent and
consistent culture
of the highest
integrity is a pillar
of our strategy.
Dividends per share (US cents)
18
16
14
12
10
8
6
4
2
0
7
1
5
1
1
1
2016
2017
2018
Operating review
The overall result for the year was in line with that of the prior year on a like-for-like
basis, despite the disruption caused by a number of large capital projects. Market
demand for dissolving wood pulp (DWP) and specialities and packaging papers
ensured our production capacity in these grades was fully utilised, further supporting
our decision to invest in additional capacity in these business segments. In the printing
and writing papers segment, a series of successful selling price increases throughout
the year enabled margins to be maintained notwithstanding significantly higher raw
material costs, mainly from paper pulp and various process chemicals. The profitability
of the Southern African business was under pressure due to the stronger Rand.
Increased capital expenditure in growth projects, including the conversions of paper
machines in Europe and North America as well as debottlenecking DWP plants in
Southern Africa, was managed around our target of two times net debt to EBITDA.
This facilitated a further shift in the product mix of the group away from the traditional
printing and writing papers business towards higher margin and growth segments.
The group’s EBITDA excluding special items was US$762 million, declining
US$3 million on a like-for-like basis (2017 benefited by approximately US$20 million
due to an additional accounting week). Profit for the period was US$323 million
compared to US$338 million in the prior year.
In the past year we have worked to prioritise safety for our employees and those of
contractors in our workplaces, bringing in external experts, reviewing risk conditions
in all our operations and emphasising the importance of both the individual and the
collective with regards to safety. This renewed commitment and focus resulted in
each of the three regions improving their LTIFR rates, with both North America and
Southern Africa achieving their lowest ever employee injury rate. Despite this, we
regret having to report two fatalities, one of which was an employee in one of our
European mills and the other a contractor that died in a motor vehicle accident in
the Southern African operations. Our target is zero injuries, and we continue to
believe we can achieve this with enhanced procedures, approach and most
importantly behaviour.
We built on our commitment to be an ethical corporate citizen with an ongoing
communication and training campaign following our roll-out of the revised Code of
Ethics (Code) in 2016. The Code 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 must 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 must live our core values of
doing business with integrity and courage; making smart decisions which we execute
with speed.
Maintaining the highest standards of 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. The Sappi board is concerned about the ongoing
allegations and investigations into KPMG South Africa and continues to monitor the
situation and will re-evaluate our position if any new information becomes available.
Our European business maintained a good level of profitability, with increased sales
volumes and prices, along with an expanded proportion of specialities and packaging
papers offsetting significant cost pressure from purchased paper pulp costs. Demand
for coated mechanical (CM) paper was good for the first nine months of the year, while
coated woodfree (CWF) paper demand was slightly weaker than expected. Gains in
market share allowed us to limit coated paper sales volumes declines. Cost pressures
and tightening supply led to a number of selling price increases for CWF paper
throughout the year, and prices ended 9% higher than at the end of 2017. The last
few months of the year, however, were particularly weak across both coated grades
and all indications are that the European economy is slowing, and that the cumulative
impact of selling price increases has affected downstream demand. Variable costs
increased 6% year-on-year, despite various cost savings initiatives, the primary reason
being a further 24% and 16% rise in hardwood and softwood pulp prices respectively.
sappi 2018 Annual Integrated Report
group overview
Sir Nigel Rudd
Chairman
Steve Binnie
Chief Executive Officer
In North America multiple coated paper
selling price rises, supported by supply
tightness in the market, offset the
negative sales volume and cost impact
of the major project to convert PM1 at
the Somerset Mill. The project to convert
the machine to paperboard grades,
while ultimately successful, overran both
in cost and time, exacerbating the
impact of lost production and increased
manufacturing costs. The causes of the
overrun, which led to US$10 million in
lost production over that originally
planned and a further US$35 –
50 million in capital expenditure, and the
steps we will take to improve our project
delivery in future are outlined in the
Q & A with the CEO on page 18.
Variable costs increased by 4%
year-on-year, primarily due to higher
purchased paper pulp prices.
Margins in the Southern African
business were under pressure due to
the stronger Rand/US Dollar exchange
rate during the first three quarters of the
year. This lowered the effective Rand
pricing for DWP (which is priced in
US Dollars) and led to decreased
margins in this segment. Delayed
start-ups post upgrade projects at
Saiccor and Ngodwana Mills resulted
in lower production and reduced
DWP sales volumes for the year
which exacerbated the situation.
Containerboard sales did well, with both
sales volumes and prices improving as
strong growth in the agricultural sector
led to increased exports of fruit, the
primary driver of demand for this
product. Variable costs increased by
7%, led by price increases in energy,
chemicals and fibre.
Global demand for DWP continues to
grow, and our sales volumes were
1% higher as increased production from
the Cloquet Mill more than offset the
lost production and sales volumes from
the Southern African mills referred to
above. Higher paper pulp prices
supported DWP selling prices
throughout the year, while a weaker
downstream viscose staple fibre (VSF)
market prevented DWP prices from
rising further throughout the year as
additional VSF capacity was brought to
the market, lowering operating rates
and causing VSF prices to decline. This
led to spot prices in China for DWP
trading in a range of US$920/ton to
US$950/ton for most of the year,
resulting in lower average net realised
prices than that achieved in 2017.
During the year we launched the Verve
brand as the umbrella brand for our
DWP products with the brand promise
of Fibre made with the future in mind.
This launch recognises the importance
that customers and consumers place in
sustainably sourced fibres.
The European specialities and
packaging papers business grew sales
volumes by 8% over the prior year,
excluding the additional volumes from
the mills acquired as part of the Cham
Paper Group (CPG) acquisition (see the
strategic review below for more detail
on the acquisition and rationale
therefore). The acquisition of CPG aligns
closely with our focus on the growing
higher margin coated specialities and
packaging papers such as release liner,
solid bleached board and functional
papers, and allows us to leverage our
coating expertise. We are working
closely with customers to develop new
and innovative solutions to their
packaging needs. In North America,
packaging sales volumes increased by
68%, with gains in both our legacy
packaging products and paperboard
sales post the completion of the PM1
conversion at Somerset Mill.
Strategic review
Three years into our strategic
2020Vision we have made good
progress towards improving profitability,
cash generation and growth. In 2018
we increased capital expenditure
significantly over that of the prior four
years as we initiated a number of
important projects to deliver on our
growth targets. While increasing the
capital expenditure we have been
mindful of our long-term sustainable
leverage target of two times net debt
to EBITDA.
Our strategy 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
to lower costs.
Rationalise declining
businesses – Recognising the
decreasing demand for printing
and writing 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 products – We will invest
in expanding our packaging
papers grades, enhancing our
DWP portfolio and in the
extraction of value from our
biorefinery stream.
14
15
sappi 2018 Annual Integrated Report
group overview
Letter to stakeholders continued
The strategic objectives are supported
by our value statement: 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.
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 both
to maintaining or improving margins and
to the sustainability of our operations.
This is especially true in commodity type
businesses and those where we face
declining demand, such as printing and
writing papers. In the past year we set
ourselves a US$60 million target to
reduce third party expenditure
compared to 2017 through efficiency
and raw material usage improvements
as well as delivering savings through
various procurement initiatives.
Pleasingly we achieved savings of
US$82 million, which helped offset
pressure from higher paper pulp,
chemicals and energy prices. In 2019
we are targeting a further US$60 million
in savings. During the year we
commenced the Saiccor Mill woodyard
upgrade to improve wood efficiency as
well as to allow for further expansion of
the Saiccor Mill. In 2019 we will proceed
with the Saiccor Mill 110,000 tons
expansion having recently received EIA
approval for the project. This project will
improve our energy and water efficiency
and result in improved energy and
chemical recovery, leading to lower
operating costs. We will also invest in
upgrades to the Gratkorn Mill, resulting
in improved production efficiency and
lower costs.
Rationalise declining
businesses
Printing and writing papers demand in
Europe and North America continues to
be in long-term structural decline, the
rate of which is also impacted by
general economic conditions.
Maintaining operating rates and
lowering costs form our strategy to
maximise cash generation in these
markets.
In North America our cost-competitive
manufacturing facilities, excellent
customer service and superior paper
quality, along with closures or
conversions of some of our competitors’
mills and machines allowed us to
increase market share in 2018. During
the year we converted PM1 at the
Somerset Mill. The capacity of the
machine was expanded, and it now has
the flexibility to produce both coated
Operating profit excluding special
items to capital employed (ROCE) (%)
5
.
7
1
0
.
8
1
6
.
4
1
4
.
2
1
8
.
0
1
20
18
16
14
12
10
8
6
4
2
0
2014 2015 2016 2017
2018
woodfree paper and packaging paper
used in the folding carton and food
service markets.
In Europe we have focused on cost
reduction 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
both direct sales and market share in a
declining market. During the year we
converted the Maastricht Mill to focus
predominantly on paperboard in support
of our existing specialities and
packaging papers business in Europe.
In 2019 we will undertake the
conversion of PM8 at Lanaken Mill to
enable the machine to make either CWF
or CM, and this will allow the transition
from CM to CWF production on that
machine over the next three years,
bringing our CM capacity in line with
that of the expected decline in that
market. We will also be investing at
Ehingen and Alfeld Mills to enhance
their specialities and packaging papers
offerings. The combination of the above
projects will result in the replacement of
200,000 tons of printing and writing
paper with a similar volume of
specialities and packaging papers.
Net debt to EBITDA excluding special
items
4
3
2
1
0
.
3
8
.
2
1
.
2
9
.
1
7
.
1
2014 2015 2016 2017
2018
16
In Southern Africa our exposure to
declining markets is limited to
newsprint, where we are the last
remaining local producer, and office
paper which has become more cost
competitive post the transfer of
production from Enstra Mill, which we
disposed of in December 2015, to
Stanger Mill.
Maintain a healthy balance
sheet
Having achieved our target leverage
ratio of two times net debt to EBITDA in
2017 we will continue to focus on cash
flow generation and the cost of our debt
in order to maintain a healthy balance
sheet, which is the prerequisite for
Sappi to be able to make the
investments in higher margin and
growing businesses. There are no
significant maturities due before 2022
and we are comfortable with the
maturity profile of our debt. Net finance
costs have stabilised in the range of
US$60 – 70 million per annum, and we
continue to assess opportunities to
refinance debt at lower rates as and
when the opportunities arise.
Accelerate growth in higher
margin products
In addition to the specialities and
packaging papers investments
mentioned above, we purchased the
paper mill assets of the Cham Paper
Group (CPG) for US$132 million during
the past financial year. The acquisition of
CPG positions us well for growth in the
specialities and packaging papers
market, with a range of new and
complementary products. The
performance of the business since the
acquisition was completed at the end of
February 2018 has exceeded our
expectations, and along with the
technology acquired with Rockwell
Solutions in 2017, allows us
to accelerate the development of new
solutions for a growing market focused
on delivering sustainable packaging
solutions. Our total specialities and
packaging papers sales has grown from
854,000 to 1,009,000 tons per annum
over the past year post the acquisition
of CPG and the completed conversion
projects. Our total production capacity
is now approaching 1.5 million tons,
and we expect to ramp up towards full
capacity over the next three years.
During 2018 we completed
debottlenecking projects at both
Saiccor and Ngodwana Mills, adding
10,000 and 50,000 tons of DWP
capacity respectively. In 2019 we will
initiate the debottlenecking of our
Cloquet Mill, adding a further
30,000 tons, and we will commence
with the project to expand Saiccor Mill
by a further 110,000 tons as described
sappi 2018 Annual Integrated Report
group overview
Cham Paper Group acquisition
US$132 million
Major conversion projects
completed
major capital projects and where we
were faced with significant cost
pressures, they helped us deliver a
credible result while enacting our One
Sappi vision. We also thank them for
embracing the values and ethics that
are vital to good corporate citizenship.
Thanks to our board for their continued
commitment to the group and sound
corporate governance. Their valuable
insights and encouragement, all while
holding us to the highest ethical
standards, enable us to execute our
strategy with confidence.
We welcomed Mrs Zola Malinga as
independent non-executive director
and member of the Sappi Audit and
Risk Committee with effect from
01 October 2018.
In January, we announced the
retirement of Dr Deenadayalen (Len)
Konar, independent non-executive
director, effective from the end of
January 2018. Dr Konar was appointed
to the board and Audit Committee in
March 2002 and had served as chair
of the Audit Committee since 2007.
Dr Konar was also a member of the
Nomination and Governance Committee
following his appointment to that
committee in 2008. In August, we
announced the retirement of Mr Bob
DeKoch, independent non-executive
director, with immediate effect due to
health reasons. Mr DeKoch was
appointed to the board in March 2013
and also served as a member of the
Social, Ethics, Transformation and
Sustainability Committee. We would like
to thank them both for the important
contributions which they have made to
the board since their appointments.
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 06 February 2019.
above. Further significant expansion
opportunities remain apparent in our
DWP business, with robust demand
growth from our major customers and
from a textile market increasingly
looking for more sustainable textile
solutions. Whilst our strategic direction
is clear, high paper pulp prices and the
narrowing of the price premium
between DWP and paper pulp meant
that we have not found an external
project that delivers a reasonable return.
We continue to look for projects that
meet our various investment criteria.
Our new business
development team,
Sappi Biotech, has
had a busy and
successful year.
Sappi Biotech made further strides in
developing new and innovative products
for a world looking for more sustainable
chemical and material solutions. In
2017, we commissioned a sugar
extraction pilot plant at Ngodwana Mill
and acquired technology from Plaxica
related to sugar extraction from waste
streams. In July 2018, we announced
further progress in the development of
our biorefinery capacity with the
decision to construct a demonstration
plant adjacent to our Ngodwana Mill
that will scale up the novel Xylex
technology to produce xylitol and
furfural. Pending successful results,
this may result in the construction of
commercial xylitol and furfural plants at
our mills in North America and Southern
Africa. We have also made good strides
in the development of our cellulose
nanofibrils (CNF) and cellulose
microfibrils (CMF), with some exciting
co-development being undertaken with
firms in the motor manufacturing,
coatings and cosmetics industries.
Within the next three years we believe
that Sappi Biotech could contribute as
much as 10% of the group’s EBITDA.
Looking forward
The debottlenecking of Saiccor,
Ngodwana and Cloquet Mills as well as
fewer production disruptions in 2019
should lead to increased DWP sales
volumes to meet growing demand.
DWP spot prices are forecast to remain
range-bound at current levels in the
coming year as VSF prices are expected
to be under pressure from excess VSF
capacity, while paper pulp prices which
are forecast to remain at high levels
should provide support.
Demand for specialities and packaging
papers continues to grow, driven by
increasing consumer preference for
paper based packaging and legislative
changes promoting recycling and the
use of recyclable materials. The
completion of the conversion projects at
the Somerset and Maastricht Mills in the
past year will allow us to increase
production of paperboard grades to
serve this growing market.
Industrywide conversion and closure of
printing and writing papers machines in
the USA and Europe are expected to
keep the markets balanced in the
coming year should demand contract at
similar levels to those of the past few
years. Recent European data, however,
indicates that a potential downturn may
be realised in 2019. Cost control
measures will be implemented in order
to support margins as we manage the
price elasticity in our paper markets.
Capital expenditure in 2019 is expected
to increase to US$590 million as we
proceed with the Saiccor Mill 110,000
tons expansion having recently received
initial EIA approval for the project,
complete the Saiccor Mill woodyard
upgrade, convert Lanaken Mill PM8
from CM to CWF paper production and
upgrade the Gratkorn Mill.
Having completed significant projects in
2018 to convert paper machines to
higher margin and growing packaging
papers, in addition to the
debottlenecking of both Saiccor and
Ngodwana Mills, we expect EBITDA in
the first quarter of financial year 2019,
given current exchange rates, to be
comfortably higher than that of 2018.
Appreciation
No business operates in isolation from a
wide and varied group of stakeholders
that contribute in many ways to our
development and performance, and
who may be impacted both positively
and negatively by the decisions and
trade-offs that we make on a
continuous basis. Our interactions with
these stakeholders, their ideas,
suggestions, requests and support
guide us and we thank them for their
contribution towards making Sappi a
better corporate citizen.
To our customers in all our different
markets and geographies we extend
our gratitude. We will continue to work
together to provide relevant products
and services which provide sustainable
value while impacting our natural capital
as little as possible.
Our employees continue to support the
strategic initiatives of the group, and in a
year where we completed a number of
17
sappi 2018 Annual Integrated Report
group overview
Q & A with
the CEO
Steve Binnie
We believe that our
leading position in
the dissolving
wood pulp (DWP)
market offers us
exciting growth
prospects into the
future.
Despite your continued efforts in employee and contractor safety
you have again suffered fatalities in your operations—what more
can you do to achieve your aim of zero harm?
Regrettably, we suffered two fatalities in the past year, one of our own employees at
the Ehingen Mill and one South African contractor employee that died in a vehicle
accident. Our group-wide commitment to our goal of zero lost time injuries, is a
non-negotiable priority, and as such a world leader in safety performance was
commissioned to review and audit Sappi’s safety initiatives, processes and
procedures, focusing mainly on employee engagement and risk-based approach.
Detailed action plans and focus areas have been implemented and are underpinned
with the ‘Own Safety, Share Safety’ theme—to get into the hearts and minds of our
people and ensuring safety becomes engrained into our business values. Each region
and mill has undertaken exciting initiatives and there will be ongoing engagement with
our people across the business. Where there are operations that are centres of
excellence in terms of safety performance we will look to them to share best practices
with the rest of our operations. Importantly, safety performance is an integral part of
the leadership and management reward and recognition system.
Sappi completed a number of significant capital projects in the past
year, though not without delays and cost overruns. How are you
going to manage future project execution risk?
The specific issues with each of the major projects at Somerset, Saiccor and
Ngodwana Mills were different, but there were some common themes. Firstly, we
encountered certain vendor design issues in some of the projects which were not
expected and were ultimately resolved but not without delay. A second key issue was
availability of local resources and skills due to other projects or local conditions in
those regions, particularly in the United States of America (USA) where unemployment
is very low. Lastly, with the latest technology installed on some of the projects, it took
longer than expected to optimise the upgraded equipment and processes. In recent
months, we are pleased to report that the performance of the various machines has
reached the technical, quality and market performance expectations. The packaging
papers qualification trials are mostly complete, with encouraging results and growing
commercial sales.
To improve our delivery on future capital projects we have completed a detailed and
comprehensive internal review of the various projects to ensure both positive and
negative lessons learnt are communicated and integrated globally in upcoming
projects. As a result of this review additional detailed front-end engineering must be
completed and we revised our supplier contract philosophies specific to the regions in
which we operate. In addition to the above, greater emphasis is placed on the use of
modern tools available to improve the efficacy in design, engineering, standards, cost
control and planning functions. We continue to develop strong relationships with the
main suppliers and have a rigorous process in place to select potential contractors
that are aligned to Sappi’s commitment to safety and quality. Lastly, we will be
implementing more regular risk based critical review processes.
What impact has growing regulatory and policy uncertainty had on
the business and how do you manage the business in this
environment?
Policy or regulatory uncertainty is seldom good for business. The USA/China trade
tariffs situation is disrupting markets all over the world. There are direct impacts where
the price competitiveness of either our or our customers’ products are affected by the
tariffs, and there are indirect consequences where whole industries may be uncertain
as to the longer-term affect of the tariffs. In this environment companies may reduce
activity levels, lower inventory and even cancel projects or postpone investment
decisions. We believe that this uncertainty has negatively affected the textile industry
in China in particular, and that this is apparent in textile fibre pricing. The debate
around expropriation without compensation in South Africa, where we own significant
land, has raised investor concerns as to the impact this could have on Sappi. While
we do not believe that the outcome of the current land debate will result in any
negative outcome for our operations, we are involved in many forums to ensure that
our views, suggestions and contributions to the resolution of a pressing social issue
18
sappi 2018 Annual Integrated Report
group overview
are heard. We are of the view that the
legacy of property ownership is an
obstacle to transformation, economic
growth and human development, we
thus support the objective of pursuing
accelerated land reform. Importantly, we
note the ANC’s comments that any
changes should not undermine future
investment in the economy, damage
agricultural production nor food security,
and that other sectors of the economy
must not be harmed.
Leadership in business is
often about trade-offs. What
trade-offs have you had to
make in the past year?
Whether in reference to the 3Ps of
Prosperity, People and Planet or the six
capitals, it is clear that many, if not all,
decisions a business makes involve some
trade-off where one element benefits at
some expense to another. As I think
about the past year, two trade-offs come
to mind. Firstly, safety and the goal of
zero harm to our employees which
underpins our values. Mechanisation of
manual processes is certainly a route to
lowering risk, especially in high risk
activities such as plantation tree
harvesting. However, mechanisation
inevitably leads to lower employment,
and in a country such as South Africa
where such a high percentage of people
are unemployed, especially in the rural
areas in which we operate, there is a
social cost related to mechanisation that
cannot be ignored. Therefore we have
redoubled our efforts with all employees
and contractors in the forestry area to
train and educate in all aspects of safety.
Timber certification is a second – where
the concerns of rural smallholders, that
may find certain certification schemes
prohibitively expensive, must be weighed
against the needs of customers for ever
increasing levels of certified timber, and
the realities of sustainable forest practices
which may benefit from smaller scale
timber operations.
The world has become more
focused on the harmful
impact of plastics, especially
on the world’s water sources
and landfills. What are the
opportunities in this for Sappi?
Individuals, NGOs and governments
have become increasingly aware of the
challenges caused by pollution of our
water sources and oceans as well as
landfills that are being filled with waste
that cannot or is not being recycled.
Much of this waste is packaging. In
some instances the nature of the
packaging makes it more difficult to
Steve Binnie
Chief Executive Officer
recycle. Plastics can and will continue to
have a major role to play in the
packaging industry, especially in
multi-use applications or where the
material is easily recycled. Multi-
substrate, single use packaging is a
particular challenge, however, and it is
here where we believe we should focus
our strategy. The shift towards paper-
based solutions represents a significant
opportunity for Sappi. We have made
investments to convert printing and
writing papers machines to packaging
applications as well as additional
research and development.
Furthermore, we have made
acquisitions, such as Rockwell Solutions
and Cham Paper Group, that will give
us the technology to replace some of
the barrier layers in multi-layer
packaging and to make us more
relevant to large FMCG companies who
are emphasising paper based materials.
The textile and non-woven wipes
industries are responding to the
challenge of making their products more
sustainable, with polyester coming
under increasing scrutiny for the release
of microplastics when washed and a
need for biodegradable and flushable
fibres for use in applications like
cosmetic and baby wipes. Cellulosic
fibres, such as DWP produced from
sustainably sourced wood, offer
solutions to these challenges.
For the past few years you
have spoken about the
opportunities to significantly
grow your DWP business.
Do these opportunities still
exist given the rising
acquisition/construction
costs of pulp mills and a
major customer’s backward
integration plans?
19
We believe that our leading position in
the DWP market offers us exciting
growth prospects into the future. Our
debottlenecking investments in the past
year at Saiccor and Ngodwana Mills, as
well as the upcoming debottlenecking
of Cloquet and expansion of Saiccor
Mills, will add 200,000 tons (15%
growth) of additional DWP capacity in a
little over two years. Most of this
additional capacity is already committed
to our major customers. While the
backward integration plans of major
customers mean that further growth
with them may be limited for some time,
we believe that the market and growth
aspirations of other customers,
particularly in China, can more than
make up for that lost opportunity.
Excluding our current large contract
customers in China, we supply only 4%
of the DWP used in that market.
As highlighted in a question above, the
textile market is increasingly becoming
aware of the importance of sustainability
in the value chain. The Chinese viscose
industry has adopted a road map
towards a better environmental
footprint, and our strong certified timber
base, including FSC®, PEFC™ and SFI®
are key differentiators which not all DWP
suppliers can emulate.
We don’t want to overpay for these
opportunities, either in capital costs to
convert or build DWP mills, nor in
acquiring mills. With current DWP and
paper pulp price levels, and looking at
recent pulp mill acquisitions it is clear to
us that valuations have become
stretched, making it difficult to achieve
the returns that we would want to
deliver to shareholders. We will continue
to look for opportunities to deliver the
growth and returns and entrench our
leading position in this market.
sappi 2018 Annual Integrated Report
group overview
Where we operate
Sappi is a global diversified woodfibre
company focused on providing dissolving
wood pulp, specialities and packaging
papers, printing and writing papers, as
well as biomaterials and biochemicals
to our direct and indirect customer base
across more than 150 countries.
Kirkniemi
Europe
Rockwell
Solutions
Lanaken
Maastricht
Alfeld
Stockstadt
Ehingen
Condino
Gratkorn
Carmignano
Paper production
per year
5.7 million tons
Paper pulp
production per year
2.3 million tons
Dissolving wood
pulp production
per year
1.4 million tons
Globally we have
12,645
employees
The wood and pulp needed for our products are either produced within
Sappi or bought from accredited suppliers. Sappi sells almost as much
as it buys.
Sappi Trading
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.
Sales offices
Bogotá, Buenos Aires, Hong
Kong, Johannesburg, México City,
Nairobi, São Paulo, Singapore,
Shanghai, Sydney, Vienna
Logistics offices
Durban, New York
Europe
Mills
Alfeld Mill
Carmignano
Mill
Condino Mill
Ehingen Mill
Gratkorn Mill
Kirkniemi Mill
Lanaken Mill
Maastricht Mill
Stockstadt Mill
Products produced
Bleached chemical pulp for own consumption
Coated and uncoated speciality paper
Speciality paper; dye sublimation paper, flexible packaging
paper, inkjet paper and label paper
Speciality paper; dye sublimation paper, flexible packaging
paper, inkjet paper and silicone base paper
Bleached chemical pulp for own consumption and market
pulp
Coated woodfree paper and coated speciality 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 and coated woodfree paper
Coated woodfree paper and coated speciality paper
Bleached chemical pulp for own consumption and market
pulp
Coated woodfree paper and uncoated woodfree paper
Total Sappi Europe
Other operation
Rockwell
Solutions
Coated barrier film and paper
Capacity(1) (’000 tons)
Paper
Pulp
120
275
100
60
280
980
750
530
280
140
250
300
165
145
445
3,700
1,120
Capacity
(million m2)
100
Produces
51% of
group sales
paper mills
speciality paper mill
paper and speciality
paper mill
other operation
5
3
1
1
sales offices 14
employees 5,308
(1)
Capacity at maximum continuous run rate.
Approximately 138,000 ha 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 contracted supply.
*** Sappi ReFibre collects waste paper in the South African market which is used to produce packaging papers.
sappi 2018 Annual Integrated Report
group overview
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 and packaging paper
Cloquet
Westbrook Mill
Coated speciality paper
Capacity(1) (’000 tons)
Pulp
340
525
Paper
340
970
40
Somerset
Westbrook
North
America
Ngodwana
Lomati
Total Sappi North America
1,350
865
Produces
25% of
group sales
paper mill 1
speciality paper mill 1
paper and dissolving
wood pulp mill
1
sales offices 6
employees 2,131
Produces
24% of
group sales
Southern
Africa
Tugela
Stanger
Saiccor
Southern Africa
Plantations*
Products produced
KwaZulu-Natal
Mpumalanga
Plantations (pulpwood and sawlogs)**
Plantations (pulpwood and sawlogs)**
Lomati Sawmill
Sawn timber (m3)
Total Sappi Forests
Capacity(1) (’000)
Standing tons
m3
11,336
16,252
27,588
102
102
Ha
253
263
516
Capacity(1) (’000 tons)
paper mills 2
Mills
Products produced
Paper
dissolving wood pulp mill 1
Ngodwana Mill
paper and dissolving wood
pulp mill
1
sawmill 1
Stanger Mill
sales offices 6
Tugela Mill
forests 516,000 ha
employees 5,206
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
200
Total Sappi Paper and Paper Packaging
690
Ngodwana Mill
Dissolving wood pulp
Saiccor Mill
Dissolving wood pulp
Total Sappi Specialised Cellulose
Total Sappi Southern Africa
690
Pulp
210
110
60
150
140
670
250
800
1,050
1,720
20
21
sappi 2018 Annual Integrated Report
sappi 2018 Annual Integrated Report
focus
MAKING SMART DECISIONS THAT
WE EXECUTE WITH SPEED
In a competitive, increasingly
crowded marketplace, as an
organisation we can take
lessons from the kingfisher,
which is capable of some of the
smartest, most speedy aerial
manoeuvres in the animal
kingdom.
From its vantage point over a
river or stream, the bird hones in
on a single fish and then
watches silently overhead by
rapidly beating its wings as fast
as eight times a second. In order
to remain in sync with the fish’s
exact coordinates, the kingfisher
must keep its head almost
entirely motionless, letting the
wings and counterbalancing tail
do all the work.
When ready, the kingfisher
strikes, performing a controlled
vertical dive to ensure its dart-
These decisions also include
like bill is the first thing to enter
exploring new opportunities to
the water. Though sharp and
make better use of the
streamlined, this movement still
generates shockwaves through
the water, so speed is of the
essence in order not to startle
the fish.
woodfibre that we have to hand;
working on product portfolios to
match changing market
expectations and increasing the
share of packaging papers in our
portfolio to bring us closer to
At Sappi, the smart decisions
brand owners’ and consumers’
that we execute with speed
expectations.
include responding to global
trends and anticipating
customers’ needs; establishing
global production sites which
Going forward, we will continue
to operate with focus and agility
by making smart investments in
can switch between printing and
existing and adjacent areas with
writing papers or packaging
papers; making capacity
strong potential growth. This in
turn will enable us to offer an
conversions to take advantage
expanded range of products that
of market dynamics and
increasing DWP capacity.
contribute towards a tomorrow
that is better than today.
22
23
sappi 2018 Annual Integrated Report
performance during the year
Product review
With 16% share of the DWP market and producing close to
1.4 million tons per annum, our dissolving wood pulp brand
Verve is a significant player within this market.
From textiles to pharmaceuticals and food applications, Sappi has the
expertise, technology and track record to meet almost any challenge
from these DWP market segments.
Dissolving
wood pulp
Printing and
writing papers
a l
n i c
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c
p
e
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d m
p
a t e
o
C
Coated and uncoated papers
designed to get the best results
for you and your customers.
Our range of coated and uncoated
printing and writing 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 saving on
distribution costs, then we have the
solutions.
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24
24
sappi 2018 Annual Integrated Report
performance during the year
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Specialities
and packaging
papers
s
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We are your value-creating partner,
offering an extensive range of
innovative products and services.
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.
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sappi 2018 Annual Integrated Report
performance during the year
DWP demand is expected to continue
to grow, and we strive to serve our
customers with unmatched quality,
consistency and scale. The long-term
market fundamentals for DWP are very
attractive. Our competitive and
geographic positioning, long-term
relationships with key customers,
sustainably managed plantations and
forests and reputation in the market as
a reliable partner provides Sappi with
the ideal platform to differentiate and
grow the DWP business further.
capacity by 30,000 tons. During 2018,
we also announced an expansion plan
to increase our capacity at our Saiccor
Mill by 110,000 tons to meet strong
projected demand growth. The
construction work for this project at
our Saiccor Mill has started, and the
planned startup is in the last quarter of
2020. The project will bring much
needed investment and jobs to the
KwaZulu-Natal region, as well as further
entrench South Africa as a leader in the
DWP industry.
DWP prices traded at a high level and
relatively narrow band this year, starting
the year at approximately US$921/ton
and ending at US$925/ton, while the
range was between US$918/ton and
US$940/ton. The DWP price was
supported by high paper pulp prices,
but additional VSF capacity led to
pressure from weak pricing in the VSF
market. We expect prices for DWP to
trade at fairly similar levels throughout
2019 as these market forces are
expected to continue.
sappi 2018 Annual Integrated Report
performance during the year
Product review continued
Dissolving
wood pulp
Dissolving wood pulp
Sappi
continues to
invest in
dissolving wood
pulp (DWP)
capacity to ensure
our customers
can meet the
demands for
sustainably
grown and
responsibly
processed
dissolving wood
pulp.
Demand for DWP continues to grow as
consumer preference increases for
products made from renewable,
sustainably sourced and processed
woodfibre. Sappi has been a leading
world producer of DWP over the past
few decades, and today produces close
to 1.4 million tons per annum, enjoying
a significant 16% share of the DWP
market.
Building on our reputation for quality,
service and responsibility, Sappi moved
to strengthen our leadership in the DWP
market with the launch of the Verve
brand — sustainable DWP for a thriving
a world.
In 2018, 18% of Sappi’s sales were
DWP.
DWP is a highly purified form of
cellulose extracted from sustainably
grown and responsibly managed trees
using unique cellulose chemistry
technology. The majority of DWP is
consumed in the viscose and lyocell
industry where DWP is converted to
viscose and lyocell staple fibre, from
there into yarn and ultimately textiles,
providing naturally soft, breathable
fabrics which are smooth to the touch,
hold colour and drape well. The fibres
produced from DWP also act as good
blend partners in fabric with cotton
and polyester. DWP can also be
processed into products that are used
in food and beverages, health and
hygiene, wrapping and packaging,
pharmaceuticals and many more
applications that touch our daily lives.
Demand for DWP used in textiles,
particularly for viscose and lyocell fibres,
is both the largest and fastest growing
sector, while end markets and demand
growth for other applications, are
smaller and have lower growth rates.
Based on the growth rate in the overall
textile market, driven by factors such as
population growth, rising urbanisation,
wealth and the shift towards more
comfortable, environmentally friendly
natural fibres, we expect long-term
growth in demand of approximately
6% per annum for DWP. Textile and
other fibres produced from DWP also
benefit from the growing need for
biodegradable products.
Market prices for DWP are influenced by
several variables, including the selling
prices for viscose staple fibre (VSF) and
lyocell fibres, the pricing differential
between paper pulp and DWP and
currency movements. Prices for
competing fibres in the textile industry,
cotton and polyester, impact the VSF
price, and consequently the DWP price.
Cotton prices rose in May and June this
year as cotton was subject to
international trade tariffs between China
and the United States of America. Along
with the rise in oil prices since July,
polyester prices have risen, prompting
textile manufacturers to seek alternative
fibres, positively impacting VSF demand
and supporting pricing. Lastly, much of
the supply and market for DWP is within
China, the Renminbi/US Dollar
exchange rate also affects the market
price for DWP.
Our markets in 2018 and
outlook for 2019
The VSF industry continues to add
larger, more modern, environmentally
friendly machines, particularly in China
and India, while the enforcement of
stricter environmental standards has
forced several smaller, less efficient
VSF plants to run intermittently and
some others had to cease production.
Taken together, these additions and
subtractions of capacity have left the
VSF industry with a more eco friendly
footprint. Viscose production in China
rose 3% in the 10 months of our
financial year relative to the same period
last year. Through 2022, wood based
textile fibre capacity is expected to grow
at approximately 6% per annum.
2018 was a year of large-scale capital
investment in our DWP business.
We completed debottlenecking projects
at both Southern African mills, adding
approximately 50,000 tons of capacity
towards the end of the year. Sales
volumes for the year were 1% higher
than the prior year. We have a further
debottlenecking project planned for our
Cloquet Mill in 2019 to increase our
26
27
sappi 2018 Annual Integrated Report
performance during the year
Product review continued
Specialities and
packaging papers
Through this
year’s acquisition
and conversion
projects, we are
investing in the
sustainable future
of our business.
Specialities
and packaging
papers
Both legislative changes and
consumer preference for more
sustainable packaging are driving the
growth in demand for our specialities
and packaging papers.
The evolution of our focus from printing
and writing papers toward specialities
and packaging papers is derived from
the suitability of many of our printing
and writing paper machines for
conversion to packaging papers that
require some form of coating. Ahead of
commissioning the various conversion
projects, we carefully analysed our
assets, specifically their production
capabilities for specialities
and packaging papers, and how those
capabilities matched their expected
cost of production, the cost to serve
customers, historical demand growth,
forecasts for the future, as well as
competitive threats—choosing only
those mills/products/projects where
we believed we held a significant
advantage. Two conversion projects
were completed this year and the
response from customers has
been positive.
Specialities and packaging papers 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.
In 2018, 19% of Sappi’s sales were
specialities and packaging papers,
up from 16% last year.
Sappi offers products and solutions in
many different segments including:
Flexible packaging can be coated
or uncoated, for food and non-food
applications, such as sachets, pouches
and wrappers.
Label papers for pressure-sensitive
applications as well as for wet glue
and wet strength labels.
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 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.
sappi 2018 Annual Integrated Report
performance during the year
more customers, enabling us to bundle
both volumes and customer service,
providing economies of scale and
synergies. We plan to take advantage
of our larger research and development
team to accelerate innovation and new
product development in a very
competitive European market.
Two conversion projects and a machine
upgrade were completed this year with
the aim of matching supply and demand
in the printing and writing paper
markets, as well as in the specialities
and packaging papers markets. Before
our conversion this year, the paper
machine at our Maastricht Mill made
approximately 280,000 tons of coated
woodfree paper per year. With the
project completed, we expect to ramp
up over three years to approximately
150,000 tons of folding boxboard at the
Maastricht Mill, with the balance of the
capacity on the machine dedicated to
coated woodfree paper. The machine
upgrade at our Ehingen Mill has enabled
us to expand our white topliner offering
from that mill. The conversion of PM1 at
the Somerset Mill was completed in our
third quarter, and although the project
was delayed and costs overran, we are
very satisfied with the quality
paperboard grades being produced on
that machine. Our plans call for a
three-year ramp up in paperboard
volumes towards the capacity of
350,000 tons per year. As orders for
paperboard grow, we will continue to fill
the machine with legacy coated
woodfree paper as we match supply to
demand in both grades. Taken together,
over three years, our plans call for an
additional 560,000 tons of paperboard,
folding boxboard, white topliner and a
number of other speciality papers while
we reduce our overall exposure to the
coated woodfree market by
approximately 350,000 tons.
In 2018, volumes from our specialities
and packaging papers segment were
30% higher than last year, much of
the increase coming from the inclusion
of the newly acquired CPG mills
for seven months of the year. EBITDA
contribution to the group rose from
15% last year to 18% in 2018. In 2019,
with CPG fully integrated, and the
conversions ramping up, our goal this
year is to grow our volumes and
customer base in all regions. These
actions provide the basis to progress
toward our 2020 targets.
Paperboard such as solid bleached
board and folding boxboard for
luxury packaging with more graphic
applications. Packaging for cosmetic,
perfume, confectionery and premium
beverages use our products.
Silicone base papers and glassine
papers for self-adhesive applications,
such as graphic art applications with
outdoor advertisements, adhesive tapes
and office materials.
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.
Dye sublimation papers, a coated
sublimation paper for digital transfer
printing with water based dye
sublimation inks. Designed for the
transfer of an image onto various
polyester materials, such as banners,
flags, snowboards, gadgets, (mugs,
mouse pads, etc) apparel and home
textiles.
Inkjet papers for large format inkjet
printing. Posters, for indoor/outdoor
applications, and technical printing in
the construction industry (CAD/
Engineering).
Tissue paper used for toilet tissue,
kitchen towels, serviettes and medical
and industrial wipes.
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
to be 3% to 6% per year across
the spectrum of our products. We
manufacture from a suite of machines
within Europe, North America and
Southern Africa, ensuring scale based
efficiencies and security of supply.
Our Southern African operations mainly
focus on the local containerboard
market. We have traditionally supplied
the agricultural sector with cartonboard
to protect fresh produce as it is shipped
from farms to tables locally and around
the world. Our North American
operations currently make functional
packaging papers, label papers, and
more recently with the Somerset Mill
conversion, paperboard for folding
cartons. Our paperboard is sold to
converters who then print, laminate,
cut and prefold the paperboard before
transporting to packagers. Examples
include perfume boxes, toys, and other
fast-moving consumer goods. The
focus of our European operations in this
segment is much more diverse, and
niche. Our portfolio has higher levels of
specialisation and customisation than
most other speciality paper producers.
We are capable of engineering specific
products for specific customers,
particularly those who want more than
just a package. We are capable of
coating paper to give the paper
functionality that was previously
unavailable; such as moisture controls,
oxygen barriers, grease resistant
barriers, vapour barriers, etc. Our
European operations are ideally located
in a part of the world leading the
‘paper-for-plastic’ packaging
movement. In May 2018, the European
Union (EU) introduced new rules to
reduce marine litter by banning certain
single-use plastic items, like cutlery,
straws, and drink stirrers, alongside a
measure which holds those plastic
producers responsible for the cost of
cleaning these items from EU beaches.
The industry will also be given incentives
to develop less polluting alternatives
for these products. So with this
comprehensive product range on three
continents, R&D centres in each region
sharing best practices and new findings
from new customers, our customers
can expect reliability of supply from
a broad geographic footprint, and
a leader in innovation within the sector.
Our markets in 2018 and
outlook for 2019
In 2018, the EBITDA contribution from
our specialities and packaging papers
to the Sappi group was approximately
18%. Part of our 2020Vision goals are
to expand and grow our specialities and
packaging papers segment to 25% of
group EBITDA. To that end, in 2018,
Sappi acquired the Cham Paper Group,
(CPG) a Swiss-based speciality
paper producer, and completed two
conversion projects with the aim of
growing into these adjacent markets
that exhibit good demand growth and
higher average margins.
The acquisition of CPG supports our
diversification strategy by adding three
new paper grades under the Sappi
portfolio which broadens our offering to
customers and earning greater share of
wallet with valued brand owners. These
new products increase our relevance to
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performance during the year
Product review
Printing and
writing papers
Before customers
ever read content
or recognise a
logo, they’ve
come to a
conclusion about
the brand.
Printing and
writing papers
t
n
i
r
p
s
w
e
N
The science of touch, or haptics, tells
us that the experiences of holding
something, like coated paper, leaves a
powerful and lasting impression. In a
sense, they’re holding a brand in their
hands, triggering a reaction that causes
the body to form a deeper connection.
In fact, customers remember content
read on high-quality coated paper three
times better than content they read
online. The geographic spread of our
operations provides the ability to
optimise global knowledge of market
developments, operational best
practices, and technology.
Our markets in 2018 and
outlook for 2019
Demand drivers, such as direct
mailings, catalogues, magazines, and
commercial printing are all believed to
be in fairly consistent decline in most
regions of the world. Because part of
our strategy is to continuously balance
market supply with that of market
demand, we undertook and completed
several conversion or upgrade projects
this year to reduce our exposure to
coated woodfree paper, where demand
is declining, while expanding our
presence in the specialities and
packaging papers markets in the USA
and Europe, where demand is growing.
We completed two such projects in
Europe this year, one a conversion
project at Maastricht Mill and one a
machine upgrade project at Ehingen
Mill, in addition to the conversion of
PM1 at Somerset Mill in the USA. Over
three years, our plans call for an
additional 570,000 tons of paperboard,
folding boxboard, white-top liner and
a number of other speciality
paper products, while
reducing our overall exposure to the
printing and writing papers market by
approximately 350,000 tons. We aim to
maximise the significant cash flow
generation of our existing printing and
writing paper assets, continuously
improve our cost position, and
maximise the utilisation of our
best-in-class production assets.
Volumes from the segment were
3% lower this year relative to last due
to the aforementioned projects. Sales
values, however, were 7% higher as
market prices rose throughout the year.
Our EBITDA margin was slightly higher
this year at 8.8%. Average prices
realised per ton were 12% higher than
last year, slightly outpacing our realised
cost per ton, which rose 11%, mainly
due to purchased pulp.
In 2019, we expect to sell lower
volumes of printing and writing papers
as we ramp up the production of
specialities and packaging papers from
the converted machines. Displaced
coated woodfree orders from the
Maastricht and Ehingen Mills are
expected to gradually fill capacity at our
Lanaken Mill, which currently produces
coated mechanical paper, and which
will be converted by our third financial
quarter to give it the capability to
additionally produce coated woodfree
paper. At our Somerset Mill, and in line
with our strategy, we aim to increase
our paperboard volumes on the newly
converted PM1 while maximising
up-time with orders for coated woodfree
paper. Over the next three years, we
aim to balance supply and demand in
both markets as demand for coated
woodfree declines, and demand for
paperboard continues to grow. We
expect both costs and sales prices to
remain elevated.
In 2018, 61% of Sappi’s sales were
in four different grades of printing and
writing papers discussed on the
following pages:
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sappi 2018 Annual Integrated Report
performance during the year
Newsprint
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. We manufacture and sell
newsprint from our South African
business.
Demand trends: Demand for
newsprint principally is derived from
newspaper circulation and overall retail
advertising. Newspaper readership is
declining around the world. Publishers
are consolidating, while some titles have
closed. Pockets of growth exist in
ad-financed daily newspapers typically
found in large metropolitan cities.
Sales: Though demand for newsprint
continues to decline at a global level,
our newsprint volumes were 5% higher
in 2018 relative to last year, due to a
machine closure by a competitor in the
South African market last year.
Coated woodfree paper
Share of sales: 44%
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.
We manufacture coated woodfree
paper in our North American and
European businesses, but sell to
customers all over the world. In 2018,
44% of Sappi’s sales were in this
segment, typically through large paper
merchants.
Demand trends: As demand for
coated paper depends largely on
advertising, we’ve seen a decline in
spend for printed materials. However,
we believe there will always be a place
for paper within the marketing mix.
Globally, demand for coated woodfree
paper is forecast to decline 2% for the
next several years, from approximately
23 million tons in 2018 to approximately
21 million tons by 2022.
Sales: Sappi’s net revenue from coated
woodfree paper was 6% greater than
last year as prices in our major markets
rose throughout the year. Sales volumes
declined approximately 5% in 2018, due
to conversion projects we undertook to
grow our specialities and packaging
papers business. Globally, demand for
coated woodfree paper declined by
approximately 4%.
Coated mechanical paper
Share of sales: 11%
Coated mechanical paper is primarily
used in magazines, catalogues,
newspaper inserts and other advertising
materials. In 2018, 11% of Sappi’s sales
constituted coated mechanical paper, all
coming from our European business.
Customers for this paper are typically
large paper merchants, commercial
printers and publishers of weekly and/or
monthly magazine titles.
Demand trends: Demand for coated
mechanical paper is more closely linked
to that of demand for magazines.
Readership, subscriptions, circulation,
pagination and advertising revenue per
page continue to decrease in larger
markets as consumers opt for digital
formats. Demand for this type of paper
is forecast to decline more rapidly than
for coated woodfree paper in the years
to come.
Sales: Sappi’s net revenue from coated
mechanical paper was 14% higher than
last year, due to higher volumes and
selling prices. Volumes were
approximately 5% greater than 2017
due to tight trading conditions in
adjacent grades. The global market
contracted by approximately 3%.
Uncoated woodfree paper
Share of sales: 5%
Uncoated woodfree paper is used in
letterhead, business stationery,
photocopy paper, with certain brands
sold to converters for books, brochures,
envelopes, pamphlets and magazines.
Sappi makes and sells uncoated
woodfree paper in our European and
Southern African businesses. In 2018,
5% of Sappi’s sales were made up of
uncoated woodfree paper. Our main
customers in this sector are paper
merchants and converters.
Demand trends: Demand for uncoated
woodfree paper is expected to remain
flat over the next several years. Like
most printing and writing papers,
demand continues to decline in mature
markets, with small growth coming from
emerging markets.
Sales: Our net revenue from uncoated
woodfree paper was 13% higher than
last year, as a result of increased
volumes and prices in Southern Africa.
Globally, demand was relatively stable
this financial year, with a modest decline
of 0.5%.
e
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sappi 2018 Annual Integrated Report
performance during the year
Unions
Given today’s extremely 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.
Shared priorities
Our response
• Freedom of association and
• We recognise the rights of our employees to associate freely and bargain collectively,
collective bargaining
consistent with regional laws and regulations
• Safety and wellness initiatives
• Unions are involved in health and safety committees at each mill
• Remuneration, working hours and
SEU: Collective labour agreements
other conditions of service
SNA: Collective bargaining with hourly paid employees and labour agreements with
various unions
SSA: Employees (collective bargaining); forestry workers (sectoral determination/
consultation)
• Resolution of grievances
• Engagement on strategy
• Well-established grievance channels and disciplinary procedures
• Engage with unions on economic conditions, market dynamics and growth plans
Value add of engagement
Meaningful engagement on a number of issues affecting both business and employees results in:
• Improved relationships
• More stable labour force and productivity, and
• Enhanced productivity
sappi 2018 Annual Integrated Report
performance during the year
Our key relationships
PARTNERSHIPS
FOR THE GOALS
Strengthen the means of
implementation and
revitalise the global
partnership for sustainable
development.
We view stakeholder engagement not
as a once-off annual intervention but as
an ongoing dynamic process which
enables us to respond to the changing
nature of shared priorities of parties who
are interested in, and affected by, our
business.
Our approach to engagement with all
stakeholder groupings is based on
inclusivity and the principles of:
• Materiality – identifying the legitimate
interests and material concerns of
stakeholder groupings
• Relevance – focusing on those
issues of legitimate and 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 legitimate and
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 stakeholder work is aligned to the
governance outcomes of the King IV
Code, namely ethical culture,
performance and value creation,
adequate and effective control and
trust, good reputation and legitimacy.
Employees
We invest in future talent while challenging our people so
that they are able to leverage the opportunities presented
by global megatrends.
Shared priorities
Our response
• Making resources available to
enable our people to grow
intellectually, fulfil their potential
and drive innovation within Sappi
• Training targets and initiatives are aligned with the needs of each region (see our
Group Sustainability Report on www.sappi.com/sustainability)
• Creating an ethical culture
• Code of Ethics communication and training is ongoing in all regions (see page 14)
• Connecting our people to our
• Employee engagement held every two years measures engagement levels
strategic goals
• Focusing on safety, health,
wellness and recognition
programmes
• All our people are involved in our safety drive, recognition programme at group and
regional level
• Promoting corporate citizenship
• Eco-effectiveness campaign in Sappi Europe highlights how we generate results to
make our business more sustainable
• Encouraging employee
volunteerism through initiatives
like:
SEU: Support of various local education, cultural and environmental projects based on
annual requests and identified needs
SNA: The Employee Ideas that Matter initiative through which we provide grants to
employees to fund their individual projects to support good in local communities
SSA: Employee Wellbeing Committees at each mill support local community projects
and also support Mandela Day
Value add of engagement
• Employees who understand and buy into our 2020Vision 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 establish a base of the technical skills needed by the industry
• An increased commitment to safety delivers benefits at personal, team and operational levels
• By establishing an ethical culture where corporate citizenship is promoted, we ensure the ongoing viability of our business,
enhance reputation and become an employer of choice
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sappi 2018 Annual Integrated Report
performance during the year
Our key relationships continued
Communities
We work to incorporate the communities close to our operations
into our journey of intentional evolution, which recognises
the importance of sharing value with all our stakeholders;
conserving natural resources and uplifting people so that they are
well positioned to thrive in our increasingly inter-connected world.
We launched a new Corporate Citizenship Policy in 2018.
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 South Africa, there are local farmer
and community forums related to our forestry communities.
Our initiatives are described in more detail in our Group Sustainability Report
on www.sappi.com/sustainability.
Shared priorities
Our response
Community support including
employment, job creation, 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
SEU: Mills offer support and financial sponsorships to local schools, sport and hobby
clubs, forest products industry students, local safety/environmental organisations
and also support local charities
SNA:
• Each business unit has a lead sustainability ambassador who is 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
• Our employees support initiatives like Living Lands and Waters and the Charles River
Watershed Association focused on environmental stewardship and education
• The Ideas that Matter programme continues to recognise and reward designers who
support good causes
• The Printer of the Year awards recognise excellence in print
SSA: Given South Africa’s significant development needs, community support is mainly
focused in this region and includes:
• Sappi Khulisa, our enterprise development scheme (see page 59)
• The Abashintshi programme (see page 53)
• Early Childhood Development
• Education, including Khulisa Ulwazi, our training centre for small growers and two
training centres for local unemployed youth, one at Saiccor Mill and the other at
Ngodwana Mill
• Support for local tourism through our mountain biking sponsorships and promotion of
recreational riding on Sappi land
Value add of engagement
• Enhances our licence to operate
• Promotes socio-economic development which could in the long term, lead to increased demand for our products
• Initiates real social mobilisation and change for the better
sappi 2018 Annual Integrated Report
performance during the year
Customers
We adopt a partnership approach, whereby we develop long-term
relationships with global, regional and local customers. We also
accommodate more transactional customers. Where relevant,
we will conduct R&D and develop products to suit customers’
specific needs.
In addition to the usual avenues of engagement, we engage through initiatives like
the Sappi Football Cup, now in its eighth year (SEU); Printer of the Year (SNA) and
by sponsoring the Citrus Research Symposium (SSA).
Shared priorities
Our response
New or enhanced products that
meet rapidly changing market
demand
In 2018 we branded our dissolving wood pulp (DWP) range as Verve and launched:
• Sappi Seal
• New packaging grades Spectro C1S and Proto Litho C1S
• Fusion Uncoated – a white topliner
• Fashion White and Fashion White OF for shopping bags
• Atelier, a folding boxboard (see page 45)
We also established Sappi Digital Solutions, focused on the dye sublimation papers
market
Support in terms of paper,
packaging, DWP and sustainability
goals
In terms of DWP, technical centres of excellence are located at Saiccor and Cloquet Mills
Customers can make use of the competence centre for speciality papers and paper
laboratory at Alfeld Mill
In North America, the Sustainability Customer Council provides candid feedback,
identifies emerging issues and helps to establish goals
Information and campaigns to
promote print as a communication
medium and encouraging the use of
packaging
In 2018, SNA launched
• True or False – an informative guide about coated and uncoated paper myths
and facts
• The Five Second Rule a promotional resource focused on direct mail
We showcased our brands at Fach Pack (where we launched Atelier); LUXE PACK,
SGIA, FESPA Berlin, HOW Design Live
Globally, we continue to participate in industry initiatives like TwoSides
Information about the fibre sourcing
and production processes behind
our brands
At the request of our customers, we participate in EcoVadis and Sedex
In Europe and Southern Africa, we publish paper profiles and information sheets for
our papers
In North America, we use GreenBlue’s Environmental Performance Assessment Tool
(EPAT) which enables buyers to evaluate our performance on a mill-by-mill basis
Provision of technical information
Globally, a series of technical brochures is available on our website www.sappi.com
SEU: The Sappi Houston online knowledge platform
SNA:
• The newly launched POP site is aimed at marketers, creatives, designers and
printers looking to innovate in their categories (www.sappipops.com)
• Sappi etc is an educational platform for designers and printers (www.sappi.com/
sappietc)
SSA: Our paper and paper pulp product offerings are supported by strong technical
teams at each mill and the Technology Centre in Pretoria
Value add of engagement
• Meet customer needs for products with an enhanced environmental profile
• Innovate to align with evolving market trends
• Increase awareness of the importance of sustainability
• Promote our customers’ own sustainability journeys
• Keep abreast of market developments
• Showcase our products and promote the Sappi brand
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sappi 2018 Annual Integrated Report
performance during the year
Our key relationships continued
Industry bodies and business
We partner with industry and business bodies 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 promoting
the use of our products.
Sappi has been a signatory to the UN Global Compact since 2008.
Investors
Our aim is to provide investors (shareholders and bondholders)
and analysts with transparent, timely, relevant communication
that facilitates informed decisions.
sappi 2018 Annual Integrated Report
performance during the year
investing in growth
Fourth quarter results
for the period ended September 2018
Shared priorities
Our response
Shared priorities
Our response
• Information on Sappi’s strategy
• Return on investment
• Transparent information about
risks, opportunities and
environmental, social and
governance (ESG) performance
• Our investor relations (IR) team engages with shareholders and analysts on an
ongoing basis. Our chairman also engages with shareholders on relevant issues
• We engage with various ratings agencies, particularly in terms of ESG performance
• We conduct ad hoc mill visits and road shows, and issue announcements through
Stock Exchange News Services (SENS), in the press and on our website
(www.sappi.com)
• We publish our Annual Integrated Report and Group 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 of engagement
• Understanding of our strategic direction
• Enhanced reputation
• Greater investment confidence
• Broader licence to invest
• Issues that affect the sustainability
of our industry—woodfibre base,
carbon taxes, energy and
emissions etc
• Ethical issues impacting business
• 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
In 2018, we:
• Became a founding partner of the University of Cambridge Institute for Sustainability
Leadership’s (CISL) Prince of Wales Global Sustainability Fellowship Programme. Work
here will include examining drivers including the rise of artificial intelligence and the
need to bring carbon emissions to net zero (see page 49)
• SEU:
– Continued to actively contribute to the development of an industry standard for
delivery of chemical information through the paper and pulp supply chain by
chairing the consortium’s working group
– Continued to participate in work related to deep eutectic solvents’ within the
Biobased Industries Initiative, with the goal of significantly reducing CO2 emissions
in pulp and papermaking
• SNA:
– Joined the Recycling Partnership as a funding partner
– Active board-level participant in the Paper and Packaging Board
• SSA:
– Under the PEFC, Sappi Forests helped to finalise the South African Forest
Assurance Scheme (SAFAS) standard
– Joined the South African Ethics Institute to benefit from the various activities and
materials they provide to members in advancing ethical behaviour
– Signed the Business Leadership South Africa Integrity Pledge, thereby committing
ourselves to actively combating corrupt practices wherever encountered, preventing
anti-competitive behaviour, adopting a zero-tolerance approach to corrupt
behaviour and protecting whistle-blowers.
Value add of engagement
• Work with industry and business associations through collective initiatives to support societal change and deal with societal
challenges
• Promote an ethical culture
• 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
Our membership of industry associations
Sappi Limited: TAPPI (the Technical Association of the Pulp and Paper Industry) • Business Leadership South Africa • The CEO Initiative
SEU: Confederation of European Paper Industries (CEPI) • Eurograph • European Joint Undertaking on Bio-based Industries • Print Power • Save Food •
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 • Forest Products Working
Group • Forest Stewardship Council® (FSC®)• Sustainable Packaging Coalition (SPC) • The Recycling Partnership • TwoSides
SSA: Business Unity 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) • Recycle Paper
ZA• Printing SA (PIFSA) • Manufacturing Circle • South African Chamber of Commerce and Industry (SACCI) and local chambers of commerce and industry
• TwoSides • National Business Initiative (NBI)
Sappi Forests: Institute for Commercial Forestry Research (ICFR) • Founding member of the Tree Protection Co-operative Programme (TPCP) • BiCEP
(Biological Control of Eucalyptus Pests) (http://bicep.net.au) • Eucalyptus Genome Network (EUCAGEN) • CAMCORE
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sappi 2018 Annual Integrated Report
performance during the year
Our key relationships continued
Suppliers and contractors
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.
Shared priorities
Our response
• Safety
• Transparency
Given our focus on zero harm in the workplace, we work with our contractors to ensure
that they follow Sappi’s safety systems. In South Africa, Sappi Forests worked closely
with contractors and their workers to develop and implement its innovative ‘Stop and
Think before you Act’ programme
• Increased value and decreased
costs, security of fibre supply,
certification, income generation
and job creation
Shortly after year-end we adopted an updated Supplier Code of Conduct
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 Maine Forestry Programme and the Sappi Lake State Private Forest
Programme assist 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 and providing an extensive network of
environmental and marketing resources
SSA: Qualified extension officers provide growers in our Sappi Khulisa enterprise
development scheme with ongoing growing advice and practical assistance
Value add of engagement
• Security of woodfibre supply
• Improved supplier relations
• Better understanding of the requirements of the Sappi group
• Expanded basket of certified fibre
• Support for local economic development
• Support for emerging supplier/contractor development
sappi 2018 Annual Integrated Report
performance during the year
Civil society (and media)
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. We engage with civil society organisations on
issues of mutual interest and belong to key organisations relevant to our operations.
We engage with various civil society groups regarding our societal and development
impact.
In Europe and North America, close engagement is maintained directly and through
the respective industry bodies CEPI and AF&PA with the FSC® and WWF
International. In Europe also 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 South Africa,
Sappi is a member of the local WWF organisation as well as FSC.
Shared priorities
Our response
• Business developments
• The future of our industry
• Our impacts on our communities
• Protecting the environment
• We join key credible organisations as members
• We develop personal relationships and engage on an ongoing basis
• We provide support to and sponsorship for key organisations on issues of mutual
interest
• In terms of civil society, in South Africa, 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 African Honey Bee project on our plantations
(See SSA Sustainability Report on www.sappi.com/sustainability)
Value add of engagement
• Opportunity to inform and educate media
• Transparent, two-way communication and opportunity for dialogue
Government and regulatory bodies
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.
Shared priorities
Our response
• 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
• Increased investment
• Consultations take place on an ongoing basis with government departments
and regulatory bodies in each region. In Europe we also regularly engage with
the European Commission
• We undertake briefings to legislators
• We support specific government initiatives, including in South Africa the renewable
energy push—our biomass project at Ngodwana Mill achieved regulatory approval
and financial close (see page 83) and our group CEO participated in and made
commitments at the investment conference hosted by the South African President
See Group Sustainability Report on www.sappi.com/sustainability for more detailed information about out stakeholder
relationships.
Value add of engagement
• Promote understanding of issues and challenges
• Help governments to understand the strategic value of our industry
• More receptive regulatory and policy environment
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sappi 2018 Annual Integrated Report
performance during the year
Our global 2020 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
2018, together with commentary, is set out below.
Prosperity
Global target
2014 base
2018
performance
2018 compared
to 2014 baseline
2020 goal
ROCE
People
10.8%
14.6%
35.19%
improvement
12% ROCE
minimum
The 35.19% improvement in ROCE
compared with the 2014 base year
reflects the ongoing successful
implementation of our One Sappi
strategy and 2020Vision.
Global target
2014 base
2018
performance
2018 compared
to 2014 baseline
2020 goal
0.53
0.43
18.8%
improvement
Target zero
LTIFR with
minimum 10%
improvement
year-on-year
Not
measured
(2015: 74%)
Not measured
(2017: 85%)
15% improvement Maintain or
improve
Safety: Globally, despite the overall
improvement in own LTIFR, safety
performance was highly
disappointing, with one fatality in
Europe and one in Southern Africa.
Sustainable engagement: The
high rate of participation (85%) in our
latest engagement survey gives us
confidence we will achieve our 2020
goal.
LTIFR
(combined own
and contractor
employees)
Sustainable
engagement
– increase level
of survey
participation
Planet
Global target
2014 base
2018
performance
2018 compared
to 2014 baseline
2020 goal
Energy intensity
22.66 GJ/adt
22.38 GJ/adt 1.24%
improvement
Certified fibre
79%
75.2%
4.81% decline
5%
improvement
over the
period
Maintain or
improve
percentage
Energy intensity: Our ongoing
efficiency improvement projects
continue to reduce energy intensity.
Certified fibre: The amount of
certified fibre procured (2017: 73.5%)
year-on-year increased across all
regions.
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sappi 2018 Annual Integrated Report
performance during the year
Sappi and the United Nations Sustainable
Development Goals at a glance
We work to integrate the principles and aspirations of the
United Nations Sustainable Development Goals (SDGs) into
our everyday business activities.
• Development promoted throughout the
value chain in rural areas in each region
where we operate
• Inclusive culture
• Salaries in accordance with, or exceed
the minimum wage
• Freedom of association
• Ongoing corporate social responsibility
investment to drive shared value
• SSA:
– Poverty Stoplight implemented in
communities
– Development of local SMMEs and local
suppliers
• Hotlines in each region
• Reporting on calls and outcomes
• Ongoing Code of Ethics awareness
and training programmes
• Partnerships with institutions – eg
Business Leadership SA
• Transparent supply chain –
new Supplier Code of Conduct
• High levels of certification
• One third of landholdings
• Managed for biodiversity
conservation
• Provision of extensive
ecosystem services
• Ongoing forestry research
• Project Zero safety drive
• ‘Own Safety Share Safety’ theme
• Health and wellbeing programmes
at all operations
• Community health initiatives
• Reducing emissions
• Internal and external skills
development
• Support for external training and
scholarship programmes
• SSA: Sponsorship of Programme for
Technological Careers centres and a
digital resource centre
– Early Childhood Development
– Skills Centres at Saiccor and
Ngodwana Mills
– Training centre for small growers
for small growers
Social
inequality
Urbanisation
Growing
populations
GLOBAL CHALLENGES
Resource
scarcity
Climate
change
Increasing
transparency
• Forests and plantations
from which we source
woodfibre – carbon
sequestration
• High levels of renewable
energy generated – more
environmentally friendly
than fossil fuel based
energy
• Lighter weight packaging
products – lower carbon
footprint
• New capex investments
reduce environmental
impact
• Renewable raw materials sourced
from responsible managed and
certified sources
• Provide smallholders with market
opportunities and management
assistance
• Raw materials do not compete
with food production
• Renewable, recyclable products
offer consumers an alternative to
fossil fuel based packaging
• 95% of water extracted returned to
the environment
• Water and sanitation upliftment
programmes in Southern Africa
• Focused riparian management on
owned and leased landholdings
• Plantations are not irrigated
• Ongoing investment in R&D
• Partnerships with various research
institutions
• Founding partner of programme at CISL
– artificial intelligence and block chain
technology
• Research work on deep-eutectic solvents
41
• Focus on bio-energy – biomass plant
at Ngodwana Mill
• Co-generation at mills enhances
energy efficiency
sappi 2018 Annual Integrated Report
performance during the year
Our key material issues
The issues set out
on the following
pages are those that
we believe underpin
our strategic risks
and opportunities
and have the
highest potential
impact—positive
and negative—on
stakeholder value.
Governance
Related SDGs
PEACE AND JUSTICE
STRONG INSTITUTIONS
PARTNERSHIPS
FOR THE GOALS
Promote peaceful and
inclusive societies for
sustainable development,
provide access to justice
for all and build effective,
accountable and inclusive
institutions at all levels
Strengthen the means
of implementation and
revitalise the global
partnership for sustainable
development
Key material issue
Ethical behaviour and corruption
Background
In South Africa, in particular, various incidents in state-owned enterprises and
private and public entities have led to outrage and criticism at the lack of
governance and ethical leadership at all levels of our society.
Our response
Code of Ethics
Sappi’s high premium on adherence to ethical behaviour is entrenched in our Code of
Ethics (Code). In addition to training all new employees during induction, we conduct
ongoing awareness training. In the past year this included online or in-person
awareness training on various topics covered in the Code. These ranged from dawn
raid awareness to the protection of personal information. In addition, all relevant new
employees in all regions were trained on anti-fraud and corruption as well as
Competition Law.
Regretfully, notwithstanding these training initiatives, there were breaches of the Code.
We have investigated these incidents with the assistance of internal audit and/or
external advisers, addressed the issues and where required, taken steps to seriously
sanction the underlying relationships—an indication of the seriousness with which we
view these transgressions.
Sappi continues to provide avenues to stakeholders to communicate breaches
or apparent breaches of the Code either through hotlines or via email
(ethics@sappi.com). All complaints are registered and investigated by Sappi’s
internal audit and then reported into the Audit and Risk Committee on a
quarterly basis. (See page 101.)
During March 2019, we will once again be rolling out the engagement survey, part of
which tests values and ethical leadership as perceived by employees. The results in
this area will be a useful guide to understanding the culture of ethical behaviour and
conduct in Sappi and where improvements can be made.
We are also in the process of rolling out a Supplier Code of Conduct which calls on
suppliers to commit to ethical behaviour, human rights, health and safety, diversity and
equal opportunity and environmental awareness.
KPMG
In 2017, we reported that our auditors, KPMG South Africa, had been implicated in
allegations related to patronage and corruption at other clients which caused us to
reassess their provision of services to Sappi. We have engaged with KPMG
International in this regard and are satisfied that more stringent checks and balances
have been established which will prevent a reoccurrence of incidents of a similar
nature.
Value impact
• Greater understanding of the ‘One Sappi’ approach to ethics and human rights
• More stable and sustainable business
sappi 2018 Annual Integrated Report
performance during the year
Key material issue
See 3 on page 61 and on page 40.
R
T
Prosperity
Related SDGs
RESPONSIBLE
CONSUMPTION
AND PRODUCTION
Ensure sustainable
consumption and
production patterns
INDUSTRY, INNOVATION
AND INFRASTRUCTURE
Build resilient infrastructure,
promote inclusive and
sustainable industrialisation
and foster innovation
Ongoing investment and cost containment
Background
Ongoing investment and cost containment are strategic pillars of competitive
advantage.
Our response
We continued to make significant investments in line with our 2020Vision, the aims of
which include diversifying group EBITDA by remaining an industry leader in printing
and writing papers manufacturing; expanding specialities and packaging papers and
growing dissolving wood pulp (DWP) capacity.
Ongoing investment
• We completed a capital investment at Cloquet Mill to replace the headbox on
PM12. This investment enabled the mill to maintain capacity by adding a state-of-
the-art, dilution profiled headbox—the part of the paper machine responsible for
spreading the pulp fibres evenly to form the sheet—that produces excellent basis
weight profiles.
• In September 2018, we announced the completion of a year-long rebuild of PM1 at
Somerset Mill to increase the mill’s annual production capacity to almost one million
tons per year. The rebuild has enabled the launch of new paperboard grades
(See New products on page 45) which provide luxury packaging and folding
carton applications that complement our existing speciality packaging products.
We also completed the modernisation of Somerset Mill’s woodyard.
• We advanced our work in increasing chipping capacity and modernising the Saiccor
Mill woodyard. The new equipment for the woodyard is scheduled to be delivered
and installed at the end of 2018, with start-up planned in 2019. The woodyard
investments will result in cost, quality, environmental and efficiency benefits to
Saiccor Mill and is also a major step towards preparing the mill to expand further.
• We also completed the rebuild of the PM6 at Maastricht Mill. This involved the
installation of a new three-layer headbox and metal belt calender. This has facilitated
improved board surface quality and reduced costs.
Going forward, investment plans include:
• A €30 million upgrade of PM9 at Gratkorn Mill. The upgrade at this mill, due for
completion in 2019, will optimise raw materials to reduce production costs and will
also result in reduced energy demand.
• At Lanaken Mill, the PM8 will be rebuilt to support our coated woodfree paper
business.
• An investment at Alfeld Mill will add speciality paper capacity of up to 10,000 tons.
• A debottlenecking project at Cloquet Mill, due for completion in 2019, will increase
DWP production by around 30,000 tons.
•
Significant investment plans in Southern Africa which are described in further
detail on page 16.
Cost containment
We work to lower fixed and variable costs, increase cost efficiencies and invest for
cost advantages. Building on the global procurement and efficiency savings drive
launched in 2016 whereby we achieved US$57 million more in savings than target
three years ahead of schedule, in 2018 we achieved an additional US$81 million in
group efficiency and procurement initiatives.
We achieved upgrades at Maastricht and Ehingen Mills on time and within budget.
However, capital costs and timing overran at Somerset Mill, negatively impacting
production volumes. We also experienced delayed start-ups at both Ngodwana and
Saiccor Mills post machine upgrades.
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sappi 2018 Annual Integrated Report
performance during the year
Key material issues continued
We have analysed the reasons behind the costs and timing overruns and implemented a strategy to ensure that these issues will not
be repeated.
Value impact
• Delayed project execution impacted on volumes and income
• Ongoing investment and cost containment increase investor value
• Continuous improvement enhances our competitive position
• Investments at key mills/machines lower costs, support our existing position in printing and writing papers and establish a
strong platform for growth in paperboard packaging
• Investments have added to the diversification of our packaging line to meet a variety of needs
Key material issue
See 4 on page 62.
R
Growth in the specialities and packaging papers sector
Background
Growing concerns about the negative impacts of fossil-fuel based packaging, in particular its impact on the world’s oceans,
have resulted in bans on single-use plastics in many countries around the world. At the 2018 World Economic Annual Forum
in Davos, 11 industry leaders committed to 100% recyclable packaging by 2025. This is driving demand for paper based
packaging, which is set to intensify going forward.
Our response
We significantly expanded our specialities and packaging papers capacity in 2018, as set out below:
Cham Paper Group
We concluded the acquisition of the speciality paper business of Cham Paper Group Holding AG (CPG). The transaction includes
the acquisition of CPG’s Carmignano and Condino Mills (Italy) and its digital imaging business located in Cham (Switzerland), as well
as all brands and know-how. Significantly, the acquisition has added 160,000 tons of speciality paper to our capacity, supporting
our diversification strategy and 2020Vision to grow in higher margin growth segments. In terms of financial impact, the acquisition
will add €183 million of sales and approximately €20 million of EBITDA before taking synergies into account.
Sappi Digital Solutions, formed by the acquisition of CPG was established at the beginning of 2018. The business unit’s broad
portfolio of dye sublimation papers supports many industries in their quest to meet demand for individualisation and speed to
market.
The CPG acquisition has enabled us to:
• Increase our relevance in speciality papers, opening up new customers and markets to Sappi’s existing products and generating
economies of scale and synergies
• Gain greater share-of-wallet with valued brand owners, thereby accelerating innovation and new product development
• Improve near-term profitability and serve as platform for organic growth and further acquisitions
• Build on the investments currently underway to increase speciality paper capacity at our Somerset, Maastricht and Alfeld Mills,
and
• Unlock the growth potential of the CPG speciality paper business.
The value-add of the CPG acquisition to our business was highlighted when we presented solutions in the fields of dye sublimation
papers, inkjet papers, silicone base papers and containerboard at the FESPA Berlin. FESPA is a global federation of 37 national
associations for the screen, digital and textile printing industries.
Here, in addition to our specialities and packaging papers, we showed Transjet dye sublimation transfer papers for textiles previously
marketed by CPG, along with a line of wide format inkjet papers. We also showed tear-resistant Scrolljet wide format inkjet paper at
the show. This 100% recyclable speciality paper is suitable for use with solvent, UV-curable and latex inks. Its special surface
treatment ensures brilliant colour results that provide exceptional luminosity for front- and back-lit applications.
Value impact
• Expanded capacity strengthens our speciality paper business both in Europe and globally by combining CPG’s strong brands
and assets with Sappi’s global reach
• Increases profitability and unlocks the significant growth and innovation potential inherent within the speciality paper market
• Helps us to realise our 2020Vision goal
sappi 2018 Annual Integrated Report
performance during the year
New products
• Following the rebuild of the PM1 at Somerset Mill, we introduced the new packaging grades Spectro C1S and Proto Litho C1S.
Spectro is a single-ply paperboard with enhanced optics, making it ideal for premium applications. End-use markets include
luxury beverages, cosmetics and perfumes, health and beauty care, covers (books/magazines), greeting cards/folders/lottery,
calendars, shopping bags, point of sale (POS) material, menus, direct mail, pharmaceutical, confectionery, fashion and lifestyle, as
well as consumer electronics. Proto is a lightweight paperboard suitable for displays, mailing envelope, fashion and lifestyle,
consumer electronics, beverage, food packaging, POS material and shelf-ready packaging.
• In 2016, Sappi was the first manufacturer to launch a packaging paper with integrated sealing functionality. This generated
considerable market interest and has gradually been developed further, culminating in the launch of Seal. Designed to replace hot
seal laminates made from plastic with materials containing a high proportion of renewable raw materials, Seal is single side
coated. A dispersion coating on the reverse side makes it ideal for use as flexible standard packaging in the food and non-food
sectors, where hot sealing properties are required. The market includes both primary packaging—sachets, and secondary
packaging—flow-wraps for sweets, toys and do-it-yourself (DIY) goods.
• Based on the paper concept for our successful Fusion Topliner, we launched Fusion Uncoated. With a natural, uncoated surface,
the product is an alternative to brown liner papers. Applications include inner packaging such as white corrugated board inserts
for high-end perfume boxes as well as food packaging.
• We added to our shopping bag portfolio with Fashion White and Fashion White OF. Both these uncoated, machine finished
grades feature high whiteness and offer good printability in a wide range of virgin fibre grades and grammages between 70 g/m2
and 130 g/m2. They are both ISEGA-certified for direct food contact and DIN EN71-certified for toy safety.
• Atelier, a premium folding boxboard available in weights from 220 g/m2 to 350 g/m2. With a brightness level of 100% on the top
side, Atelier exceeds the current industry top value of around 92%. On the reverse side, Atelier offers a brightness factor of 98,5%
to accommodate the increasing demand for printing on both sides of the board for added impact.
Value impact
• New products meet the needs of brand manufacturers and consumers looking for more environmentally friendly, lighter weight
packaging
• Proto and Spectro enable greater product differentiation in a crowded marketplace
• Seal meets the needs of changing market dynamics by offering functionality and convenience
• Fusion Uncoated targets the high-volume corrugated board market
• Atelier folding boxboard introduces a completely unique concept to the paperboard market
Key material issue
See 4 on page 62.
R
Growing demand for cellulosic based fibres
Background
While cellulosic based fibres are globally popular, Asia is the primary market for DWP. Rising urbanisation and higher
standards of living in the greater Asian region are driving increasing demand for more comfortable clothing. This trend is set
to continue, with the Asian middle-class population and attendant consumer consumption growing rapidly—accounting, by
some estimates, for 43% of total global consumption by 2030. Research by Hawkins Wright shows the five-year outlook for
DWP expanding at an average annual growth rate of 4.9%.
Demand for DWP could also increase in the short term, given China’s imposition of increased tariffs on cotton imported from
the USA.
Our response
Textiles are the primary market for our DWP, now branded as Verve, which is sold globally for use in viscose staple fibre (rayon) and
solvent spun fibres (lyocell). We also supply smaller quantities into other DWP market segments.
Given tight supply in the DWP market and the limited new capacity in the medium term, we completed debottlenecking projects at
Ngodwana and Saiccor Mills which have added 50,000 and 10,000 tons respectively. A further debottlenecking project at Cloquet
Mill, due for completion in 2019, will increase DWP production by around 30,000 tons.
Looking ahead, we have started preparatory work under a project known as Vulindlela for the potential expansion of Saiccor Mill to
add 110,000 tons of DWP capacity.
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sappi 2018 Annual Integrated Report
performance during the year
Key material issues continued
Value impact
• Capacity growth:
– Entrenches long-established relationships with key customers
– Establishes capacity to meet current and future demand
• Vulindlela:
– Aligns with the South African government’s investment drive
– Will create significant job opportunities—during the peak period, there will be between 2,500 and 2,800 contractors working
onsite at one time
– Will result in CO2 emissions halving and waste to landfill being reduced by 48%, SO2 reducing by 35% and water use
efficiency increasing by 17%
Key material issue
See 7 on page 63.
R
Extracting maximum value from woodfibre in adjacent markets
Background
The world has moved away from a linear model of value creation that begins with extraction and concludes with end-of-life
disposal to a more circular economy. One of the key focus areas of this approach is optimising resource yields.
Our response
In keeping with the approach outlined above, our aim is to extract more value from each tree and in doing so, move into adjacent
markets in order to strengthen our overall core business model. The Sappi Biotech business unit, established in 2016, continued
successfully to drive innovation and commercialisation in terms of biomaterials and biochemicals.
Hemicellulose sugars
In 2017 in partnership with Valmet, we commissioned a hemicellulose sugar extraction demonstration plant at Ngodwana Mill. After
operating for 12 months to demonstrate the extraction of C5 sugars from DWP production, the plant exceeded all efficiency targets
for cost, cycle time and yield.
We are now progressing the development of our biorefinery capacity with the construction of a demonstration plant to further scale
up our novel Xylex technology—acquired in 2017—for the clean-up of the extracted sugars stream, to allow production of xylose,
xylitol and furfural. A low-calorie sweetener, xylitol has positive dental properties and produces no insulin response, so is suitable for
diabetics. Furfural is a versatile green industrial chemical derived from C5 sugars with a diverse range of derivatives.
The Xylex demonstration plant will be located adjacent to the existing sugars extraction plant at Ngodwana Mill, and will be
commissioned in 2019. Pending successful results, we may construct commercial xylose, xylitol and furfural plants adjacent to our
mills in North America and Southern Africa.
The combination of Sappi’s operational excellence and the proposed co-location of the commercial plants at existing mill sites
delivers strong integration synergies. In addition, the cost advantages offered by Sappi’s scale and the Xylex technology give us a
globally competitive cost base for C5 sugar extraction and beneficiation to xylose, xylitol and furfural.
Going forward, our strategic intent is to enter the xylitol value chain with a world-scale production plant. Furan markets are showing
strong market pull for new investments due to growth as well as the phasing out of older and smaller unviable assets. Against this
backdrop, sugars extraction from our DWP assets combined with our Xylex capabilities will allow us to pursue various partnerships
in either the xylitol or furan chemistry value chains.
Value impact
• Valorisation of C5 sugars produced as a co-product of our DWP production, and from the lignin produced in our global pulp
production
• Product offering of second-generation sugars does not impact food security
• Meaningful revenue from a new business segment
Lignin
Sappi Biotech offers Hansa and Collex, two lignin-based dispersants used extensively in the concrete industry as plasticisers,
produced from our lignin sources in Europe and Southern Africa and sold to global markets.
sappi 2018 Annual Integrated Report
performance during the year
Our Lignex product was initially launched at Tugela Mill in 2012. Lignex is used as an effective wetting and binding agent to
suppress dust and bind unpaved road surfaces, with many health, safety and cost benefits. It has been used extensively in the
mining industry for several years and its benefits are now attracting a lot of interest in the agriculture and forestry sectors.
The focus of interest for the forestry industry is the use of Lignex to improve high traffic, unpaved plantation roads, timber depots
and woodyards. Mixed into the road materials and/or sprayed onto the road surface it acts as a surfactant which gives excellent
dust suppressant properties. The binding power of lignin also aids in binding the aggregate material together and sealing the road.
This result in safer, more durable and longer lasting roads with reduced maintenance costs. There is strong interest in using the
product in the citrus industry where dust contaminates the fruit, both in the orchards and around the packhouses.
Our Zewilex product is aimed at end-use applications in the resin industry, an area where research into lignin modification is an
ongoing effort to meet performance and sustainability requirements of customers.
Currently, our research in the lignin area involves assessing the extraction of high value aromatic compounds from lignin using
advanced chemical and technical processes for various end-use applications where the common theme is to offer brand owners
renewable and sustainable alternatives.
Value impact
• As a co-product, lignin increases the value derived from trees and supports the core cellulose business
Valida nanocellulose
Valida is a lightweight, solid substance which is comprised of nano-sized fibrils—the high strength building blocks of cellulose fibres.
At our pilot-scale Valida plant at the Brightlands Chemelot Campus in the Netherlands, we use woodpulp obtained from various
accredited sources as feedstock.
Work progressed at the plant with the development of technology to produce dry redispersible nanocellulose. This high-quality
product, which has been branded as Valida, is easily dispersed into a variety of matrices. Valida technology uses an environmentally
friendly production process which is also compatible with the requirements of the targeted applications. While naturally hydrophilic,
Valida can also be subjected to surface modification to suit hydrophobic applications. Valida is suitable for many applications,
including:
• Biobased composites: Improves the mechanical properties of plastics, rubber, latex, thermosetting resins, soya protein and
starch-based matrices
• Food: Used for thickening, stabilising and enhancing the texture of food
• Cosmetics: Acts as a powerful, natural rheology modifier in personal and home care products
• Paper: Improves paper strength
• Packaging: Enhances barrier properties on packaging materials to prolong food shelf life
• Medicine: Performs as an advanced excipient in medicines, thereby facilitating drug delivery and active ingredient release, and
• Paint and adhesives: Used for thickening and stabilising.
We are conducting third-party market development work with prominent global brand owners and technology institutions.
Value impact
Valida:
• Derived from cellulose, the most abundant polymer on earth, and a renewable resource
• Holds great potential in helping the world shift to materials that do not require fossil based fuels as feedstock
• Biocompatible and biodegradable
Symbio
Over many years, Sappi has developed advanced technologies to combine cellulose fibres with other polymers and materials with
emphasis on both function and aesthetics. Symbio, developed in 2016, is a good example of where we have leveraged our fibre
expertise to launch an innovative product.
Symbio is a cellulose fibre plastics composite combining up to 55% high quality cellulose from woodfibre and a polypropylene
plastic material. Delivered as granules, it can be injection moulded and therefore deployed in various industrial sectors, including
automotive, furniture, appliances and consumer electronics.
We are currently developing Symbio Vivid, an exciting new look and feel for uniquely coloured decorative plastic composites.
We are in discussions with automotive original equipment manufacturers (OEMs) regarding the use of Symbio in vehicle applications.
The key benefits of Symbio lie in positive touch and feel (haptics), durability and lighter weight. The latter is particularly important in
the drive to reduce carbon emissions.
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sappi 2018 Annual Integrated Report
performance during the year
Key material issues continued
Value impact
Symbio:
• Meets the need for lightweight products with strong environmental credentials
• Woodfibre used is FSC®- or PEFC™-certified
• Renewable resource to replace fossil-fuel based sources
Bio-energy
Biomass energy project
In 2018, Sappi Southern Africa reached financial close with the Department of Energy to build a renewable energy plant at
Ngodwana Mill in Mpumalanga province. The project, whereby Sappi and consortium partners KC Africa and African Rainbow
Energy and Power will establish a 25 MW biomass energy unit at the mill, falls under the South African government’s Renewable
Energy Independent Power Producer Programme (REIPPP).
Sappi will have a 30% stake in the facility, which is expected to contribute to the national grid from July 2020.
The project will use biomass recovered from surrounding plantations and screened waste material from the mill production process.
The power plant will burn up to 35 tons per hour of biomass in a boiler to generate steam and drive a turbine to generate electricity
which will be fed into the grid as from 2020.
Sappi already contributes to the national grid by selling surplus energy from Ngodwana Mill to the state power utility, Eskom.
With this project, Sappi has become one of only a few companies in South Africa to embark on a biomass energy project.
Fuel rods
Some 150 years of intensive coal mining in South Africa have produced about a billion tons of discarded thermal-grade coal fines.
To utilise this energy source, we constructed and tested a small fuel rod manufacturing plant at Ngodwana Mill. The fuel rods
comprise a mixture of coal slurry, biomass and lignosulphonate, which can be used as a coal replacement. Initial fuel rod test results
are positive and could lead to reduced greenhouse gas emissions when compared to low-grade coal.
Sappi has entered into a joint venture agreement with the Industrial Development Corporation (IDC) as a strategic equity and debt
partner to provide the balance of the capital required for the demonstration plant.
The fuel rods will be tested in one of Sappi’s boilers at Tugela Mill for a 12-month period. The demonstration facility will be upgraded
if the test results are positive.
Value impact
Biomass energy:
• Catalyst for energy transition in South Africa
• Positive monetary, job creation and socio-economic impacts:
– Financial impact: ZAR13 billion direct value add over 20 years
– Project will employ 350 South Africans during construction
– Biomass collection from surrounding plantations will result in 50 new jobs, and
– Significant empowerment component
Fuel rods:
• Resolve an environmental issue
• Created enterprise development opportunities in areas where coal fines are located
sappi 2018 Annual Integrated Report
performance during the year
Through our focus on innovation, we are developing ways of becoming much more effective tomorrow than we are today, both in
our journey towards durable sustainability and the need for economic vitality and employment for future generations. We live in an
age of hyper-innovation and we take responsibility for making it work positively in a number of different ways:
Cambridge Institute for Sustainability Leadership
In 2018, we announced a founding partnership with The Prince of Wales Global Sustainability Fellowship Programme at the
Cambridge Institute for Sustainability Leadership (CISL). Together with other partners, we are funding research on Artificial
Intelligence and bringing carbon emissions to net zero in the paper and pulp industry.
The three to five-year fellowships of which there are currently eight, will involve academics from around the world in identifying
breakthrough solutions to meet the UN Sustainable Development Goals (SDGs).
The Sappi-supported Fellowship will focus on the UN SDG 9, which relates to industry and innovation. It aims to build on Sappi’s
current engagement with the CISL by investigating how trends of innovation and sustainability will come together to reshape the
future of industry—looking at the paper and pulp industry as an initial example and examining drivers including the rise of artificial
intelligence and the need to bring carbon emissions to net zero.
The CISL continues to support our work with the European industry in issues related to the Green Growth Platform. These include
the development of a new low carbon pulp technology (deep eutectic solvents), exploring financing options to support industry’s
transformation and investigating block chain technology for timber certification. The latter would support risk assessment and
Chain-of-Custody woodfibre audits from forest/plantation to retail shelf. Sappi is representing the paper industry in this project.
Value impact
• The Fellowship programme will deliver students with a profound knowledge and understanding of issues which will help drive
new solutions for us and others, creating exciting opportunities far into the future
R&D
Technology is a core pillar of competitive advantage in our industry and represents a risk if we do not make ongoing technology
investments. With a strong focus on innovation and R&D, Sappi is committed to developing new processes and biomaterials which
extract more value from each tree and support our business strategy to move into new and adjacent markets.
Our R&D initiatives focus on consolidating and growing our position in our targeted markets segments; driving cost competitiveness
and cost reduction; as well optimising our equipment and forestry assets.
Total R&D spend in 2018 increased significantly from US$29.5 million in 2017 to
US$41.6 million. This includes spend of approximately US$11.5 million on our Exciter
programme (2017: US$9.8 million) which focuses on core business (Exciter 1) and new
and adjacent business (Exciter II).
Core business support (Exciter I) included:
• Cost reduction through novel innovations for the paper industry, latex replacement in
particular
• Processing in our pulp and paper mills, particularly the continuous optimisation of the
cooking and bleaching processes to achieve cost reduction and increased fibre yields
• Support for packaging grades like Seal
• Transferring Rockwell Solutions’ coating concepts to paper substrates
• The evaluation of alternative hardwood species for one of our Southern African mills
• Viscose application testing at Saiccor Mill, and
• The ongoing evaluation of new, disruptive technologies.
Cumulative global value generated
versus expenditure
(Investment/value delivered (US$ ’000))
300 000
275 000
250 000
225 000
200 000
175 000
150 000
125 000
100 000
75 000
50 000
25 000
0
5
0
0
2
Y
F
6
0
0
2
Y
F
7
0
0
2
Y
F
8
0
0
2
Y
F
9
0
0
2
Y
F
0
1
0
2
Y
F
1
1
0
2
Y
F
2
1
0
2
Y
F
3
1
0
2
Y
F
4
1
0
2
Y
F
5
1
0
2
Y
F
6
1
0
2
Y
F
7
1
0
2
Y
F
8
1
0
2
Y
F
(cid:81) Total (cost)
(cid:81) Total (value)
Key material issue
Investing in innovation
See 2,4,7 from page 61.
R
Work in terms of Exciter II was focused primarily on new technologies in adjacent areas to the current business, including Symbio,
Valida development and applications, as well as work related to biorefinery—notably the scaled-up sugar demonstration plant at
Ngodwana Mill.
Background
The challenge for the pulp and paper industry is how to transform in order to meet the challenges of inclusive growth,
industrial transformation and the circular economy.
Our response
Value impact
• Market growth
• Cost reduction
• Continuous improvement
• Efficiency optimisation
• Competitive positioning
48
49
sappi 2018 Annual Integrated Report
performance during the year
Key material issues continued
People
Related SDGs1
NO
POVERTY
End poverty in all its forms
everywhere
GOOD HEALTH
AND WELL-BEING
Ensure healthy lives and
promote wellbeing for all
at all ages
QUALITY
EDUCATION
Ensure inclusive and
equitable quality education
and promote lifelong
learning opportunities
for all
DECENT WORK AND
ECONOMIC GROWTH
Promote sustained,
inclusive and sustainable
economic growth, full and
productive employment
and decent work for all
Lost time injury frequency rate
100
80
60
40
20
0
0.80
0.60
0.40
0.20
0
1
7
.
0
6
5
.
0
1
4
.
0
8
3
.
0
9
5
.
0
8
5
.
0
5
5
.
0
4
3
.
0
4
3
.
0
6
3
.
0
2014 2015 2016 2017
2018
(cid:81) Employee (Own) LTIFR
(cid:81) Contractor LTIFR
(cid:81) Employee (Own) II
(cid:81) Contractor II
Key material issue
See 10 on page 64.
R
Safety
Background
Unsafe practices and conditions can have devastating consequences—the
impact of human loss and suffering on individuals and those around them is
immeasurable.
Our response
Our ongoing Project Zero campaign highlights our commitment to zero injuries. Our
target remains a zero own employee and contractor combined Lost Time Injury
Frequency Rate (LTIFR) with a minimum of a 10% improvement year-on-year.
We keep safety at the top of employees’ minds with relevant, actionable programmes
that challenge them to proactively identify potential hazards and make safe choices.
Once potential hazards are identified, teams seek first to understand them and then
control and minimise exposures within our operations. We have a zero-tolerance
approach to safety, both in terms of our own employees and contractors and believe it
is unacceptable that a single life should be lost in the course of our business.
Globally, satisfaction with our safety performance, particularly in North America, must
be tempered by our collective shock, regret and grief at two fatalities in 2018: At
Ehingen Mill in Europe, an employee was cleaning the conveyor belts leading from the
woodchip silos to the digesters when he was pulled in between a guiding roll and
a conveyor belt and killed. In Sappi Forests (Southern Africa), a contractor lost control
of his vehicle which left the road, resulting in his death.
Regrettably, the start of the 2019 year was marred by two contractor fatalities, one at
Ngodwana Mill and one at Sappi Forests in KwaZulu-Natal. Sappi people around the
world have joined the CEO and board in supporting the families, friends and
colleagues of those who tragically passed away.
In terms of regional safety performance:
• Sappi North America had the best-ever employee LTIFR on record and the
severity rate in this region declined significantly.
• Although there was no improvement in the LTIFR for own employees in Sappi
Europe, which stayed constant, this figure was somewhat skewed by the recent
integration of new business units. On average, with some exceptions, the existing
business units improved safety performance, however, all the new entities were at a
lower safety level with action plans put into place to reverse this trend. Ehingen Mill
took immediate action following the fatality:
– Activities previously classified as low risk were reassessed
– Mill representatives participated in a workshop in South Africa held with external
service providers (see below), and
– Works Council members and safety representatives travelled to Cloquet Mill to
share best practices.
• At Sappi Southern Africa, employee LTIFR was the best ever, with the LTIFR for
contractors just above the best ever figure. We believe these achievements are the
result of safety initiatives launched in 2018 following three fatalities in 2017:
– A team from an internationally recognised safety consultancy was tasked to
perform a safety culture review and suggest mitigation actions
– Sappi Forests initiated the ‘Stop and Think before you Act’ programme
underpinned by an intense communication programme supported by graphic
materials, and
– We established a forum that involves contractors in safety plans and programmes
and emphasises their inputs.
sappi 2018 Annual Integrated Report
performance during the year
Sappi Forests’ ‘Stop and Think before you Act’ safety initiative, which adopted a storytelling approach, won a Gold Quill Award of
Excellence for Safety Communication Management from the International Association of Business Communications (IABC) in
2018. In addition, the work was also selected as one of eight Best of the Best entries from 258 awarded entries. In total, 699
entries from 27 countries were judged.
In support of Sappi’s 2020Vision objectives, all regions have set specific safety targets to be achieved by 2020 and each region
has compiled specific action plans to achieve these targets. (See Group Sustainability Report on
www.sappi.com/sustainability for more detail).
The 13th Global Safety Awareness Week was held in June 2018. The theme, ‘Own Safety, Share Safety’ highlighted the message
that every individual should be responsible not only for their safety, but also for their colleagues’ and family’s safety. The initiative
was well supported with senior managers visiting and participating in events at all the Sappi sites. The safety theme for 2019 is
‘WE VALUE SAFETY’. This aims to reinforce the direct link to our values and the engagement of all within our group—I value my
safety, I value your safety and Sappi values our safety.
Value impact
The safety and wellbeing of employees and contractors
Key material issue
Employee engagement
See 10 on page 64.
R
Background
When employees are engaged at work, they feel a connection with the company. They believe that the work they’re doing is
important and therefore work harder. This has obvious implications for productivity, career development and overall job
satisfaction.
Our response
We hold an employee engagement survey every two years, with the last one rolled out in September 2017. The objectives of the
survey are to measure:
• Changes in employee opinions and perceptions of Sappi as a place to work since the first baseline survey conducted in 2013
• The evolution of sustainable engagement within Sappi globally in order for us to understand what drives sustainable engagement
among our employees, and
• The employee value proposition to understand what motivates and drives our employees to work in our organisation.
The 2017 results were compared to industry benchmarks (global manufacturing norm), best in class benchmarks (high performing
companies norm) and cultural benchmarks.
Sappi’s global participation rate was 85%—a significant 15% increase from 2015. The global manufacturing norm participation rate
is 83% and the response rate for high performing companies is 87%. There was an overall improvement in all categories that were
measured in the survey when compared to the 2015 results.
Globally the most improved scores were for leadership and direction; operational efficiency and talent and recognition. Areas that
require focus were identified as image and customer focus and safety and wellbeing.
Value impact
• Reduced staff turnover
• Improved productivity and efficiency
• Higher levels of customer retention and profitability
In 2018, we spent an average of US$500 on training per employee. Internal training is supported by external training initiatives
in each region. See our Group Sustainability Report on www.sappi.com/sustainability for more information.
1 Figures for the digital imaging business and the Carmignano and Condino Mills acquired from Cham Paper Group are not included in the people data, but will
be fully included in 2019. However, safety data from the new acquisitions has been included.
50
51
sappi 2018 Annual Integrated Report
performance during the year
Key material issues continued
Key material issue
Labour relations
sappi 2018 Annual Integrated Report
performance during the year
See 10 on page 64.
R
Our revised Group Corporate Citizenship Policy (available on www.sappi.com) recognises the importance of CSV in
securing sustainable communities and increased profitability.
Background
Sound labour relations underpin the ongoing production and ability to generate income for any business.
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.
We endorse the principles entrenched in the United Nations Global Compact and the Universal Declaration of Human Rights. In
many areas, at a minimum, we conform to and often exceed the labour legislation requirements in countries in which we operate.
We also promote freedom of association and engage extensively with representative trade unions. Globally, approximately 62% of
Sappi’s workforce is unionised, with 70% belonging to a bargaining unit.
Overall, 2018 was characterised by very tough negotiations, particularly in South Africa, but relatively good relationships with
organised labour across the geographies. However, community unrest is starting to impact on businesses across South Africa.
(See On our watchlist on page 59.)
In Europe, approximately 67% of employees are members of a union and are represented through Works Councils. European
Works Council meetings at which Sappi is represented by the Chief Executive Officer and Human Resources Director, take place
twice a year. There were no major disputes in this region and we concluded collective labour agreements (CLAs) at Alfeld, Ehingen,
Stockstadt, Lanaken, Kirkniemi, Carmignano and Condino Mills. At Maastricht Mill, the current CLA is in place until November 2019.
In North America, approximately 64% of employees are unionised. SNA has 11 collective bargaining agreements with its hourly
employees. The overall industrial relations climate in SNA remained good with no major disputes. We satisfactorily reached labour
agreements with two unions at Cloquet Mill, while negotiations with one union at Somerset Mill are ongoing. SNA also has a number
of negotiations planned for 2019.
In Southern Africa, 56% of our employees belong to a trade union. While the industrial relations climate has been volatile, with
trade unions competing amongst each other for improved membership and existence, we have continued to maintain a stable
industrial relations environment across our operations—the result of our proactive engagement strategy and initiatives. We continue
to engage with trade union leadership.
Wage negotiations were tough, but amicably settled. The Pulp and Paper Chamber is currently reviewing its future of the chamber
given the fact that no industry agreement has been reached over the last two years. This will assist the SSA leadership decision on
how to approach the 2019 collective bargaining process.
We expect another tough wage negotiation process in 2019, with the country preparing for election and the majority union
continuing to operate under pressure from other trade unions.
Value impact
• Increased levels of engagement
• Enhanced productivity
• More harmonious working environment
Key material issue
Shared value
Background
Creating shared value (CSV) is not about philanthropy or even corporate social responsibility. It is about creating meaningful
economic and social value that benefits companies, communities and individuals.
Our response
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.
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 Southern Africa.
While each region has its own programmes, they conform to common themes that are aligned with our business needs and
priorities, including education, local community support, the environment and health and welfare. We encourage employees to
participate in outreach and community projects.
Our CSV initiatives in 2018 are described in more detail in our Group Sustainability Report on
www.sappi.com/sustainability, but a snapshot of initiatives in each region gives some idea of our approach below.
In Europe, our focus is on adding to the wellbeing, safety and health of our communities. Each Sappi mill and sales office supports
various local education, cultural and environmental projects based on annual requests and identified needs.
In North America, to encourage more engagement and involvement from employees, we have implemented a staff version of the
long-standing Sappi Ideas that Matter (ITM) programme known as Employee Ideas that Matter. We established ITM 19 years ago to
fund designers who apply their creative talents to causes that address significant issues facing our society. The employee
programme operates on similar principles whereby US$25,000 is made available to staff for worthy causes close to their hearts. In
2018, 50 entries were received and 11 projects were supported. Each business unit in this region has a Community Connections
Group to channel local support.
One of the Employee Ideas that Matter projects that received funding was a book called ‘The Rainbow Rescue’ written by a retired
Sappi employee. The book aims to teach children about diversity and acceptance. The book is being used to promote literacy in
the Westbrook area through the Westbrook Children’s Project, a programme of the United Way of Greater Portland that brings
community resources together to help children through their school years. A number of copies have been donated to the
Westbrook Community Centre and Westbrook schools. Additional copies may be donated to other school libraries in the area.
In Southern Africa, employee wellbeing committees at each Sappi mill support local community projects based on annual requests
and identified needs. These are coordinated via the annual Mandela Day (67 minutes) initiative.
Our Alien Vegetation Removal Programme at our mills in KwaZulu-Natal province in collaboration with the non-governmental
organisation WESSA (Wildlife and Environmental Society of SA) is a good example of our approach to CSV. It involves the removal of
alien vegetation on the land surrounding our mills—important to us as weeds have been identified as one of the biggest threats to
biodiversity. A total of 20 community members per mill are being trained and employed through the programme, with the goal of
establishing viable businesses which would ultimately serve other customers.
First established in KwaZulu-Natal in 2015, the Abashintshi (isiZulu for ‘change agents’) programme includes life skills training for the
youth, the Ifa Lethu programme for the elderly (protecting cultural heritage), holiday programmes for school children and Asset
Based Community Development (ABCD). The latter is based on the premise that communities can drive the development process
themselves by identifying and mobilising existing, but often unrecognised, assets.
The programme has been expanded to 65 Sappi communities across the KwaZulu-Natal and Mpumalanga provinces, with
117 Abashintshi now involved. They are generating an income for themselves through their own businesses and they are helping
community members to improve their own businesses. During 2018, 190 micro- and small businesses were started or rejuvenated,
earning an income for 268 people.
Social investment spend in 2018
Total
Europe
North America (ITM US$250,000)
South Africa
Spend by Sappi Forests on water, sanitation and general upgrades to villages
Value impact
• Greater understanding of community issues
• Socio-economic upliftment
• Expanded channels of communication
• Enhanced licence to trade
Spend 2018
€100,000
US$550,000
ZAR56 million
ZAR8.3 million
52
53
Key material issue
See 10 on page 64.
R
With only 10% of the world’s forests certified, we work hard to expand our certified woodfibre basket and have targets in each
region, as well as a global target in place to achieve this. Globally, 75.2% of fibre supplied to our mills is certified.
sappi 2018 Annual Integrated Report
performance during the year
sappi 2018 Annual Integrated Report
performance during the year
Key material issues continued
Planet
Related SDGs1
CLEAN WATER
AND SANITATION
Ensure availability and
sustainable management
of water and sanitation
for all
AFFORDABLE AND
CLEAN ENERGY
Ensure access to
affordable, reliable,
sustainable and modern
energy for all
CLIMATE
ACTION
LIFE
ON LAND
Take urgent action to
combat climate change
and its impacts
Protect, restore and
promote sustainable use of
terrestrial ecosystems,
sustainably manage
forests, combat
desertification, and halt
and reverse land
degradation and halt
biodiversity loss
Renewable energy (%)
5
.
1
8
9
.
9
7
3
.
9
7
5
.
7
7
9
.
5
7
2
.
7
4
9
.
6
4
2
.
7
4
8
.
6
4
3
.
6
4
7
.
2
4
3
.
0
4
9
.
9
3
0
.
1
4
4
.
8
3
2
.
9
2
0
.
8
2
4
.
7
2
2
.
6
2
3
.
5
2
90
80
70
60
50
40
30
20
10
0
Europe
North
America
Southern
Africa
Global
(cid:81) 2014 (cid:81) 2015 (cid:81) 2016 (cid:81) 2017 (cid:81) 2018
Absolute direct emissions (Scope 1) and
indirect emissions (Scope 2) (tCO2e million)
Energy
Background
Given the high energy intensity of our industry, the cost and availability of
energy is a key consideration.
Our response
We leverage the significant opportunities inherent in our business and processes to
help us reduce energy usage and impact:
• Using a high proportion of renewable energy as a fuel source, most of it self-
generated in the form of black liquor
• Operating combined heat and power (CHP) plants in many of our mills. These
plants not only generate electricity but also heat, which is used at the paper
machines to dry the paper. Such efficiencies mean our CHP units are twice as
energy efficient as conventional power plants
• Improving the energy efficiency of our mills, and
• Selling surplus electricity from Alfeld, Ehingen, Gratkorn, Maastricht and Stockstadt
Mills in Europe; Cloquet, Somerset and Westbrook Mills in North America and
Ngodwana Mill in Southern Africa.
We track purchased energy costs as a percentage of cost of sales to assess whether
we are succeeding in this regard. As indicated by the graph on the following page, in
2018, global energy costs in relation to cost of sales remained stable, largely due to
reduced costs in Europe which offset the sharp increase in Southern Africa.
Our focus is on reducing externally purchased power to reduce costs and also on
reducing our reliance on fossil fuels. Over time, we have slowly but steadily reduced our
use of purchased energy (electricity and fossil fuel) and also reduced energy intensity.
Globally, over five years, energy self-sufficiency has increased by 5.6%.
In addition, we have increased our use of renewable energy—an approach which
ultimately results in a reduction in GHG emissions and has positive economic
implications. Our use of renewable energy in 2018 was 46.8%, of which 71.5% was
own black liquor. This not only helps to reduce greenhouse gas emissions, but also
separates our operations from the volatility of energy prices. While we are committed
to higher use of renewable energy, we have certain process constraints.
Value impact
• We acknowledge that our industry is energy-intensive and that we generate
greenhouse gas emissions. We believe that this is mitigated by the carbon
sequestration of the plantations and forests from which we source woodfibre.
6.0
5.0
4.0
3.0
2.0
1.0
0.0
4
6
.
1
1
1
.
4
1
6
.
1
2
0
.
4
5
6
.
1
6
1
.
4
3
5
.
1
6
2
.
4
7
4
.
1
0
3
.
4
Key material issue
See 7 on page 63 and targets on page 40.
R
T
Woodfibre certification
Background
Forestry and mill Chain-of-Custody certification assures consumers that the
forest products they buy originate from legally harvested and sustainably
managed forests and plantations.
2014
2015
2016
(cid:81) Indirect emissions (Scope 2)
(tCO2e million)
2017
2018
(cid:81) Direct emissions (Scope 1)
(tCO2e million)
Our response
1 Statistics for the digital imaging business and the Carmignano and Condino Mills acquired from Cham Paper Group are not included in the Plant graphs,
but will be fully included in 2019.
In Europe, all mills are FSC®- and PEFCTM-certified. In North America, Sappi includes fibre sourced from the Certified Logging
Professional and Maine Master Logger programmes. Cloquet, Westbrook and Somerset Mills are FSC-, SFI®- and PEFC Chain
of Custody-certified. We source only from controlled, non-controversial sources and 100% of wood and pulp is purchased in
accordance with SFI Certified Sourcing Standard. The standards we use are a critical element of our due diligence for Lacey Act
compliance. In Southern Africa, 100% of Sappi’s owned and managed plantations are FSC-FM certified, while Ngodwana, Saiccor,
Stanger and Tugela Mills and Lomati Sawmill are FSC Chain of Custody-certified.
In Southern Africa, we recognised that we needed to obtain certification over and above the FSC Group Scheme certification, based
on the difficulty of getting small growers certified and on customers’ requests for PEFC labelled products. PEFC endorses national
certification schemes, which meant South Africa had to develop a new certification scheme including a forest management
standard. This is now known as the South African Forest Assurance Scheme (SAFAS). We now await the finalisation of our SAFAS
certification and as soon as PEFC endorses SAFAS, we will be able to label our woodfibre as being PEFC-certified.
Value impact
• Ensures strong environmental credentials and promotes environmental responsibility
• Enhances reputation
• Meets customer needs
• While certification undoubtedly adds value, the drive for certification can negatively impact on small growers, who help to
promote healthy forest and plantation landscapes, but for whom the costs of certification are onerous.
Key material issue
Climate change
See 7 on page 63.
R
Background
The fifth IPCC assessment report1 indicates that each of the last three decades has been successively warmer at the Earth’s
surface than any preceding decade since 1850. The globally averaged combined land and ocean surface temperature data,
as calculated by a linear trend, show an average warming of 0.85°C over the period 1880 to 2012. Anthropogenic
greenhouse gas emissions have increased since the pre-industrial era to levels that are unprecedented in at least the
last 800,000 years. Their effects, together with those of other anthropogenic drivers, have been detected throughout the
climate system and are extremely likely to have been the dominant cause of the observed warming since the mid-20th
century. The effects of climate change are already noticeable in changing weather patterns.
Our response
Energy self-sufficiency (%)
Purchased energy costs as a percentage of cost of sales (%)
Reduction of energy intensity (GJ/adt)
8
.
3
6
0
.
4
6
2
.
3
6
9
.
9
5
9
.
8
5
2
.
3
4
1
.
1
4
8
.
0
4
4
.
1
4
1
.
9
3
4
.
1
4
1
3
.
1
4
2
8
.
1
4
3
.
0
4
6
.
9
3
70
60
50
40
30
20
10
0
1
.
3
2
6
.
3
2
7
.
2
2
3
.
2
2
4
.
2
2
14
12
10
8
6
4
2
0
2
5
1
.
0
9
2
0
.
0
5
1
0
.
0
0
5
0
.
0
7
8
1
.
0
1
5
.
2
2
8
3
.
2
2
22.7
22.6
22.5
22.4
22.3
22.2
Europe
North
America
Southern
Africa
Global
(cid:81) 2014 (cid:81) 2015 (cid:81) 2016 (cid:81) 2017 (cid:81) 2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
STE2
2013
2018 STE2
2018
(cid:81) Europe
(cid:81) North America
(cid:81) Southern Africa
(cid:81) Global
1 IPCC, 2014: Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental
Panel on Climate Change [Core Writing Team, RK Pachauri and LA Meyer (eds.)]. IPCC, Geneva, Switzerland, 151 pp.
2 Specific total energy (STE).
54
55
sappi 2018 Annual Integrated Report
performance during the year
Key material issues continued
In 2018, there were record high temperatures in Europe. There were also major wildfires in northern England, Sweden and Greece.
The 2017 fire year in the United States of America (USA) was one of the most destructive on record and the most expensive in USA
history, with damage estimates topping US$10 billion. To date, the damage in the 2018 season has also been extensive, with
extreme temperatures across large parts of North America.
While our business is wholly dependent on woodfibre, given SEU’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 SNA, 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.
However, the situation is different in Southern Africa, where Sappi Forests owns and leases 379,000 ha of land, with contracted
supply covering a further 129,000 ha. Climate change has already impacted some of our plantations and has the potential to
significantly impact our woodfibre base. Accordingly, we take concerted action to mitigate the risk, beginning with understanding
where the largest risks of climate change will be to Sappi, how climate is likely to change further into the future and to formulate a
multi-pronged response which involves:
• Climate change investigations — to determine which plantations are most at risk, and also to identify which climatic variables
are likely to change, as well as the magnitude and direction of such change. The preliminary study showed that maximum
temperatures are more likely to increase than minimum temperatures, especially during spring and summer. It is also likely that
spring rainfall will decrease, with more high-intensity rainfall during summer. The combined effect of higher temperatures and
lower rainfall in spring is likely to exacerbate tree stress, thereby increasing susceptibility to pests and diseases, as well as fire.
(Further details are set out in the Planet section of our Group Sustainability Report on www.sappi.com/sustainability).
• Replacing pure species with hybrids — on the Mpumalanga highveld, Sappi experienced the impact of the changes
described above with Eucalyptus (E.) nitens becoming unsuitable due to pest and disease issues, on plantations with the highest
risk of climate change. E. nitens has a very narrow ideal temperature range and is very sensitive to changes in temperature.
Subsequently, after evaluating management options and associated risks across the entire value chain, the decision was taken to
replace E. nitens in KwaZulu-Natal by replacing it with E. grandis x E. nitens hybrid varieties.
• Adjusting and directing our tree breeding strategy — through the use of modelled future climate data. Traditional tree
breeding is a relatively slow process and in order to keep up with environmental changes, Sappi’s tree breeding programme is
producing and selecting the most optimally suited hybrid varieties for each climatic zone. Our tree breeding division has a target of
developing a hybrid varietal solution for all our sites by 2025. We are also making use of genetic tools, like DNA fingerprinting, to
enhance and accelerate their breeding and selection process.
• Facilitating the production of more rooted cuttings — as pine and eucalypt hybrids are more successfully propagated
through rooted cuttings rather than seed, a strategy is being rolled out to meet future requirements. In addition to the recent
construction of Clan Nursery and the rebuild of the Ngodwana Nursery, we plan to upgrade Richmond Nursery in 2023 to enable
the production of additional hybrid cuttings in addition to seedlings.
• Implementing rapid detection techniques — together with rapid understanding of the relative tolerance/susceptibility of our
growing stock to newly introduced pests or disease, these techniques are critical in successfully managing the viability of our
woodfibre base. Accordingly, we have instituted a series of Sentinel trials across various climatic regions. These trials are made up
of many genotypes—both currently commercially planted and also pre-commercial varieties. In addition to different genotypes,
different ages (life stages) of trees are also represented. Using these trials, our objective is to rapidly identify a new pest or
disease, and immediately determine which genotypes are susceptible or tolerant, and also which life stage of the tree is impacted.
This puts us in a position to react very quickly.
In addition to these trials, we have recently completed a pilot study on the use of automated change detection using satellite
imagery focused on rapidly detecting and reacting to damage—drought, pests, diseases, etc—to our plantations. The study
entailed the acquisition of Sentinel 2 imagery which gives a new image every five days. Newly acquired images are compared to
the previous image via cloud processing using complex change detection algorithms. The resultant change is fed live to the Sappi
GIS system, and integrated with enterprise data (age, species, tree size, etc). Given the success of the project, we are now rolling
it out to all our plantations, while making use of the higher resolution and daily Planet satellite images (www.planet.com)
which offer daily change detection.
• Long-term soil monitoring — under hotter and drier climatic conditions, the importance of soil organic matter will increase
because of its ability to reduce soil temperature, and also to increase the soil water infiltration rate and soil water holding capacity.
A major barrier to monitoring slow-changing soil attributes is the scarcity of long-term data sets. Against this backdrop, in 2018
Sappi Forests established long-term soil monitoring plots through a collaborative research project managed by the Institute for
Commercial Forestry Research. These monitoring plots will form part of the current inventory plot network (permanent sample
plots) and will be used to interpret and relate changes in soil quality parameters to stand productivity and site management.
sappi 2018 Annual Integrated Report
performance during the year
Value impact
• Global potential to impact our woodfibre base if we do not take concerted action
• Sappi Forests:
– Rapid response to climatic conditions.
– Enhanced soil and woodfibre productivity.
– More sustainable woodfibre base.
Critical to the sustainable production of timber is the impact that management operations have on the environment, and
specifically the soil in which the trees grow. Because of its effect on physical, chemical and biological properties, soil organic
matter exerts a dominating influence on crop productivity and environmental quality. The objective of our long-term monitoring
programme is to overcome the scarcity of long-term data sets key to analysing forest site productivity questions.
Long-term monitoring provides an opportunity to assess changes across rotations and is an essential requirement for monitoring
attributes that may change slowly or that are cumulative over time. A number of international forestry research organisations and
companies have implemented long-term monitoring plots.
During June to August 2018, the first five long-term soil monitoring plots were initiated on Sappi land holdings through a
collaborative research project managed by the Institute for Commercial Forestry Research based in Pietermaritzburg. The goal is
to establish 10 twin-plots per year (five on Sappi land and five on land owned by other collaborating members). On one plot,
harvest residue will be removed and on the other plot harvest residue will be retained. This will allow evaluation of the effect of
biomass removal on growth and soil properties of the sites, providing additional information on site nutritional resilience and will
assist with the extrapolation of results from a separate set of Nutrient Depletion Studies.
These monitoring plots will form part of the current inventory plot network (permanent sample plots). Data from this monitoring
network will be used to interpret and relate changes in soil quality parameters to stand productivity and site management. More
detailed studies will be conducted at selected sites which will be aimed at developing a better understanding of the process that
can be used to further refine indicators.
Key material issue
Water
See 7 on page 63.
R
Background
Our operations are highly dependent on the use and responsible management of water resources. Water is used in all major
process stages, including raw materials preparation (woodchip washing), pulp washing and screening, and paper machines
(pulp slurry dilution and fabric showers). Water is also used for process cooling, materials transport, equipment cleaning and
general facilities operations.
Our response
Specific water return to extracted (m3/adt)
1
7
.
5
3
5
5
.
2
3
2
3
.
4
73
2
.
1
3
3
9
.
4
43
7
.
1
3
4
7
.
3
63
6
.
1
3
7
3
.
4
3
4
6
.
2
3
40
35
30
25
20
15
10
Most of our mills are situated in the vicinity of rivers from which they draw water.
Withdrawal from surface sources (mostly rivers) accounts for the largest percentage of
water use. This withdrawal is subject to licence conditions in each area where we operate.
The World Resources Institute has identified South Africa and Belgium as having high
levels of water stress. We have embarked on a number of water efficiency projects in
South Africa (described in more detail in our Group Sustainability Report on
www.sappi.com/sustainability) and in terms of Saiccor Mill, by having access to the
Sappi-owned Comrie Dam where we completed a project to raise the dam wall in
2016. Our response in terms of Lanaken Mill in Belgium is also described in our Group
Sustainability Report.
In Europe, exceptionally low water levels in most of the region’s rivers are not affecting our
mills directly, but are having an impact on transport logistics.
1.00
0.95
0.90
0.85
0.80
0.75
0.70
0.65
0.60
0.55
0.50
2014
2015
2016
2017
2018
(cid:81) Specific process water extracted
(cid:81) Specific effluent discharged
(cid:81) Ratio of effluent to extracted water
In North America, our mills draw water from surface sources (rivers and lakes) and return
treated water to the same primary sources. The areas in the two states where our mills
operate have been identified as having low levels of water stress.
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sappi 2018 Annual Integrated Report
performance during the year
Key material issues continued
sappi 2018 Annual Integrated Report
performance during the year
It is important to note that globally, 95% of the process water we use is returned to the environment. While it is difficult to improve
this metric due to the nature of our processes, over five years specific water extracted has reduced by 3.8%.
On our watchlist
Water used for pulp and paper production is mostly recycled in the system. However, minerals from woodfibre make it necessary to
discharge some amount of water which is purified in high-end waste water treatment facilities.
Water and effluent testing are routinely conducted at mill sites.
Globally, over five years, we have achieved a positive result in effluent concentration by reducing chemical oxygen demand (COD) by
5.2% and total suspended solids (TSS) by 17.2%. In accordance with previous years, Saiccor Mill has been excluded from the global
trend COD reporting. The mill is building up the biodispersion COD dataset, which will be used for future reporting. This value, tested
in the marine environment, supports the historical environmental impact studies and the recently conducted biodegradation test,
performed on the waste water. The use of this value was also endorsed and used by Quantis for a recent Lifecycle Assessment
(LCA). (For a five-year trend of effluent discharge quality, see the Planet section of our Group Sustainability Report on
www.sappi.com/sustainability.)
In terms of our plantations in Southern Africa, these are not irrigated and fertiliser use is kept to a minimum—being used only once
in each rotation. This limits the potential impact on water sources in terms of nutrient load. In addition, our minimal use of pesticides
is strictly controlled by the forest certification systems to which we conform.
Value impact
• We do have an impact on water sources from which we draw and return water. However, this has to be offset against the high
level of economic value added by our water usage and by the percentage of water (95%) returned to the environment
Land restitution
Sappi is currently engaged in 65 land claims in South Africa. Six claims have been settled and the extent of the land agreed, but
we are waiting for finalisation from the KwaZulu-Natal and Mpumalanga regional land claims commissioners. To date, 20 claims
have been agreed to, but the extent of the land still has to be finalised with the regional commissioners or claimants. Of the
65 claims, 20 have been referred to court, either because we questioned their validity or the extent of the claim. In the past
10 years, we have settled 37 claims involving 8,151 ha in which claimants took ownership of the land and claims for 11,629 ha
in which claimants preferred to seek compensation.
For many of the land claims in which we have been involved, and where there has been a change in ownership, we continue
to buy the timber and help to manage those plantations.
While we support the land claims initiatives generally, we have been frustrated around the implementation of the policies and
slow levels of bureaucracy. The forestry industry is a key driver of rural growth. If government could unlock some of the
bureaucratic lagging, the attendant benefit would flow directly to rural communities.
Social unrest
There have been incidents of social unrest in South Africa, the result of a disaffected population who are protesting about lack
of service delivery and job opportunities. Officially, the country’s unemployment is standing at 27.5%. In certain regions of the
country, particularly the rural areas, it is much higher.
We played a role in helping to alleviate the situation by spending ZAR8.3 million on upgrading infrastructure in villages close
to our forests in 2018. We also promote socio-economic development in rural areas, in particular through our Abashintshi
programme (see page 53) and our enterprise development initiative, Sappi Khulisa (‘Khulisa’ means ‘to grow’ in isiZulu).
The latter initiative, which began in 1983, is aimed at community tree farming and has successfully uplifted impoverished
communities in KwaZulu-Natal and the Eastern Cape. The total area currently managed under this programme amounts to
27,080 ha. In 2018, under the programme 483,359 (2017: 448,221 tons) worth approximately ZAR387 million was delivered to
our operations. Since 1995, a total volume of 3,796,940 tons to the value of ZAR2.1 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 believe
the government’s expedition of planting licences in this area where 100,000 ha are available for planting would play a significant
role in promoting rural development.
We are intensifying our focus on enterprise development to cover other areas apart from forestry and have appointed
a specialist to drive this forward.
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sappi 2018 Annual Integrated Report
performance during the year
Risk management
Risks
Our 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.
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, taking into account the
recommendations set out in ISO 31000
standard (for guidance only)—‘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 and Risk
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, business unit and operation.
Group Internal Audit provides
independent assurance on the
risk management process.
For an analysis of the principal financial
risks to which Sappi is exposed, please
see note 31 contained in the Group
Annual Financial Statements on
www.sappi.com/annual-reports.
For a detailed discussion of the group’s
risk factors, please see Risk
Management Report on
www.sappi.com/annual-reports.
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.
This is the maximum level of loss or
reduced earnings that can be
absorbed without compromising key
objectives, eg return on investment.
Top 10 key risks (in no specific order)
Context
1. Employee safety
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.
Mitigating actions
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
continuous improvement in safety performance
• 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.
An external recognised world leader in safety performance
was commissioned to review and audit Sappi safety initiatives,
processes and procedures focusing mainly on engagement
and risk based issues. Detailed action plans and focus areas
have been implemented being underpinned with the ‘Own
Safety, Share Safety’ theme—getting into the hearts and
minds of our people and ensuring safety becomes engrained
into our business values.
For 2018, our performance criteria on the Management
Incentive Scheme (MIS) has been reviewed and an increased
score has been allocated to safety.
sappi 2018 Annual Integrated Report
performance during the year
Context
Mitigating actions
2. Cyclical macro-economic context
We operate in a cyclical industry and as such, global
economic conditions may cause substantial fluctuations
in our results.
We will continue to monitor the supply/demand balance,
which might require us to impair operating assets and/or
implement further capacity closures.
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.
3Ps impact
3. Highly competitive industry
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.
3Ps impact
Strategic and 2020Vision responses
• Achieve cost advantages
• Rationalise declining businesses
• Accelerate growth in higher margin growth segments
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.
We recently announced our plan to invest ZAR5 billion
(US$353 million) over the next five years through maintenance
and upgrade projects to decrease production costs, introduce
new technology and optimise processes at Saiccor Mill.
These investments will secure the mill’s future by increasing
its global cost competitiveness and significantly reducing its
environmental footprint.
During the fourth quarter we announced our commitment to
capital investments at our Saiccor Mill in Umkomaas,
south of Durban. The investments include a ZAR2.7 billion
(US$191 million) dissolving wood pulp capacity expansion
project.
Strategic and 2020Vision responses
• Achieve cost advantages
• Accelerate growth in higher margin growth segments
• Reduce our environmental footprint
3Ps impact
Strategic and 2020Vision responses
• Safety initiatives
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sappi 2018 Annual Integrated Report
performance during the year
Risk management continued
Context
4. Project implementation
In executing our strategy we carry out a number of capital
expenditure projects. There is a risk that these projects may
not be completed on time, do not deliver the expected quality
or cost performance requirements or exceed the allocated
capital spend. This would impact the project’s financial return
metrics, impact normal operations, delay the time to market
or loss in market share. Reasons for this could be supplier
and vendor performance, skill levels and ineffective project
management and controls.
3Ps impact
5. Evolving technologies and consumer preferences
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.
3Ps impact
Mitigating actions
Context
Mitigating actions
sappi 2018 Annual Integrated Report
performance during the year
6. Uncertain and evolving regulatory landscape
Regulatory limitations/requirements on business (including
complying with environmental, health and safety laws) as well
as international political uncertainty (including land reform
policy uncertainty in South Africa) could translate into cost
increases that directly impact Sappi’s competitiveness and
profitability.
Our worldwide operations are subject to various economic,
fiscal, monetary, regulatory, operational and political
conditions. We are therefore exposed to risks such as material
changes in laws and regulations, political, financial and social
changes and instabilities, exchange controls, risks related to
relationships with local partners and potential inconsistencies
between commercial practices, regulations and business
models in different countries.
3Ps impact
7. Foreign exchange volatility
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.
3Ps impact
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 and Risk Committee.
Our aim is to minimise our impact on the environment. The
principles of ISO 14000, Forest Stewardship Council® (FSC®),
SFI®, PEFC™ 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, waste water discharges and
waste generation. (See Our key material issues on
page 42.)
We closely monitor the potential for changes in pollution
control laws, including GHG emission 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.
Strategic and 2020Vision responses
• Achieve cost advantages
• Provide greater opportunities for local communities
• Reduce our environmental footprint
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 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).
See note 31 in Group Annual Financial Statements
on www.sappi.com/annual-reports.
Strategic and 2020Vision responses
• Achieve cost advantages
• Maintain a healthy balance sheet
A comprehensive internal review of recently executed projects
has been completed and engagement with key vendors
continues to ensure lessons learnt, both positive and
negative, are applied and included in future project
management and controls globally.
Identified shortcomings between contractor and supplier
interfaces, which together with the planning of local skilled
resource availability, is to be addressed well in advance.
This includes various contracting philosophies specific to the
regions in which we operate in. Notwithstanding the above,
a huge effort is placed on the use of modern tools available to
improve the efficacy in the front-end engineering design,
engineering standards, cost control and planning functions
throughout the construction, erection and commissioning
phases. We continue to develop strong relationships with the
main suppliers to integrate project documentation seamlessly.
A rigorous process is in place to select potential contractors
that have the same Sappi commitment to quality and safety.
Where applicable, cross-functional global teams, additional
internal expert resources and detailed oversight and review,
including risk metrics, will be brought into the various phases
of projects to ensure project execution. Operational and
maintenance training also remains a key focus area.
Strategic and 2020Vision responses
• Achieve cost advantages
• Rationalise declining businesses
• Accelerate growth in higher margin growth segments
• Provide greater opportunities for local communities
• Reduce our environmental footprint
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 paper
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 second quarter we acquired the speciality
paper business of Cham Paper Group Holding AG for
US$132 million. The transaction included all brands and
know-how, the Carmignano and Condino Mills (Italy), as well
as their digital imaging business and facility situated in Cham
(Switzerland). The acquisition increases Sappi’s relevance in
specialities and packaging papers, opening up new
customers and markets to Sappi’s existing products and
generating economies of scale and synergies. It will improve
near-term profitability and serve as a platform for organic
growth, further acquisitions and will add approximately €183
million (US$212 million) of annual sales and approximately
€20 million (US$23 million) of annual EBITDA before taking
into account synergies. The acquisition was financed from
internal resources.
Strategic and 2020Vision responses
• Achieve cost advantages
• Rationalise declining businesses
• Accelerate growth in higher margin growth segments
• Provide greater opportunities for local communities
• Reduce our environmental footprint
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sappi 2018 Annual Integrated Report
performance during the year
Risk management continued
Context
Mitigating actions
8. Natural resource constraints
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.
3Ps impact
9. Market share and customer concentration
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.
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.
Strategic and 2020Vision responses
• Achieve cost advantages
• Reduce our environmental footprint
We are, on a continuous basis, working to expand and
diversify our customer base.
We sell a significant portion of our products to several
significant customers. During 2018, 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.
sappi 2018 Annual Integrated Report
performance during the year
h
g
H
i
e
c
n
e
r
r
u
c
c
o
f
o
d
o
o
h
i
l
e
k
L
i
w
o
L
6
8
10
4
1
2
7
3
5
9
Improving
No change
Worsening
3Ps impact
Strategic and 2020Vision responses
Low
Monetary impact
High
• Accelerate growth in higher margin growth segments
• Reduce our environmental footprint
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.
10. Employee relations
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.
3Ps impact
Strategic and 2020Vision responses
• Achieve cost advantages
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 and business interruption
occurrence is US$24 million (€20.5 million) with the annual aggregate set at US$38 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$871 million (€750 million) has been deemed to be adequate for the reasonable foreseeable loss for any
single claim.
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sappi 2018 Annual Integrated Report
sappi 2018 Annual Integrated Report
enhanced
value
NOTHING CAN STAND IN THE WAY OF PEOPLE
WORKING TO HELP EACH OTHER
Each category of honeybee—
worker, drone and queen—
has its own important roles
and performs specific duties.
In a uniquely creative form of
communication, inside the
hive, one worker bee dances,
As the worker bee sucks the
nectar from the flower, it is
stored in her nectar sac. When
Creativity, communication and
she has a full load, she flies back
to the hive. There, she passes it
collaboration also underpin
Sappi’s everyday business
while other bees watch to learn
the directions to a specific
flower patch. The dancing bee
on through her mouth to other
worker bees who chew it and
pass it from bee to bee, until it
smells like the flower patch, and
gradually turns into honey and is
also gives the watching bees a
stored in honeycomb cells. At
activities: creative training and
development initiatives that
equip our people and the
communities in which we
operate with the life and career
taste of the nectar she has
this point, the honey is still a bit
skills, knowledge and
gathered. Smell and taste help
wet, so they fan it with their
other bees find the correct
flower patch.
wings to make it dry out. When
it’s ready, they seal the cell with
a wax lid to keep it clean.
confidence that allow them to
build on their own capabilities
and further their development.
Open channels of
communication that enable our
diverse people to have their say
in how we can do business
better tomorrow than today.
A cross-cutting, collaborative
approach that entrenches the
common understanding that
nothing can stand in the way
of people working to help
each other.
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sappi 2018 Annual Integrated Report
performance during the year
Chief
Financial
Officer’s
Report
Our 2020Vision
had identified
fiscal 2018 as a
transition year.
This report is divided into six sections and offers a comprehensive understanding of
the Group’s financial performance:
• Section 1: Financial highlights
• Section 2: Group financial performance
• Section 3: Regional financial performance
• Section 4: Cash flow
• Section 5: Balance sheet, and
• Section 6: Share price performance.
Section 1
Financial highlights
(US$ million)
Sales
EBITDA excluding special items
Operating profit excluding special items
Profit 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 (utilised) generated
Net debt
Basic earnings per share (US cents)
2017 % change
2018
5,806
762
480
323
13.1
5,296
785
526
338
14.8
8.3
9.9
14.6
(254)
1,568
60
18.0
108
1,322
63
10
(3)
(9)
(4)
n/a
n/a
n/a
n/a
19
(5)
Sales over five years (US$ million)
7
3
4
,
1
7
1
5
,
1
7
0
1
,
3
3
5
3
,
1
7
7
3
,
1
0
6
6
,
2
2
9
1
,
1
7
6
3
,
1
2
8
5
,
2
2
7
3
,
1
0
6
3
,
1
4
6
5
,
2
4
0
4
,
1
2
3
4
,
1
0
7
9
,
2
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2014
2015
2016 2017
2018
(cid:81) Southern Africa
(cid:81) Europe
(cid:81) North America
Our 2020Vision had identified fiscal 2018 as a transition year. Following the debt
reduction initiatives during the previous reporting periods, the group addressed the
capacity constraints in the dissolving wood pulp (DWP) and specialities and packaging
papers segments. DWP capacity increased by 60,000 tons and the conversion
of printing and writing papers capacity to speciality paper products in our North
American and European regions provided us with approximately 550,000 tons
increase in specialities and packaging papers capacity. Additionally, the purchase of
the Cham Paper Group (CPG) supplemented 160,000 tons of specialities and
packaging papers capacity. As a result, capital expenditure (inclusive of maintenance
expenditure) and the acquisition of CPG amounted to US$673 million for the year.
Cash utilised for the year of US$254 million was managed within our leverage target
of two times net debt to EBITDA.
Stronger than expected market demand across all our product segments provided
us with high capacity utilisation rates on all our machines. Volumes and net selling
prices improved by 2% and 7% respectively causing net sales to increase by 10%.
Variable costs increased by 12% in absolute terms, driven mainly by purchased
pulp and delivery cost increases. There was a lag in securing selling price increases
which squeezed EBITDA margins from 15% to 13%. The increased sales volumes
reduced the impact of the lower margins, and EBITDA excluding special items of
US$762 million was in line with the previous year after adjusting for the benefit of
the additional accounting week of approximately US$20 million.
sappi 2018 Annual Integrated Report
performance during the year
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.
GT Pearce
Chief Financial Officer
Net finance costs reduced by 15% to US$68 million as the full impact on the previous
years’ debt reduction initiatives took effect. The average tax rate of 23% was below
the average statutory rate as we utilised assessed losses available mainly in our
European operations. Profit for the year was US$323 million (LY = US$338 million) and
earnings per share excluding special items reduced from 64 US cents to 60 US cents.
A dividend of 17 US cents per share has been declared at a three times earnings
cover adjusted for non-cash items.
Cash utilisation for the year of US$254 million includes a dividend payment of
US$81 million, tax payments of US$73 million and the acquisition of CPG of
US$132 million.
Segment reporting
Our reporting is based on the geographical location of our businesses, ie Europe,
North America and Southern Africa.
The selected product line information is reviewed by our Executive Committee in
addition to the geographical basis upon which the group is managed. This additional
information is presented in this report to assist our stakeholders in obtaining a
complete understanding of our business.
Exchange rates and their impact on the group’s results
The group reports its results in US Dollar and, as such, the main foreign exchange
rates used in the preparation of the financial statements were:
Income statement
average rates
Balance sheet
closing rates
2018
2017
2018
2017
EUR1 = US$
US$1 = ZAR
1.1902
13.0518
1.1055
13.3813
1.1609
14.1473
1.1814
13.5561
68
69
sappi 2018 Annual Integrated Report
performance during the year
Chief Financial Officer’s Report continued
sappi 2018 Annual Integrated Report
performance during the year
Section 2
Financial performance
Group
The discussion in this
section focuses on the
group financial performance
in 2018 compared with
2017. A detailed
discussion, in local
currencies, of each of our
three operating regions
follows in section 3.
Income statement
Our group financial results can be summarised as follows:
US$ million
Sales volume (metric tons ’000)
Sales revenue
Variable manufacturing and
delivery costs
Fixed costs
Sundry items1
Operating profit excluding
special items
Special items
Operating profit
Net finance costs
Taxation
Net profit
EPS excluding special items
(US cents)
2018
7,591
US$
million
5,806
(3,521)
(1,767)
(38)
480
9
489
(68)
(98)
323
60
2017
7,410
US$
million
5,296
(3,147)
(1,601)
(22)
526
–
526
(80)
(108)
338
64
%
change
2
%
change
10
12
10
73
(9)
–
(7)
(15)
(9)
(4)
(6)
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.
Sales volume
In 2018, sales volume increased by 181,000 tons, or 2%, compared with 2017. The
regional contributions to sales volume are shown below:
Sales volume (metric tons ’000)
North America
Europe
Southern Africa
Group
Printing and writing papers
Specialities and packaging papers
Dissolving wood pulp
Forestry
2018
1,371
3,366
2,854
7,591
4,150
1,009
1,198
1,234
2017
1,359
3,343
2,708
7,410
4,270
854
1,184
1,102
%
change
1
1
5
2
(3)
18
1
12
In North America, increases in specialities and packaging papers and dissolving wood
pulp (DWP) sales volumes were offset by reduced printing and writing papers volumes
due to the conversion of PM1 at Somerset Mill.
European volumes increased by 1% with good growth in the mechanical coated
paper and specialities and packaging papers segments. The growth in sales volumes
was offset by lower demand in the coated woodfree paper market.
Volumes in Southern Africa increased by 5% mainly due to growth in the specialities
and packaging papers and forestry volumes. DWP volumes were marginally lower,
impacted by production problems during the earlier part of the fiscal.
Sales volume to capacity (%)
2018
2017
Europe
North America
Southern Africa
Sappi group
70
93
93
95
93
94
97
95
95
Sales revenue
Sales revenue increased by 10% from US$5.3 billion in 2017 to US$5.8 billion in
2018. The increase was due to the higher sales volumes discussed above, higher
sales prices and improved sales mix.
Section 2 continued
Financial performance
Group
Variable and delivery costs
Variable and delivery costs increased by US$374 million, or 12%, from 2018. Higher
sales volumes and an increase in purchased pulp, energy, delivery and chemical
prices contributed to the increase in costs.
The net pulp purchases and sales of the Sappi group are detailed in the graph below.
Sappi group pulp balance (US$ million)
9
6
7
Net pulp sales
6
7
1
8
0
1
900
600
300
0
(300)
(600)
(900)
(1 200)
)
1
0
7
(
Europe
North
America
Southern
Africa
Sappi
group
(cid:81) Net sales (cid:81) Net purchases
The table below reflects the breakdown of variable and delivery costs by type.
Variable manufacturing and
delivery costs (US$ million)
Wood
Energy
Chemicals
Pulp and other
Delivery
Sappi group
2018
598
411
851
1,171
490
3,521
2017
603
372
787
944
441
3,147
%
change
(1)
10
8
24
11
12
71
sappi 2018 Annual Integrated Report
performance during the year
Chief Financial Officer’s Report continued
sappi 2018 Annual Integrated Report
performance during the year
Section 2 continued
Financial performance
Group
Fixed costs
Fixed costs increased by US$166 million, or 10%, from fiscal 2017. This increase was
mainly due to a higher depreciation charge (US$19 million) as a result of the increased
capital spend, the acquisition of the Cham Paper Group business (US$26 million) and
the stronger Rand and Euro resulting in an increase in US Dollar costs (US$28 million).
Excluding the currency impact fixed cost increased by US$138 million.
The tables below detail the EBITDA and operating profit excluding special items of the
business for both 2018 and 2017 and the margins of each.
EBITDA excluding special items by region
(US$ million)
2018
2017
Section 2 continued
Financial performance
Group
Details of the make-up of fixed costs are provided in the table below.
Fixed costs (US$ million)
Personnel
Maintenance
Depreciation
Other
Sappi group
2018
1,043
235
274
215
1,767
2017
930
212
255
204
1,601
%
Change
12
11
7
5
10
EBITDA and operating profit excluding special items
EBITDA excluding special items decreased to US$762 million, 3% lower than the
previous year. On a like-for-like basis the decline in EBITDA was US$3 million (2017
benefited by approximately US$20 million due to an additional accounting week).
Operating profit excluding special items declined from US$526 million last year to
US$480 million in 2018.
The EBITDA bridge reflected in the graph below shows the impact on profitability from
higher sales volumes, higher sales prices, improved sales mix and favourable
exchange rate movements, which were offset by increased variable and fixed cost.
Reconciliation of EBITDA excluding special items: 2018 compared to 20171 (US$ million)
1,400
1,300
1,200
1,100
1,000
900
800
700
600
Sales revenue
8
2
5
)
1
0
4
(
6
1
5
8
7
)
5
7
1
(
)
8
(
7
1
2
6
7
2017
EBITDA
Sales
volume
Price and
mix
Variable and
delivery
costs
Fixed
costs
Other
Exchange
rate2
2018
EBITDA
1 All variances were calculated excluding Sappi Forests.
2 ‘Exchange rate’ reflects translation and transactional effect on consolidation.
Europe
North America
Southern Africa
Corporate and other
Sappi group
EBITDA margin by region (%)
299
126
337
–
762
262
126
396
1
785
35
30
25
20
15
10
5
0
.
9
8
2
.
0
4
2
.
8
4
1
1
.
3
1
2
.
0
1
1
.
0
1
3
.
9
8
.
8
Europe
North America
Southern
Africa
Sappi
group
(cid:81) 2017 (cid:81) 2018
EBITDA excluding special items by product
category (US$ million)
2018
2017
Dissolving wood pulp
Specialities and packaging papers
Printing and writing papers
Other
Sappi group
306
138
318
–
762
386
117
281
1
785
72
73
sappi 2018 Annual Integrated Report
performance during the year
Chief Financial Officer’s Report continued
sappi 2018 Annual Integrated Report
performance during the year
Section 2 continued
Financial performance
Group
Operating profit excluding special items by
region (US$ million)
2018
2017
Europe
North America
Southern Africa
Corporate and other
Sappi group
Operating profit margin by region (%)
163
49
270
(2)
480
140
47
337
2
526
30
25
20
15
10
5
0
5
5
.
5
5
.
5
3
.
4
3
.
Europe
North America
(cid:81) 2017 (cid:81) 2018
.
6
4
2
.
2
9
1
9
9
.
3
8
.
Southern
Africa
Sappi
group
Operating profit excluding special items by
product category (US$ million)
2018
2017
Dissolving wood pulp
Specialities and packaging papers
Printing and writing papers
Other
Sappi group
251
78
153
(2)
480
334
76
114
2
526
The charts below illustrate that 68% of the group’s EBITDA originates from growing
markets in the DWP and specialities and packaging papers segments. The printing
and writing papers segment, which contributes a third of the EBITDA remains an
important strategic component of our business.
Operating profit excluding special
items by segment (%)
EBITDA excluding special items by
segment (%)
32
Special items
Special items consist of those items which management believe are material,
by nature or amount, to the results for the year and require separate disclosure.
A breakdown of special items for 2018 and 2017 is reflected in the table below:
Section 2 continued
Financial performance
Group
Special items – gain (loss) (US$ million)
2018
2017
Plantation price fair value adjustment
Acquisition costs
Net restructuring provisions
Profit (loss) on disposal and written off assets
Asset (impairment) reversals
Black economic empowerment charge
Fire, flood, storm and other events
Total
27
(2)
(1)
4
3
(1)
(21)
9
21
–
(1)
(2)
(6)
(1)
(11)
–
The net impact of special items in 2018 was US$9 million. The major components are
described below:
• A positive non-cash US$27 million plantation price fair value adjustment was
recognised following increases to the market price of timber
• An asset impairment reversal of US$3 million was recorded in Southern Africa
related to previously impaired project costs, and
• Fire, flood, storm and other events includes turbine damage at our Saiccor, Alfeld
and Stockstadt Mills amounting to US$13 million, unplanned downtime events at
our Saiccor, Ngodwana, Somerset and Ehingen Mills amounting to US$10 million
offset by a contingent consideration release of US$6 million.
Net finance costs
(US$ million)
Net interest expense
Interest capitalised
Net foreign exchange gains
Total
2018
2017
76
(2)
(6)
68
92
–
(12)
80
Net finance costs were lower than the prior year, despite net debt increasing
during the year as a result of the Cham Paper Group acquisition in February for
US$132 million and increased capex expenditure. We also repaid US$38 million
(ZAR500 million) of our South African bonds in April 2018 from available cash
resources.
1,771
2018
US$480
million
1,408
42
52
40
1,771
2018
US$762
million
1,408
16
(cid:81) Dissolving wood pulp
(cid:81) Specialities and
packaging papers
(cid:81) Printing and writing
papers
(cid:81) Dissolving wood pulp
(cid:81) Specialities and packaging
(cid:81) Printing and writing
papers
papers
18
For information regarding the financial performance of the regions, please refer
to section 3 of this report.
Key operating targets
Our financial targets and performance against them are dealt with in the Letter
to shareholders on page 14.
74
75
sappi 2018 Annual Integrated Report
performance during the year
Chief Financial Officer’s Report continued
Section 2 continued
Financial performance
Group
Taxation
A regional breakdown of the tax charge is provided below.
(US$ million)
Europe
North America
Southern Africa
Total
Profit
before tax
Tax
(charge)
relief
Effective
tax rate %
81
34
306
421
(4)
(12)
(82)
(98)
(5)
(36)
(27)
(23)
In Europe, an increase in deferred tax assets and the utilisation of assessed losses
reduced the effective rate to 5%.
The North American effective tax rate has largely been impacted by one-time
adjustments recognised from the US Tax Reform (rate change from 35% to 21%).
The Southern African tax rate of 27% is lower than the statutory tax rate of 28% due
to the impact of non-taxable items.
Net profit, earnings per share and dividends
After taking into account net finance costs and taxation, our net profit and earnings
per share for 2018, with comparatives for 2017, were as follows:
(US$ million)
Operating profit
Net finance costs
Profit before taxation
Taxation
Profit for the period
Weighted average number of shares is issue
(millions)
Basic earnings per share (US cents)
2018
2017
489
68
421
98
323
538.1
60
526
80
446
108
338
533.9
63
The directors have declared a dividend of 17 US cents, representing a three times
earnings cover adjusted for non-cash items, and a 13% improvement on the
15 US cents declared last year. The group aims to declare ongoing annual dividends,
and over time achieve a long-term average earnings to dividends ratio of three to one.
sappi 2018 Annual Integrated Report
performance during the year
Section 3
Financial performance
Regional
Alongside 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
2018
1,371
%
change
US$
per ton
2018
2017
1,359
US$
per ton
2017
%
change
1
%
change
5
5
5
4
50
4
0
1,044
1,001
(624)
420
(369)
(15)
36
92
(599)
402
(357)
(10)
35
93
4
4
4
3
50
3
(1)
US$
million
2018
1,432
US$
million
2017
1,360
(856)
576
(506)
(21)
49
126
(814)
546
(485)
(14)
47
126
The conversion of PM1 at Somerset Mill to produce paperboard grades reduced
available coated woodfree paper capacity and had a negative impact of approximately
US$19 million on earnings for the year. Both DWP and packaging papers volumes
increased year-on-year. Average net selling prices increased by 4% as supply
tightened following capacity closures in the North American coated woodfree paper
market. Variable costs increased by a similar percentage led by higher purchased
paper pulp prices.
EBITDA of US$126 million was in line with the previous year.
Europe
(metric tons ‘000)
Sales volume
2018
3,366
2017
3,343
%
change
1
€
million
2018
€
million
2017
%
change
€
per ton
2018
€
per ton
2017
%
change
Sales
Variable manufacturing
and delivery costs
2,494
2,320
(1,632)
(1,509)
Contribution
Fixed costs
Sundry costs and
consolidation entries
Operating profit
excluding special
items
EBITDA excluding
special items
862
(712)
(13)
137
254
811
(673)
(11)
127
239
8
8
6
6
18
8
6
741
(485)
256
(212)
(3)
41
75
694
(451)
243
(201)
7
8
5
5
(4)
(25)
38
71
8
6
Fiscal 2018 includes seven months of the Cham Paper Group (CPG) operations.
Excluding the CPG volumes, sales volumes were down on last year as the reductions
in coated woodfree paper volumes exceeded growth in the specialities and packaging
papers and coated mechanical paper volumes. There were several selling price
increases during the year culminating in a 7% increase relative to last year.
The steep increase in purchased pulp prices, combined with increases in delivery and
chemical costs (directly and indirectly linked to oil price increases), reduced margins
during the earlier part of the year. Margins recovered during the third and fourth
quarter following the successful implementation of selling price increases. The
integration of CPG has progressed according to plan and the profitability from
the newly acquired mills have exceeded expectations.
76
77
sappi 2018 Annual Integrated Report
performance during the year
Chief Financial Officer’s Report continued
Section 3 continued
Financial performance
Regional
Southern Africa*
(metric tons ’000)
Sales volume*
2018
1,620
ZAR
million
2018
ZAR
million
2017
%
change
ZAR
per ton
2018
2017
1,606
ZAR
per ton
2017
%
change
1
%
change
Sales*
Variable manufacturing
and delivery costs
Contribution
Fixed costs
Sundry income and
consolidation entries
Operating profit
excluding special
items
EBITDA excluding
special items
* Excludes Sappi Forests.
17,333
17,489
(1)
10,699
10,890
(10,415)
6,918
(5,403)
(9,769)
7,720
(4,991)
7
(10)
8
(6,429)
4,270
(3,335)
(6,083)
4,807
(3,108)
2,009
1,781
13
1,240
1,109
3,524
4,510
(22)
2,175
2,808
4,398
5,299
(17)
2,715
3,300
(2)
6
(11)
7
12
(23)
(18)
The relatively insignificant strengthening of the annual average rate of the Rand by
2,5%, hides the volatile movements during the fiscal period. DWP sales volumes were
stable relative to last year with the increase experienced in the packaging papers
segment. Packaging papers sales prices increased by 5% but, were offset by lower
DWP selling prices, reducing the net selling price for the region by 2%. Increases in
delivery, energy and wood costs reduced contribution per ton by 11%. Fixed costs
were mainly influenced by wage inflationary increases at 7% for the year. The net
result of the above is a reduction in EBITDA to ZAR4,398 million with annual operating
profit of ZAR3,524 million.
The region’s capital expenditure focused on increasing DWP capacity 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
Change
1%
Net selling prices
Dissolving wood pulp
US$10
prices
1%
Variable costs
1%
Sales volume
1%
Fixed costs
US$10
Paper pulp price
US$1
Oil price
ZAR/US$ (Weakening)
10 cents
EUR/US$ (Weakening) 10 cents
Europe
€
million
North
America
US$
million
Southern
Africa
ZAR
million
Translation
impact*
US$
million
Sappi
group
US$
million
28
–
16
9
7
6
1
–
–
17
3
9
6
5
3
0
–
(4)
208
140
104
92
50
7
2
80
–
–
–
–
–
–
–
–
(3)
(27)
64
13
34
24
16
11
2
3
(31)
* Based on currency impact on translation of EBITDA.
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 consider potential management interventions to mitigate
negative impacts or enhance benefits.
sappi 2018 Annual Integrated Report
performance during the year
Section 4
Cash flow
In the table alongside,
we present the group’s
cash flow statement for
2018 and 2017 in a
summarised format.
(US$ million)
2018
2017
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
Net finance costs
Taxation
Dividend paid
Capital expenditure
Net proceeds on disposal of assets
Acquisition of subsidiary
Other
Net cash (utilised) generated
480
282
762
(45)
(8)
709
(79)
(66)
(73)
(81)
(541)
11
(132)
(2)
(254)
526
259
785
(43)
6
748
(27)
(81)
(100)
(59)
(357)
4
(11)
(9)
108
Net cash utilised for the financial year was US$254 million (2017: US$108 million
generated). The cash utilisation includes the acquisition of Cham Paper Group
(US$132 million) and capital expenditure of US$541 million (LY = US$357 million).
Finance costs and taxation payments were less than the previous year.
Investment in fixed assets versus depreciation (US$ million)
600
400
200
0
1
4
5
5
9
2
8
4
2
1
4
2
7
5
3
2014
2015
2016
2017
2018
(cid:81) Cash flow capex (cid:81) Depreciation
78
79
sappi 2018 Annual Integrated Report
performance during the year
Chief Financial Officer’s Report continued
Section 5
Balance sheet
This section provides a
comprehensive review of
the group’s assets, liabilities
and equity position.
Summarised balance sheet
(US$ million)
Property, plant and equipment
Plantations
Net working capital
Other assets
Net post-employment liabilities
Other liabilities
Employment of capital
Equity
Net debt
Capital employed
2018
3,010
466
493
323
(261)
(516)
3,515
1,947
1,568
3,515
2017
2,681
458
436
254
(309)
(451)
3,069
1,747
1,322
3,069
Sappi has 18 production facilities in eight countries, capable of producing
approximately 3.7 million tons of pulp and 5.7 million tons of paper. For more
information on our mills, their production capacities and products, see
Where we operate on page 20.
During 2018, capital expenditure for property, plant and equipment was
US$541 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
2018
9,077
6,067
3,010
2017
8,681
6,000
2,681
Plantations
We regard ownership of our plantations in South 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 516,000 hectares of land of which
approximately 379,000 hectares are planted with pine and eucalyptus. These
plantations provide approximately 65% of the wood requirements for our Southern
Africa mills.
During the year, there were market price increases coupled with higher average fair
value rates. These increases were offset by the rising cost of fuel and an increase in
the discount rate. 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 2.3.4 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.
sappi 2018 Annual Integrated Report
performance during the year
Working capital
The component parts of our working capital at the 2018 and 2017 fiscal year-ends are
shown in the table below:
Section 5 continued
Balance sheet
Net working capital
(US$ million)
Inventories
Trade and other receivables
Trade and other payables and provisions
Net working capital
2018
741
767
(1,015)
493
2017
636
668
(868)
436
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$493 million in 2018 from US$436 million in 2017.
The material movements in working capital are discussed below:
• Inventories increased by US$105 million, caused mainly by higher purchased pulp
prices. This was partially offset by a favourable currency translation impact of
US$13 million
• Receivables increased by US$99 million following higher net selling prices and
increased volumes in the fourth quarter. This was partially offset by a favourable
currency translation impact of US$9 million, and
• Payables increased by US$147 million. The increase in payables is largely due to
a favourable currency translation impact of US$21 million, increased raw material
prices and higher accruals for capital expenditure.
Post-employment liabilities
We operate various defined benefit pension/lump sum plans, post-employment
healthcare subsidies and other employee benefits in the various countries in which we
operate. A summary of defined benefit assets and liabilities (pension and post-
employment healthcare subsidies) is as follows:
Defined benefit liabilities (US$ million)
Defined benefit obligation
Fair value of plan assets
Net balance sheet liability
Cash contributions to defined benefit plans/
subsidies
Income statement charge (credit) to profit or
loss*
Cash contributions deemed ‘catch-up’**
2018
(1,431)
1,170
(261)
40
18
19
2017
(1,448)
1,139
(309)
39
30
18
* The income statement charge in 2018 is lower than in 2017 due to a net negative past service cost
recognised in profit and loss.
** ‘Catch-up’ is cash contributions paid to defined benefit plans in excess of current service cost.
Gross liabilities from all our plans (funded plans and unfunded) reduced by
US$17 million compared with last year. The main cause of the overall decrease was
slightly higher discount rates due to rising yields in respective bond markets, a net
negative past service cost and net reductions in longevity provisions.
Fair value of plan assets rose by US$31 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$3 million gain resulting
from movements relative to the reporting currency.
The reduction in liabilities and increase in assets both contributed to a reduction in the
net overall net liability by US$48 million as at September 2018. A reconciliation of the
movement in the balance sheet over the year is shown graphically below and
disclosed in more detail in note 28 of the annual financial statements.
80
81
sappi 2018 Annual Integrated Report
performance during the year
Section 5 continued
Balance sheet
sappi 2018 Annual Integrated Report
performance during the year
Chief Financial Officer’s Report continued
Section 5 continued
Balance sheet
Sappi Limited defined benefit pensions balance sheet movement (US$ million)
The diagram below depicts our debt funding structure.
50
0
(50)
(100)
(150)
(200)
(250)
)
3
0
2
(
)
1
0
4
(
)
4
6
1
(
)
5
(
)
1
1
(
7
3
6
1
2
Sappi
Limited
Guarantee*
Sappi Limited
Sappi Southern
Africa (SSA)
South African
debt
Sappi Papier
Holdings (SPH)
Non-South
African debt
2017 net
liability
Acquisition
Pension
charge
Employer
contributions
paid
Actuarial
gains
Translation
effect
2018 net
liability
Sappi Limited post-retirement medical aid subsidy balance sheet movement
(US$ million)
Sappi Europe
Sappi
North America
Sappi Trading
* Sappi Limited provides guarantees for long-term non-South African debt.
20
0
(20)
(40)
(60)
(80)
(100)
(120)
Equity
)
6
0
1
(
)
7
9
(
)
7
(
3
2
1
1
2017 net liability
Pension
charge
Employer
contributions
Actuarial
gains
Translation
effect
2018 net liability
Year-on-year, equity increased by US$200 million to US$1,947 million as summarised
below:
Equity reconciliation (US$ million)
Equity as at September 2017
Profit for the year
Dividend paid
Share-based payments
Movement in hedging reserves
Foreign currency movements
Equity as at September 2018
2018
1,747
323
(81)
15
4
(61)
1,947
The US$200 million increase was the result of the profit for the year of US$323 million
offset by dividends paid and foreign currency movements.
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 South 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-South
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 on the next page.
Below we highlight the main financing activities that occurred during the year:
• The previous €465 million SPH Revolving Credit Facility maturing in 2020 was
renewed with a new €525 million Revolving Credit Facility maturing in 2023.
• The conversion project at the Somerset Mill is financed with a €150 million term
loan. The facility was arranged with the OeKB (Öesterreichische Kontrollbank, an
Austrian development bank). This long-term facility is structured as a seven-year
term facility with drawings taking place in line with the progress of the project and is
now fully drawn.
• The purchase price for the Cham Paper Group acquisition was funded from cash
resources at SPH.
• The SSA05 ZAR500 million bond in South Africa was repaid from local cash
resources.
• A new biomass project at the Ngodwana Mill in South Africa achieved financial
closing during the year. This project will use biomass from the Ngodwana Mill to
provide electricity to the South African electricity provider, Eskom. The
ZAR1.8 billion (approximately. US$127 million) project is structured on a project
finance basis with two local banks and various equity partners. Construction has
commenced and the construction period will be approximately 30 months. The
contract with Eskom is to supply electricity for an initial period of 20 years.
Structure of net debt and liquidity
We consider the liquidity position to be sufficient, with cash holdings exceeding
short-term obligations by US$250 million at fiscal year-end. In addition, Sappi has
US$680 million of unutilised committed credit facilities, including the Revolving Credit
Facility at SPH of €525 million (US$609 million).
The structure of our net debt at September 2018 and 2017 is summarised below:
(US$ million)
Long-term debt
Senior unsecured debt
Securitisation funding
Less: Short-term portion
Net short-term debt/(cash)
Overdrafts and short-term loans
Short-term portion of long-term debt
Less: Cash
Net debt
2018
1,818
1,471
376
(29)
(250)
84
29
(363)
1,568
2017
1,739
1,436
364
(61)
(417)
72
61
(550)
1,322
82
83
sappi 2018 Annual Integrated Report
performance during the year
Chief Financial Officer’s Report continued
sappi 2018 Annual Integrated Report
performance during the year
Section 5 continued
Balance sheet
Movement in net debt
The movement of our net debt from fiscal 2017 to fiscal 2018 is explained in the table
below:
A diagram of the debt maturity profile for Sappi fiscal years is shown below:
Debt maturity profile for Sappi fiscal years (US$ million)
Section 5 continued
Balance sheet
(US$ million)
Net debt as at September 2017
Net cash utilised
Cham Paper Group acquisition price
Acquired debt, Cham Paper Group
Currency and other movements
Net debt as at September 2018
2018
1,322
122
132
12
(20)
1,568
Group debt profile
We show the major components and maturities of our net debt at September 2018
below. These are split between our debt in South Africa and our debt outside South
Africa.
600
500
400
300
200
100
0
4
4
5
8
4
4
3
6
3
6
7
3
4
8
9
2
1
8
7
4
6
4
0
7
2019
2020
2021
2022
2023
2024
2025
2026
2032
(cid:81) Cash (cid:81) Short term (cid:81) Securitisation (cid:81) SSA
(cid:81) SPH term debt
1
2
2
Interest
rates
(local
currencies)
Amount
US$ million
Fixed/
variable
7.85%
8.06%
Variable
Fixed
3.53%
1.38%
1.25%
2.20%
0.43%
3.38%
4.00%
7.50%
Variable
Variable
Fixed
Fixed
Variable
Fixed
Fixed
Fixed
Southern Africa
Bank debt
2020 bond
Gross debt
Less: Cash
Net SA debt
Non-Southern
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-SA debt
Net group debt
28
53
81
(72)
9
134
242
71
174
95
522
406
221
(16)
1,850
(291)
1,559
1,568
28
53
81
134
242
24
21
2.9
(72)
(72)
24
90
(291)
(178)
(250)
Maturity (Sappi fiscal years)
Covenants
Non-South African covenants
2019
2020
2021
2022
Thereafter
Financial covenants apply to US$245 million of our non-South African bank debt, the
€525 million revolving credit facility and our securitisation borrowings.
The covenants are described below and are calculated on a rolling last four quarter
basis and require to be met at the end of each quarter:
• The ratio of group net debt to EBITDA be not greater than 3.75-to-1, and
• The ratio of group EBITDA to net interest expense be not less than 2.50-to-1.
0
0
0
The table below shows that at September 2018 we were well in compliance with
these covenants.
24
21
1.4
21
0.6
522.4
111
1
406
221
(16)
Non-South African covenants
Net debt to EBITDA
EBITDA to net interest
2018
2.07
11.18
Covenant
<3.75
>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.
423
504
46
46
544
544
724
724
The majority of our non-South African long-term debt is guaranteed by Sappi Limited, the group holding company.
84
85
sappi 2018 Annual Integrated Report
performance during the year
Section 6
Share price performance
A dividend of 17 US cents
has been declared
sappi 2018 Annual Integrated Report
performance during the year
Chief Financial Officer’s Report continued
Section 5 continued
Balance sheet
South African covenants
Separate covenants also apply to the revolving credit facility of our Southern African
business.
These covenants are calculated on a rolling 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 2018 the South African financial
covenants were comfortably met.
South African covenants
Net debt to equity
EBITDA to net interest
Credit ratings
Global Credit
Ratings:
South African
national rating
2018
Covenant
0.62%
Net interest
received
<65%
>2.00
Sappi Southern Africa Limited:
• A+(za)/A1+(za)/Positive Outlook (May 2018)
Moody’s
Sappi corporate family rating:
• Ba2/NP/Positive Outlook (June 2018)
SPH debt rating:
• 2022/2023 Bonds and RCF: Ba2/Positive Outlook
(May 2018)
• 2032 Bonds: B1
S&P Global
Ratings
Corporate credit rating:
• BB/B/Stable Outlook (June 2018)
SPH debt rating:
• 2022/2023/2032 Bonds and RCF: BB Stable Outlook
(June 2018)
Sappi share price – October 2015 to September 2018
(ZAR)
120
100
80
60
40
20
0
6
1
0
2
l
i
r
p
A
9
2
6
1
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e
n
u
J
6
1
0
2
0
3
5
1
0
2
r
e
b
o
t
c
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0
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r
e
b
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e
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y
r
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9
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7
1
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1
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t
s
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g
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1
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9
2
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r
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A
0
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1
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8
1
0
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9
2
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1
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r
e
b
m
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p
e
S
8
2
Conclusion
We embarked on major capital
expenditure projects in all three
operating regions during the year under
review. The growth in our specialities
and packaging papers and dissolving
wood pulp (DWP) sectors was in line
with expectations and confirmed our
decision to invest in these areas. The
steep increase in variable costs was
offset by selling price increases, but the
lag in implementing the price increases
reduced margins.
The four main objectives of our strategy
were evident during the year. The
increase in purchased pulp and delivery
costs was tempered by internal cost
reduction initiatives of US$82 million.
We rationalised the business by
converting coated woodfree paper
capacity in Europe and North America
to packaging paper capacity. The
balance sheet was managed close to
the leverage target of two times net
debt to EBITDA during a transition year
which included capital expenditure of
US$541 million and the acquisition of
the Cham Paper Group of
US$132 million. There was growth in
higher margin products as we
completed debottlenecking projects at
Saiccor and Ngodwana Mills to increase
production of DWP and invested in
specialities and packaging papers
capacity.
We start fiscal 2019 on a sound financial
platform.
G T Pearce
Chief Financial Officer
86
87
sappi 2018 Annual Integrated Report
sappi 2018 Annual Integrated Report
safety
IS NOT SOMETHING WE
CAN ACHIEVE ALONE
Meerkats are uniquely adapted
to the harsh desert environments
they generally inhabit—the dark
In addition, while meerkats are
patches around their eyes
foraging—they do this by
reduce the glare of the sun while
digging in sand which prevents
their colouration helps
camouflage them from
predators. But more than these
adaptations, it is their ability to
work together and to
communicate that enables them
not just to survive, but also to
thrive.
them from visually scanning their
surrounding for predators—
‘sentinels’ contribute to the
general safety of the mob by
keeping a lookout for danger.
These high levels of social
cohesion are enhanced by
Similarly, our overall approach to
safety, encapsulated in our 2018
‘Own Safety, Share Safety’
theme, is based on the power of
teamwork in creating a safe
work environment. We expect all
our people to participate in our
concerted safety drive and will
not accept the status quo. This
meerkats’ ability to produce six
means raising the alarm when
They live in tightly-knit groups or
different sentinel calls which
mobs, with all members of the
mob participating in gathering
food and taking care of the
warn those foraging about
approaching predators like
martial eagles, jackals and
identifying a barrier to safety so
that we can remove it. It means
making our colleagues aware of
unsafe behaviour and helping
young.
caracals. A particular call warns
them understand how they need
of a specific type of danger.
to change.
Ultimately, it means being on the
lookout for the unexpected,
having the courage to speak up
and taking action in order to
flourish and thrive, certain in the
knowledge that all our people go
home safely to their families at
the end of every working day.
88
89
sappi 2018 Annual Integrated Report
governance and compensation
Our leadership
Non-executive directors
Sir Nigel Rudd (71)
Independent Chairman
Qualifications: DL, Chartered Accountant
Nationality: British
Appointed: April 2006
Skills, expertise and experience
Having founded Williams plc, one of the largest
industrial holding companies in the United
Kingdom, and with more than 35 years of
experience, Sir Nigel Rudd brings his expertise
in finance, management, governance and
leadership to the Sappi board.
Michael Anthony Fallon (Mike) (60)
Independent
Qualifications: BSc Hons (First Class)
Nationality: British
Appointed: September 2011
Skills, expertise and experience
Mr Fallon’s management and leadership
experience extend across a wide range of
functions from plant management, sales and
marketing and supply chain to general
management, and includes mergers and
acquisitions, strategy development and
governance.
Sappi board committee memberships:
Audit and Risk Committee
Human Resources and Compensation Committee
(cid:3)Nomination and Governance Committee
Social, Ethics, Transformation and
Sustainability Committee
Nkateko Peter Mageza (Peter) (64)
Independent
Qualifications: FCCA (UK)
Nationality: South African
Appointed: January 2010
Skills, expertise and experience
With expertise in leadership and management,
Mr Mageza has held senior executive positions
across a wide range of industries.
John David McKenzie (Jock) (71)
Lead independent director
Qualifications: BSc (Chemical Engineering)
(cum laude), MA, PMD
Nationality: South African
Appointed: September 2007
Skills, expertise and experience
Mr McKenzie joined the Sappi board after having
held senior executive positions globally and in
South Africa, in the public and private sectors.
His experience includes strategy, leadership and
governance, amongst others.
Dr Bonakele Mehlomakulu (Boni) (46)
Independent
Qualifications: PhD (Chemical Engineering)
Nationality: South African
Appointed: March 2017
Skills, expertise and experience
With a PhD in Chemical Engineering,
Dr Mehlomakulu has experience and expertise
in engineering, management and leadership.
Dr Rudolf Thummer* (71)
Independent
Qualifications: Dr Techn (Polymer Science),
Dipl-Ing
Nationality: Austrian
Appointed: February 2010
Retired: December 2017
Skills, expertise and experience
Dr Thummer has worked in the pulp and paper
industry for many years, developing a depth of
experience in research and development as well
as technology and innovation.
* Retired during current reporting period.
Dr Deenadayalen Konar* (Len) (64)
Independent
Qualifications: BCom, MAS, DCom, CA(SA),
CRMA
Nationality: South African
Appointed: March 2002
Retired: January 2018
Skills, expertise and experience
As the previous Professor and Head of the
Department of Accountancy at the University
of Durban-Westville, and current member of the
King Committee on Corporate Governance in
South Africa and the SA Institute of Directors,
Dr Konar has a wealth of experience in
governance, accountancy and oversight.
* Retired during current reporting period.
Mohammed Valli Moosa (Valli) (61)
Independent
Qualifications: BSc (Mathematics and Physics)
Nationality: South African
Appointed: August 2010
Skills, expertise and experience
Mr Moosa has held numerous leadership
positions across business, government, politics
and civil society in South Africa and
internationally. Mr Moosa has expertise in
finance, general business and mining and is an
international expert on sustainable development
and climate change.
Karen Rohn Osar (69)
Independent
Qualifications: MBA (Finance)
Nationality: American
Appointed: May 2007
Skills, expertise and experience
Mrs Osar has extensive experience across
multiple industries and brings her expertise in
leadership, corporate activities and financing
to the Sappi board.
Robertus Johannes Antonius Maria
Renders (Rob Jan) (65)
Independent
Qualifications: MSc (Mechanical Engineering),
MDP
Nationality: Dutch
Appointed: October 2015
Skills, expertise and experience
Currently a business consultant, Mr Renders has
extensive experience in governance and
leadership as well as operational expertise in
manufacturing and packaging internationally.
Robert John DeKoch (Bob) (66)
Non-independent
Qualifications: BA (Chemistry), MBA
Nationality: American
Appointed: March 2013
Retired: August 2018
Skills, expertise and experience
Mr DeKoch’s experience includes production
and mill management, coupled with a deep
understanding of leadership thinking.
90
sappi 2018 Annual Integrated Report
governance and compensation
3
2
Race (South Africa only)
2
(cid:81) African, Coloured and Indian
(cid:81) White
Gender
2
8
(cid:81) Male
(cid:81) Female
Independence
1
7
(cid:81) Non-independent directors
(cid:81) Executive directors
(cid:81) Independent directors
Tenure
3
3
4
(cid:81) 0 to 5 years
(cid:81) 6 to 10 years
(cid:81) 11+ years
91
sappi 2018 Annual Integrated Report
governance and compensation
Our leadership continued
Executive directors
Stephen Robert Binnie (Steve) (51)
Chief Executive Officer
Qualifications: BCom, BAcc, CA(SA), MBA
Nationality: British
Appointed: September 2012
Skills, expertise and experience
Mr Binnie was appointed Chief Executive Officer
of Sappi Limited in July 2014. He has extensive
experience in financial management, leadership,
corporate activity and strategy.
Attends meetings of all other board committees
by invitation.
Glen Thomas Pearce (55)
Chief Financial Officer
Qualifications: BCom, BCom Hons, CA(SA)
Nationality: South African
Appointed: July 2014
Skills, expertise and experience
Mr Pearce has extensive financial management
experience, both locally and abroad, and was
promoted to Chief Financial Officer and executive
director of Sappi Limited in July 2014.
Sappi board committee memberships:
Audit and Risk Committee
Human Resources and Compensation
Committee
Nomination and Governance Committee
Social, Ethics, Transformation and
Sustainability Committee
sappi 2018 Annual Integrated Report
governance and compensation
Executive management
Berend John Wiersum (Berry) (63)
Chief Executive Officer of Sappi Europe
Qualifications: MA (Medieval and Modern
History)
Appointed: January 2007
Skills, expertise and experience
Mr Wiersum brings a deep experience to the
Sappi board, with experience in the paper and
packaging industry across Europe, as well as
mergers and acquisitions.
Tenure
5
Age
4
2
2
2
3
(cid:81) 0 to 5 years
(cid:81) 6 to 10 years
(cid:81) 11+ years
(cid:81) 45 to 50 years
(cid:81) 51 to 55 years
(cid:81) 56+ years
Mark Gardner (63)
President and Chief Executive Officer of Sappi
North America
Qualifications: BSc (Industrial Technology)
Appointed: September 1981
Skills, expertise and experience
With qualifications in statistical process control,
management effectiveness design, change
management and business optimisation,
Mr Gardner offers his experience in
manufacturing, production and supply chain
management to the Sappi board.
Alexander van Coller Thiel (Alex) (57)
Chief Executive Officer of Sappi Southern Africa
Qualifications: BSc (Mechanical Engineering),
MBA (Financial Management and Information
Technology)
Appointed: December 1989
Skills, expertise and experience
Mr Thiel has a long history with Sappi. His
experience and expertise includes marketing,
logistics, procurement, strategy and operations
across Europe and Southern Africa.
Gary Bowles (58)
Group Head Technology
Qualifications: BSc (Electrical Engineering),
GCC, PR Eng, PMD, EDP
Appointed: November 1990
Skills, expertise and experience
With 28 years’ experience with Sappi, Mr Bowles
has a deep understanding of the organisation.
Mr Bowles has expertise in engineering,
research, manufacturing, project execution,
operational and risk management.
92
Mohamed Mansoor (51)
Executive Vice President of Sappi Dissolving
Wood Pulp
Qualifications: BSc (Chemistry and
Mathematics), BSc Hons (Chemistry), MBA
Appointed: August 1991
Skills, expertise and experience
Mr Mansoor’s expertise includes contract
negotiation and management, supply chain
management, strategic planning, sales
management, key account management,
dissolving wood pulp, international logistics
and technical application support.
Fergus Marupen (53)
Group Head Human Resources
Qualifications: BA Hons (Psychology),
BEd (Education Management), MBA
Appointed: March 2015
Skills, expertise and experience
Mr Marupen’s experience across a variety of
industries in South Africa enables him to offer
insight into human resources, governance and
management, amongst many other fields.
Maarten van Hoven (45)
Group Head Strategy and Legal
Qualifications: BProc, LLM (International
Business Law)
Appointed: December 2011
Skills, expertise and experience
As an admitted attorney of the High Court in
South Africa, Mr Van Hoven brings expertise in
corporate, commercial and competition law,
both in private and public sectors, as well as
experience in mergers and acquisitions.
93
sappi 2018 Annual Integrated Report
governance and compensation
Corporate governance
Sappi is committed to the highest 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 effective control of the business, legitimacy and good performance. Governance is one of
our key enablers to unlocking and protecting value, as we optimise the use of our capitals, address our key risks while taking
advantage of exciting opportunities (see Risk management on page 60), while minimising the negative impacts of
trade-offs that have to be made, as set out in the presentation of our key material issues (see Key material issues
on page 42). The group endorses the recommendations contained in the King Code of Governance Principles for South Africa
2016 (King IV) and applies the various principles in the achievement of good governance outcomes.
See 2018 King IV on www.sappi.com/annual-reports for an application register
of how Sappi applies the King IV principles.
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.
Overall committee attendance rate
99%
Skills and experience
Our well diversified board fosters
integrated thinking in order to create
value for our stakeholders in the short-,
medium- and long-term.
8
3
6
3
3
8
1,771
13
See 2018 Our leadership and executive management on
www.sappi.com/annual-reports.
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 2018:
5
6
(cid:81) Banking
(cid:81) Financial services/insurance/asset management
(cid:81) Industrial/manufacturing/construction/logistics/retail
(cid:81) Pulp, paper and packaging
(cid:81) Mining resources
(cid:81) Accounting and auditing
(cid:81) Economics/public/macropolicy
(cid:81) Innovation/information technology/digital
(cid:81) Human resources/strategic planning/stakeholder
management
Name
SR Binnie
GT Pearce
Sir Nigel Rudd
RJ DeKoch(1)
MA Fallon
D Konar(2)
JD McKenzie
NP Mageza(3)
B Mehlomakulu
MV Moosa(4)
KR Osar
RJAM Renders
R Thummer(5)
Status
Chief Executive Officer
Chief Financial Officer
Independent non-executive
Chairman
Non-executive (retired
16/8/2018)
Independent non-executive
Independent non-executive
(retired 31/1/2018)
Lead independent director
Independent non-executive
Independent non-executive
Independent non-executive
Independent non-executive
Independent non-executive
Independent non-executive
(retired 31/12/2017)
Board
6/6
6/6
6/6
6/6
6/6
3/3
6/6
6/6
5/6
6/6
6/6
6/6
3/3
C
R
R
R
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
Board committees
Nomination and
Governance
B
3/3
Human Resources
and Compensation
5/5
B
Audit and Risk
B
B
5/5
5/5
Social, Ethics,
Transformation and
Sustainability (SETS)
3/3
1/3
(cid:57)
B
E
4/5
(cid:57)
C
3/3
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
C/R
C
B
5/5
2/2
4/5
2/5
5/5
5/5
(cid:57)
(cid:57)
(cid:57)
R
1/1
3/3
1/1
E
C
4/5
5/5
5/5
4/5
5/5
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)
E
R
B
B
C
B
R
3/3
3/3
1/3
3/3
3/3
3/3
1/3
2/2
100
Attendance by board and board committee
members (%)
(1) Mr RJ DeKoch retired from the board of Sappi Limited and the SETS Committee with effect from 16 August 2018.
(2)
(3) Mr Peter Mageza was appointed Chairman of the Audit and Risk Committee following Dr D Konar’s retirement with effect from 31 January 2018.
Dr D Konar retired from the Sappi Limited board and the Audit and Risk Committee with effect from 31 January 2018.
100
95
95
99
sappi 2018 Annual Integrated Report
governance and compensation
Induction and training of directors
Following appointment to the board, directors receive induction and all directors receive training tailored to their individual needs,
when required.
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. The reporting includes information on key trade-offs that have to be made. 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 on www.sappi.com/policies. 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).
See Our key relationships on page 32 for more information.
Sappi board and management committees
Board and management committees have been established and are discussed on pages 96 to 100.
Board of directors
• Strategic leadership and guidance
• Ultimate oversight, accountability and responsibility
• The board delegates certain oversight responsibilities to board committees
• The board assigns responsibilities 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
• Corporate governance
developments
Human Resources and
Compensation
Committee
• Directors’ remuneration
• Succession planning
• Remuneration policy
• Incentive schemes
• Labour and industrial
relations management
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
Disclosure
Committee
Control and
Assurance
Committee
Accounting
Standards
Committee
Group Risk
Management
Committee
Global
Sustainability
Council
• Executive directors (CEO and CFO)
• Other senior executives
• Execute strategic decisions
approved by the board
Treasury
Committee
Taxation
Committee
IT Steering
Committee
Project
Steering
Committees
Technical
Committees
Management committees
Mr Mageza was also designated as the Audit and Risk Committee financial expert from 31 January 2018.
(4) Mr MV Moosa was appointed to Nomination and Governance Committee with effect from 06 February 2018.
(5)
Other (cid:57) Indicates board committee membership, C indicates board committee chairman, B indicates attendance by invitation, E indicates attendance ex
Dr R Thummer retired from the board of Sappi Limited and the SETS Committee with effect from 31 December 2017.
officio and R indicates that the director retired from the Sappi Limited board and the respective sub-committee. The figures in each column indicate the
number of meetings attended out of the maximum possible number of meetings during the period indicated.
94
95
sappi 2018 Annual Integrated Report
governance and compensation
Nomination and Governance Committee
100%
Roles and responsibilities
The Nomination and Governance Committee consists of three
independent directors. The committee considers the leadership
and governance 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
externally in 2018 and established that the board and board committees functioned well.
overall committee
attendance rate
Sir Nigel Rudd
Chairman
Membership details at
September 2018:
• Sir Nigel Rudd
• JD McKenzie
• MV Moosa
Strategic focus areas
The Nomination and Governance Committee helped to protect value by providing oversight and guidance in 2018 over:
• Corporate governance
• Tone at the top
• Succession plans for senior executives and the board
• Assessment of the board and board committee performance, and
• Rotation and replacement of directors.
A focus area for 2019 will be board succession planning.
Stakeholders
The Nomination and Governance
Committee has helped to protect value
primarily for the following stakeholders:
shareholders and regulators.
Risks
The Nomination and Governance Committee focused on the following of the
top 10 risks:
(1) Employee safety
(4) Project implementation
See Our key relationships on page 32
for more information.
R
See Risk management on page 60 for more information.
sappi 2018 Annual Integrated Report
governance and compensation
Corporate governance continued
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 and Risk Committee
Roles and responsibilities
The Audit and Risk Committee consists of four independent,
non-executive directors. The committee 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 the integrity of financial information and the preparing of accurate financial reports
overall committee
attendance rate
95%
NP Mageza
Chairman
Appointed: 31 January 2018
Membership details at
September 2018:
• NP Mageza
• MA Fallon
• KR Osar
• RJAM Renders
in compliance with applicable regulations and accounting standards
• Reviewing the quality and transparency of 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, independence and performance.
For 2018, this included close monitoring of the audit activities of the recently appointed
external audit firm KPMG, as well as the ongoing review of reputational concerns relating to
media reports involving KPMG South Africa
• 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.
Strategic focus areas
The Audit and Risk Committee helped to protect value by providing oversight and guidance for a wide range of topics, including
the following areas related to Sappi’s strategy:
• Global Business Systems projects tasked with harmonising diverse systems and processes, in order to achieve
streamlined, effective ways of working across the group and the associated cost advantages
• Investment projects designed to rationalise declining businesses
• Management’s efforts to maintain a healthy balance sheet
• Projects to accelerate the group’s ability to take advantage of opportunities in higher margin growth segments, such as
in dissolving wood pulp, specialities and packaging papers and the biotech field.
Areas of additional oversight for the committee in 2019 will be:
• Refinement of the risk framework
• Additional oversight of the expanded scope of the repurposed Control and Assurance Committee (CAC), and
• A continuation of the monitoring of the performance and reputation of external audit.
See 2018 Audit and Risk Committee Report on www.sappi.com/annual-reports for more information.
The Audit and Risk Committee confirms that it has received and considered sufficient and relevant information to fulfil its duties,
as set out in the Audit and Risk Committee Report.
The external and internal auditors attended Audit and Risk Committee meetings and had unrestricted access to the committee
and chairman. The external and internal auditors met privately with the Audit and Risk Committee during 2018.
Mr NP Mageza was appointed Chairman and designated financial expert of the Audit and Risk Committee following
Dr D Konar’s retirement, effective 31 January 2018. Mr Mageza attended the Annual General Meeting (AGM) held on 07
February 2018. Ms ZN Malinga, joined the board and the Audit and Risk Committee with effect from 01 October 2018.
Stakeholders
The Audit and Risk Committee has
helped to protect value for the following
stakeholders: employees, customers,
shareholders and regulators.
See Our key relationships on page 32
for more information.
Risks
The Audit and Risk Committee has provided oversight for all the risk in the
Group Risk Register and this includes addressing the following top 10 risks:
(1) Employee safety
(2) Cyclical macro-economic context
(3) Highly competitive industry
(4) Project implementation
(5) Evolving technologies and consumer preferences
(6) Uncertain and evolving regulatory landscape
(7) Foreign exchange volatility
(8) Natural resource constraints
(9) Market share and customer concentration
(10) Employee relations
R
See Risk management on page 60 for more information.
96
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sappi 2018 Annual Integrated Report
governance and compensation
Corporate governance continued
sappi 2018 Annual Integrated Report
governance and compensation
Human Resources and Compensation Committee
Social, Ethics, Transformation and Sustainability Committee
95%
Roles and responsibilities
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 to executive proposals on the compensation of non-executive directors for approval by
the board and ultimately by shareholders.
overall committee
attendance rate
MA Fallon
Chairman
Membership details at
September 2018:
• MA Fallon
• NP Mageza
• JD McKenzie
• RJAM Renders
Strategic focus areas
The key focus area in 2018 was to review Sappi’s compensation policy and practices to ensure alignment and compliance to
the requirements of King IV. The Sappi Limited AGM was held on 07 February 2018 and the requisite ordinary resolutions
endorsing the remuneration policy (99% majority) and the implementation reports (92% majority) were passed. This vote by our
shareholders is an endorsement for our ongoing commitment to good governance and disclosure.
The strategic focus areas for the committee in 2019 will be:
• To maintain high standards of corporate governance and supports and applies the principles of good governance advocated
by the South African Institute of Directors (IoD) and the King IV Report on Corporate Governance for South Africa 2016
(King IV). This will ensure compliance with legal and regulatory requirements as they pertain to compensation, and
• To review succession and retirement plans for key positions in Sappi.
See Remuneration Report on page 105 for more information.
Stakeholders
The Human Resources and
Compensation Committee has helped to
protect value primarily for the following
stakeholders: employees, shareholders
and regulators.
See Our key relationships on page 32
and Remuneration Report on page 105
for more information.
Risks
The Human Resources and Compensation Committee has focused on the
following of the top 10 risks:
(1) Employee safety
(2) Cyclical macro-economic context
(3) Highly competitive industry
(4) Project implementation
(5) Uncertain and evolving regulatory landscape
(10) Employee relations
See Risk management on page 60 for more information.
R
Roles and responsibilities
The Social, Ethics, Transformation and Sustainability (SETS)
Committee comprises two independent non-executive directors,
and the CEO. A 100% attendance record was achieved by
board committee members for 2018. Other executive and group
management committee members attend SETS Committee meetings by invitation.
Dr R Thummer retired from the board and the SETS Committee on 31 December 2017 and
Mr R DeKock retired from the board and SETS Committee on 16 August 2018.
overall committee
attendance rate
100%
The committees 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 regards to the group’s South African subsidiaries,
the strategic business priority of transformation.
The SETS Committee is supported by the Global Sustainability Council as well as by regional
sustainability committees in dealing with day-to-day sustainability issues and helping to develop
and entrench related initiatives in the business.
MV Moosa
Chairman
Appointed: 06 February 2018
Membership details at
September 2018:
• MV Moosa
• SR Binnie
• B Mehlomakulu
Strategic focus areas
In 2018 the committee:
• Approved the implementation of a Supplier Code of Conduct which will enable Sappi to manage our supply chain risks more
closely
• Approved safety initiatives including studies by outside experts to help Sappi imbed safety first practices, not just in the
workplace, but in all aspects of our employees lives
• Oversaw external assurance on LTIFR and emissions data as well as environmental impact analyses for major investment
projects
• Considered trade-offs between:
– Productivity and safety advantages of mechanisation and the social and human capital implications, and
– Financial and natural capitals relating to the use of coal versus other renewable energy fuels for our heating requirements).
The strategic focus areas for the committee in 2019 will be:
• Overseeing an emerging risk and opportunity in the textile supply chain where major fashion brands are becoming far more
aware of supply chain risks and the trade-offs between alternative textiles, and
• Safety initiatives.
See SETS Committee Report on page 118 and Our global 2020 sustainability goals on page 40 for more information.
Stakeholders
The SETS Committee has a broad spread
of stakeholders for which it helps to
protect (or create) value: suppliers,
customers, employees, regulators,
shareholders and society.
See Our key relationships on page 32
for more information.
Risks
The SETS Committee has focused on the following of the top 10 risks:
(1) Employee safety
(4) Project implementation
(5) Evolving technologies and consumer preferences
(8) Natural resource constraints
(9) Market share and customer concentration
(10) Employee relations
R See Risk management on page 60 for more information.
98
99
sappi 2018 Annual Integrated Report
governance and compensation
Corporate governance continued
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. The management committees are a key component of Sappi’s second line of defence and assurance. See
Risk management on page 60 for additional details of Sappi’s approach to risk, controls and assurance.
Executive Committee
This committee comprises executive directors and senior management from Sappi Limited as well as the CEOs of the three
main regional and dissolving wood pulp business units. 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 regards to disclosure.
Treasury Committee
The Treasury Committee meets monthly to assess financial risks on treasury related matters.
Taxation Committee
The Taxation Committee meets monthly to discuss and address global taxation matters.
Project Steering Committees
For key strategic projects, steering committees are established to oversee successful execution of the project.
Technical Committees
The Technical Committees focus on global technical alignment, performance and efficiency measurement as well as
new product development.
Group Risk Management Committee
The committee is known as the Group Risk Management Team (GRMT) and is mandated by the board 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 and Risk Committee and the board. Risk management software is
used to support the risk management process.
Control and Assurance 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. One of the main focus areas for
2018 was to formulate plans for expanding the scope of the committee to include, in a more thorough manner, oversight of the
combined assurance process and coordination of assurance providers at Sappi. In its expanded role, this revised committee, which
will be known as the Control and Assurance Committee (CAC), will be accountable to the Group Risk Management Team (GRMT)
and the Audit and Risk Committee.
The committee will, among other things, oversee the activities of control and assurance workgroups (CAW) established to review
key risks, identify risk mitigations and controls, assurance provision and identification of any gaps and subsequent remediation
activities. The first working group will meet in the first financial quarter of 2019 and will focus on IT security risks, fibre certification
risk as well as our periodic review and streamlining of the group’s risk and control framework, which is the foundation for Sappi’s first
line of defence and assurance.
IT Steering Committee
The 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 and Risk Committee and the board. An
IT governance framework has been developed and IT feedback reports are presented to the Audit and Risk 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. The committee has helped to create value for shareholders in 2018 by its oversight of:
• The SAP S/4HANA project which forms part of Sappi’s Global Business Systems project in support of the One Sappi
strategy to achieve cost advantages, and
• The negotiation of an enterprise licence agreement with Microsoft, which included migration to Office 365.
Oversight by the committee will continue in 2019 for these IT initiatives, as well as:
• The integration of the SAP systems of the recently acquired operating units in Italy into Sappi’s SAP environment, and
• The implementation of COBIT 2019.
sappi 2018 Annual Integrated Report
governance and compensation
Ensuring leadership through ethics and integrity
Sappi is committed to doing business the right way. Trust is created by operating from a commonly accepted set of values,
enhancing and protecting our reputation. We require our 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.
Code of Ethics
Legal compliance
programme
Conflict of interests
Insider trading
The company has a code of
conduct for dealing in company
securities and follows the JSE
Limited listings requirements in
this regard.
See Code of Ethics
(Insider trading) on
www.sappi.com/code-of-ethics.
Our values underpin the group’s
Code of Ethics and commit
the group and its employees
to sound business practices
and compliance with applicable
legislation, which help to
promote legitimacy.
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 and
2018.
See Code of Ethics
on www.sappi.com/
code-of-ethics.
The programme is designed
to increase awareness of, and
enhance compliance with,
applicable legislation is in
place. The group compliance
officer reports twice per
annum to the Audit and Risk
Committee.
Sappi enhanced the legal
compliance programme in
2018 by the acquisition and
implementation of Exclaim legal
compliance software for Sappi
group and Sappi Southern
Africa. In addition, online training
has been provided to employees
across the group on relevant
core legal compliance topics.
We intend to expand the use
of the Exclaim software in
support of our legal compliance
responsibilities in 2019. This
will help to create and protect
value primarily for employees,
customers, shareholders and
regulators.
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 that 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.
See Code of Ethics
(Preventing fraud
and corruption) on
www.sappi.com/code-of-ethics.
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 and Risk 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.
See Code of Ethics (Reporting and whistle-blowing) on www.sappi.com/code-of-ethics.
Hotline report rate per 1,000 employees
7
.
3
5
.
3
8
.
3
6
.
2
7
.
2
Analysis of hotline and ethics reports
by category (%)
Analysis of hotline and ethics report
case outcomes (%)
2014
2015
2016
2017
2018
38
42
41
34
59 4
53 5
55 5
56
10
2014
2015
2016
2017
41
36
36
48
48
39
13
2018
30
53 5 1
55
36
55
3
6
44
6 2
61
27
2014
2015
2016
2017
2018
(cid:81) Corruption, fraud and theft
(cid:81) Employment-related matters
(cid:81) Environment, health and safety
(cid:81) Cleared, no action or unresolved
(cid:81) Disciplined, counselled or other management action
(cid:81) Termination
(cid:81) Criminal charges
0
20
40
60
80
100
0
20
40
60
80
100
4.0
3.0
2.0
1.0
0
100
101
sappi 2018 Annual Integrated Report
governance and compensation
Corporate governance continued
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 as well as
the Audit and Risk Committee, and
• Interim and final results – by external audit.
Risk, controls and assurance at Sappi
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 and the achievement of governance
outcomes by helping to: create an ethical culture; establishing
effective control; and promoting legitimacy, all of which helps
Sappi and its stakeholders to benefit from good performance.
The framework includes controls addressing our material
matters, by focusing on the main drivers of Sappi and
comprises both financial and non-financial controls, which
support the achievement of 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.
See Our strategy and performance on page 3 and
Our global 2020 sustainability goals on page 40 for
more information on these capitals and integrated thinking in
the context of Sappi’s sustainable business model.
The group’s internal controls and systems are designed in
accordance with the COSO control framework to support the
achievement of the group’s objectives including strategic,
operational and financial performance goals, effective and
efficient use of resources, safeguarding assets against material
loss, integrity and reliability of internal and external financial and
non-financial reporting, and compliance 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.
During 2018, we further developed our approach to combined
assurance which will be overseen by the repurposed Control
and Assurance Committee (CAC). The committee and
workgroups it establishes will be tasked with providing more
holistic feedback to the GRMT and Audit and Risk Committee
on the state of controls and the quality and coverage of
assurance from the various assurance providers across Sappi’s
three lines of defence.
sappi 2018 Annual Integrated Report
governance and compensation
A key element of combined assurance at Sappi is derived from
the annual control self-assessments completed by control
owners, which helps to protect value to stakeholders by
providing management and the board with assurance on the
state of controls throughout the group. Control gaps identified
through this process are recorded and remediation progress is
monitored by management, relevant committees, auditors and
the board.
The Audit and Risk Committee advises the board on the state
of risk management 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 integrated report and annual financial
statements, on risk management and the effectiveness of
internal controls and assurance within Sappi.
As part of combined assurance in respect of reported
information, Sappi has obtained assurance on the data in the
integrated report from the following sources:
• Financial data is independently audited by KPMG
• External sustainability assurance was obtained from KPMG
for direct emissions (Scope 1) tCO2e and indirect emissions
(Scope 2) tCO2e information as well as specific safety
information.
• Specific Planet (environment) related processes are subject
to review by third parties during the year. Certain local
environmental and safety reporting is subject to audit by
local regulators, and
• Limited reviews of sustainability information have been
undertaken by central technical management and internal
audit.
Internal audit
The group has an effective risk-based Internal Audit
Department which is suitably resourced. It has a specific
charter from the Audit and Risk 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 the Audit and
Risk Committee.
The head of internal audit reports to the Audit and Risk
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
Sappi’s combined assurance framework, incorporating the three lines of defence and oversight by the board
and board sub-committees
Mission, vision, values
Strategy
Performance and outcomes
Risk areas and value drivers,
capitals
Governance, risk, and controls –
general (core business cycles)
Strategy and vision; competition
and markets; socio-political
Financial, tax and treasury
Legal and compliance
IT
Planet, environment, natural
capital
Ethics
People, HR and transformation
Research and development,
intellectual property
Manufacturing; supply chain
management, quality, forestry
Stakeholders, communication,
reputation, society
Safety
First line of defence
Business management
operations supported by
appropriate controls and
systems
Second line of defence
Monitoring and oversight functions
Control and Assurance Committee management
self-assessments
Third line of defence
Independent assurance
provided by external audit,
internal audit and other
assurance providers
Oversight by the board
Board and board
sub-committees
Internal audit
Audit and Risk Committee
Day-to-day risk
management activity
Established risk and control
environment:
Executive, corporate and
regional lead teams
Corporate and regional
business functions, eg
sales, finance, IT, HR,
purchasing
Business units, eg forestry,
mills, sales offices
Business unit operations,
eg production, engineering,
controlling, materials
management
Executive Committee, Group Head Strategy, Control and
Assurance Committee, management self-assessments
Internal audit
Control and assurance, accounting standards, taxation,
Treasury and Disclosure Committees, management
self-assessments
KPMG, tax authorities, internal
audit
Nomination and Governance
Committee
Audit and Risk Committee
Legal Compliance Programme, Group Compliance Manager
Legal compliance audits,
internal audit
Audit and Risk, SETS, HR and
Compensation Committees
IT Steering Committee; Group IT Governance functions,
management self-assessments
KPMG, ISA 3402s, penetration
testing, internal audit
Audit and Risk Committee
Sustainability councils, Environmental and Energy (E4) Global
Cluster, GRMT
ISO 14001, FSC, PEFC, EMAS,
KPMG
SETS Committee
Government reviews emissions
effluent etc internal audit
Group Compliance Manager, ethics surveys, management
self-assessments
Internal audit
SETS Committee
Global HR Committee, regional labour forums, employee
engagement surveys, management self-assessments
BEE audits, internal audit
Audit and Risk, SETS, HR and
Compensation Committees
Group Technical Cluster, management self-assessments
ISO 17025, internal audit
SETS Committee
Technical clusters and platforms. regional SHEQ audits,
supplier audits, management self-assessments
Group corporate affairs, sustainability and investor relations
functions
Group and regional risk management teams, safety audits
ISO 9001, ISO 50001,
FSC-PEFC, Matrix, internal
audit
SETS Committee
Internal audit
SETS Committee
OHSAS 18000, regulatory
inspections, internal audit
SETS Committee
Stakeholder
Objectives
Capitals
• Board, Audit and Risk Committee
• Management
• Employees
• Other
People, Planet and Prosperity
• Strategic
• Operational
• Compliance
• Reporting
• Manufactured • Natural
• Societal
• Financial
• Intellectual
• Human
Governance, risk and opportunity management, controls
Support
Internal audit activities
Support
Advisory and assistance
Assurance (risk based)
• 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,
self-assessments, segregation of duties, workgroups)
• Financial processes and systems
• Business processes and systems
• Operational and strategic risks
• IT (value, GCC, security, operations)
• Ethics, risks, legal compliance
• Sustainability data
• Combined assurance
• Annual opinion
Integrity
Competence and
due professional
care
Objective and
independent
Aligned with
strategies, risks
and objectives
Appropriately
positioned and
resourced
Core
principles
Quality and continuous
improvement
Effective
communication
Risk based
assurance
Insightful,
future-focused and
proactive
Promotes
organisational
improvement
102
103
sappi 2018 Annual Integrated Report
governance and compensation
Corporate governance continued
During 2018, apart from the ongoing focus on financial
controls, which includes supporting Sappi’s strategy to
maintain a healthy balance sheet, internal audit helped to
create and protect value by completing reviews in support of
the following strategic objectives:
• Achieve cost advantages: Advisory services to the
global business systems projects (requisition to pay,
sales order to cash, SAP S/4 HANA, shared service
centre optimisation)
• Rationalising declining businesses: Assurance
reviews of contractors and capital expenditure for
project balance in Sappi North America, and
• Accelerate growth in high margin products:
Integration and control onboarding reviews of the
newly acquired operating units in the UK and Italy.
In 2019, internal audit will continue to create and protect value
for shareholders, management, several management
committees, as well as the Audit and Risk Committee by:
• Undertaking further advisory or assurance
assignments for strategic projects
• Implementing a more agile approach to establishing
the audit plan and to streamline our way of working;
and spearheading Sappi’s enhanced focus on
combined assurance by playing a leading role in
coordinating the efforts of control and assurance
workgroups (CAW) which will address key risks,
provision of assurance and identification of gaps, with
feedback to the Control and Assurance Committee
(CAC), the GRMT and the Audit and Risk Committee,
and
• Capital expenditure and contractor reviews for the
Vulindlela project in Sappi Southern Africa.
Internal audit maintains an internal quality assurance
programme. An external quality assurance review is undertaken
periodically. The most recent review was in 2015, 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. The 2018 review was
performed internally and highlighted a need for greater agility
as well as more comprehensive combined assurance reporting
to the Audit and Risk Committee. Both these opportunities will
be addressed in 2019.
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
2018. 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 financial statements,
Annual Integrated Report and other reports used internally for
management decision making.
Company secretary
The company secretary does not fulfil executive management
functions outside of the duties of company secretary and is not
a director. During the year, the board has assessed the
independence, competence, qualifications and experience of
the 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 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.
Remuneration Report
This 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.
The 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 2018.
Section A: Remuneration background
statement disclosures
I am pleased to present the committee’s report on
remuneration. Our report and disclosures fully comply with
regulatory and statutory provisions relating to reward
governance in all the countries in which we operate. This report
is aligned to the principles and recommended practices of the
King IV Report on Corporate Governance of South Africa
(King IV). This demonstrates our continued commitment to
good corporate governance.
Sappi Limited Annual General Meeting (AGM) was held on 07
February 2018 and the requisite ordinary resolutions endorsing
the remuneration policy and the implementation reports were
passed. These resolutions were passed by a 99% and 92%
majority respectively. This vote by our shareholders is an
endorsement for our ongoing commitment to good governance
and disclosure.
Our shareholders also gave us some guidance on areas where
we can improve and to ensure clear disclosure on key items.
For 2018 our performance criteria on the Management
Incentive Scheme (MIS) has been reviewed and an increased
score has been allocated to safety. See page 60 for more
information. We value the input of our shareholders and will
continue to seek their input to ensure good disclosure.
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 in line with last year. This year
continued the ongoing improved performance of the last five
years, as reflected in the recent Sunday Times business
awards. The group’s EBITDA excluding special items was
US$762 million, being US$3 million less than the previous year
when comparing on a like-for-like basis after adjusting
US$20 million for the additional accounting week. Implementing
the strategy developed, management planned major capital
projects in all three regions in order to transition the business to
expand in the growing markets of packaging and dissolving
wood pulp. The resultant reduction of available capacity to
facilitate the capital projects restricted sales volumes and
profitability during the current year, but has laid the foundation
for improved returns in the year ahead. The major projects are
set to deliver on the expected returns which is supported by
the growth in earnings demonstrated in the 2019 budget
targets.
sappi 2018 Annual Integrated Report
governance and compensation
These projects include the acquisition of the Cham Paper
Group (CPG), conversion of paper machine 1 at our Somerset
Mill, the conversion of the paper machine at Maastricht Mill and
various dissolving wood pulp debottlenecking projects at
Saiccor and Ngodwana Mills in Southern Africa.
With product now successfully flowing from these investments
and the successful integration of CPG, the market response
has been very encouraging, strongly supporting the strategic
direction of Sappi.
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.
The performance period for the 2014 PSP ended on
30 September 2018. Half of this 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 third. The peer
group is detailed on page 114 and represents industry
players in printing and writing 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 fifth.
Thus, 100% on the TSR portion vested. The result has been a
net vesting of 100% of the 2014 share awards.
For 2019, the focus for Steve and his leadership team will be:
• Drive the ‘Own Safety, Share Safety’ theme
• Continue living the Sappi values (integrity, speed, courage
and smart)
• Transition the business towards higher margin growth
segments and away from the declining coated woodfree
paper
• Discipline in the execution of all projects
• Drive One Sappi initiatives across all the regions
• Reward and the development of our people
• Sustain the environment and improve Sappi’s footprint
• Operate machines as efficiently and effectively as possible,
and
• Stay focused to achieve our 2020Vision goals and targets an
EBITDA of US$1 billion.
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 2018 reflects our successes to date in the delivery of
our strategy. I trust that you will support the remuneration
resolutions at this year’s Annual General Meeting.
Mike Fallon
Chairman
Human Resources and Compensation Committee
104
105
sappi 2018 Annual Integrated Report
governance and compensation
Remuneration Report continued
Statement of voting at Annual General Meeting
The Annual General Meeting (AGM) of Sappi Limited was held on 07 February 2018 and the requisite resolutions endorsing the
remuneration policy and the implementation report were passed as follows:
Ordinary resolution number 7: Non-binding endorsement of remuneration policy
Against
Shares voted
For
447,387,560
(99.43%)
2,550,370
(0.57%)
453,163,691
(100%)
Ordinary resolution number 8: Non-binding endorsement of implementation report
Against
Shares voted
For
414,427,624
(92.14%)
35,376,959
(7.86%)
453,163,691
(100%)
Abstain
3,225,761
Abstain
3,359,108
At the February 2016 and 2017 AGMs, the results for the
requisite ordinary resolution endorsing the remuneration policy
were 81.2% and 94.7% respectively.
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 NP Mageza
• Mr JD McKenzie
• Mr RJ Renders.
The Chairman of the company, Sir Nigel Rudd, attends
committee meetings ex-officio while the group’s Chief
Executive Officer, Mr SR Binnie together with Group Head
Human Resources, Mr Fergus Marupen attend meetings by
invitation.
Mrs A Mahendranath, Group 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 94.
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 2018 are
summarised as follows:
• Reviewed and approved the vesting, or otherwise, of the
performance share plan awards which were awarded on
04 December 2014
• Approved the allocation of 2018 performance share 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 2019
• 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 2018 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 Annual
General Meeting in February 2018
• Approved the 2019 Management Incentive Scheme rules
and reviewed the Share Incentive Plan rules, including
changes to the Performance Share Plan
• Reviewed the succession, retirement and development plans
for key management positions, and
• Review the group’s industrial relations policy and
implementation.
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)
• Korn Ferry (South Africa)
• KPMG Inc (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 King IV Report on Corporate
Governance for South Africa 2016 (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.
sappi 2018 Annual Integrated Report
governance and compensation
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
• Are simple, transparent and aligned
with the interests of 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
• 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
• Through the executive Management
Incentive Bonus Scheme, provide for
a voluntary deferral of 40% of the
Chief Executive Officer’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.
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 2019
Key activities for the committee in 2019
will be, inter alia, the approval of the
remuneration and bonuses for executive
directors and senior management.
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. The
committee will also consider options
available for a future Sappi
empowerment scheme to replace
the Sefate scheme that will vest in
August 2019.
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
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
Operations
Opportunity
• 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
106
107
sappi 2018 Annual Integrated Report
governance and compensation
Remuneration Report continued
Operations
Opportunity
Purpose
Fixed
Component – Pension
• Make ongoing company
contributions during
employment
• Comprises defined benefit and defined contribution plans
• A large number of defined benefit plans are closed to new hires
• Employees in legacy defined benefit plans continue to accrue
• To provide market related
benefits in such plans for both past and future service
benefits
• Facilitate the
accumulation of savings
for post-retirement years
• Retirement plans differ by region
Variable
Component – Annual cash incentive
• 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 2018 were: EBITDA (50%); working capital
(20%), safety (10%) and individual performance (20%)
• Bonuses are paid in cash. The group Chief Executive Officer 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
• Executive members of
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
• 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 2018 Annual Integrated Report
governance and compensation
Purpose
Variable
Operations
Opportunity
Component – Long-term share incentive plans
• 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 directors,
None
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 142,000
conditional share awards to the Chief Executive Officer, and
between 39,000 and 79,000 conditional share awards to
Executive Committee members
• Measures for 2018 awards were relative total shareholder return
(TSR) – 50% and relative cash flow return on net assets
(CFRONA) – 50%
Component – Broad-based black economic empowerment
• Provide black managers
with the opportunity to
acquire equity in the
company
• Attract, motivate and
retain black managers
• Established to meet the requirements of the Forestry Sector
None
Charter BBBEE codes
• Eligible employees receive an allocation based on seniority of ‘A’
ordinary shares
• Shares vest 40% after three years and 10% each year 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
• Executive Committee members have notice periods of
level of protection to both
the executive and to
Sappi
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
108
109
sappi 2018 Annual Integrated Report
governance and compensation
Remuneration Report continued
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 years
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 2018, why they were chosen and how targets are set.
Metric
EBITDA
Percentage
(%)
Relevance
50
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.
Working capital
20
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.
How do we set the targets?
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.
Safety
Individual
performance
10
20
One of the key indicators of whether the
business is meeting its sustainability goal of
zero harm.
The committee considers input from the
SETS 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.
An indicator of the contribution of each
executive director, individual performance
for relevant managers includes several key
non-financial targets in relation to
sustainability (environment, energy
consumption, water usage and waste
management), living the Sappi values,
discipline in executing all projects and
operating machines as efficiently and
effectively as possible, and BBBEE in the
case of South Africa.
sappi 2018 Annual Integrated Report
governance and compensation
Performance Share Plan (PSP)
The table below shows the metrics for 2018 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
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 – 17 of the peer group. Vesting
increases from 25% at position 9 to 100% for
positions 1 – 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 – 17 of the peer group. Vesting
increases from 25% at position 9 to 100% for
positions 1 – 5.
Remuneration scenarios at different performance
levels
The charts below illustrate the total potential remuneration
(base pay and short-term incentives) for executive director at
different performance levels.
Remuneration levels (CEO and CFO)
(percentage of base pay)
6
1
1
0
0
1
5
8
0
0
1
0
.
2
160
140
120
100
80
60
40
20
0
Target
Stretch
(cid:81) Base pay
(cid:81) 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.
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.
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.
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 of the
Johannesburg Stock Exchange. Sappi participates in global
remuneration surveys and uses data from global remuneration
survey, 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.
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sappi 2018 Annual Integrated Report
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Remuneration Report continued
Remuneration policy for non-executive directors (fees)
Element
Purpose
How it works?
Fees
Executive Committee (average)
(number of employees at 30 September
2018 = 7) (%)
• The chairman receives an
• The chairman’s fees are
all-inclusive fee
• 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
Non-executive
chairman (fees)
Other non-
executive
directors (fees)
• To attract and retain high-
• The non-executives are paid a
calibre non-executives, with
the necessary experience and
skills
• To provide fees which take
account of the time
commitment and
responsibilities of the role
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
lead independent director are
paid additional fees to reflect
their extra responsibilities
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
Compensation mix
The compensation mix for executive directors and executive
committee members is shown in the schematics below.
The term ‘target’ in terms of short-term incentive 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 2017 (share
price at date of allocation: ZAR95,64 December 2017).
Executive directors (average)
(number of employees at 30 September
2018 = 2) (%)
34
37
1,771
1,771
29
(cid:81) Total guaranteed package (base salary and benefits)
(cid:81) Short-term incentives (on-target)
(cid:81) Face value of performance shares issued in
December 2017
Sappi may reimburse the reasonable expenses of board
directors that relate to their duties on behalf of Sappi. 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 Annual General Meetings 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 Annual General Meeting (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.
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.
sappi 2018 Annual Integrated Report
governance and compensation
For 2018, Mr Binnie received a salary increase of 5.5% on the
South African portion of his salary and 1.5% on the off-shore
portion of his salary. His salary with effect from 01 January
2018 was USD$558,318 per annum.
Mr Pearce received a salary increase of 5.5% 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 2018
was US$322,878 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 each.
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 pre-defined annual financial
targets and personal objectives which are critical measures of
business success.
For the 2018 financial year, the financial business performance
criteria were: EBITDA (50%), working capital (20%) and safety
(10%)—which accounted for 80% of the bonus calculation,
with the remaining 20% being based on individual performance
during the course of the year.
The bonus payment opportunity available to executive directors
and executive committee members is as follows:
On-target bonus
Stretch target
85% of base salary
70% of base salary
116% of base salary
95% of base salary
65% of base salary
88.5% of base salary
1,771
1,771
47
27
26
(cid:81) Total guaranteed package (base salary and benefits)
(cid:81) Short-term incentives (on-target)
(cid:81) Face value of performance shares issued in
December 2017
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.
The 2018 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 director and executive
committee members’ increases as was the mandate for
general staff, dependent on location.
Mr Binnie received a market adjustment to his salary in June
2017. The adjustment was to ensure that his salary stays
market competitive and was fully disclosed in last year’s report.
Executive director
Regional chief executive officer
Other prescribed officers (ie Executive
Committee members)
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 2017.
The group’s performance for the 2018 financial year:
Performance criteria
EBITDA
Working capital
Safety
Total
Target
50
20
10
80
2018
Actual achievement
58.5
29.3
0*
87.8
* The group and regional safety performance improved, zero was allocated to the Executive Committee and applicable regions due to the tragic fatalities.
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sappi 2018 Annual Integrated Report
governance and compensation
Remuneration Report continued
Mr Binnie will receive a bonus award of US$525,830 and Mr
Pearce will receive a bonus award of US$303,971 to be paid in
December 2018.
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
The percentage values of the performance criteria were
changed as follows for 2018:
• EBITDA from 48% to 50%
• Working capital from 24% to 20%, and
• Safety from 8% to 10%.
Long-term incentive
The Sappi Performance Share Plan (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 2018 PSP award will consist of the
following 16 industry-related companies:
• Fortress Paper
• Lenzing
• Rayonier Advance Materials
• Ahlstrom-Munksjo
• Borrogaard
• Domtar
• West Rock
• Sun Paper
• UPM-Kymmene, and
• Holmen.
The historical vesting of Performance Share Plan awards:
Share awards
TSR
CFRONA
Aggregate
2014
%
0
100
50
Mr Binnie was awarded 137,000 conditional performance plan
shares in December 2017 in line with the plan rules.
Mr Pearce was awarded 63,000 conditional performance plan
shares in December 2017, 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:
• Metsá Board
• Verso
• Mondi Plc
• International Paper
• Stora Enso, and
• Resolute Forest Products.
Performance Share Plan
The vesting schedule for 2014 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 ending September 2018, Sappi’s
performance relative to the peer group measured on TSR was
ranked fifth, which meant that 100% TSR component shares
vested on the due date in December 2018.
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
third place. The determination of the vesting of this portion of
the shares was verified by KPMG South Africa auditors.
In aggregate, therefore 100% of the total 2014 awards vested.
In December 2014, Mr Binnie was granted 175,000 conditional
performance plan shares of which 175,000 will vest in
December 2018.
In December 2014, Mr Pearce was granted 85,000 conditional
performance plan shares of which 85,000 will vest in
December 2018.
2016
%
100
100
100
2017
%
100
100
100
2018
%
100
100
100
Vesting
100%
80%
65%
45%
25%
0%
2015
%
0
100
50
Position
1 – 5
6
7
8
9
10 – 17
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sappi 2018 Annual Integrated Report
governance and compensation
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, namely the ESOP (Employee Share
Ownership Plan) and MSOP (Management Share Ownership
Plan). 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 2018, the resulting dilution
effect would be 2.42% (2017: 2.79%) 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 Chief Executive Officer, 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 250% 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 2018 (US$)
Performance-
related
remuneration
Sums paid
by way of
expense
allowance
Contributions
paid under
pension and
medical aid
schemes
Share based
payment
benefit
Total
2018
525,830
303,971
14,907
8,473
85,129
63,461
701,472
292,857
1,885,656
991,640
Salary
558,318
322,878
SR Binnie
GT Pearce
Executive directors’ emoluments for 2017 (US$)
Performance-
related
remuneration
440,139
283,986
Salary
464,563
302,683
Sums paid
by way of
expense
allowance
12,944
8,295
Contributions
paid under
pension and
medical aid
schemes
Share based
payment
benefit
Total
2017
76,580
61,090
561,959
212,657
1,555,821
868,711
SR Binnie
GT Pearce
• Base salary – the actual salary earned during 2018.
• Retirement benefits – the annual contribution paid by the company into a defined benefit fund on behalf of the members
determined as a percentage of their base salary.
• Other payments – expenses allowances.
• Annual cash bonus – the actual bonus earned in 2018 based on the rules of the Management Incentive Scheme.
• Long-term incentive – conditional performance plan shares awarded in 2018 financial year which will vest in 2022.
• Local earnings are translated into the reporting currency (US Dollar) using the average exchange rate over the financial year. The
average rate for South African Rand appreciated by 2.5%, and for the Swiss Franc by 1.1%.
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sappi 2018 Annual Integrated Report
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Remuneration Report continued
Prescribed officers/Executive Committee members
Prescribed officers are members of the Group Executive Committee.
The table below sets out the remuneration for prescribed officers for 2018 (US$).
Performance-
related
remuneration
Sums paid
by way of
expense
allowance
Contributions
paid under
pension and
medical aid
schemes
Share based
payment
benefit
511,203
442,734
230,261
43,391
123,824
183,597
134,788
152,653
2,976
–
9,435
2,460
4,994
7,534
5,250
115,083
261,304
56,125
61,199
–
47,087
104,581
50,189
73,390
353,023
353,023
384,436
–
279,116
297,682
196,818
66,188
Salary
779,507
548,690
336,541
84,049
173,061
251,038
188,705
205,370
B Wiersum
M Gardner
A Thiel
A Rossi
M van Hoven
G Bowles
F Marupen
M Mansoor
The table below sets out the remuneration for prescribed officers for 2017 (US$).
Performance-
related
remuneration
Sums paid
by way of
expense
allowance
Contributions
paid under
pension and
medical aid
schemes
Share based
payment
benefit
522,618
276,294
224,665
162,220
115,370
160,033
125,925
–
2,764
–
9,237
9,682
4,888
6,254
5,140
–
233,429
54,754
59,159
–
44,891
87,767
48,381
–
275,892
275,892
360,039
–
220,367
235,990
125,608
–
Salary
713,361
534,626
315,836
325,362
161,408
204,802
176,898
–
B Wiersum
M Gardner
A Thiel
A Rossi
M van Hoven
G Bowles
F Marupen
M Mansoor
Total
2018
1,908,013
1,400,572
1,021,872
129,900
628,082
844,329
575,750
612,684
Total
2017
1,748,064
1,141,566
968,936
497,264
546,924
694,846
481,952
–
Non-executive directors’ fees
Directors are normally remunerated in the currency of the
country in which they live or work from. Their remuneration is
translated into US Dollar, the group’s reporting currency, at the
average exchange rate prevailing during the financial year.
Directors’ fees are established in local currencies to reflect
market conditions in those countries.
In determining the fees for non-executive directors, due
consideration is given to the fee practice of companies of
similar size and complexity in the countries in which the
directors are based. The extreme volatility of currencies, in
particular the ZAR/US$ exchange rate in the past few years,
caused distortions of the relative fees in US Dollar paid to
individual directors.
Non-executive directors’ fees reflect their services as directors
and services on various sub-committees on which they serve.
The quantum of committee fees depends on whether the
director is an ordinary member or a chairman of the committee.
Non-executive directors do not earn attendance fees; however,
additional fees are paid for attendance at board meetings more
than the five scheduled meetings per annum.
The chairman of the Sappi Limited board receives a flat
director’s fee and does not earn committee fees. Non-
executive directors do not participate in any incentive schemes
or plans of any kind.
Non-executive directors’ fees are proposed by the Executive
Committee, agreed by the Human Resources and
Compensation Committee, recommended by the board and
approved at the AGM by the shareholders.
The non-executive directors’ fees for 2018 financial year were
approved by shareholders. The table below sets out the
remuneration for non-executive directors for 2018:
US$
D Konar(1)
KR Osar
JD McKenzie
ANR Rudd
NP Mageza
R Thummer(2)
MV Moosa
MA Fallon
RJ DeKoch(3)
RJAM Renders
B Mehlomakulu(4)
US$
D Konar
B Radebe(5)
KR Osar
JD McKenzie
ANR Rudd
NP Mageza
R Thummer
MV Moosa
MA Fallon
GPF Beurskens(5)
RJ DeKoch
RJAM Renders
B Mehlomakulu
sappi 2018 Annual Integrated Report
governance and compensation
2018
Board
fees
Committee
fees
Travel
allowance
304,693
100,600
1,299,998
2017
Board
fees
Committee
fees
Travel
allowance
14,344
34,100
20,511
–
37,569
7,478
24,834
67,223
21,357
67,022
10,255
–
18,000
7,200
10,800
7,200
7,000
7,200
10,800
14,400
10,800
7,200
43,811
3,969
41,800
19,053
–
24,750
27,781
18,305
62,446
22,570
23,920
53,070
5,557
7,000
–
10,500
7,000
14,000
7,000
14,000
7,000
14,000
–
7,000
14,000
7,000
Total
28,030
126,240
78,105
430,484
79,498
39,178
66,763
144,358
101,563
156,759
49,020
Total
86,011
19,125
131,660
75,804
409,427
66,950
120,526
60,505
143,623
49,954
110,280
145,815
32,600
13,686
74,140
50,394
419,684
34,729
24,700
34,729
66,335
65,806
78,937
31,565
894,705
35,200
15,156
79,360
49,751
395,427
35,200
78,745
35,200
67,177
27,384
79,360
78,745
20,043
996,748
347,032
108,500
1,452,280
(1) Retired from the board in January 2018.
(2) Retired from the board in December 2017.
(3) Retired from the board in August 2018.
(4) Appointed to the board in March 2017.
(5) Retired from the board in February 2017.
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 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.
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Social, Ethics, Transformation and
Sustainability (SETS) Committee Report
Introduction
The Social, Ethics, Transformation and Sustainability (SETS)
Committee presents its report for the financial year ended
September 2018. 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.
Multi-functional regional sustainability councils provide strategic
and operational support to a Group Sustainability Council
which in turn provides support to the SETS Committee in
dealing with key sustainability issues.
During the financial year the committee formally met three
times at which meetings it deliberated on all aspects relating to
its terms. A 100% attendance record was achieved by board
committee members for 2018.
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 2018
financial year were:
• Mr MV Moosa (Chairman from 01 March 2016)
• Mr SR Binnie
• Mr RJ DeKoch (until August 2018)
• Dr B Mehlomakulu (from 01 March 2017), and
• Dr R Thummer (until December 2017).
Three members of the committee were 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, the Executive
Vice President Dissolving Wood Pulp 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.
• Reviewed the UN sustainable development goals most
relevant to Sappi.
• Sappi’s standing in terms of:
– The principles set out in the United Nations Global
Compact Principles
– The OECD recommendations regarding corruption
– The Employment Equity Act, and
– The Broad-based Black Economic Empowerment Act
(BBBEE).
• 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, BBBEE Act and the company’s
transformation strategies.
• Reviewed the Sappi Southern Africa Transformation Charter.
sappi 2018 Annual Integrated Report
governance and compensation
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. In fulfilling their mandate, the committee
has sought to ensure the needs of a wide set of stakeholders,
including employees, local communities, customers and
shareholders are considered and that key sustainability risks
are identified and managed.
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
• 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 Sustainability Charter and Group
Environmental Policy.
• Reviewed the material indicators of the group’s
environmental performance.
• Reviewed regional sustainability performance against goals
for 2018.
• Reviewed regional and global public policy matters affecting
the group and its operations.
• Reviewed the various production unit operating efficiencies,
reliability and unscheduled downtime metrics for 2018.
• Approved the revised Group Woodfibre Procurement Policy
and the new Supplier Code of Conduct.
• In-depth review on the group’s energy and emissions profile
and future strategies in this regard.
• In-depth review of Saiccor Mill’s environmental footprint and
improvements resulting from the proposed 110,000 tons
expansion project.
• In-depth review of community and government engagement
in South Africa and global corporate citizenship activities.
• Reviewed the SETS Committee Report for the Annual
Integrated Report as well as sustainability information
presented in the Annual Integrated Report.
At each meeting a topic is selected for an in-depth review,
typically matters which in the view of the committee represent
key risks or opportunities for the business. In the past year the
three focus areas were energy production and opportunities to
lower cost and emissions through increased self-generation,
particularly from renewable energy. Secondly, the planned
investment at Saiccor Mill, which not only results in increased
production but importantly would also lead to improved energy
and water efficiency as well as lower specific emissions and
improved air and water quality. These improvements align with
the growing emphasis on sustainability in the textile value
chain. Lastly, the committee reviewed the company’s
engagement with governments and communities within which
they operate as part of the corporate citizenship programme.
118
119
sappi 2018 Annual Integrated Report
five-year review
Five-year review
for the year ended September 2018
sappi 2018 Annual Integrated Report
five-year review
(US$ million)
2018
2017
2016
2015
2014
(US$ million)
2018
2017
2016
2015
2014
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
Dividends 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)
5,806
3,521
1,767
38
480
(9)
489
68
421
98
323
762
5,670
3,766
1,904
1,173
1,947
1,568
1,931
(363)
3,515
709
(79)
(84)
18
(73)
(81)
410
(254)
68
541
167
374
5,296
3,147
1,601
22
526
–
526
80
446
108
338
785
5,247
3,378
1,869
1,043
1,747
1,322
1,872
(550)
3,069
748
(27)
(96)
15
(100)
(59)
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
1.161
1.181
1.123
1.120
1.269
1.190
14.147
1.106
13.556
1.111
13.714
1.150
13.914
1.358
11.229
13.052
13.381
14.788
11.964
10.566
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.
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 information2
Sales volumes
Number of full-time equivalent employees
Lost-time injury frequency rate (including contract
employees)
Energy
Energy intensity (GJ/adt)
Renewable energy to total energy (%)
Water
Specific process water drawn (m3/adt)
Specific process water returned (m3/adt)
Waste
Specific total landfill (t/adt)
Emissions
539.3
535.0
530.6
526.4
524.2
538.1
533.9
529.4
525.7
522.5
60
59
59
58
60
361
8.4
8.3
13.1
14.6
2.1
11.0
17.5
63
62
64
63
64
327
9.9
9.9
14.8
18.0
1.7
9.1
21.6
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
44.6
43.1
50.5
63.6
65.1
1.0
6.7
1.6
45
9.3
1.0
7.0
1.8
45
8.1
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
7,591
12,645
7,410
12,158
7,253
12,051
7,306
12,548
7,524
13,064
0.43
0.44
0.46
0.48
0.53
22.38
46.76
34.37
32.64
22.57
47.23
33.74
31.66
22.62
46.32
34.93
31.74
22.63
46.87
34.32
31.27
22.66
47.20
35.71
32.55
0.066
0.079
0.069
0.077
0.067
Specific direct emissions (Scope 1) (tCO2e/adt)
Direct emissions (Scope 1) (tCO2e)
Specific indirect emissions (Scope 2) (tCO2e/adt)
Indirect emissions (Scope 2) (tCO2e)
0.68
4,297,429
0.23
1,473,162
0.67
4,260,165
0.24
1,530,997
0.68
4,156,172
0.27
1,648,052
0.66
4,022,428
0.26
1,611,175
0.67
4,112,641
0.27
1,634,761
See Share statistics on page 122 for more market- and share-related information.
1 Net of treasury shares (see note 18 to Group Annual Financial Statements on www.sappi.com/annual-reports).
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 (see page 126).
120
121
sappi 2018 Annual Integrated Report
share statistics
2018
539.3
361
557.4
0.4
49,837.1
2.9
103.4
8,875.0
639.0
10,579.0
749.0
7,180.0
613.0
9.56
10.46
3,383
2017
535.0
327
630.7
3.1
2016
530.6
260
544.7
0.9
2015
526.4
193
351.0
1.1
2014
524.2
199
296.9
2.0
54,760.0
20.3
118.5
35,428.6
4.2
102.8
15,642.5
4.4
66.9
10,500.0
6.1
57.0
9,206
681
10,438
797
6,953
509
9.28
10.78
3,633
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
Share statistics
Ordinary shares in issue (million)1
Net asset value per share (US cents)
Number of shares traded (million)
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 17,948,456 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 (see page 126).
sappi 2018 Annual Integrated Report
share statistics
Share statistics
for the year ended September 2018
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
5,214
203
472
234
383
83
6,589
%
79.1
3.1
7.2
3.6
5.8
1.2
Number
of shares1
% of shares
in issue
2,779,842
1,471,336
12,161,136
16,598,775
120,020,729
386,222,299
0.5
0.3
2.3
3.1
22.3
71.5
100.0
539,254,117
100.0
1 The number of shares excludes 17,948,456 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
Shareowners 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 2018 was 6,578)
% 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 of South Africa, 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 2018, the following are beneficial
holders of more than 5% of the issued share capital of Sappi Limited:
Beneficial holder
Public Investment Corporation
Shares
81,263,256
%
15.1
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 2018, 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
Allan Gray Proprietary Limited
Investment Asset Management
BlackRock Inc
Shares
71,469,658
56,429,600
32,328,109
31,763,927
27,683,095
%
13.3
10.5
6.0
5.9
5.1
122
123
sappi 2018 Annual Integrated Report
sappi 2018 Annual Integrated Report
You’d think the sheer weight of
polar bears would send them
plunging through the ice, and
It begins with questioning our
the fact is, it can, if the ice is too
motivations every step of the
thin. But polar bears have
way. Are we delivering the best
adapted through the size of their
product and/or service we can at
feet, how they walk on ice and
instinct to safely traverse and
live on ice, even when their
bodyweight increases by more
than 50 percent after the spring/
summer hunting season.
In a similar way, acting with
integrity helps to keep a
company and its employees
from falling through the
proverbial ‘ice’ into ethical
trouble. It is not something we
take for granted at Sappi.
the best value? Are we truly
developing our people? Are our
shared value initiatives achieving
their goals? Are we really living
up to our aim of producing more
with less and consuming more
wisely?
Doing the right thing the right
way underpins everything we do
at Sappi.
Not because integrity is easy—in
fact, it’s often the more difficult
path to follow—but because we
will not do otherwise. Because it
draws on the best of our
energies and skills and is our
most valuable asset; and
because we know it adds value
to us as individuals, as teams, as
a society and as an organisation.
It’s how we ensure that future
generations, not just our own,
flourish and thrive.
integrity
DOING THE RIGHT THING
THE RIGHT WAY
124
125
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
Glossary
General definitions
AGM – Annual General Meeting.
AF&PA – American Forest and Paper Association.
air dry tons (ADT) – Meaning dry solids content of 90% and
moisture content of 10%.
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.
Cham Paper Group Holding AG (CPG) – Speciality
paper business acquired by Sappi, which included CPG’s
Carmignano and Condino Mills (Italy) and its digital imaging
business located in Cham (Switzerland) as well as all brands
and know-how.
chemical oxygen demand (COD) – The amount of oxygen
required to break down the organic compounds in effluent.
chemical pulp – A generic term for pulp made from woodfibre
that has been produced in a chemical process.
CHP – Combined heat and power.
coated mechanical paper – Coated paper made from
groundwood pulp which has been produced in a mechanical
process, primarily used for magazines, catalogues and
advertising material.
coated paper – 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 paper – 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.
EIA – Environmental impact assessment.
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.
126
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
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.
Forest Stewardship Council® (FSC®) – Is a global,
not-for-profit organisation dedicated to the promotion of
responsible forest management worldwide. (FSC-C015022)
(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.
hemicellulose sugars – The biorefinery process for second
generation hemicellulose sugars involves recovering them from
the prehydolysate liquor, and then separating them.
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.
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 – Pristine areas not used
commercially.
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.
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.
kraft paper – Packaging paper (bleached or unbleached)
made from kraft pulp.
NPO – Non-profit organisation.
NGO – Non-governmental organisation.
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.
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.
lignosulphonate – Lignosulphonate is a highly soluble lignin
derivative and a product of the sulphite pulping process.
PAMSA – Paper Manufacturers’ Association of South Africa.
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.
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 works by endorsing national
forest certification systems and 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.
127
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
Glossary continued
printing and writing papers – a generic term for a group of
papers intended for commercial printing use such as coated
woodfree paper, coated mechanical paper, uncoated woodfree
paper and newsprint.
power – The rate at which energy is used or produced.
pulpwood – Wood suitable for producing pulp—usually
not of sufficient standard for saw milling.
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.
specific total energy (STE) – The energy intensity ratio
defined by the total energy consumption in the context of the
saleable production.
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.
Sustainable Forestry Initiative® (SFI®) – 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™ program.
(http://www.sfiprogram.org)
Sappi Biotech – The business unit within Sappi which
drives innovation and commercialisation of biomaterials and
biochemicals.
thermo-mechanical pulp – Pulp produced by processing
woodfibres using heat and mechanical grinding or refining
wood or woodchips.
Sappi Europe (SEU) – The business unit within Sappi which
oversees operations in the European region.
ton – Term used in this report to denote a metric ton
of 1,000 kg.
Sappi Dissolving Wood Pulp – The business unit within
Sappi which oversees the production and marketing of
dissolving wood pulp (DWP).
Sappi North America (SNA) – The business unit within Sappi
which oversees operations in the North American region.
Sappi Southern Africa (SSA) – The business unit within
Sappi which oversees operations in the Southern Africa region.
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.
SETS – Social, ethics, transformation and sustainability.
total suspended solids (TSS) – Refers to matter suspended
or dissolved in effluent.
tons per annum (TPA) – Term used in this report to denote
tons per annum (tons a year). Capacity figures in this report
denote tons per annum at maximum continuous run rate.
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.
United Nations Global Compact (UNGC) – A principle-
based framework for businesses, stating 10 principles in the
areas of human rights, labour, environment and anti-corruption.
viscose staple fibre (VSF) – A natural fibre made from
purified cellulose, primarily from dissolving wood pulp (DWP)
that can be twisted to form yarn.
silviculture costs – Growing and tending costs of trees in
forestry operations.
woodfree paper – Paper made from chemical pulp.
solid waste – Dry organic and inorganic waste materials.
specialities and packaging papers – a generic term for a
group of papers intended for commercial and industrial use
such as flexible packaging, label papers, functional papers,
containerboard, paperboard, silicone base papers, casting
and release papers, dye sublimation papers, inkjet papers
and tissue paper.
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.
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.
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
commissioning date – The date that an item of property,
plant and equipment, whether acquired or constructed, is
brought into use.
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.
disposal date – The date on which control in respect of
subsidiaries, joint arrangements and significant influence in
associates ceases.
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.
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.
segment assets – Total assets (excluding deferred taxation
and cash) less current liabilities (excluding interest-bearing
borrowings and overdraft).
share-based payment – A transaction in which Sappi
Limited issues shares or share options to group employees as
compensation for services rendered.
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
• The presentation by the group’s reported business
segments 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.
joint arrangement – Is an arrangement of which two or more
parties have joint control.
asset turnover (times) – Sales divided by total assets.
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.
average – Averages are calculated as the sum of the opening
and closing balances for the relevant period divided by two.
operation – A component of the group:
• That represents a separate major line of business or
geographical area of operation, or
• Is distinguished separately for financial and operating
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.
purposes.
capital employed – Shareholders’ equity plus net debt.
operating profit – A profit from business operations before
deduction of net finance costs and taxes.
cash interest cover – Cash generated by operations divided
by finance costs less finance revenue.
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129
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
Glossary continued
current asset ratio – Current assets divided by current
liabilities.
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.
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.
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.
revolving credit facility (RCF) – A variable line of credit used
by public and private businesses.
fellings – The amount charged against the income statement
representing the standing value of the plantations harvested.
ROCE – Return on average capital employed. Operating profit
excluding special items divided by average capital employed.
GAAP – Generally accepted accounting principles.
headline earnings – As defined in Circular 4/2018, issued
by the South African Institute of Chartered Accountants in
April 2018, 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.
ROE – Return on average equity. Profit for the period divided
by average shareholders’ equity.
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.
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 cash (utilised) generated – Cash flows from operating
activities less cash flows from investing activities.
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.
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.
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 adviser immediately.
Sappi Limited
(Registration number: 1936/008963/06)
(Sappi or the company)
The eighty-second Annual General Meeting (AGM) of Sappi will
be held at Sappi’s registered office, in the Oxford Room,
Ground Floor, 108 Oxford Road (entrance on Ninth Street),
Houghton Estate, Johannesburg, 2196, Republic of South
Africa on Wednesday, 06 February 2019 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, 01 February 2019.
3.
1.
Ordinary resolution number 1: Presentation of
annual financial statements
Ordinary resolution number 1 is proposed to present the
Group Annual Financial Statements of the company for
the year ended September 2018, including the
Directors’ Report, the Auditors’ Report (see Group
Annual Financial Statements) and the Audit
and Risk Committee Report on
www.sappi.com/annual-reports.
Abridged or summarised financial statements are
contained in the Chief Financial Officer’s Report of
the Annual Integrated Report (see page 68).
The complete Group Annual Financial
Statements for the year ended September 2018
are available on www.sappi.com/annual-reports.
“Resolved that the Group Annual Financial Statements
for the year ended September 2018 of the company,
including the Directors’ Report, Auditors’ Report and the
Audit and Risk Committee Report, 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.
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
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 Mrs ZN Malinga with
effect from 01 October 2018 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 Mrs Malinga’s brief
biographical details, see note 1 in Notice to
shareholders on page 131.
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 3.1 to 3.2:
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,
see note 2 in Notice to shareholders on
page 131.
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 Mr SR Binnie is re-elected as a director of
Sappi.”
Ordinary resolution number 3.2
“Resolved that Mr RJAM Renders is re-elected as a
director of Sappi.”
Ordinary resolution number 3.3
“Resolved that Mrs KR Osar is re-elected as a director of
Sappi.”
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131
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
Notice to shareholders continued
4.
Ordinary resolution number 4: Election of
Audit and Risk Committee members
Ordinary resolution number 4 is proposed to elect the
members of the Audit and Risk 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
and Risk Committee comprising at least three members.
5.
The Nomination and Governance Committee assessed
the performance and independence of each of the
directors proposed to be members of the Audit and Risk
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 and Risk
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
and Risk Committee are included in the biographies of
all directors contained under Our leadership of
the Annual Integrated Report (see page 90).
“Resolved that an Audit and Risk Committee be and is
hereby elected, by separate election to the committee of
the following independent directors:
4.1 Mr NP Mageza
4.2 Mr MA Fallon
4.3 Mrs ZN Malinga
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.”
6.
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 her confirmation as a director pursuant to ordinary
resolution number 2.
** Subject to his/her re-election as a director pursuant to ordinary
resolution numbers 3.2 and 3.3.
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 2019 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.
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
The combined maximum number of shares which can be
issued pursuant to the Schemes is 42,700,870 shares.
As at year-end, 21,009,790 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 21,691,080 shares which can still be
issued or transferred to the Schemes. Of that number,
there are currently 12,310,170 Performance Share Plan
awards which are still subject to vesting and 715,635
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 (Subsidiary) 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
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.
7.
Ordinary resolution number 7: Remuneration
policy
“Resolved as an ordinary resolution, that the company’s
remuneration policy as contained under Remuneration
Report of the Annual Integrated Report (see
page 105), 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.
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.
8.
Ordinary resolution number 8: Remuneration
implementation report
“Resolved as an ordinary resolution, that the
company’s remuneration implementation report under
Remuneration Report of the Annual Integrated Report
(see page 105), be and is hereby endorsed by way
of a non-binding advisory vote.”
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.
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133
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
Notice to shareholders continued
9.
Special resolution number 1: Non-executive directors’ fees
“Resolved that, with effect from 01 October 2018 and until otherwise determined by Sappi in general meeting, the
remuneration of the non-executive directors for their services shall be increased as follows:
Fee structure
1.
Sappi board fees1
Chairperson
If United Kingdom resident
2.
Lead independent director
If South African resident
If United Kingdom resident
If United States of America resident
If European resident
Other directors
If South African resident
If United Kingdom resident
If United States of America resident
If European resident
Audit and Risk Committee fees1
Chairperson
If South African resident
If United Kingdom resident
If United States of America resident
If European resident
Other directors
If South African resident
If United Kingdom resident
If United States of America resident
If European resident
From
To
£307,520
£315,210*
ZAR616,430
£67,350
US$101,120
€90,580
ZAR411,980
£44,860
US$67,400
€60,340
ZAR427,790
£45,550
US$69,820
€61,270
ZAR213,900
£22,910
US$34,100
€30,800
ZAR644,790
£69,030
US$103,950
€92,120
ZAR430,930
£45,980
US$69,290
€61,370
ZAR447,470
£46,690
US$71,770
€62,310
ZAR223,740
£23,480
US$35,050
€31,320
* Inclusive of all board committee fees. If a future Chairperson is not United Kingdom domiciled, appropriate benchmark information in relation to his/her
domicile will be used to determine fees payable.
1 Fees per annum unless otherwise indicated.
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
3.
Human Resources and Compensation Committee, Nomination and
Governance Committee, Social, Ethics, Sustainability and
Transformation Committee and any other committee1
Chairperson
If South African resident
If United Kingdom resident
If United States of America resident
If European resident
Other directors
If South African resident
If United Kingdom resident
If United States of America resident
If European resident
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 of America resident
If European resident
5.
Travel compensation
If South African resident
If United Kingdom resident
If United States of America resident
If European resident
1 Fees per annum unless otherwise indicated.
From
To
ZAR257,200
£27,060
US$39,890
€36,390
ZAR133,850
£18,970
US$24,370
€25,510
ZAR41,300
per meeting
£4,450
per meeting
US$6,740
per meeting
€5,980
per meeting
US$3,600
per meeting
US$3,600
per meeting
US$3,600
per meeting
US$3,600
per meeting
ZAR269,030
£27,740
US$41,010
€37,010
ZAR140,010
£19,440
US$25,050
€25,940
ZAR43,200
per meeting
£4,560
per meeting
US$6,930
per meeting
€6,080
per meeting
US$3,700
per meeting
US$3,700
per meeting
US$3,700
per meeting
US$3,700
per meeting
134
135
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
Notice to shareholders continued
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 1.7% and 4.6% per annum
depending generally on the domicile of the directors and
the currency in which they are paid, with effect from 01
October 2018. The fees were last increased with effect
from 01 October 2017 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 2018 onwards.
Initially the December 2018 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 2018 payment will be made up
in the March 2019 payment.
The practice has been and will continue to be that
directors’ fees and board committee fees are paid to
non-executive directors only.
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.
10.
“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.
11.
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 06 February
2019 or any adjournment thereof.”
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 (SETS)
Committee
Shareholders are referred to the Social, Ethics,
Transformation and Sustainability (SETS)
Committee Report in the Annual Integrated
Report (see page 118).
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 (ie 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
(ie 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).
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
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,
01 February 2019 at:
108 Oxford Road
Houghton Estate
Johannesburg, 2198
South Africa
or
PO Box 52264
Saxonwold, 2132
South Africa
or
By email to
Ami.Mahendranath@sappi.com
Group Company Secretary
Ami Mahendranath
Secretaries
Sappi Southern Africa Limited
108 Oxford Road
Houghton Estate
Johannesburg, 2198
South Africa
07 December 2018
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 06 February 2019 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 under
Administration (see page 140), 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.
136
137
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
Notice to shareholders continued
Notes
1.
Approval and confirmation of appointment of
directors appointed since the last AGM and
subsequent to the year-end
Zola Nwabisa Malinga (41)
(Independent)
2.
Directors retiring by rotation who are seeking
re-election
Stephen Robert Binnie (Steve) (51)
(Chief Executive Officer)
Qualifications: BCom, BAcc, CA(SA), MBA
Qualifications: BCom, CA(SA)
Nationality: British
Nationality: South African
Appointed: October 2018
Sappi board committee memberships
• Audit and Risk Committee
Other board and organisation memberships
• Grindrod Bank
• Grindrod Limited
• South African Property Owners Association
Skills, expertise and experience
Mrs Malinga, a Chartered Accountant, has over
10 years’ experience in investment banking and
corporate finance. She is the founder and Executive
Director of Jade Capital Partners, a women-owned
investment company which invests in the property and
industrial sectors. She was previously a director in the
Real Estate Finance Division of Standard Bank where
she was also a member of the Executive and Deal
Approval Committees. Prior to this, she was an
Investment Banker at Standard Bank and a Corporate
Finance Consultant at Investec Bank Limited. Mrs
Malinga previously served as a non-executive director
on Sasol Inzalo Limited and Hospitality Property
Fund Limited.
Appointed: September 2012
Sappi board committee memberships
• Social, Ethics, Transformation and Sustainability
Committee
• Attends meetings of all other board committees by
invitation
Skills, expertise and experience
Mr Binnie was appointed Chief Executive Officer of Sappi
Limited in July 2014. He joined Sappi in July 2012 as
Chief Financial Officer designate and was appointed
Chief Financial Officer and executive director from
01 September 2012. Prior to joining Sappi, he held
various senior finance roles and was previously Chief
Financial Officer of Edcon Proprietary Limited for
10 years after having been in a senior finance role
at Investec Bank Limited for four years.
Karen Rohn Osar (69)
(Independent)
Qualifications: MBA (Finance)
Nationality: American
Appointed: May 2007
Sappi board committee memberships
• Audit and Risk Committee
Other board and organisation memberships
• Innophos Holdings Inc (Audit Committee and
Nominating and Governance Committee)
• Webster Financial Corporation (Chairperson of the
Audit Committee, and also serves on the Risk and
Executive Committees)
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
Robertus Johannes Antonius Maria Renders
(Rob Jan) (65)
(Independent)
Qualifications: MSc (Mechanical Engineering), MDP
Nationality: Dutch
Appointed: October 2015
Sappi board committee memberships
• Human Resources and Compensation Committee
• Audit and Risk Committee
Other board and organisation memberships
• Walki Group Oy (Chairman)
Skills, expertise and experience:
Currently a business consultant, Mr Renders was a
member of the board of Duropack GmbH from 2012
until the end of May 2015, as well as Chief Executive
Officer of Duropack from May 2013 until May 2015.
From 2006 to 2010, he served as Chairman of OTOR
Société Anonyme, a leading packaging provider in
France. Between 1989 and 2006 he held various
positions at Svenska Cellulosa Aktiebolaget (SCA),
a leading global producer of hygiene products and
packaging solutions, including Mill Manager at SCA
Packaging De Hoop, Managing Director of SCA
Packaging De Hoop, President of SCA Packaging
Containerboard, President of SCA Packaging Europe
and Senior Vice President Special Project Global
Packaging for SCA Group. He has various consulting
positions and is also the Chairman of the Supervisory
Board of Walki Group Oy based in Espoo (Finland), a
company specialising in extrusion coating.
Skills, expertise and experience
Mrs Osar was Executive Vice President and Chief
Financial Officer of speciality chemicals company,
Chemtura Corporation, until her retirement in March
2007. Prior to that, she held various senior management
and board positions in her career. She was Vice
President and Treasurer for Tenneco, Inc and also served
as Chief Financial Officer of Westvaco Corporation and
as Senior Vice President and Chief Financial Officer of
the merged MeadWestvaco Corporation. Prior to those
appointments she spent 19 years at JP Morgan and
Company, becoming a Managing Director of the
Investment Banking Group. She has chaired several
external board audit committees. During her tenure at
JP Morgan, Mrs Osar provided advice to Fortune 100
companies on financial management in Brazil and other
high-inflation countries, advised Fortune 50 companies
on financing their major foreign investments, including
foreign currency and US Dollar bond financings,
cross-border leases, long-term currency hedges and
long-term interest-rated and currency swaps.
At Tenneco, then a US$12 billion conglomerate, she
oversaw the financing of eight spin-off companies, in
packaging, chemical, shipping, auto parts, gas pipeline
systems, farm equipment and other industries, in each
case arranging new debt financing, handling rating
agency and bank financings and managing the efforts of
the various banks involved, including overseeing financial
projections for the new standalone entities. At Westvaco,
then a US$4billion paper and packaging company, she
managed all financial aspects of its 2002 merger of
equals with Mead Corporation, also a US$4-billion paper
and packaging company, and, as Chief Financial Officer
of the merged entity, handled all aspects of the financial
integration of the companies. She oversaw the delivery
of tens of millions of merger savings and a
US$100 million reduction in inventory.
At Chemtura, then a US$4 billion speciality chemical
company, Mrs Osar oversaw the refinancing of the
balance sheet and financial recovery of a company beset
by troubled earnings, and lawsuits arising from anti-trust
actions, and managed the subsequent merger of equals
with Great Lakes Chemical Company, and as Chief
Financial Officer of the combined companies handled
all financial aspects of the integration. As a director,
Mrs Osar has chaired the Audit Committee of numerous
New York Stock Exchange and NASDAQ companies,
including Allergan, a major global pharmaceutical
company, a mutual fund company, a medical device
company, a speciality chemical company, and a major
regional bank in the United States of America.
138
139
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
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
06 February 2019
February 2019
May 2019
August 2019
September 2019
November 2019
December 2019
Administration
Sappi Limited
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE 000006284
Group Company Secretary
Ami Mahendranath
Secretaries
Sappi Southern Africa Limited
108 Oxford Road
Houghton Estate
Johannesburg, 2198
South Africa
PO Box 52264
Saxonwold, 2132
South Africa
Tel +27 (0)11 407 8464
Ami.Mahendranath@sappi.com
www.sappi.com
Transfer secretaries
Computershare Investor Services
Proprietary Limited
Rosebank Towers
15 Biermann Avenue
Rosebank, 2196
South Africa
PO Box 61051
Marshalltown, 2107
South Africa
Tel +27 (0)11 370 5000
Fax +27 (0)11 688 5238
proxy@computershare.co.za
www.computershare.com
Corporate affairs
André Oberholzer
Group Head Corporate Affairs
Tel +27 (0)11 407 8044
Andre.Oberholzer@sappi.com
Investor relations
Graeme Wild
Group Head Investor Relations
and Sustainability
Tel +27 (0)11 407 8391
Graeme.Wild@sappi.com
JSE Sponsor
UBS South Africa Proprietary Limited
64 Wierda Road East
Sandton, 2196
South Africa
PO Box 652863
Benmore, 2010
South Africa
Tel +27 (0)11 322 7000
Fax +27 (0)11 784 8280
United States ADR Depositary
BNY Mellon Shareowner Services
PO Box 505000
Louisville, KY 40233-5000
United States of America
462 South 4th Street
Suite 1600
Louisville, KY 40202
United States of America
shrrelations@cpushareownerservices.com
www.mybnymdr.com
Proxy form for the Annual General Meeting
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
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-second Annual General Meeting of the members to be held at 14:00 on Wednesday, 06 February 2019 at Sappi in the
Oxford Room, Ground Floor, 108 Oxford Road (entrance on Ninth Street), Houghton Estate, Johannesburg, 2196, 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, 04 February
2019, 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, 06 February 2019 or any adjournment thereof, as follows:
Number of shares
Against
Abstain
For
Ordinary resolution number 1 – Receipt and acceptance of 2018 Group Annual Financial Statements, including Directors’
Report, Auditors’ Report and Audit and Risk Committee Report
Ordinary resolution number 2 – Approval and confirmation of appointment of Mrs ZN Malinga as a director of Sappi
Ordinary resolution number 3 – Re-election of directors retiring by rotation in terms of Sappi’s Memorandum of
Incorporation1
Ordinary resolution number 3.1 – Re-election of Mr SR Binnie as a director of Sappi
Ordinary resolution number 3.2 – Re-election of Mr RJAM Renders as a director of Sappi
Ordinary resolution number 3.3 – Re-election of Mrs KR Osar as a director of Sappi
Ordinary resolution number 4 – Election of Audit and Risk Committee members
Ordinary resolution number 4.1 – Election of Mr NP Mageza as member and chairman of the Audit and Risk Committee
Ordinary resolution number 4.2 – Election of Mr MA Fallon as a member of the Audit and Risk Committee
Ordinary resolution number 4.3 – Election of Mrs ZN Malinga as a member of the Audit and Risk Committee2
Ordinary resolution number 4.4 – Election of Mrs KR Osar as a member of the Audit and Risk Committee3
Ordinary resolution number 4.5 – Election of Mr RJAM Renders as a member of the Audit and Risk Committee3
Ordinary resolution number 5 – Re-appointment of KPMG Inc. as auditors of Sappi for the year ending September 2019
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 remuneration 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
1 See notes in Notice to shareholders on page 131.
2 Subject to her appointment under ordinary resolution number 2 above.
3 Subject to his/her re-election as a director pursuant to ordinary resolutions number 3.2 and 3.3 above.
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
on
Assisted by me (where applicable)
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.
140
141
Forward-looking statements
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
Certain statements in this release that are neither reported fi nancial 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 fi nancing), 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 fl uctuations.
We undertake no obligation to publicly update or revise any of these forward-looking statements, whether to refl ect new information
or future events or circumstances or otherwise.
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.
• A proxy is entitled to exercise, or abstain from exercising,
any voting right of the shareholder without direction.
sappi 2018 Annual Integrated Report
glossary and notice to shareholders
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
2.2
under a power of attorney, or
on behalf of a company,
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, 04 February 2019 or handed to the chairman of
the Annual General Meeting before the appointed proxy
exercises any of the relevant shareholder’s rights.
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.
3.
4.
5.
6.
7.
8.
142