Annual Integrated Report
2019
FOCUS
Our theme for this year’s annual
integrated report is ‘focus’. It
highlights our commitment to
our 2020Vision and strategy in the
face of a challenging global macro-
economic environment, as well as
our belief that our vision and
strategy will ultimately provide
enhanced returns to all our
stakeholders.
See our inside back cover for more
information on this year’s reporting theme.
CONTENTS
About this report
Group overview
6 Who we are
8 Where we operate
10 How we create value
12 Our business model
16 Letter to stakeholders
21 Q&A with the CEO
Creating value by responding
strategically
26 Our operating context
29 Our strategy and performance
34 Risk management
42 Our key relationships
Our performance review
54 At a glance: Integrating our
key material issues
56 Our alignment with the SDGs
58 Our key material issues
72 Our product review
80 Chief Financial Officer’s Report
Governance and compensation
104 Our leadership
108 Corporate governance
123 Remuneration Report
142 Social, Ethics, Transformation
and Sustainability (SETS)
Committee Report
Appendices
146 Five-year review
148 Share statistics
150 Glossary
155 Notice to shareholders
164 Shareholder’s diary
164 Administration
165 Proxy form for the Annual
General Meeting
166 Notes to the form of proxy
IBC Forward-looking statements
How to navigate our report
Throughout our annual integrated report, the following icons are used to show the connectivity
between sections:
Sappi’s 3Ps
Referencing
Strategy
Prosperity
Page
People
Online
Achieve cost
advantages
Rationalise declining
businesses
Maintain a healthy
balance sheet
Accelerate growth in higher
margin growth segments
Planet
Risk
Our capitals
Human capital
Finance capital
Social and
relationship capital
Intellectual capital
Natural capital
Manufactured
capital
Sappi and the
Sustainable
Development
Goals (SDGs)
Please refer to pages 56 and 57 for more information about how we integrate the SDGs into our business.
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ABOUT
THIS REPORT
Our annual integrated report for the year ended September 2019 provides an overview of how we create value in terms of
our strategy, mission and vision. 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. In addition to our annual
integrated report (pages
1 to 143), we have included supporting annexures (pages
144 to 166).
Integrated thinking and the 3Ps
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 (the 3Ps) – an approach that is
aligned with the International Integrated Reporting Council’s (IIRC) six capitals model.
)
PROSPERITY
Sustainable
value
creation
PLANET
PEOPLE
The resources and relationships we rely on:
Planet
Natural capital
Recognising that our business depends on natural
capital, we focus on understanding, managing
and mitigating our impacts.
Prosperity
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.
Manufactured capital
Our operations require significant investments
in manufactured capital. Investing in building,
maintaining, operating and improving this
infrastructure requires financial, human and
intellectual capitals.
People
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 and relationship 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.
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ABOUT
THIS REPORT continued
Ensuring holistic value creation
At Sappi, we take a holistic view of value creation.
Value for Sappi is not only about delivering returns to our
shareholders, it is about maximising the value of every resource
along our value chain to ensure those returns are sustainable.
We recognise that our sphere of influence and impact extends
beyond our mill gates.
Through this lifecycle approach that harnesses the power of the
circular economy, we strive to minimise our negative impacts and
increase our positive impacts on People and the Planet, while
securing sustainable profit margins.
We then measure our value creation in terms
of our defined, holistic targets, as outlined
on pages
30 to 33.
Operating
context
UN SDGs
Risks and
opportunities
Our stakeholder
issues
Materiality determination
Integrated reporting boundary
Financial reporting boundary
Sappi
North America
Sappi
Europe
Sappi
Southern Africa
8). We aim to present
Scope and boundary
The scope of this report includes all
our operations (see Where we operate
on page
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 (see Materiality on
page
58).
In preparing this report, we have tracked
environmental findings and research,
public opinion, employee views and
attitudes, the interests and priorities of
environmental and social groups, as well
as the activities, profiles and interests of
investors, employees, suppliers and
customers, communities, governments
and regulatory authorities.
Forward-looking statements
For important information relating to forward-looking statements, refer to the inside back cover.
Our reporting suite
Report
Frameworks
Annual Integrated Report
www.sappi.com/annual-reports
Group Annual Financial Statements
www.sappi.com/annual-reports
Group Sustainability Report
www.sappi.com/sustainability
• IIRC’s Framework
• Companies Act, No 71 of 2008, as amended
• JSE Listings Requirements
• King IV Code on Corporate Governance (King IVTM1)
• IFRS
• Companies Act, No 71 of 2008, as amended
• JSE Listings Requirements
• King IV
• GRI Standards
• United Nations Global Compact (UNGC)
• United Nations SDGs
AIR
AFS
SR
For up-to-date information, please refer to our quarterly results announcements and analyst presentations (www.sappi.com/quarterly-reports)
Assurance
We obtained external assurance on selected sustainability key performance indicators in our 2019 Sappi Group Sustainability
Report. The independent practitioner’s limited assurance report is included in the 2019 Sappi Group Sustainability Report.
Our sustainability information is also 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 South Africa
and globally, ISO 14001 environmental certification, ISO 9001 quality certification and OHSAS 18001 health and
safety 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 2019 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 indexes 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 Social, Ethics, Transformation and Sustainability
(SETS) Committee is satisfied that the sustainability information presented in this report has been provided with a reasonable
degree of accuracy.
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 2019 Annual Integrated Report with financials is available on
www.sappi.com/annual-reports in interactive and PDF format.
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 2019 Sappi Annual Integrated Report addresses all issues material to the group’s ability
to create value in the short, medium and long term, and fairly presents the integrated performance of the organisation and
its impact.
We believe that this report has been prepared in accordance with the IIRC Framework.
The report has been prepared in line with best practice and the board confirms that it has approved the 2019 Annual
Integrated Report and authorised it for release on 13 December 2019.
Sir Nigel Rudd
(cid:42)(cid:79)(cid:72)(cid:80)(cid:89)(cid:84)(cid:72)(cid:85)(cid:3)
(cid:3)
(cid:3)
(cid:3)
Steve Binnie
(cid:42)(cid:79)(cid:80)(cid:76)(cid:77)(cid:3)(cid:44)(cid:95)(cid:76)(cid:74)(cid:92)(cid:91)(cid:80)(cid:93)(cid:76)(cid:3)(cid:54)(cid:1117)(cid:74)(cid:76)(cid:89)
1 Copyright and trademarks are owned by the Institute of Directors in Southern Africa NPC and all of its rights are reserved.
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5
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAACCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE
CONTEXT
T
DSDSC
AAP
PPE
PPIO
PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPIIIIIIIIIIIIIIIIIIIIIIIIIIIIOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOONNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEERRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRR
NMNM
VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAANNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE
TTAG
FRFRA
Persistent change, challenged
assumptions, and disruption are now
the norm, rather than the exception,
in business and society.
Within this landscape, we have seen the
demise or the value destruction of many
businesses the world over.
As Sappi, just over five years ago we
recognised that we would have to adapt
to this changing context – intensified by
the fact that our industry was undergoing
profound transformation – and so we
embarked on a journey of intentional
evolution.
We focused not just on how to serve our
customers, but on the bigger picture,
based on our understanding that by
capitalising on change and by being
agile we would be able to contribute
to a better tomorrow. This involved
redefining our strategy to draw on the
power of sustainable woodfibre for a
sustainable world, focused on dissolving
wood pulp, paper and products in
adjacent fields.
For us, it is not about being the biggest or
the most visible. Rather, it is about being
able to weather all storms, about being
able to map out a clear path for ourselves
in an uncertain landscape. That way, we
will continue to ensure that we are well-
matched to our environment and that we
are agile and adaptive as that changes –
which it invariably will.
In a globalised market that is continually
changing, we continue to view adaptation
to context as a strategic advantage and
our key to realising our group strategy.
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WHO
WE ARE
How we do business is as important as
what we do, highlighted by our value
statement.
Our values
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.
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Paper production per year
5.7 million tons
Paper pulp production per year
2.2 million tons
Dissolving wood pulp production per year
1.4 million tons
Globally we have
12,821 employees1
390,000ha
Owned and leased sustainably managed
forests in South Africa
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.
1 Includes Corporate and Sappi Trading employees
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WHERE
WE OPERATE
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 South
Africa. Sappi Trading
also coordinates
our shipping and
logistical functions
for exports from these
regions.
Logistics offices
Durban, New York
Sales offices
Bogotá, Buenos
Aires, Hong Kong,
Johannesburg, México
City, Nairobi, São Paulo,
Singapore, Shanghai,
Sydney, Vienna
Europe
Kirkniemi
employees
5,750
paper mills
speciality paper mills
paper and speciality
paper mill
other operation
5
3
1
1
sales offices
14
P
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5
0
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o
Rockwell
Solutions
Lanaken
Maastricht
Ehingen
Condino
Alfeld
Stockstadt
Gratkorn
Carmignano
f
g
r
o
up sales
North
America
Cloquet
Somerset
Westbrook
employees
2,050
P
r
o
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u
c
e
s
2
5
%
o
f
g
r
o
upsales
South
Africa
Ngodwana
Lomati
Tugela
Stanger
Saiccor
employees
4,750
P
r
o
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u
c
e
s
2
5
%
o
f
g
r
o
upsales
paper mill
speciality paper mill
paper and dissolving
wood pulp mill
sales offices
paper mills
dissolving wood pulp mill
paper and dissolving
wood pulp mill
sawmill
sales offices
1
1
1
6
2
1
1
1
6
Mills
Alfeld Mill
Products produced
Bleached chemical pulp for own consumption
Carmignano Mill
Speciality paper; dye sublimation paper, flexible packaging paper, inkjet paper and label paper
Speciality paper; flexible packaging paper, paperboard, containerboard, release liner, label paper, functional papers
Condino Mill
Ehingen Mill
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 containerboard
Gratkorn Mill
Bleached chemical pulp for own consumption
Coated woodfree paper
Kirkniemi Mill
Bleached mechanical pulp for own consumption
Coated mechanical paper
Lanaken Mill
Bleached chemi-thermo mechanical pulp for own consumption
Coated mechanical paper and coated woodfree paper
Maastricht Mill
Coated woodfree paper and paperboard
Stockstadt Mill
Bleached chemical pulp for own consumption and market pulp
Coated woodfree paper and uncoated woodfree paper
Total
Other operation
Rockwell Solutions
Coated barrier film and paper
(1) Capacity at maximum continuous run rate per annum.
Mills
Products produced
Cloquet Mill
Dissolving wood pulp
Coated woodfree paper
Somerset Mill
Bleached chemical pulp for own consumption and market pulp
Westbrook Mill
Speciality papers; casting and release paper
Coated woodfree paper and packaging paper
(1) Capacity at maximum continuous run rate per annum.
Total
Plantations*
Products produced
KwaZulu-Natal
Plantations (pulpwood and sawlogs)**
Mpumalanga
Plantations (pulpwood and sawlogs)**
Total Sappi Forests (owned, leased and contracted supply)
Mills
Products produced
Lomati Sawmill
Sawn timber
Ngodwana Mill
Unbleached chemical pulp for own consumption
Mechanical pulp for own consumption
Kraft linerboard
Newsprint
Stanger Mill
Bleached bagasse pulp for own consumption
Office paper and tissue paper
Tugela Mill
Neutral sulfite semi-chemical pulp for own consumption
Corrugating medium
Sappi ReFibre***
Waste paper collection and recycling for own consumption
Total Sappi Paper and Paper Packaging
Ngodwana Mill
Dissolving wood pulp
Saiccor Mill
Dissolving wood pulp
Total dissolving wood pulp
Total
Capacity(1) (’000 tons)
Paper
Pulp
120
275
100
60
280
980
750
530
280
445
140
250
300
165
145
3,700
1,120
Capacity(1)
(million m2)
100
Capacity(1) (’000 tons)
Pulp
370
525
Paper
340
970
40
1,350
895
Capacity (’000)
Standing
tons
11,056
16,536
27,592
Ha
257
272
529
Capacity(1) (’000)
Timber
m3
Paper
tons
Pulp
tons
102
240
140
110
200
690
210
110
60
150
135
665
255
800
102
690
1,055
1,720
Approximately 135,000 hectares of our land is set aside and maintained by Sappi Forests to conserve the natural habitat and biodiversity found there.
(1) Capacity at maximum continuous run rate per annum.
*
** Plantations include owned and leased areas as well as projects.
*** Sappi ReFibre collects waste paper in the South African market which is used to produce packaging paper.
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HOW WE
CREATE
VALUE
Fo
Forests
Our 100% Forest Stewardship CouncilTM (FSCTM)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.
MMMa
Manufacturing excellence
1 Sappi licence number:
FSC-N003159
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.
SA plantations
100%
FSC certified
Acquisition of
Matane Mill
improved
pulp
integration
BBBio
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.
Phase 2 of
our sugar
extraction
plant
under way
We take an
integrated approach
to value creation.
Guided by our
values, our six value
streams enable
the delivery of our
mission.
1
Our values
2
Our inputs
3
Our value
streams
4
Our strategy
Our integrated approach to
sustainable development
acknowledges that we depend
on Prosperity, People and the
Planet to thrive. We rely on
certain inputs to create value.
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.
Our ability to deliver sustained
value depends on the
successful execution of
our strategy.
See page 30.
See page 13.
See above.
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 6.
p
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.
110,000 tpa
expansion at
Saiccor Mill
40% complete
Packaging and speciality paperss
Our customers use our packaging and speciality 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.
Sales volumes
increased 12%
year-on-year
Graphic papers
While the digital age has impacted on the use of paper, our graphic
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.
Paper’s haptic
qualities
enhance
marketing
and
branding
M A G
M
A
M
G
A
G
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.
5
Our outcomes
6
Our key
relationships
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 pages 14 and 15.
Ongoing engagement with
our stakeholders conducted
in a spirit of trust and mutual
respect enables more tangible
business value creation.
See page 42.
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 our Group
Sustainability Report.
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UNDERSTANDING
OUR BUSINESS MODEL
In an increasingly interdependent society,
the way we operate must reflect the connected
nature of Prosperity, People and Planet.
There is a growing recognition of the necessity for a more circular
global economy, as we move away from a ‘take, make, dispose’
model of production to a more regenerative economic system aimed
at minimising waste and making the most of scarce resources.
At its heart, our business model is circular and interconnected. And we
continue to find ways to maximise the circular nature of our activities.
Our
Inputs
– the resources
and relationships
we rely on
Our
Outputs
– our products
services and waste
products
Our
Outcomes
– the broader impacts
of our business
activities
4
While we have laid out
our value creation process
in two dimensions,
we understand that the
overarching reality is circular.
See pages 10 and 11, and 13 to 15.
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Our
Activities
– our value streams
Value for Sappi is not only about
delivering returns to our shareholders,
it is about maximising the value of every
resource along our value chain to ensure
those returns are sustainable.
We are also committed to positively
impacting the communities we rely on
and support the principles of the UNGC
and the UN SDGs, which are focused on
reshaping the world around us to create
a more sustainable one.
According to fact sheet
Inputs
The resources and relationships we rely on
PROSPERITY
• 18 production facilities:
– Eight paper mills
– Four speciality paper mills and
one other operation
– One paper and speciality paper mill
• Fuel rod demonstration plant
• Nanocellulose
demonstration plant
• Biomass plant under
construction
• Total assets:
US$5.6 billion
– Two dissolving wood pulp and
paper mills
• Sugar demonstration plant –
now in its second phase
• EBITDA: US$687 million,
a decline of 10% year-on-year
• Cash and cash equivalents:
US$393 million
Financial,
intellectual and
manufactured
capitals
– One dissolving wood pulp mill, and
– One sawmill
• Acquisition of Matane Mill in
Canada
• R&D spend:
US$42 million
PEOPLE
• 12,821 employees
Human and social
and relationship
capitals
PLANET
Natural
capital
OUR
BUSINESS
MODEL
• US$525 average training spend per employee
• Ongoing stakeholder engagement
• US$4.1 million invested in
corporate social responsibility
• Access to 529,000 ha plantations,
of which approximately:
– 255,000 ha are owned or leased,
• 2,621 MW energy purchased
• 2,011 MW energy generated
on site
and
– 139,000 ha are contracted supply
– 135,000 ha is set aside and
maintained by Sappi Forests
to conserve the natural habitat
and biodiversity found there.
• Energy intensity: 22.84 GJ/adt
• 289 million litres of water
extracted for all purposes
• 34.17 m3/adt specific process
water extracted
PLANET
PROSPERITY
PEOPLE
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Outputs
What we produce
• 7.6 million tons of saleable production
• Profit down by 15%
• Net debt down by 4%
• New products to meet changing customer
expectations and market trends
PROSPERITY
• Productivity: 4.00 hours worked/adt
saleable production (2018: 3.63 hours)
• Internal global awards (Technical Innovation
Awards and CEO Award for Excellence),
together with regional awards, drive
excellence and innovation
PEOPLE
• Waste: 1.5 million tons of waste,
of which 377,422 tons sent to landfill
• Emissions: 4.4 million tCO2e
absolute direct (Scope 1) GHG
PLANET
Matane Mill
acquisition
= high yield pulp
at lower costs
US$525
average
training spend
per employee
Our investors received US$92 million
in dividends
Our high levels of innovation give
our customers a competitive edge
in global markets – we collaborated
closely with specialist packaging
converter and a global FMCG
company to support the launch
of a new confectionery snack bar
wrapped in recycled paper
Outcomes
The impacts of our operations
High levels of
wood certification
= competitive
advantage
Four fatalities
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classified as a Level 2 BBBEE contributor
In South Africa our operations provide employment for approximately
9,250 contractor employees
52.9% renewable energy, of which 66.4% 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
74.8% of fibre used certified
World-leading tree improvement programmes have led to shorter growth times and enhanced fibre gain
Positive
Negative
Neutral
Earth kind
4
Actions to
enhance
outcomes
The impacts of
our operations
• Tight management of
working capital and
postponement of
discretionary capital
expenditure to mitigate
the impact of uncertain
market conditions
• Investment in R&D to
ensure cutting-edge
solutions for customers
• Ongoing diversification of
our product portfolio into
higher margin segments
• Continued investment in
embedding a safety culture
across the group
• Increased energy self-sufficiency
by 5.4% over five years due to focus
on reducing purchased energy
• Focus on entrenching
transformation in our
South African operations
to support inclusive growth
• Investment in training and
development of our
employees
• Strong governance; Code
of Ethics training
• Group Supplier Code of
Conduct rolled out to
suppliers and review
process initiated
• Participated in initiatives to enable
certification for small growers
• Adjusted our tree breeding strategy
to mitigate the impacts of climate
change
• Participated in industry consortium
to test blockchain technology
• Together with other forestry
companies, initiated a detailed
climate change mapping
project with the Global
Change Institute (GCI)
at the University of the
Witwatersrand
Globally, we contributed US$131 million to government taxation
We paid US$989 million to employees as salaries, wages and other benefits
Lenders of capital received US$95 million as interest
We invested US$438 million to grow the business
Downtime at certain mills
Our specialised sustainable packaging solutions: preserve and protect,
convey information and offer convenience
Acquisition of Matane Mill – opens up opportunities as part of a global
organisation
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
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LETTER TO
STAKEHOLDERS
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Steve Binnie
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Sir Nigel Rudd
Chairman
Operating review
Market conditions across Sappi’s major
product categories were challenging
throughout the year. Dissolving wood
pulp (DWP) market prices in China
fell US$273/ton and reached historical
lows by year-end, despite global
demand growth of more than 6%.
We experienced prolonged weakness
in global graphic paper markets, while
demand for some of our packaging
and speciality grades was also under
pressure. Uncertainty as a result of
the ongoing trade wars and slower
economic growth in various
geographies were the major drivers
of the volatility encountered during
the year.
The company continued the strategy
of recent years to diversify its product
portfolio into higher margin segments
and position it for future growth. The
recent projects to increase capacity
at each of the DWP mills and convert
capacity at Somerset and Maastricht
Mills towards packaging boosted sales
volumes in each of these segments
during the year, thereby lessening the
impact of weak graphic paper markets.
Early in the fourth quarter we
announced the acquisition of the
Matane pulp mill, which will increase
the pulp integration of our packaging
businesses, and lower costs. The
acquisition was subsequently
completed on 03 November 2019.
As market conditions weakened,
working capital was tightly managed
and discretionary capital expenditure
was postponed or reduced to decrease
debt levels.
The group’s earnings before interest,
tax, depreciation and amortisation
(EBITDA) excluding special items was
US$687 million, declining 10%
year-on-year as a result of weak
graphic paper demand and declining
DWP prices. Operating profit excluding
special items for the year was
US$402 million compared to
US$480 million in the prior year.
We continued our efforts to improve
safety across all our operations in the
past year. All three regions have safety
programmes aimed at creating an
environment where there are no
injuries. We do not accept that injuries
and accidents are inevitable and remain
committed to Project Zero with
improved personal behaviour
and making safe choices, enforcing
compliance and leadership
engagement. We are pleased to report
that our North American operations
achieved their best own-employee
lost-time injury frequency rate (LTIFR),
while being disappointed with an
increase in that metric in both Europe
and South Africa. Regrettably we must
report four contractor fatalities in
South Africa during the year. Our target
is zero injuries, and we believe we can
achieve this with enhanced procedures,
training and most importantly,
behaviour.
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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 in 2016. This
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 core value of
the group. 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.
The year started strongly for DWP
markets, with pricing above long-term
averages for the first six months.
Thereafter, the combination of the
impact from global trade wars
on Chinese textile markets, excess
viscose staple fibre (VSF) capacity
and a weaker Renminbi exchange rate
drove DWP prices to historical lows,
impacting profitability in this segment.
The weak paper pulp prices and
demand dynamics kept many swing
producers in the DWP market, further
exacerbating the situation.
The packaging and speciality papers
segment had a mixed year. The trend
towards paper based packaging in
consumer segments was positive.
Stable South African containerboard
demand was offset by higher paper
pulp prices at the start of the year
which negatively impacted margins,
as well as the slower-than-expected
ramp-up of newly converted machines
at Somerset and Maastricht Mills. The
slower European economy also
adversely impacted the market for
certain consumer speciality grades.
Global graphic paper demand declined
by nearly 7% in the past nine months.
In European and United States
markets, demand declines exceeded
10%, impacted by a general weakening
in economic activity, high inventory
levels, secular demand trends and the
rapid series of price increases in 2018.
This necessitated 268,000 tons of
production downtime during the year.
However, in the second half of the year,
the segment started to benefit from a
reduction in input costs, particularly
paper pulp, helping to mitigate the
impact of lower volumes.
Strategic review
Calendar 2019 was the fourth year of
our strategic 2020Vision and was one
in which we expected to make further
progress in improving profitability and
cash generation via the shift into faster
growing and more profitable segments.
This was supported by our investments
to convert Somerset PM1 and the
Maastricht Mill to paperboard, and
the DWP debottlenecking projects at
Cloquet, Saiccor and Ngodwana Mills.
As described above, however, market
conditions for each of our major
segments deteriorated in 2019 and
attaining our 2020 financial goals
became more challenging.
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 graphic papers, we continuously
balance paper supply and demand in
all regions to strengthen our leadership
position in these markets, realising
their strategic importance to the group
and maximising their significant
cash flow generation. Where possible
we will convert paper machines to
higher margin businesses
Maintain a healthy balance sheet –
This will reduce risk and improve our
strategic flexibility
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LETTER TO
STAKEHOLDERS continued
Accelerate growth in higher margin
growth segments – We will invest
in expanding our paper packaging
grades, enhancing our DWP portfolio
and extracting value from our
biorefinery stream.
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
on 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 to
maintaining or improving margins and
the sustainability of our operations.
This is especially true in commodity
businesses where we face declining
demand, such as graphic papers.
In the past year, we set ourselves the
target of a US$60 million reduction
in third-party expenditure compared
to 2018 through efficiency and raw
material use improvements as well
as delivering savings through various
procurement initiatives. We are pleased
to report that savings of US$87 million
were realised, which helped offset
declining paper volumes and DWP
prices. In 2020 we are targeting a
further US$54 million in savings. In
2019 we began the Saiccor Mill
110,000 ton expansion. This project,
due to be completed towards the end
of 2020, will improve our energy and
chemical recovery, lowering variable
costs for the full mill by an estimated
ZAR300/ton. We also invested
US$30 million for upgrades to the
Gratkorn Mill, resulting in improved
efficiency and lower costs. As
mentioned above, we acquired the
Matane high-yield pulp mill post-year-
end and this acquisition, along with
some small pulp mill debottlenecking
projects in Europe during 2020, will
help improve the paper pulp integration
of our packaging and speciality papers
business, lowering our cost base and
reducing the volatility of earnings
through the pulp cycle.
Rationalise declining
businesses
Graphic paper demand in Europe and
North America remains in long-term
structural decline. This was
exacerbated in 2019 by general
economic conditions and as a
consequence of a rapid series of price
rises in 2018 as a result of then record
high paper pulp prices and the impact
that had on input costs. Maintaining
operating rates and lowering costs are
key to our strategy to maximise cash
generation in these markets. As noted
we had to take 268,000 tons of
production downtime in the last nine
months of the year which negatively
impacted the profitability of the graphic
paper business.
market. In 2018, we converted the
Maastricht Mill to focus predominantly
on paperboard packaging grades in
support of our existing packaging and
speciality papers business in Europe. In
2019, we began the conversion of PM8
at Lanaken to enable the machine to
make either coated woodfree (CWF) or
coated mechanical (CM) paper. This will
allow the transition from CM to CWF
production on that machine over the
next three years and align our CM
capacity with demand. We also made
investments at Ehingen Mill to enhance
its packaging and speciality papers
offering and will be doing the same at
Alfeld Mill in 2020. In combination,
these projects will replace 200,000
tons per annum of graphic paper with
a similar volume of packaging and
speciality grades.
In South Africa, our exposure to
declining markets is limited to
newsprint, where we are the last
local producer, and office paper.
Maintain a healthy
balance sheet
In 2018, we converted PM1 at the
Somerset Mill. The capacity of the
machine was expanded, and it now
has the flexibility to produce both
coated graphics paper and paperboard
products used in the folding carton and
food service markets. During 2019, we
ramped up production of paperboard
grades on this machine as we qualified
the various products with a range of
customers. In 2020 we expect to
continue increasing paperboard
volumes, gradually filling the machine
as graphic paper sales volumes
decline.
The decline in profitability of the
business in 2019 due to factors
noted above, along with a large and
committed capital expenditure pipeline
during the year has resulted in the net
debt to EBITDA leverage ratio
increasing from 2.1 to 2.2 times over
the course of the year, below our target
leverage ratio of 2.0 times. With the
completion of the Saiccor expansion
project in 2020, capital expenditure
levels will remain elevated, but we
have reduced discretionary capital
expenditure in 2020 to limit the rise
in debt levels as far as possible.
In Europe we focused on cost
reduction and our go-to-market
strategy – Sappi&You – which has
enabled us to be a preferred supplier
in coated woodfree grades in particular
and has seen us increase both direct
sales and market share in a declining
In 2019, we refinanced the 2022 Euro
bonds with a new seven-year Euro
bond at a rate of 3.125%, our lowest
ever rate. We now have no significant
maturities due before 2023 and we are
comfortable with the maturity profile of
our debt. Net finance costs may rise
slightly to between US$70 million and
US$80 million as the net debt increases
in the coming year. We proactively
amended the leverage covenant on
our European revolving credit facility in
the fourth quarter at no additional cost
to give us more headroom in the
coming two years, and allow us to
complete current capital projects
without putting the business at
unnecessary risk.
Accelerate growth in
higher margin growth
segments
After debottlenecking the Saiccor and
Ngodwana DWP Mills in 2018, in the
second half of 2019 we completed the
upgrades to the Cloquet Mill, adding a
further 30,000 tons of DWP production
capacity. As mentioned above, we
initiated the 110,000 ton expansion
project at Saiccor during the year.
Apart from additional sales volumes,
this will decrease unit production costs
for the mill’s entire output, introduce
new technology, reduce the
environmental footprint and future-
proof manufacturing systems. Current
market conditions, with record low
prices, viscose customers under
significant pressure and an excess
of DWP capacity make a further
significant expansion difficult to justify
in the near term. We continue to
evaluate various options, however,
as robust demand growth from our
major customers and pressure on the
textile industry for more sustainable
solutions increases.
Following the acquisition of the paper
mill assets of the Cham Paper Group
and the completion of the Somerset
PM1 and Maastricht Mill conversions
in 2018, the packaging and speciality
segment volumes grew by 12% in
2019. With increasing sales volumes
on the converted machines and the
related improvement in sales mix and
production efficiencies, profitability of
the segment will improve, aided by
lower purchased paper pulp prices
and the increased pulp integration as
a result of initiatives noted above. The
pressure on fast-moving consumer
goods companies to embrace
alternative packaging solutions that
are more renewable, recyclable and
reusable is encouraging joint R&D
efforts to provide these solutions. Many
of our packaging products are ideally
placed to take advantage of this
accelerating demand and we have
made good progress in the last year
in launching new products and
solutions for our customers. The
technology acquired through Rockwell
Solutions in 2017 is now ready to be
rolled out to additional machines in
the group in future years, allowing us to
capture more of this market.
Sappi Biotech continues to make
progress in developing new and
innovative products, ideally suited to
a world looking for more sustainable
chemical and material solutions. We
continue to grow our lignin business
and have made significant progress
to enter higher-value lignin markets
in the near term. The demonstration
plant adjacent to our Ngodwana Mill
has allowed us to test and optimise
xylose sugars extraction technology
on an industrial scale for markets such
as xylitol and furfural. We are pursuing
various options to develop projects
in these markets. Pending successful
commercial arrangements, this may
result in final product technology
scale-up and ultimate construction of
commercial xylose or furfural plants at
our mills in the United States or South
Africa. Our cellulose nanofibrils and
cellulose microfibrils development is
ongoing, with exciting co-development
and product acceptance progress
made in our paper business as well
as with firms in the coatings and
cosmetics industries. We are
furthermore running development
trials with our fibre composite product
alongside automotive producers.
Sustainability
Since developing our 2020Vision,
sustainability has become increasingly
more prominent in our strategic
thinking as climate change,
governmental, societal and brand
owner pressure mount and
technological change brings new
opportunities and risks. Sappi has
always focused on the sustainable
management of our operations,
focused on increasing efficiency
and maximising value from our
sustainable natural resources. We
have also recognised that we need to
be more proactive in our dealings with
various stakeholder groups and
become a trusted partner to these
groups to pursue growth opportunities,
while managing the risks inherent in
this more complex operating
environment. Sustainability will become
a key component of our 2025 strategy,
more deeply integrated into the overall
business strategy.
Looking forward
The markets we operate in are
expected to remain challenging in the
coming year, and profitability is likely
to be negatively impacted as a result.
DWP pricing in particular will have a
significant impact on earnings as this
segment is a major contributor to our
profit and cash flow generation. We
have responded by reducing our capital
expenditure in the past year and for the
next; and other than the 110,000 ton
expansion of Saiccor Mill which
is currently under way, we have not
committed capital to any material
project. We have reduced working
capital, amended debt covenants,
targeted further cost reductions and
are evaluating various options for our
paper machines in Europe to lower
fixed costs and match capacity to
demand.
DWP pricing remains under significant
pressure, having declined to historical
lows of US$638/ton at the time of
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LETTER TO
STAKEHOLDERS continued
May 2007 and has been a
member of the Audit
and Risk Committee. She
also served as Chairman
of the North American
Audit Committee from
2007 to 2016. We
thank them both for
their significant
contributions over
many years.
In conclusion, we value
the support of our
shareholders as we work
to enhance our
sustainable long-term
shareholder returns. We look
forward to their participation
at the annual general meeting
(AGM) on 05 February 2020.
writing this report, US$306/ton lower
than a year ago. We believe that
current pricing is below the cash
cost of production for a significant
proportion of global supply and is
therefore unsustainable over any
prolonged period. Underlying demand
for DWP is still growing at rates
consistent with our long-term
forecasts. A recovery in DWP prices
is likely to be prompted by a recovery
in VSF prices, which have been
depressed by excess VSF capacity
and a weak Chinese textile market.
In the packaging and speciality papers
segment, we are making good
progress with customer acceptance in
the United States and European
markets and the ramp-up of volumes
continues, aided by the shift from
plastic to paper in many packaging
categories. However, the slowing South
African economy will probably impact
domestic demand for containerboard in
the coming year.
Global graphic paper markets continue
to show weakness from a combination
of economic factors and ongoing shift
to digital media. Pricing has declined
only marginally over the past quarter,
and as paper pulp prices in Europe and
North America approach those
prevalent in China, margins should be
maintained.
Capital expenditure in 2020 is expected
to decrease to US$460 million as we
complete the Saiccor 110,000 ton
expansion project and some smaller
European pulp mill debottlenecking
projects. Payment of the adjusted
Matane net acquisition price of
approximately US$158 million will be
made in the first quarter of the coming
financial year, funded via a new term
loan.
Due to current very weak pricing in the
DWP market and with paper markets
yet to show signs of a sustained
recovery in demand, we expect
EBITDA in the first quarter of fiscal
2020 to be below that of 2019.
Appreciation
Our wide groupings of stakeholders
contributed in many ways to our
business in the past year. We
appreciate their ideas, constructive
criticism and support, which guided our
thinking and actions. This support and
guidance are invaluable in these difficult
market conditions.
To our customers who have supported
us in all our different markets, and with
whom we increasingly collaborate to
provide relevant products and services
that generate sustainable value for all
parties, we thank you.
Our employees have continued to
demonstrate belief in our strategy and
a commitment to the business in these
challenging markets. Their initiative,
resourcefulness and drive towards our
One Sappi vision make it clear that our
values and ethics are embedded in the
organisation. We also thank them for
their hard work.
Our gratitude goes to our board for
their continued commitment to the
group, sharing their valuable insights
and encouragement while holding us to
the highest ethical standards to enable
us to execute our strategy.
We welcomed Mr Brian Beamish,
Mr James Lopez and Ms Janice Stipp
to the board as independent non-
executive directors during the year.
Earlier this month we announced the
retirement of Mr John McKenzie (Jock),
lead independent non-executive
director, and Ms Karen Osar,
independent non-executive director
effective from the end of December
2019. Jock McKenzie was appointed
to the board in September 2007.
He was a member of the HR and
Compensation Committee from 2007,
and chaired the Social, Ethics,
Transformation and Sustainability
Committee until his appointment as
lead independent director in 2016
and then member of the Nomination
and Governance Committee. Karen
Osar was appointed to the board in
Q&A
WITH THE CEO
Steve Binnie
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Debt levels increased last year while profitability declined,
resulting in higher leverage – what is Sappi doing about this?
As market conditions worsened and the outlook for a recovery faded,
we took decisive action on a number of fronts to minimise the rise in debt levels
and lessen the impact of the increased leverage. At the start of the year, capital
expenditure in 2019 was expected to be US$590 million. Through a careful
process of re-evaluating the priority and timing of various projects, total spend
for the year was reduced to US$471 million. We have also adjusted down our
expansionary capital spending plans for 2020, effectively reducing this to projects
under way or already committed. Maintenance, safety and environmental spend
were unaffected as we seek to ensure the sustainability of the company.
Production downtime was taken as required in the graphics paper segment in
order to minimise inventory levels and working capital, resulting in strong cash
generation in the latter part of the year.
We continuously evaluate opportunities to extend debt maturities and lower
finance costs. We refinanced the 2022 Euro bond early in the year, lowering
the interest charge and extending maturities. This has meant we have a
comfortable liquidity position, with no major maturities due before 2023, a
low average interest rate and flexible liquidity from cash on hand and undrawn
revolving credit facilities. In the fourth quarter, we renegotiated the leverage
covenant for our European revolving credit facility and some of our bank term
debt, due to current market uncertainty and particularly with regards DWP pricing,
to provide further headroom. This renegotiation resulted in increased headroom
over the expected peak leverage periods, moving the maximum leverage level
from 3.75 times net debt:EBITDA to 4.5 times.
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You acquired the Matane
Mill just after year-end
while deliberately reducing
capital expenditure levels
– what was the rationale?
Dissolving wood pulp
prices, a key determinant
of Sappi’s profitability,
declined by almost a third
since the end of last year.
Does this change your
outlook for this critical key
segment of the business?
Global graphic paper
demand has declined at a
pace not seen since 2009
– how has this impacted
the business?
Q&A
WITH THE CEO continued
Our packaging and speciality operations in the United States and Europe are
typically less in integrated pulp than our graphic paper business, and this brings
higher pulp cost and volatility in earnings through a pulp cycle. Additionally, our
paperboard machines benefit from using high-yield pulp, where supply is more
constrained than for kraft hardwood or softwood pulps. We thus had a medium-
term strategy to build our own high-yield pulp mill at Somerset to lower costs
for our packaging businesses, reduce volatility in earnings and secure this key raw
material. Matane Mill was a major supplier of high-yield pulp – when it came onto
the market, we weighed up the benefits of purchasing a mill at significantly less
than replacement cost and securing a key raw material against the desire to
reduce leverage. We believe we purchased the mill at an attractive valuation, and
the acquisition will benefit our growing packaging and speciality business.
Our internal consumption of pulp from the mill will increase as we ramp up
paperboard production at both Somerset and Maastricht Mills in coming years.
However, we will continue to supply the high-yield market.
We believe the fundamental attractiveness of the DWP market remains intact. As
global textile demand grows, driven by population growth, fashion and rising
wealth in developing economies, the need to develop more environmentally
friendly solutions, derived from renewable materials that do not threaten food
security or aquatic systems, will drive increasing market share for viscose, which
is derived from dissolving wood pulp. Despite the challenges in the past year, VSF
demand still grew by 6%, with pricing influenced by a confluence of factors largely
external to the dissolving wood supply and demand dynamics. Weakening
economies in various parts of the world, the impact of United States/China trade
tariffs on textile production and sales and the rapid increase in VSF capacity
over the past two years have led to a situation where VSF mills are running at very
low operating rates and depressed VSF selling prices are forcing DWP prices
lower. With no alternative outlet due to the concurrently weak paper pulp market,
DWP swing producers have now become price takers. We believe that these
circumstances will steadily change as the current situation is unsustainable as a
large proportion of VSF mills and a significant proportion of DWP mills are
generating cash losses at prevailing pricing levels.
The decline in global graphic paper demand has been driven by a number of
factors, including an economic slowdown in various parts of the world, the rapid
series of price rises implemented in 2018 as a result of high paper pulp prices,
and continuation of the secular impact of a shift from paper to digital. Additionally,
in contrast to prior years when industry closures of higher-cost machines matched
demand declines and kept operating rates high, in 2019 the pace of closure
slowed. Further closures are only likely to occur in the second half of 2020.
In response to the more than 10% reduction in demand for our major graphic
paper products in the past year, we took 268,000 tons of production curtailment
on our paper machines across the United States and Europe. The conversion of
Somerset PM1 and Maastricht Mills in 2018 to paperboard grades helped lessen
the impact of weak demand as we effectively reduced our graphic paper capacity
by some 130,000 tons in the past year. As we ramp up in the coming year, this
will further alleviate the impact from potential further declines in graphic paper
markets. Market share gains in some grades helped our operating rates in the
past year relative to the industry. Additionally, we started the review of our paper
machines in Europe to determine whether and which paper machine we may
need to close if the supply/demand imbalance in the industry remains. In North
America, we plan to ramp up packaging volumes at Somerset Mill to relieve
pressure from soft graphic paper demand.
Governments and civil
society are increasingly
calling on business to do
more to limit emissions
and energy use to
minimise climate change.
What is Sappi doing in this
regard?
Climate change, water scarcity, resource efficiency, minimising waste or pollution
and job creation are key environmental, social and corporate governance (ESG)
priorities for Sappi, albeit with different emphasis in different parts of the world. As
a company that uses a renewable natural resource as raw material, we are faced
with both opportunity and a duty of care in how we manage our operations and
how we maximise the benefit or value we can derive from this resource while
minimising the related costs or trade-offs. Although much of our energy
generation and consumption is renewable, we still directly or indirectly depend on
fossil fuels, particularly in South Africa. The investment at Saiccor Mill to expand
capacity includes a change in technology that will allow us to recover more energy
from our process and improve our water use efficiency. We are also investigating
opportunities to improve energy efficiency at all our mills globally to improve our
specific energy use and emissions. Unfortunately, in the last year, many of these
metrics increased as lower graphic paper demand and downtime taken translated
into a loss of efficiency as energy consumption does not decline linearly in these
situations. The only solution to this challenge is to increase machine utilisation.
Without a recovery in demand or significant market share gains, we may have to
close a paper machine, which we are currently investigating as described above.
In the coming year, we will be undertaking work in line with the global initiatives,
Task Force on Climate-related Financial Disclosures (TCFD) and Science Based
Targets (SBT) to better understand and quantify the risks and opportunities of
climate change and what will be required to bring our long-term emissions profile
in line.
The strategic shift in
capacity from graphic
paper to packaging and
speciality papers in the
past year seems to have
resulted in lower margins
than previously indicated
for that segment.
Why is this?
The conversion from graphic papers to paperboard grades at Somerset
and Maastricht Mills was technically successful, but the customer qualification and
acceptance process took longer than originally envisaged. This has impacted the
ramp-up of volumes and the mix of products sold. Lower operating rates and
downtime related to the weaker graphic paper market also impacted negatively
on raw material use and machine efficiency with related cost impacts. Lastly, high
paper pulp prices at the start of the year and the low pulp integration levels of our
packaging mills affected margins for much of the year. However, as pulp prices
declined, we recorded a good improvement in segmental margins for the fourth
quarter and the outlook in 2020 is for a sustained recovery in margins.
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EEEEEEEEEEEEEXXXXXXXXXXXXXXPPPPPPPPPPPPPPPLLLLLLLLLLLLOOOOOOOOOOOOOOOOOOORRRRRRRRRRRRRREEEEEEEEEEEEEEEE
ININSP
IIINNNSSSPPPPIIIRRRREEEE
DDDDDDDDDDDDDDDDDDDIIIIIIIIIIIIIIIISSSSSSSSSSSSSSSSSSSSSSRRRRRRRRRRRRRRRRRRRRRRUUUUUUUUUUUUUUUUUUPPPPPPPPPPPPPPPPPPTTTTTTTTTTTTTTTTTTT
SISRU
IIIIIIIIIIIIIMMMMMMMMMMMMMMPPPPPPPPPPPPPPLLLLLLLLLLLLLEEEEEEEEEEEEEEEEEMMMMMMMMMMMMMMMMMMMEEEEEEEEEEEEEEENNNNNNNNNNNNNNNNNTTTTTTTTTTTTTTTTMME
INNOVATE
EEEEEEEEEEEEEEEENNNNNNNNNNNNNNNNVVVVVVVVVVVVVVVVVVVVIIIIIIIIIISSSSSSSSSSSSSSSSSSSSIIIIIIIIIIIOOOOOOOOOOOOOOOOOOOONNNNNNNNNNNNNNNNNN
FFO
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As the world’s population grows and
becomes increasingly urbanised, so
challenges related to inequality, resource
scarcity and climate change have raised
expectations to promote greater social
equity, make more and better with less;
extract more value from resources and
continuously reduce environmental
footprint.
We are making strides: In 2016, Japanese
researchers discovered a type of bacteria,
Ideonella sakaiensis, that eats non-
biodegradable plastic. Now researchers
have engineered a mutant version of
the plastic-munching bacteria that is
20% more efficient.
Initially they hoped to get a clearer picture
of how the new mechanism evolved by
tweaking the enzyme in the lab. What
they got instead was a mutant enzyme
that degrades plastic even faster than the
naturally occurring one. The researchers
have said that they will continue to
improve it through protein engineering
and evolution.
At Sappi, innovation is hard-wired into our
DNA. While a key focus is on innovative
products that help to mitigate the global
challenges described above, for us it is
not just about products or services.
Our culture of innovation promotes
the evolution of old ideas, exploration
of new ones, as well as the readiness
to collaborate and ability to
commercialise new ideas quickly. It
informs our approach to commerce,
consumption and community. It is
apparent in our marketing initiatives, in
understanding our stakeholders’ needs
and expectations, in our training and
development initiatives, ongoing drive to
tread more lightly on the Planet and in the
pioneering socio-economic upliftment
programmes we have established across
communities.
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OUR OPERATING
CONTEXT
Our external operating environment presents risks and opportunities, impacts our
ability to generate value and informs our response to our stakeholders as well as
our approach to material matters. Below we set out the key developments in our
operating context in 2019 and our response.
Slowing global growth and trade tensions
Developments
Our response
The global economy in 2019 is on course for its
weakest year of growth since the financial
crisis. The International Monetary Fund is
expecting global growth to slow to 3.0% this
year, down from 3.2% in July 2019.
In South Africa, shortly after year-end we announced our intention to
make investments totalling up to ZAR14 billion over the next six
years in our South African operations.
We took commercial downtime at certain mills in 2019 and began
a review of our assets in Europe and North America.
Slow global growth has been exacerbated by
the ongoing trade wars between the United
States of America on the one side and Europe
and China on the other, which have impacted
the global economy.
We have DWP sites in the United States of America and South
Africa. Asia is the biggest market for our DWP and one of our major
customers has a production site in China. However, we can supply
this customer and others in the same country from our Saiccor and
Ngodwana Mills in South Africa which currently have respective
capacity of 800,000 and 250,000 tons per annum.
Regulatory and environmental issues
Developments
Our response
Belgium, Germany, Latvia, Poland and the
United Kingdom impose fees on manufacturers
that place packaging in the market to promote
recyclability. More countries are considering
introducing similar fees.
Sappi Europe has formed an internal recyclability task force with
representatives across R&D, new business development,
sustainability as well as innovation and marketing.
Sappi North America initiated similar work focused on increasing
packaging recyclability.
The European Union’s climate and energy
framework promotes decarbonisation by
setting 2030 targets for greenhouse gas
emissions to decline by at least 40% below
1990 levels, renewables to deliver 32% of our
energy and efficiency to improve by 32.5%.
Sappi Europe is leading the process of developing decarbonisation
plans for each mill in Europe, while Sappi North America and Sappi
Southern Africa are focusing on mills in their respective regions.
In South Africa, carbon tax was introduced on
01 June 2019. Our liability from implementation
to the end of September is estimated at around
ZAR20 million (some ZAR60 million per annum).
We, together with other industry members, are working with
consultants appointed by the Department of Environmental Affairs
on the rules for recognition of carbon in harvested wood products.
Parts of South Africa are still suffering from the
effects of a devastating drought.
We achieved our specific water use target in South Africa and have
funded the rehabilitation of water infrastructure in villages close to
our areas of operation.
The rise of populism, social disruption and Generation Z
Developments
Our response
Globally, there have been mass protests about
climate change. In South Africa, there have been
marches to protest gender-based violence
(GBV) which has now come under the national
spotlight.
Close to many of our operations in South Africa,
sporadic protests and incidents of violence took
place, the result of a disaffected population
protesting about lack of service delivery
and job opportunities – the official
unemployment rate is 29%, with the unofficial
rate significantly higher and youth being most
affected.
The Sustainability Council is reviewing how to integrate the
recommendations of the Task Force on Climate-related Financial
Disclosure (TCFD) into our climate change response. A target for
gender equity will form part of our 2025 sustainability goals. We
continue to raise awareness about gender-based violence across
the organisation through our employee wellbeing programme.
Our ZAR14 billion investment commitment (described earlier) will
help to create direct and indirect jobs. In addition, we continue to
promote participation in the forestry value chain through our Sappi
Khulisa enterprise development programme which encompasses
community tree farming. The total area managed currently is
34,139 hectares. In 2019, under this programme, 425,001 tons
of timber (2018: 483,359 tons) worth some ZAR382 million
(2018: ZAR387 million) was delivered to our operations. Since 1995,
a total volume of 4,221,941 tons to the value of ZAR4.2 billion has
been purchased from small growers under this programme.
We have intensified our enterprise and supplier development (ESD)
drive by establishing a separate ESD department that identifies
procurement opportunities and oversees mentoring programmes
and capability training. A total of 129 small, medium and micro-
enterprises (SMMEs) have been assessed and trained by our
partners and 28 SMMEs have been integrated into the value chain
across the business.
We have established skills centres at Ngodwana and Saiccor Mills
that provide training for our own employees and also target
unemployed youth with the overarching aim of stimulating
SMME growth.
According to Bloomberg, Generation Z-ers
account for 32% of the global population in
2019. This generation want companies to have
a positive purpose that improves the world in
some way. They are also more digitally
connected than any previous generation.
The fact that our business is based on woodfibre, a renewable
resource sourced from sustainably managed forests and plantations
that help to mitigate the impacts of global warming, is widely
communicated across social media. So too is our shared-value
approach to doing business.
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OUR OPERATING
CONTEXT continued
Increasing consumer and brand owner concerns about sustainability-related issues
Developments
Our response
According to the United Nations Environment
Programme (UNEP), every year an estimated
8 million tons of plastic land up in the
oceans and between 60% to 90% of the litter
that accumulates on shorelines, the surface
and the seabed comprises plastic. The most
common items are cigarette butts, bags,
and food and beverage containers.
We are taking advantage of anti-plastic sentiment by increasing
capacity in packaging papers, particularly recyclable packaging.
(See page
61 for details of our collaborative work to support
the launch of a new confectionary snack bar wrapped in recyclable
paper.)
Sappi North America solicits direct brand owner feedback through
the Sustainability Customer Council, strengthening positioning
against plastic end use.
Concerns about the impact of fast fashion
on natural resources, particularly deforestation,
are driving a move to ethical fashion.
In terms of global warming, scientists officially
pronounced July 2019 the warmest month the
world has experienced since record-keeping
began over a century ago. Alaska’s sea ice
melted for the first time in recorded history.
Climate change activism around the world
has accelerated.
Biodiversity loss is unprecedented: The
Intergovernmental Science Policy Platform on
Biodiversity and Ecosystem Services (IPBES),
the first intergovernmental report of its kind,
finds that around 1 million animal and plant
species are now threatened with extinction,
many within decades, more than ever before in
human history.
Forest certification systems with third-party verified forest
management and chain-of-custody processes ensure that
responsible forest management practices are implemented in the
forest and that woodfibre from certified forests can be identified
throughout the supply chain. Globally, in 2019, 74.8% of fibre
supplied to our mills was certified.
Trees and forests play an integral role in the global carbon cycle. By
sequestering carbon dioxide from the atmosphere and storing it in
forest biomass and soils, forests store vast amounts of carbon and
release oxygen back into the atmosphere. Harvesting managed
semi-natural forests in a sustainable manner in line with
internationally recognised forest certification systems as Sappi does,
promotes growth and carbon uptake. So too does balancing
harvesting with continual replanting and regrowth, as in our
plantations in South Africa. Sappi North America highlights its
superior carbon footprint compared to other key players in graphics
and packaging through the EQ tool which resides on our
e-commerce platform.
It is in our own interests to promote biodiversity in the forests and
plantations from which we source woodfibre, discussed in more
detail in Key material issues on page
invested in Forest in Focus, a platform using United States
Department of Agriculture (USDA) forest inventory data to assess
and promote forest health, including biodiversity.
71. Sappi North America has
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OUR STRATEGY
AND PERFORMANCE
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.
Achieve cost
advantages
Rationalise
declining
businesses
Maintain
a healthy
balance sheet
What this means
• Continuously improve
cost position
• Continue to maximise
global benefits
• Best-in-class production
efficiencies
How we performed
• Continuous improvements
in all regions to reduce
cost per ton
• Maximised the benefits of
One Sappi to achieve further
savings
• US$88 million savings
achieved
2020 objectives
• Advance with continuous
improvement projects in all
regions – US$54 million target
• Maximise operating rates on
all machines
• Integrate Matane pulp mill
into Sappi and achieve cost
advantages
What this means
• Maximise production at
low-cost mills
• Continuously balance
paper supply and demand
in all regions
• Continue to transition
graphic papers capacity
to higher margin and
growing packaging and
speciality papers
How we performed
• Carouselled production
to the lowest cost mills
• Balanced supply and
demand on graphic paper
with good capacity
management and growing
market share in coated
woodfree paper (CWF)
• Ramped up production
significantly on packaging
and speciality papers
2020 objectives
• Balance graphic paper
supply and demand
• Continue to transition from
graphic paper capacity to
packaging and speciality
papers
• Investigate paper machine
options in Europe
What this means
• Maintain net debt/
EBITDA ~2x
• Continuously improve
working capital
• Continue to monitor bond
market for opportunities
How we performed
• Net debt/EBITDA at 2.2x
• Effective working capital
management, resulting in
improved cash flow
• Refinanced the 2022 bond
by raising EUR450 million at
3.125% maturing in 2026
2020 objectives
• Optimise capex and working
capital
• Manage net debt to contain
leverage ratio
Accelerate
growth in higher
margin growth
segments
What this means
• Grow dissolving wood pulp
(DWP) capacity, matching
market demand
• Continue to expand and
grow packaging and
speciality papers in all
regions, targeting 25% of
group EBITDA by 2020
• Commence
commercialisation of
biotech opportunities
How we performed
• Invested to grow DWP
capacity at Saiccor, Cloquet
and Ngodwana Mills
• Speciality conversions in
Europe and North America
completed and strongly
ramping up to target,
currently 18.3%
• Growth in lignin sales and
advancing other biotech
opportunities to
commercialisation
2020 objectives
• Further advance packaging
and speciality papers to
target 25% of group EBITDA
• Conclude Saiccor Mill DWP
expansion in 2020
• Commercialise biotech
opportunities
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OUR STRATEGY
AND PERFORMANCE continued
Measuring our progress
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.
Key strategic objectives
Achieve cost advantages
Maintain a healthy balance sheet
Rationalise declining businesses
Accelerate growth in higher margin growth segments
Our strategic
performance indicators
Why is this
important?
Self-assessment
of 2019 performance
Link to strategic
objectives
ROCE (%)
20
15
10
5
0
Return on average capital
employed, or ROCE, is an
important measure that assesses
long-term profitability by
comparing how effectively assets
are performing with how these
assets are financed
0
.
8
1
6
.
4
1
5
.
1
1
2017
2018
2019
® Linked to executive
remuneration.
EBITDA (US$ million)
5
8
7
2
6
7
7
8
6
EBITDA measures how we
performed operationally by
excluding the impact of financing,
accounting treatments or tax
implications
2017
2018
2019
® Linked to executive
remuneration.
800
600
400
200
0
Key:
2020
objectives
Complete Saiccor Mill expansion
on time and on budget
Link to
3Ps
Prosperity
Self-assessment
of 2019 performance
Link to strategic
objectives
2020
objectives
Focus on maximising cash
generation through efficient capex
and working capital management
Link to
3Ps
Prosperity
Satisfactory
Unsatisfactory performance
Progress to be made/ongoing
Our strategic
performance indicators
Why is this
important?
Self-assessment
of 2019 performance
Link to strategic
objectives
EBITDA margin (%)
8
.
4
1
1
.
3
1
0
.
2
1
15
12
9
6
3
0
2017
2018
2019
Sales (US$ million)
6
0
8
,
5
6
4
7
,
5
6
9
2
,
5
6,000
5,000
4,000
3,000
2,000
1,000
0
2017
2018
2019
Net debt (US$ million)
2,000
1,500
1,000
500
0
8
6
5
,
1
1
0
5
,
1
2
2
3
,
1
2017
2018
2019
EBITDA margin is an important
and comparable measure of our
profitability (excluding the impact
of financing, accounting
treatments or tax implications)
against our revenue
While not the only determinant of
financial success, sales is a key
measure of demand, customer
loyalty and a critical contributor
to profit
Given the capital-intensive nature
of our operations, we need to
raise debt to complete significant
projects that enable our long-term
success. Net debt comprises
current and non-current interest-
bearing borrowings and bank
overdrafts (net of cash, cash
equivalents and short-term
deposits)
2020
objectives
Focus on reducing fixed and
variable costs
Link to
3Ps
Prosperity
Self-assessment
of 2019 performance
Link to strategic
objectives
2020
objectives
Continue to grow packaging and
speciality papers post conversions
Link to
3Ps
Prosperity
Self-assessment
of 2019 performance
Link to strategic
objectives
2020
objectives
While net debt is expected to
increase in 2020, due to the
finalisation of strategic capital
projects, we will continue to
carefully manage debt levels
Link to
3Ps
Prosperity
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OUR STRATEGY
AND PERFORMANCE continued
Our strategic
performance indicators
Why is this
important?
Self-assessment
of 2019 performance
Link to strategic
objectives
Net debt/EBITDA
1
.
2
2
.
2
7
.
1
The net debt to EBITDA ratio
measures our ability to pay off our
debt should net debt and EBITDA
remain consistent. EBITDA
focuses on the operating
decisions of a business, as it
looks at profitability from core
operations before the impact
of capital structure
2017
2018
2019
® Linked to executive
remuneration.
LTIFR is an important measure of
our business’s safety. We target
zero harm and aim to improve
LTIFR by at least 10% year-on-
year
4
5
.
0
4
4
.
0
3
4
.
0
LTIFR
2.5
2.0
1.5
1.0
0.5
0
0.6
0.5
0.4
0.3
0.2
0.1
0
® Linked to executive
remuneration.
Δ Identified sustainability goal1.
We rely on a productive and
engaged workforce. Employee
engagement has been linked to
higher safety performance, lower
staff turnover, improve productivity
and efficiency. We aim to maintain
or improve from our 2015 base
of 74%
2017
2018
2019
Sustainable engagement (%)
100
80
60
40
20
0
5
8
9
7
1
d
e
r
u
s
a
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m
t
o
N
2017
2018
2019
Δ Identified sustainability goal2.
1 For this indicator, we have clear targets for 2020 that we are working
towards. See our Group Sustainability Report for more information.
2 Not measured; survey takes place every second year.
2020
objectives
Manage leverage ratio well within
covenants
Link to
3Ps
Prosperity
Self-assessment
of 2019 performance
Link to strategic
objectives
2020
objectives
Reduce LTIFR and zero fatalities
Link to
3Ps
Self-assessment
of 2019 performance
People
Link to strategic
objectives
2020
objectives
Sustain and/or improve
engagement
Link to
3Ps
People
Key:
Satisfactory
Unsatisfactory performance
Progress to be made/ongoing
Our strategic
performance indicators
Why is this
important?
Self-assessment
of 2019 performance
Link to strategic
objectives
Energy intensity is a measure of
how efficiently we are operating.
By continually improving this
metric, we manage costs and
lower our impact
Δ Identified sustainability goal1.
We are committed to sourcing
woodfibre from forests and timber
plantations in a manner that
promotes their health and
supports community wellbeing
Energy intensity (GJ/adt)
25
20
15
10
5
0
7
5
.
2
2
8
3
.
2
2
4
8
.
2
2
2017
2018
2019
Certified fibre (%)
5
.
3
7
2
.
5
7
8
.
4
7
80
60
40
20
0
2017
2018
2019
Δ Identified sustainability goal1.
1 For this indicator, we have clear targets for 2020 that we are working
towards. See our Group Sustainability Report for more information.
2020
objectives
5% improvement from 2014
base year
Link to
3Ps
Planet
Self-assessment
of 2019 performance
Link to strategic
objectives
2020
objectives
Maintain or improve percentage
certified fibre
Link to
3Ps
Planet
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RISK
MANAGEMENT
Risks
Our risk management philosophy
The Sappi group has an established
culture of managing key risks. We have
a significant number of embedded
processes, resources and structures
in place to address risk management
requirements. These include our safety
programmes, internal audit systems,
insurance, IT security, compliance
and governance processes, quality
management and a range of
line management interventions.
In the broadest sense, effective risk
management ensures continuity
of operations, service delivery,
achieving objectives (strategic and
otherwise), and protecting the interests
of the group.
To achieve our objectives, the risk
management process is aligned and
compatible with Sappi’s strategy, taking
into account recommendations set out
in ISO 31000 standard (for guidance
only) – ‘Risk management – Principles
and guidelines’, as well as King IV.
Risk appetite and tolerance
Sappi has a board-approved
framework for risk appetite and
tolerance. Risk appetite is the total
quantum that Sappi wishes to be
exposed to 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
group’s risk capacity while enabling
the achievement of strategic
objectives.
Risk tolerance is the amount of
uncertainty Sappi is prepared to
accept. This is the maximum level
of loss or reduced earnings that can
be absorbed without compromising
key objectives, eg return on
investment.
Sappi Limited board of directors
Overall responsibility for the
governance of risk
Sappi Limited Audit and Risk
Committee
Tasked with assisting the board in
carrying out its risk management
responsibilities at the group level
Line management in each region,
business unit and operation
Responsibility for implementing
regional risk management processes
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 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
Residual risk ratings
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2
3
4
5
8
6
9
7
10
Very low
Consequence type
Very high
Worsening
Flat
Improving
Residual risk ranking
1 Safety
2
3
4
5
6
7
8
Cyclical macro-
economic context
Evolving technologies
and consumer
preferences
Highly competitive
industry
Natural resource
constraints
Project implementation
and execution
Uncertain and evolving
regulatory landscape
Market share and
customer concentration
9 Employee relations
10
Failure to attract and
retain key skills
1
Safety
Root cause
• We operate a number of manufacturing
facilities and forestry operations. The
environment at these facilities is
inherently dangerous. The health and
safety of our employees and contractors
remain a top priority.
3Ps impact
Related material issues
• Safety
Trend: (cid:179)(cid:180)
How we mitigate this risk
• Perform 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, to ensure continuous improvement in safety
performance.
• Enforce compliance with behaviour-based safety (BBS) principles.
• Provide continuous education.
• Disciplined approach to all transgressions of our safety policies.
• Encourage reporting of near-miss incidents.
• External safety review commissioned, with detailed action plans
implemented.
Strategic and 2020Vision objectives
• Achieve cost advantages
• Rationalise declining businesses
• Accelerate growth in higher margin growth segments
• Maintain a healthy balance sheet.
2
Cyclical macro-economic context
Trend: (cid:181)
How we mitigate this risk
• We continue to monitor the supply/demand balance, which might
require us to impair operating assets and/or implement further
capacity closures.
• We are continuously taking action to improve efficiencies and reduce
costs in all aspects of our business.
Strategic and 2020Vision objectives
• Achieve cost advantages
• Rationalise declining businesses
• Accelerate growth in higher margin growth segments
• Maintain a healthy balance sheet.
Root cause
• We operate in a cyclical industry subject
to global economic conditions (such as
exchange rate fluctuations) that may
cause substantial fluctuations in our
results
• Our products are affected by cyclical
changes in supply (industry capacity
and output levels) as well as demand
changes
• Due to supply and demand imbalances
in the industry, markets have historically
been cyclical with volatile prices
• Turmoil in the world economy leads to
sharp reductions in volume and pressure
on prices in many of our markets.
3Ps impact
Related material issue
• Cost containment and capital allocation
Legend:
(cid:181) Worsening
(cid:179)(cid:180) Flat
(cid:182) Improving
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Evolving technologies and consumer preferences
Trend: (cid:181)
Root cause
• New technologies or changes in
consumer preferences may have
a material impact on our business
• Trends in advertising, electronic data
transmission and storage, the internet
and mobile devices continue to have an
adverse impact on traditional print
media and other paper applications
• Digital alternatives to many traditional
paper applications are now readily
available and have begun to adversely
affect demand for certain paper
products.
3Ps impact
Related material issues
• Product and process innovation
• Circular economy and adjacent markets
• Long-term demand growth for cellulosic-
based fibres
How we mitigate this risk
• We continue to implement strategic initiatives to improve profitability,
including:
– Restructuring and other cost-saving projects
– Implementing measures to enhance productivity
– Expanding our higher-margin packaging and speciality paper
businesses, and
– Accelerating growth in higher margin growth segments.
• Our entrenched market share and low production cost position us well
to take advantage of growth in the dissolving wood pulp market.
• In 2019, we signed an agreement to acquire the Canadian Matane
high-yield hardwood pulp mill. The acquisition will support our growth
in higher margin segments, reduce cost of pulp, reduce earnings
volatility and ensure supply.
Strategic and 2020Vision objectives
• Achieve cost advantages
• Rationalise declining businesses
• Accelerate growth in higher margin growth segments
• Reduce our environmental footprint
• Provide greater opportunities for local communities.
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Highly competitive industry
Trend: (cid:179)(cid:180)
Root cause
• The markets for pulp and paper
products remain highly competitive,
with an increasing trend towards
consolidation in the pulp and paper
industry – creating larger, more focused
companies.
3Ps impact
Related material issues
• Cost containment and capital allocation
• Circular economy and adjacent markets
How we mitigate this risk
• We continue to drive customer service, innovation and efficient
manufacturing and logistics as competitive differentiators.
• We are focused on improving the performance and competitiveness
of our businesses.
• We continue to drive down costs across all our businesses.
• Our recently announced acquisition of the Matane Mill will increase
our pulp integration and reduce our cost of pulp.
Strategic and 2020Vision objectives
• Achieve cost advantages
• Rationalise declining businesses
• Reduce our environmental footprint
• Accelerate growth in higher margin growth segments.
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Natural resource constraints
Trend: (cid:181)
Root cause
• We require substantial amounts of
wood, chemicals, energy and water
for our production activities
• The inability to obtain energy, raw
materials or water at reasonable prices,
or at all, could adversely affect our
operations
• The prices for and availability of these
items may be subject to change,
curtailment or shortages.
3Ps impact
How we mitigate this risk
• We are focused on:
– Improving procurement methods
– Finding alternative lower-cost fuels and raw materials
– Reducing water consumption
– Minimising waste
– Improving manufacturing and logistics efficiencies, and
– Implementing energy-reduction initiatives.
Strategic and 2020Vision objectives
• Achieve cost advantages.
• Accelerate growth in higher margin growth segments.
• Reduce our environmental footprint.
Related material issues
• Supply chain transparency
• Circular economy and adjacent markets
• Climate change
• Energy
• Water
• Biodiversity
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Project implementation and execution
Trend: (cid:179)(cid:180)
Root cause
• In executing our strategy, we carry out a
number of capital expenditure projects
• Should these projects not be completed
on time, deliver the expected quality/
cost reduction or exceed the allocated
capital spend, it would have significant
adverse implications
• This would impact the project’s financial
return metrics, impact normal
operations, delay the time to market
or result in a loss in market share
• Reasons for this could be supplier and
vendor performance, skill levels and
ineffective project management and
controls.
3Ps impact
Related material issue
• Cost containment and capital allocation
How we mitigate this risk
• A rigorous process selects potential contractors with the same Sappi
commitment to quality and safety.
• Evaluate shortcomings between contractor and supplier interfaces
which, together with planning local skilled resource availability, are
addressed well in advance.
• Consider various contracting philosophies specific to the regions
in which we operate.
• The use of modern tools to improve efficacy in front-end engineering
design, engineering standards, cost control and planning functions
throughout the construction, erection and commissioning phases.
• Continue to develop strong relationships with main suppliers.
• 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 remains a key focus area.
Strategic and 2020Vision objectives
• 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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Uncertain and evolving regulatory landscape
Trend: (cid:179)(cid:180)
How we mitigate this risk
• A legal compliance programme designed to increase awareness of,
and 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, FSC™, SFI®, PEFC™ and other recognised
programmes are well entrenched across the group. We have also
made significant investments in operational and maintenance activities
to reduce air emissions, waste water discharges and waste
generation.
• We closely monitor the potential for changes in pollution control
laws, including GHG emission requirements, and take action in our
operations accordingly. We invest to maintain compliance with
applicable laws and cooperate across regions to apply best practices
in sustainability.
Strategic and 2020Vision objectives
• Achieve cost advantages
• Reduce our environmental footprint.
Root cause
• Regulatory requirements on business
(including compliance with
environmental, health and safety laws)
as well as national and international
political uncertainty could translate into
cost increases that directly impact
Sappi’s competitiveness and profitability
• Our global 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
Related material issue
• Ethical behaviour and corruption
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Market share and customer concentration
Trend: (cid:179)(cid:180)
Root cause
• Sappi is a business-to-business
supplier, so a limited number of
customers account for a significant
amount of our sales
• Should adverse changes in economic
market conditions have a negative
impact on our customers, it could
materially affect the results of our
operations and financial position.
3Ps impact
How we mitigate this risk
• We are continuously working to expand and diversify our customer
base.
• No single customer, although some are significant, individually
represented more than 10% of our total sales.
• We monitor any adverse development affecting our customers
to respond proactively.
Strategic and 2020Vision objective
• Accelerate growth in higher margin growth segments.
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How we mitigate this risk
• Across all our regions, we continue to interact and engage with our
union representatives and organised labour on a frequent basis and
to build constructive work relationships.
Strategic and 2020Vision objective
• Achieve cost advantages.
9
Employee relations
Root cause
• 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 future seek, or be obliged to seek,
agreements with our employees on
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
Related material issues
• Labour relations
• Employee engagement
• Skills
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Failure to attract and retain key skills
Trend: (cid:179)(cid:180)
Root cause
• We require specialised and scarce skills
to execute our strategy
• Should we fail to attract, develop and
retain key skills, this might have a
material effect on our business.
3Ps impact
How we mitigate this risk
• Succession planning and regular talent reviews.
• Leadership training and development as well as dedicated skills
centres.
• Workforce planning.
Strategic and 2020Vision objectives
• Achieve cost advantages
• Rationalise declining businesses
• Accelerate growth in higher margin growth segments.
Related material issue
• Skills
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EMERGING RISKS AND OPPORTUNITIES
(cid:59)(cid:79)(cid:76)(cid:3)(cid:76)(cid:584)(cid:76)(cid:74)(cid:91)(cid:90)(cid:3)(cid:86)(cid:77)(cid:3)(cid:74)(cid:83)(cid:80)(cid:84)(cid:72)(cid:91)(cid:76)(cid:3)(cid:74)(cid:79)(cid:72)(cid:85)(cid:78)(cid:76)(cid:3)(cid:84)(cid:72)(cid:96)(cid:3)(cid:79)(cid:72)(cid:93)(cid:76)(cid:3)(cid:72)(cid:85)(cid:3)(cid:80)(cid:84)(cid:87)(cid:72)(cid:74)(cid:91)(cid:3)
on our business
In all three regions where Sappi operates, climate change could alter the
frequency and intensity of forest disturbances such as insect outbreaks,
invasive species, wildfires and storms. These disturbances could reduce
forest productivity, change the distribution of tree species and increase
the risk that the wood supply necessary for our operations may be
negatively affected.
However, given Sappi Europe’s general risk mitigation strategy of
sourcing pulp and woodfibre from a variety of sources and regions, we
do not anticipate any material impact on our raw material supply from
climate change in the short to medium term (five to ten years). In Sappi
North America, our operations do not currently face material risks
associated with climate change. With the exception of fibre from Brazil
for Westbrook Mill, we source from northern hard and softwood baskets
that have not suffered under any drought conditions or from fire.
In Sappi Southern Africa, where our operations have already been
impacted by climate change, we invest significantly in preventing fire,
pests and diseases, as well as site species matching to tolerate drought,
frost and other weather events. Climate change has led to an increased
emphasis on water footprint in South Africa. This, in turn, is causing
greater focus on the location of forestry plantations, which could
affect the quality and quantity of groundwater, the use of water by our
operational units, quality of water released back into natural water
systems and control of effluent discharge. The cost, availability and use
of our water supply also have a direct impact on our input costs and
operating profit.
Should our strategy to mitigate the related risks of raw materials
shortages fail, our business may be adversely impacted.
(cid:59)(cid:79)(cid:76)(cid:3)(cid:91)(cid:79)(cid:89)(cid:76)(cid:72)(cid:91)(cid:3)(cid:86)(cid:77)(cid:3)(cid:74)(cid:96)(cid:73)(cid:76)(cid:89)(cid:20)(cid:89)(cid:80)(cid:90)(cid:82)(cid:3)(cid:80)(cid:90)(cid:3)(cid:76)(cid:95)(cid:87)(cid:72)(cid:85)(cid:75)(cid:80)(cid:85)(cid:78)(cid:3)
Continued cyber-attacks on both public and private institutions as
well as businesses are intensifying as the Internet of Things and use
of connected devices expands. Cyber-criminals are becoming more
sophisticated, changing what they target and using complex methods
of attack for different security systems.
In addition to confidential customer and employee information, as well as
financial, commercial, transactional and production systems, Sappi owns
significant trade secrets and intellectual property.
We protect these through an information technology security programme
which mitigates against cyber-attacks and information security breaches.
Should this fail, we could face serious disruption to our business and
confidential information on our employees and customers could be
compromised.
We adhere stringently to the data
protection laws in the jurisdictions
where we operate and provide relevant
training to all our employees.
Nevertheless, in the event of data
breaches, we could be negatively
impacted by regulatory fines or
sanctions which could change our
reputation and shareholder value.
Industry 4.0 is changing the
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Industry 4.0 is about smart and
autonomous systems fuelled by data
and machine learning. At Sappi, we
recognise the opportunities presented
by automation, digitisation and data
analytics in optimising our production
and maintenance processes, as well
as our logistics and supply chains,
together with enhanced innovation and
speed to market.
We are using our strong foundation of
continuous technology improvement
and intentional evolution to leverage
these key developments by maximising
the use of data analytics; making our
processes more efficient and productive;
tracking information on quality, raw
materials and environmental information;
and enhancing workforce training and
development. We are already making
extensive use of intelligent solutions
through satellite imaging and drones
in our forestry operations.
Falling behind in investment for Industry
4.0 opportunities and failing to keep
pace with developments could have
negative implications for our strategic
direction and growth path.
Increasing need to integrate
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everyday business practices
Environmental issues, structural
demographic changes and resource
scarcity are affecting us globally.
Economic and social progress remains
uneven, various financial crises and
trade tensions have revealed the
fragility of progress, and accelerating
environmental degradation inflicts
increasing costs on societies. There
are a number of economic, social,
technological, demographic and
environmental megatrends underlying
these challenges including accelerating
urbanisation and globalisation; the
rise of social media; climate change,
energy, water and food insecurity;
pressure on natural resources and
an increasingly vocal and connected
population.
Sappi’s sustainable development
agenda prioritises Prosperity, while
balancing the needs of People and
Planet in an approach known internally
as the 3Ps. We believe this approach
brings demonstrable benefits in terms
of risk management, cost savings,
access to capital, as well as human
resource management and innovation
capacity. It also enhances our trust
levels with stakeholders, including
shareholders, customers, employee
and communities.
Should we fail in our drive for
sustainability to underpin our strategic
direction, this could have a significant
impact on our licence to trade,
reputation and levels of established
trust.
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Incidents of social unrest in South
Africa have been escalating, the result
of a disaffected population protesting
about lack of service delivery and job
opportunities. Officially, the country’s
unemployment is at 29% but in certain
regions of the country, particularly the
rural areas, it is much higher.
This risk is partially mitigated by the
integrated community forums we have
established. However, should the
country’s broader issues not be
resolved, the impact on our business
could be disruptive.
Land restitution
Sappi is currently engaged in a number
of land claims in South Africa. In the
past 10 years, we have settled
37 claims involving 33,992 hectares of
which claimants took ownership of
8,151 hectares and claims for
11,629 hectares in which claimants
preferred to seek compensation.
The balance of the land has been
withdrawn from the claim by the
Restitution on Land Rights Commission
or the claim rejected by the Land
Claims Court.
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 manage those plantations.
We are involved in some 60 land reform
projects, helping beneficiaries to
manage ±19,000 hectares of land. To
ensure sustainable production from
these properties, we have entered into
supply agreements with the new
beneficiaries and provide them with
assistance. The level of assistance
depends on the requirements of the
project, but ranges from a pure supply
agreement to a comprehensive forestry
enterprise development agreement.
The latter is a supply agreement which
incorporates development objectives
whereby Sappi provides technical
and business training as well as
administrative support to help entrench
these new timber suppliers.
While we support the land claim
initiatives generally, we have been
frustrated by the implementation
of policies and 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.
Should the issue of bureaucratic
lagging not be resolved, it could
heighten social tensions and social
unrest which, in turn, could negatively
impact our operations.
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Strengthen the
means of
implementation
and revitalise the
global partnership
for sustainable
development.
OUR KEY
RELATIONSHIPS
We believe that building relationships with our
stakeholders in a spirit of trust and mutual respect
enables more tangible business value creation.
Our stakeholders
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d media
We view stakeholder engagement not as a
once-off annual intervention but an ongoing
dynamic process that enables us to
respond to the changing nature of shared
priorities of parties who are interested in,
and affected by, our business. To enhance
our understanding of, and communication
with, our stakeholder groups we consider:
expectations, existing relationships, cultural
context and capacity to engage (language
barriers, IT literacy, access to digital
resources).
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 interest and material concern
to our stakeholders and to Sappi, and
identifying how best to address them
for 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
• Responsiveness: Engaging with
stakeholders on these issues and giving
regular, comprehensive, coherent
feedback.
Our stakeholder work is aligned to the
governance outcomes of King IV, namely
ethical culture, performance and value
creation, adequate and effective control and
trust, good reputation and legitimacy.
In terms of feedback loops, we assess the
quality of our relationships both formally
(employee engagement and customer
surveys, as well as Poverty Stoplight in
South Africa and community forums) and
informally (ongoing regular engagement
with suppliers, investors, industry bodies
and business, government, civil society
and media).
Employees
We invest in future talent while challenging and enabling our people so that they
are able to leverage the opportunities presented by our strategic direction and a changing world.
Shared priorities
Our response
Resources that enable
our people to grow
intellectually, fulfil their
potential and drive
innovation in Sappi
Connection with Sappi’s
strategic goals and high
levels of engagement
Effective safety, health,
wellness and recognition
programmes
Invested an average of US$525 per person in training and
development
We conduct engagement surveys every second year (see
Key material issues for more detail). At group level, leadership
and direction as well as image and customer focus were
identified as areas needing attention. Accordingly, we have
introduced new leadership development programmes at
senior and executive levels and are working to further
entrench our One Sappi culture. We provide regular updates
on progress towards our 2020Vision business strategy.
• The theme for Global Safety Awareness week was ‘We
value safety’. The message was reinforced by toolbox
talks, safety games, competitions, addresses by media
personalities and self-defence classes
• Wellbeing and wellness programmes are tailored to the
needs of each region
• Our recognition programmes include:
Sappi Limited:
– Technical Innovation Awards
– CEO Award for Excellence
SEU: Annual Coryphaena Award
SNA: TOUTS Recognition Awards and periodic
regional President’s Awards
SSA: Excellence in Achievement Awards (EAA)
Sappi Trading: SMART Awards.
Opportunities for value
creation
• 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 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.
Encourage 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 support Mandela Day.
Challenges for value
creation
• Recruitment and retention
of key skills
• Loss of institutional
memory.
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Unions
Given challenging global economic conditions and current socio-economic dynamics across
the world, particularly in the South African labour market, we prioritise our relationship with
our employees and their representatives.
Shared priorities
Our response
Freedom of association
and collective bargaining
Sappi endorses the principles of fair labour practice as
entrenched in the United Nations Global Compact and
Universal Declaration of Human Rights. At a minimum, we
conform to and often exceed labour legislation requirements
in countries in which we operate. We promote freedom of
association and engage extensively with representative
trade unions.
Safety and wellness
initiatives
Unions are involved in health and safety committees
at each mill.
Remuneration, working
hours and other
conditions of service
SEU: Collective labour agreements. In 2019, the overall
industrial relations climate in Sappi Europe remained good,
without any major issues.
Opportunities for value
creation
• Good employee/
management relations
enable us to resolve new
and difficult labour issues
as they develop
• When employees
understand strategic
direction and operating
context, they are more
likely to be engaged,
leading to a more stable
labour force and higher
levels of productivity.
SNA: Collective bargaining with hourly paid employees and
labour agreements with various unions. In 2019, we settled
labour agreements with all four unions at Somerset Mill, the
trade unions at its Westbrook Mill and two small unions
representing railroad workers at the Cloquet Mill railroad.
SSA: Employees (collective bargaining); forestry workers
(sectoral determination/consultation)
In 2019, the region successfully concluded a separate
collective bargaining framework agreement with the majority
trade union, Chemical Energy Paper Printing Wood Allied
Workers Union (CEPPWAWU) for forestry operations.
This will effectively replace the ministerial or government
determination and allow for annual engagement on wages
and conditions of employment for forestry workers, similar
to pulp and paper as well as sawmilling segments of Sappi
Southern Africa operations. We also settled wage
negotiations for pulp and paper staff.
• Resolving grievances
• Engaging on strategy
• Well-established grievance channels and disciplinary
procedures
• We regularly engage with unions on economic conditions,
market dynamics and growth plans.
Challenges for value
creation
• Multi-union landscapes,
particularly in North
America and South Africa,
are adding to complexities
in the labour environment.
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Customers
We adopt a partnership approach, where 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 (Sappi Europe); Ideas that Matter (ITM) and by sponsoring the Citrus Research
Symposium (Sappi Southern Africa).
Shared priorities
Our response
High levels of service
We moved to a single customer relationship management
(CRM) system across all regions. This enabled us to manage
customer relationships more effectively and provide better
service by leveraging customer data and sales processes
across the globe.
New or enhanced
products that meet
rapidly changing market
demand
In 2019 we launched:
• Atelier GC1 paperboard with the brand promise ‘brilliance
meets function’
• Transjet Drive, a sublimation paper optimised for industrial
printers with a glue-belt system
• We relaunched Sappi OHG, the first paper wrapper for
confectionery bars
• We launched Sappi Seal, a paper-board packaging
solution to replace heat-sealing laminates by material
with a high share coming from renewable sources
• Heaven 42 under the auspices of IGEPA which owns
the brand
• A range of new release paper textures including Selva,
Optima and Fiesta.
Support for paper,
packaging, DWP and
sustainability goals
For DWP, technical centres of excellence are located at
Saiccor and Cloquet Mills; Sappi joined the Sustainable
Apparel Coalition (SAC).
Opportunities for value
creation
• 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.
Customers can use the competence centre for speciality
papers and paper laboratory at Alfeld Mill.
Challenges for value
creation
In North America, the Sustainability Customer Council
provides candid feedback, identifies emerging issues and
helps to establish goals.
In South Africa, we co-fund with Cellmark (through its
Paperseed Foundation) projects in our Tugela Mill community.
Funding is in the form of US$0.50 per ton of sales per
partner.
• Confusing harvesting with
deforestation and lack of
understanding about the
manner in which the forests
and plantations from which
we source woodfibre help
mitigate global warming.
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Customers continued
Shared priorities
Our response
Information and
campaigns to promote
print as a communication
medium and encourage
the use of packaging
Information about the
fibre sourcing and
production processes
behind our brands
Providing technical
information
We showcased our brands at Fachpak, Nuremberg; FESPA, Munich; Interzum, Cologne;
LabelExpo, Brussels; Luxe Pack Shanghai; Northwest Materials Show, Portland; Packaging
Premiere, Milan and the PRINTING United tradeshow in Dallas.
Globally, we continue to participate in industry initiatives like TwoSides.
At the request of our customers, we participate in EcoVadis and Sedex in all regions.
SEU and SSA: We make paper profiles, wood origin declarations and information sheets
available for our papers.
SNA: Has an updated eQ GHG calculator on the Sappi North America e-commerce portal.
This online tool enables our salesforce and customers to calculate carbon savings achieved
by buying our graphic and packaging products compared to the industry average.
28 for details of Sappi North America’s investment in Forest in Focus, a joint
See page
undertaking of the American Forest Foundation and GreenBlue/Sustainable Packaging
Coalition.
Globally, a series of technical brochures is available on our website www.sappi.com
SEU:
• The Sappi Houston online knowledge platform for graphic paper
• The PSP site to provide targeted information on packaging and speciality papers
(www.sappi-psp.com)
SNA:
• The 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.
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Communities
We work to incorporate 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
interconnected world.
Community engagement meetings take various formats in 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 that 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 2019 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
SEU:
Mills offer support and financial sponsorships to local schools,
sport and hobby clubs, forest products industry students, local
safety/environmental organisations and support local charities.
Supporting youth in our communities was a key priority in 2019.
SOS Children’s Villages International, Save the Children and Global
Exploration were some of the charities that we contributed to.
Engagement and contributions to local schools are also made.
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 supported initiatives like Living Lands and
Waters and the Charles River Watershed Association focused
on environmental stewardship and education
• The Ideas that Matter programme, now in its 20th year,
recognised and rewarded designers who support good causes
• The Employee Ideas that Matter programme allows employees
to apply for grants made by Sappi to their favourite non-profit
or charity.
SSA:
• Given South Africa’s significant development needs, the bulk
of community support is allocated to this region. Support is
directed to education, environment and socio-economic
development, based on helping communities help themselves.
Initiatives include:
• Sappi Khulisa, our enterprise development scheme for
timber farmers
• The Abashintshi Youth programme
• 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 and trail
running sponsorships and promoting recreational riding on
Sappi land.
In Sappi Southern Africa, we have appointed a specialist team
to drive local procurement.
Opportunities for value
creation
• Enhanced licence to operate
and thrive
• Promoting socio-economic
development which could, in
the long term, lead to increased
demand for our products
• Initiation of real social
mobilisation and change for the
better.
Challenges for value creation
• Community expectations for
jobs and service delivery.
Sappi North America supports
Living Lands & Waters, an
Illinois-based environmental
organisation established in
1998 to clean up America’s
rivers. It has become the only
‘industrial strength’ river
clean-up operation of its kind
in the world.
Spending up to nine months a
year living and travelling on a
barge, the Living Lands & Waters
clean-up crew hosts river
clean-ups, watershed
conservation initiatives,
workshops, tree plantings and
other key conservation efforts.
Through our corporate
sponsorship, employees
volunteer in river clean-ups.
To date, the organisation
has removed around
4 million kilograms of rubbish
and debris from 24 rivers in
21 states.
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Industry bodies and business
We partner with industry and business bodies to provide input on 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.
One of our longest relationships is with the United Nations Global Compact, to which we have
been a signatory since 2008.
Shared priorities
Our response
• Issues that affect the
sustainability of our
industry including
woodfibre base,
carbon taxes, energy
and emissions
• Ethical issues impacting
business
• Energy issues in
general and
government proposals
on carbon taxation in
particular
• 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
Globally in 2019:
• We became a member of the Sustainable Apparel Coalition and
will use its sustainability measurement suite of tools, the Higg
Index, to drive environmental and social responsibility throughout
our supply chain. With this membership, we join over 240 global
brands, retailers and manufacturers, as well as government,
non-profit environmental organisations and academic institutions
that are collectively committed to improving supply chain
sustainability in the apparel, footwear and textile industry
• We continued our work with the Cambridge Institute
of Sustainability and other partners on blockchain technology for
59 of this report for details of the
timber certification (see page
Trado project) and developing new low-carbon pulp technology
(deep eutectic solvents).
We are an investor in the Forests in Focus tool in the USA, which
strives to assess and evaluate forest-based risks within wood
baskets for customers, investors and stakeholders, using credible
scientific public data collected by state and federal government
agencies. https://greenblue.org/work/forests-in-focus-landscape-
assessment/
We celebrated 20 years of partnership with Borregaard of Norway for
our LignoTech South Africa joint venture which extracts lignin from
Saiccor Mill’s effluent stream. Output is sold in South Africa and
exported to countries in Africa, Asia Pacific, Middle East and South
America for a range of applications including dust suppression,
concrete additives, pelleting agents in animal feeds and mineral
granulation aids.
Our membership of industry associations
Sappi Limited
Business Leadership
South Africa,
Cambridge Institute for
Sustainability
Leadership, Paris
Pledge for Action,
Programme for the
Endorsement of Forest
Certification™
(PEFC™), Sustainable
Apparel Coalition,
Technical Association
of the Pulp and Paper
Industry (TAPPI), The
CEO Initiative,
The Ethics Institute,
United Nations Global
Compact
Sappi Europe
Confederation of
European Paper
Industries (CEPI),
Eurograph, European
Joint Undertaking on
Biobased Industries,
Print Power, Save
Food, The Alliance
of Energy-Intensive
Industries, The
Two Team Project
(focusing on
breakthrough
technology concepts
in the industry that
could enable a more
competitive future),
TwoSides
Sappi North America
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),
*Sustainable Forestry
Initiative® (SFI ®) *The
Recycling Partnership,
TwoSides
Sappi Southern Africa
Business Unity South Africa.
Public Private Growth Initiative,
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 Industries
Federation SA (PIFSA).
Manufacturing Circle, South
African Chamber of Commerce
and Industry (SACCI) and local
chambers of commerce and
industry, TwoSides, National
Business Initiative (NBI)
Opportunities for
value creation
• Develop
sustainable,
transparent
supply chains
• Maintain and
expand markets
for our products
• Dispel myths and
enhance
understanding
of our
environmental and
social credentials
• Promote dialogue.
Challenges for
value creation
• High cost of
membership
and resource
allocation involved
in certain
memberships.
Sappi Forests
Institute for
Commercial Forestry
Research (ICFR),
Founding member
of the Tree
Protection
Co-operative
Programme (TPCP),
Biological Control of
Eucalypt Pests
(BiCEP) (www.
bicep.net.au
),
Eucalyptus Genome
Network
(EUCAGEN),
CAMCORE
Investors
Our aim is to provide investors (shareholders and bondholders) and analysts with transparent,
timely, relevant communication that facilitates informed decisions.
Shared priorities
Our response
• Information on Sappi’s
strategy, debt levels
and key developments
such as the acquisition
of Matane Mill in
Canada
• Return on investment
• Transparent
information about risks,
opportunities and
environmental, social
and governance (ESG)
performance
• Our investor relations (IR) department engages with
shareholders and analysts continually
• Our Chairman and CEO engage with shareholders on
relevant issues
• We engage with various ratings agencies, particularly on
ESG performance. We conduct ad hoc mill visits and road
shows and issue announcements through the JSE Stock
Exchange News Services (SENS), in the press and on our
website (see www.sappi.com/SENS)
• We publish our annual integrated report (see
www.sappi.com/annual-reports) and sustainability
reports (see www.sappi.com/sustainability) on the group
website
Shareholders can attend and participate in the Annual
General Meeting (AGM) as well as the four quarterly
financial result briefings
• Our Chief Financial Officer and Head of Treasury engage
with bondholders, banks and rating agencies continually
on the performance of the company
• We participate in the CDP disclosure projects every year,
making our submissions publicly available.
Opportunities for value
creation
• Understanding our
strategic direction
• Enhanced reputation
• Greater investment
confidence
• Broader licence to invest.
Challenges for value
creation
• Global economic
uncertainty, trade wars,
reduced demand, lower
pricing.
Government and regulatory bodies
We engage with government departments and regulatory bodies to provide input on 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
• The social and
economic benefits of
our industry nationally
and at a local level
• Increased investment
• Energy issues in
general and
government moves
on carbon taxation,
decarbonisation and
recyclability in
particular
• The impact of
increased regulations
on business
• In 2018 our group CEO made commitments at the first
investment conference hosted by the South African
President, announcing R2.7 billion to expand Sappi
Saiccor Mill’s dissolving wood pulp capacity by
110,000 tons per annum (for global textile markets);
and R5 billion for upgrade projects at the mill to decrease
production costs, introduce new technology, optimise
processes, reduce environmental footprint and future-proof
manufacturing systems at Saiccor Mill
• Ongoing consultations with government departments
and regulatory bodies in each region. In Europe we
also regularly engage with the European Commission.
(See Our operating context: Regulatory and environmental
issues on page
• We brief legislators
• We support specific government initiatives, including in
South Africa the renewable energy drive; our biomass
project at Ngodwana Mill is under construction.
26)
Opportunities for value
creation
• Promote understanding of
issues and challenges, as
well as the strategic value
of our industry
• Help create a more
receptive regulatory and
policy environment.
Challenges for value
creation
• Policies which do not take
our high use of biobased
energy into account
• Administrative delays.
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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 creating a shared commitment to doing business with integrity and courage; making smart
decisions which we execute with speed, underpinned by a commitment to safety. We aim
to build long-term value partnerships, based on the importance of suppliers to a sustainable
supply chain.
Shared priorities
Our response
• Safety
• Transparency
• Increased value
• Decreased costs
• Security of fibre
supply, certification,
income generation
and job creation
• Given our focus on zero harm in the workplace, we work with our
contractors to ensure that they follow our safety systems. In South
Africa, Sappi Forests works closely with contractors and their
workers in implementing its innovative Stop and Think Before
You Act safety initiative
• Rolled out our Group Supplier Code of Conduct (for further details
on page
59).
SEU: A joint sourcing partnership assists in negotiating better terms
with timber and other suppliers. In addition, we are a member of the
Confederation of European Paper Industries (CEPI), which participates in
actions supporting and promoting the development of sustainable forestry
management tools, including forest certification, globally, particularly in less
developed countries.
SNA:
• The Sappi Maine Forestry programme and the Sappi Lake States
Private Forestry 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
timber to generate maximum return and providing an extensive network
of environmental and marketing resources
• Procurement practices extend far beyond avoiding controversial sources
by requiring the promotion of biodiversity, logger training, forest research,
landowner and community outreach, and implementation of best
management practices for soil and water conservation, as evidenced by
our conformance to the SFI® Fibre Sourcing Standard.
SSA:
• Qualified extension officers provide growers in our Sappi Khulisa
enterprise development scheme with ongoing growing advice and
practical assistance
• We have established a training centre, Khulisa Ulwazi, for Khulisa
growers. The objective is to develop growers’ and contractors’ skills so
that they can conduct silviculture operations economically and to a good
standard. Training material has been developed in conjunction with the
Institute of Natural Resources and covers area like entrepreneurship, fire
management, harvesting planning, leadership and management
development, as well as safety
• At the end of September 2019, Sappi was involved in 60 land reform
projects, helping beneficiaries to manage approximately 18,320
hectares of land. Many of these properties previously belonged to
commercial farmers who had supply agreements with Sappi. 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
• Sappi Forests pays small growers a premium for certified timber.
Opportunities for
value creation
• 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.
Challenges for
value creation
• Balancing the need
to support SMMEs
with the need to
source from
suppliers with
strong social and
environmental
credentials.
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 on 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 on our
societal and development impact.
Globally we interact and engage with a wide range of non-governmental organisations, especially
through our participation with the forest certification systems (FSC™, PEFC™ and SFI®). We
actively contribute to the growth of forest certification world-wide and collaborate with diverse
stakeholders. In South Africa, Sappi is a member of the local WWF organisation as well as FSC™
and has worked closely with PEFC™ to develop a forestry assurance standard, now known as the
South African Forestry Assurance Standard (SAFAS).
Shared priorities
Our response
• Business developments
• The future of our
industry
• Our impacts on our
• Join key credible organisations as members.
• Develop personal relationships and engage continually.
• We provide support to and sponsorship for key
organisations on issues of mutual interest.
communities
• Protecting the
environment
We have joined The Forest Dialogue whose unique purpose
is to utilise a constructive dialogue process among key
stakeholders, to build relationships and to spur collaborative
action on the highest priority issues facing the world’s forests.
SSA: 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. We also provide funding
for BirdLife South Africa and have established a project which
coordinated efforts to re-establish the Warburgia salutaris
(pepper-bark tree) in communities and the wild.
SNA: We support the Ruffed Grouse Society; the Dovetail
Partners which works to promote bat habitat conservation
efforts in the state and the University of Minnesota
Sustainable Forests Education Cooperative.
SEU: We participate in the Save Food initiative, signalling a
firm commitment to better protection of all foodstuffs globally.
Save Food is a joint initiative of the Food and Agriculture
Organization of the United Nations (FAO), the United Nations
Environment Programme (UNEP), Messe Düsseldorf and
Interpack, the world’s leading trade fair for processes and
packaging.
Opportunities for value
creation
• Opportunity to inform and
educate media
• Transparent, two-way
communication and
opportunity for dialogue
with civil society and
media.
Challenges for value
creation
• Misunderstanding of our
environmental impacts.
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CONNECT
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IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIINNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEERRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAACCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTCTCT
LLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIINNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKK
Hear the word ‘connect’ and you
invariably think of digital connection.
There is no doubt it has profoundly and
irrevocably changed humanity. However,
there is another way of connecting –
travel – that has an equally significant
effect. The evolution of the railroad and
the car shifted travel by horseback and
wagon to one side, as the aeroplane did
with ocean liners.
As an example – in 1949, flying from
London to New York took around
20 hours. Today, 70 years later, it takes
just over seven hours.
The benefit of shortening travel times is
that it can enhance human connection
by truncating time and space. This in
turn can increase understanding and
appreciation for geographic and cultural
differences it drives home the message
that it is our diversity that makes us
stronger. At Sappi we believe in the
power and the benefit of diversity and a
multiplicity of views. Human connection
and interaction is what drives us forward
and makes for a successful business.
The power of trust, mutual understanding
and support flowing from our ongoing
engagement with our stakeholders
underpins this success and cannot be
replicated without connection.
It is why we hold an employee
engagement survey every two years. Why
we listen closely to our customers and
design products and services to meet
their needs. Why we pay attention to
the needs of the communities in which
our operations are situated. Why we
collaborate closely with our industry
partners.
It is how we ensure that all our
stakeholders are listened to, heard and
valued. It is how we anticipate future
trends and challenges to ensure we are
shaping the realities of today to connect
with tomorrow.
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AT A GLANCE:
INTEGRATING OUR
KEY MATERIAL ISSUES
Our reporting reflects our support of the 3Ps model, which we believe
offers an integrated approach to value creation.
In addition to the 3Ps, we consider the material issues in relation to
the Principles, which form the ethical foundation of our business, and
underpin our ability to create value.
Our
operating
context
OUR MATERIAL
ISSUES
Risks
Our
stakeholder
issues
We are committed to continually
improving our reporting to our
stakeholders.
In doing so, we are guided by
leading thinking, including but not
limited to the International Integrated
Reporting
Council, the SGDs, ISS-OEKOM, the
FTSE4GOOD and King IV.
The connectivity of our reporting
extends beyond the 3Ps and the
Principles that support it.
Indeed our operating context, risks and
stakeholder concerns inform the
material issues that we report against.
The links between our operating context, risk, key relationships and
key material issues
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OUR ALIGNMENT
WITH THE SDGs
In alignment with the spirit of the first UN Summit on the SDGs: Gearing up
for a decade of action and delivery for sustainable development, in 2019
we established a working group to prioritise the SDGs most relevant to our
business and develop related action plans. As set out below, we have identified
seven global priority SDGs where we can make the biggest contribution, either
by reducing our negative impacts or increasing our positive contributions.
In South Africa, we have also identified SDG1: No poverty and SDG4: Quality
education as priorities. Further detail is provided in our group and regional
sustainability reports, available on www.sappi.com.
SDG
What does this goal mean to Sappi?
How are we translating the goal into action?
Water is an essential natural resource on which
our company depends. We need to use it
responsibly and demonstrate that we take this
responsibility seriously. Water quality, availability
and access are critical issues impacting
sustainable development, but the diversity and
severity of water issues vary widely between
regions, countries and/or specific locations.
As an energy-intensive industry, our fuel choices
have a major impact. Where SDG 13 focuses
more directly on CO2 emissions, the point of
relevance for this goal is explicitly the share
of renewable energy within our total energy
consumption. The proposed indicators should
help to profile our progress as well as
encourage us to continually improve and look
for new energy solutions. A reduction in energy
intensity is another, complementary way that
Sappi can contribute to this goal.
Given that we are a responsible business
operating in many locations around the world
and employing over 13,000 people, this goal is
strongly linked to Sappi´s commitments to
Prosperity and People.
We have proposed a global indicator that will focus on water
consumption as measured by water-use efficiency (m3/adt). It will
only apply to Sappi mills in water-scarce locations. Across all our
mills, the topic of water stewardship will be embedded to ensure
we take a proactive and responsible approach to managing water
issues holistically, even in locations not considered water scarce.
Global indicators will focus on the share of renewable energy (%) in
total energy and specific total energy (STE, GJ/adt).
We have identified indicators that adequately cover the scope of
this goal and reflect both the desire to measure and reduce
negative impacts (accidents) and quantify positive contributions
(contribution to local economies) and specifically reflect
sustainability aspirations. Proposed indicators are:
• Safety (LTIFR)
• Percentage procurement spend with declared compliance with
Supplier Code of Conduct
• Gender diversity: proportion of women in middle and senior
management
• Employment engagement survey
• EBITDA
SDG
What does this goal mean to Sappi?
How are we translating the goal into action?
The global indicators we have proposed include reduction of
specific landfilled waste and new products launched with defined
sustainability benefits.
We are looking to set an ambitious strategic goal to decarbonise
(Scope 1 and 2) to prevent a 1.5˚C temperature rise. We will also
intensify efforts to work with suppliers and customers to reduce
CO2 emissions (Scope 3 actions).
With Sappi´s excellence in sustainable forest management and
strong reliance on forest certification systems, we can make a
positive impact on this goal by continuing to increase our positive
contributions towards sustainably managed forests and using our
established global forest certification goal as an indicator. Looking
ahead, we plan to take a more active, collaborative role on
forest-related issues and expand our use of social media to
promote awareness of the issue, as well as our activities to
enhance life on land.
We will focus on building and activating partnerships to contribute
to our priority SDGs and topics including: climate change and
forests, sustainable forest management, water stewardship,
responsible procurement, innovation, circularity and energy policy.
Manufacturing products from sustainably
harvested, renewable forest resources is the
core of our business. Correspondingly, there
are many points of relevance for how Sappi can
contribute to this SDG, especially from the
perspectives of manufacturing, product design
and product use/end of life. We operate
according to circular economy principles by
using resources efficiently and reducing waste
generation, from manufacturing processes
through to end-of-life product recycling. With
investments in R&D and new product
development, Sappi´s innovation continually
strives to create new products and value from
woodfibre and side streams. Not only does this
work improve resource use, but in many cases,
it also generates products that have superior
sustainability credentials to the conventional
products that they replace.
Taking urgent and appropriate actions to
combat climate change and its impacts is a
shared responsibility reinforced within the Paris
Agreement and regional and national regulations
and/or initiatives. For Sappi the obvious and
direct connection to this SDG is through our
CO2 emissions, and our actions and
commitments to reduce them.
This SDG seeks to protect, restore and promote
sustainable use of terrestrial ecosystems,
sustainably manage forests, combat
desertification, as well as reverse land
degradation and halt biodiversity loss.
While Sappi is already engaged and
contributing to many partnerships and
collaborations, there are many further
opportunities in the sustainability arena for us
to become more involved generally, or in pursuit
of our SDG commitments specifically. The
intention with this goal is further strengthen our
contribution to partnerships in a way that is well
aligned with our priority SDGs and topics, and
where a partnership approach can support us
in contributing more actively and effectively to
various issues.
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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.
How we determine materiality
We take various stakeholder guidelines into
account, including those set out in terms
of the Sustainable Development Goals, the
Global Reporting Initiatives, the International
Integrated Reporting Council and King IV, as
well as ratings agencies such as ISS-OEKOM
and the FTSE4GOOD Index Series
Regulatory and reporting guidelines are
mapped against stakeholder issues, as well
as trends and developments in the external
operating environment
1
3
Identifying
regulatory and
reporting issues
Mapping
stakeholder
issues and local
and global
trends
Prioritising
issues through
the lens of
materiality
Reviewing
issues
2
4
How relevant is each issue to our business?
How does each issue impact our ability to
create value in the short, medium and
long term?
We regularly review our key material issues
and their alignment with our strategy of
intentional evolution
Our material issues
PRINCIPLES
• Supply chain transparency
• Ethical behaviour and
corruption
PROSPERITY
• Cost containment and capital
allocation
• Digitalisation
• Product and process innovation
• Circular economy and adjacent
markets
• Long-term demand growth for
cellulosic based fibres
PEOPLE
• Safety
• Employee engagement
• Skills
• Shared value
• Labour relations
PLANET
• Climate change
• Energy
• Water
• Biodiversity
PRINCIPLES
Supply chain transparency
MATERIAL ISSUE
Why it is important
Visibility into the supply
chain helps identify risks and
issues early, and also addresses
consumer concerns about
issues like deforestation.
WHAT WE DID ABOUT IT IN 2019
How it links to other
aspects of our business
Operating context: Increasing
consumer and brand owner concerns
about sustainability-related issues
How it links to risk
5
Natural resource
constraints
Emerging risk
Integration of sustainability
• Rolled out our Supplier Code of Conduct across the group and began the review process by assessing raw material suppliers
in countries with a score of 50 or lower in the Global Corruption Perception Index
• Participated in Trado, a consortium including the Cambridge Institute for Sustainability Leadership that is testing blockchain
technologies. The project is trialling the concept by using a shared data system for tea farmers in Malawi that supply Unilever
and United Kingdom-based supermarket Sainsbury’s.
Ethical behaviour and corruption
MATERIAL ISSUE
Why it is important
Creating clear boundaries and
a consistent framework across
geographies for ethical
behaviour provides a foundation
for unlocking growth
opportunities as One Sappi.
WHAT WE DID ABOUT IT IN 2019
How it links to other
aspects of our business
Operating context: Increasing
consumer and brand owner concerns
about sustainability-related issues
How it links to risk
7
Uncertain and evolving
regulatory landscape
Emerging risks
Integration of sustainability
Global training on ethics targeted relevant new employees across the group, while regional training covered topics relevant to each region
including general data protection regulations (GDPR) in Europe, insider trading in North America and the Protection of Personal Information
(POPI) Act in South Africa.
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OUR KEY
MATERIAL ISSUES continued
PROSPERITY
Cost containment and capital allocation
MATERIAL ISSUE
Why it is important
Ongoing investment and
cost containment are strategic
pillars of competitive
advantage.
How it links to other
aspects of our business
Achieve cost
advantages
Maintain a healthy
balance sheet
How it links to risk
2
4
6
Cyclical macro-
economic context
Highly competitive
industry
Project
implementation and
execution
WHAT WE DID ABOUT IT IN 2019
• Acquired Matane Mill in Quebec, Canada with capacity of 270,000 tons per annum of aspen and maple high-yield pulp to deliver
the following benefits:
– Increased levels of pulp integration by supplying pulp to our United States and European packaging operations
– Secure supply of a raw material critical to product quality
– Reduced input pricing and volatility in profitability
– Avoid higher capital cost of internal high-yield pulp capacity
• Completed a rebuild of PM8 at Lanaken Mill in Belgium. The PM can now produce woodfree coated paper in addition to
lightweight coated paper, enhancing our ability to meet market demand
• Took downtime at certain mills and began an asset review in Europe and North America in line with reduced demand in key markets.
Digitalisation
MATERIAL ISSUE
Why it is important
Digital solutions offer a new
platform for innovation and
efficiency as well as enhanced
connection with customers
and employees.
How it links to other
aspects of our business
Achieve cost
advantages
Operating context: Generation Z
Emerging risks
Industry 4.0
Integration of sustainability
WHAT WE DID ABOUT IT IN 2019
• Launched digital group-wide learning initiatives
• In Sappi Europe:
– Appointed a head of digital transformation
– Launched Octoboost, an internal technology start-up whose core mission is to develop innovative digital solutions for the print
industry
– Signed a global strategic alliance with PerfectPattern to roll out artificial intelligence (AI) driven dynamic print planning and
ganging technology to print businesses world-wide.
Product and process innovation
MATERIAL ISSUE
Why it is important
We view innovation not as an
end in itself, but as an integral
aspect of our business that
provides sustainable,
competitive advantages which
make a significant difference.
How it links to other
aspects of our business
Achieve
cost
advantage
How it links to risk
3
Evolving technologies and
consumer preferences
Emerging risks
Industry 4.0
Integration of sustainability
Operating context: Increasing
consumer and brand owner concerns
about sustainability-related issues
WHAT WE DID ABOUT IT IN 2019
• Piloted a new-generation manufacturing execution system to leverage data analytics make our processes more efficient and
productive and enable tracking of information on quality, raw materials and environmental aspects
• Continued to promote internal innovation through the Technical Innovation Awards. In 2019, Sappi Europe was named the 2018
winner for designing a completely new ‘three layers in one headbox’ for paperboard packaging that combines good printability
with high bulk and good creasability. This step-change technology was successfully applied to the rebuild of PM6 at Maastricht
Mill, making it the only producer world-wide to use this novel concept for its packaging product range
• Collaborated closely with a specialist packaging converter and a global fast-moving consumer goods (FMCG) company to
develop breakthrough proprietary barrier technology and support the launch of a new confectionery snack bar wrapped in
recyclable paper (see box below)
• Invested US$42 million in R&D initiatives.
An innovative solution for the circular economy
Packaging for the food industry that meets stringent health and safety standards and that is also recyclable is a
longstanding challenge. Sappi has been working with leading consumer brand owners to develop and supply
renewable paper-based packaging solutions by understanding and supporting the goals of making their packaging
recyclable without compromising on food protection and shelf life.
One example of this is the new Sappi Guard range of products. These innovative papers for flexible packaging come
with integrated barriers against oxygen, water vapour, grease, aroma and mineral oil. Thanks to the integrated barriers,
there is no need to apply special coatings or laminations. The work was enabled by Sappi’s 2017 acquisition of barrier
film technology company Rockwell Solutions.
Sappi used this technology when it worked with a global FMCG company and a specialist flexible packaging converter
to develop the wrapper for a new confectionery snack bar. The launch of the new snack bar highlights the benefits of
collaboration across the value chain in a focused effort to increase the use of recyclable packaging made from
renewable woodfibre.
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OUR KEY
MATERIAL ISSUES continued
Circular economy and adjacent
markets
MATERIAL ISSUE
Why it is important
Producing more with less has
become a global focus in
light of a burgeoning global
population and subsequent
pressure on resources.
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 core
business model.
WHAT WE DID ABOUT IT IN 2019
How it links to other
aspects of our business
How it links to risk
Accelerate growth
in higher margin
growth segments
Operating context: Increasing
consumer and brand owner
concerns about
sustainability-related issues
3
4
5
Evolving technologies
and consumer
preferences
Highly competitive
industry
Natural resource
constraints
• In August 2019, we commissioned the pre-hydrolysis liquor (PHL) evaporator at Ngodwana Mill, moving into the second phase of
our sugar extraction project. This is to demonstrate industrial-scale operability of the technology to concentrate hemicellulose sugar
streams, extracted from the wood, to levels required for downstream technologies. The work enables derisking the full-scale
implementation of the sugar concentration technology, in turn opening up new revenue generation opportunities in the xylitol and
furan chemistry value chains
• We progressed the design of a furfural pilot plant to be established at Saiccor Mill. The plant will illustrate the technology, produce
commercial samples and provide greater clarity on process economics. We anticipate beneficial operation in 2021
• Construction of a 25MW Ngodwana energy biomass power plant at Ngodwana Mill, in which we have a 30% stake, began in July.
The plant will use biomass from surrounding plantations to generate power that will feed into the national grid
• We are building on our established position in lignin markets to expand into high-value markets, including substitution for phenol
which is widely used in household products and as intermediates for industrial synthesis, as well as replacement for petrochemicals
in foams. We are also diversifying into lignin as a replacement for starch in manufacturing recycled paper, as a fuel pellet binder and
in the area of animal health and nutrition
• We began testing fuel rods in one of the boilers at Tugela Mill. The rods, manufactured at Ngodwana Mill, comprise a mixture of
waste coal slurry (from discarded thermal-grade coal fines), biomass and lignosulphonates. If positive results are achieved, the
demonstration facility at the latter mill will be upgraded
• We are advancing our Valida fibrillated cellulose technology and continue to conduct third-party development work with prominent
global brand owners and technology institutions to develop a variety of applications where Valida’s functionality can enhance
everyday products responsibly and sustainably. The product is also being used to develop new advanced paper grades with greater
strength and unique barriers
• In terms of biocomposites, we continue to develop markets for Sappi Symbio which brings the haptics of nature and reduced
environmental footprint to plastic composite materials. Sappi Symbio is a specially prepared and easy-to-use cellulose fibre ready to
be easily dispersed into plastic compounds. Symbio compounds can be injection moulded and blow moulded into components for
various sectors, including automotive, furniture, utensils, appliances and consumer electronics. Weight reduction, warm touch and
high stiffness are just some of the product’s many benefits.
Long-term demand growth for
cellulosic-based fibres
MATERIAL ISSUE
Why it is important
Increasing our capacity in
the DWP market aligns with
our strategy of refocusing
operations away from graphics
paper to the higher-margin
DWP sector, together with
specialised packaging products
and the biotech sectors.
How it links to other
aspects of our business
Accelerate growth
in higher margin
growth segments
How it links to risk
3
Evolving technologies
and consumer
preferences
Emerging risk
Integration of sustainability
Cyclical macro-economics
Operating context: Increasing
consumer and brand owner
concerns about sustainability-
related issues
WHAT WE DID ABOUT IT IN 2019
• Completed a US$25 million capital investment at Cloquet Mill to debottleneck areas of the pulp manufacturing process and add
30,000 tons per annum of DWP production capacity
• The expansion of Saiccor Mill to add 110,000 tons per annum of DWP capacity was around 40% complete at year-end and is
on track for completion in the last quarter of 2020.
• We continue to engage with customers to develop products and solutions for the market.
The uncertainty in textile markets as a result of the United States/China trade tensions – China is the largest exporter of apparel
to the United States – and an oversupplied viscose staple fibre market are challenges for value creation in the short term, but we
believe the fundamentals of the DWP market are sound. Accordingly, we expect sales volumes to remain healthy and anticipate that
our expanded DWP production will be fully taken up to meet customer demand.
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OUR KEY
MATERIAL ISSUES continued
How it links to other
aspects of our business
Achieve cost
advantages
Rationalise declining
businesses
Maintain a healthy
balance sheet
Accelerate growth
in higher margin
growth segments
How it links to risk
1
Safety
Emerging risk
Integration of sustainability
PEOPLE
Safety
MATERIAL ISSUE
Why it is important
Unsafe practices and
conditions can have
devastating consequences –
the impact of human loss
and suffering on individuals
and those around them is
immeasurable.
Globally, the pulp and paper
industry, and forestry in
particular, is viewed as
potentially hazardous.
WHAT WE DID ABOUT IT IN 2019
Our safety performance was deeply unsatisfactory:
• Tragically, there were four contractor fatalities in Sappi Southern Africa
• As shown below, the LTIFR for own employees and contractors deteriorated against the previous five years. The global
own injury index (II) was an improvement on 2018, but above what was achieved in 2014, with the contractor II
performance impacted by the four fatalities.
Sappi North America’s own
employee LTIFR was the best ever.
Year-on-year, own employee LTIFR
deteriorated in Sappi Europe while
contractor LTIFR improved, but both
own employee and contractor LTIFR
declined in Sappi Southern Africa.
Performance in Sappi Europe was
mainly affected by the integration of
mills acquired in 2018. The region
has conducted safety gap audits to
redress the situation. With the
assistance of a team from DuPont,
Sappi Southern Africa is driving
initiatives to improve safety systems
and awareness. The focus on
life-saving rules will continue in 2020
as the region’s primary safety initiative.
Lost-time injury frequency rate
1
7
.
0
8
3
.
0
0.80
0.60
0.40
0.20
0
6
5
.
0
9
5
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8
5
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4
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0
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5
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0
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3
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0
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7
.
0
1
4
.
0
100
80
60
40
20
0
2014
2015
2016
2017
2018
2019
(cid:81) Sappi LTIFR (lhs)
(cid:81) Contractor LTIFR (lhs)
(cid:81) Sappi II (rhs)
(cid:81) Contractor II (rhs)
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Employee engagement
MATERIAL ISSUE
Why it is important
When employees are engaged
at work, they feel a connection
with the company. They believe
the work they are doing is
important and therefore work
harder. This has obvious
implications for productivity,
career development and overall
job satisfaction.
WHAT WE DID ABOUT IT IN 2019
How it links to other
aspects of our business
Achieve cost
advantages
Rationalise declining
businesses
Maintain a healthy
balance sheet
Accelerate growth
in higher margin
growth segments
How it links to risk
9
Employee
relations
Emerging risk
Integration of sustainability
• 90% of the total organisation participated in our 2019 survey – a 6% improvement on participation levels of 84% in 2017.
• Overall employee engagement remains high, with 42% of employees fully engaged, 39% unsupported or detached and
19% fully disengaged.
Skills
MATERIAL ISSUE
Why it is important
People are no longer looking
for a ‘job for life’ but have
moved towards ‘learning for
life’. At the same time, rapid
changes in the operating
environment are constantly
reshaping the skills
requirements of our business.
How it links to other
aspects of our business
How it links to risk
9
10
Employee
relations
Failure to attract and
retain key skills
Operating context:
Generation Z
WHAT WE DID ABOUT IT IN 2019
• In 2019, we continued to implement programmes to enhance skills levels, particularly across priority categories of employees
• We also continued to offer all employees access to detailed development plans and the opportunity to select online or classroom
training from over 4,000 approved courses.
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OUR KEY
MATERIAL ISSUES continued
Shared value
MATERIAL ISSUE
Why it is important
Shared value involves
developing profitable business
strategies that deliver tangible
social benefits. In other words,
identifying societal challenges
within our sphere of operation
and finding ways of addressing
these for the mutual benefit
of communities and the
company, thereby enhancing
our social licence to operate,
building our reputation as a
responsible corporate citizen,
establishing customer loyalty
and attracting talent.
How it links to other
aspects of our business
Emerging risks
Integration of sustainability
Social unrest
Land restitution
Operating context:
Social disruption
WHAT WE DID ABOUT IT IN 2019
We continued to take a very active approach to Corporate Shared Value (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. Given South Africa’s development needs, and in line with our longstanding
approach, the bulk of spend was allocated to this region:
• Sappi Europe: EUR100,000
• Sappi North America : US$460,000
• Sappi Southern Africa: ZAR50 million.
Investing in early childhood development
International research states that 90% of brain growth and development takes place before the age of five. Research
also indicates that children whose development is nurtured early in life are more likely to be:
• Successful in school, have fewer learning disabilities and be more likely to finish high school and seek further
education or training
• More productive in the workforce, hold better jobs, own their own homes
• Healthier throughout their lives, physically and mentally.
Against this backdrop, the South African government prioritised early childhood development (ECD) as highlighted in
the National Development Plan (NDP) Vision for 2030.
We began investing in ECD in 2014, partnering with key role players to achieve the following results:
• In Mpumalanga, we have developed an ECD centre of excellence at the Sappi Elandshoek community through
Penreach, the largest teacher development programme in Africa. Sappi has sponsored training for the principal and
five primary school teachers from a local primary school in ECD-related topics. Between 2016 and 2018, these
teachers reached 415 children
• In 2016, we extended the ECD programme to Gauteng, by sponsoring the Jabulani Training and Development
Centre. Our sponsorship of the centre has contributed to training over 1,250 ECD practitioners in recent years
• In 2018, a total of 22 ECD practitioners graduated from the ECD programme in KwaZulu-Natal with an NQF4 (a
national standard) qualification, implemented under the auspices of Training and Resources in Early Education (TREE),
and a further 36 will complete their training at the end of 2019. Of these, 18 will have an NQF4 certification which they
will administer in their crèches, while the other 18 have been trained to run playgroups in their areas, where there were
no ECD facilities before. Practitioners in this region have impacted over 2,000 children between 2016 and 2018.
Labour relations
MATERIAL ISSUE
Why it is important
Sound labour relations result in
increased levels of engagement,
enhanced productivity and a
more harmonious working
environment.
WHAT WE DID ABOUT IT IN 2019
How it links to other
aspects of our business
Operating context:
Social disruption
How it links to risk
9
Employee
relations
Emerging risks
Social unrest
Integration of sustainability
• Sappi endorses the principles of fair labour practice as entrenched in the United Nations Global Compact and Universal
Declaration of Human Rights. At a minimum, we conform to, and often exceed, the labour legislation requirements in countries
where we operate. We promote freedom of association and engage extensively with representative trade unions. Globally, 62%
of Sappi’s workforce is unionised, with 69% belonging to a bargaining unit.
• Sappi enjoyed relatively positive industrial relations with trade unions at all manufacturing sites across the group and Sappi
Forests’ plantations in Sappi Southern Africa – attributable mainly to our proactive engagement strategy and initiatives.
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MATERIAL ISSUES continued
PLANET
Issues discussed here are covered in greater detail in the Planet section of our 2019 Group Sustainability Report,
available at www.sappi.com
Climate change
MATERIAL ISSUE
Why it is important
Woodfibre is a key input into
our business. Climate change
could pose a risk to our
plantations in South Africa.
How it links to other
aspects of our business
Operating context: Increasing
consumer and brand
owner concerns about
sustainability-related issues
How it links to risk
5
Natural resource
constraints
Emerging risks
Integration of sustainability
Climate change
WHAT WE DID ABOUT IT IN 2019
We have established a working group to integrate the recommendations of the Task Force on Climate-related Financial Disclosure
(TCFD) into our risk assessment of climate change.
Sappi together with other forestry companies in South Africa, and with financial support from the Department of Science and
Technology’s Forest Sector Innovation Fund, has initiated a detailed climate change mapping project with the Global Change
Institute (GCI) at the University of the Witwatersrand. This project will enable us to spatially map the risk across our entire land base,
and understand how it changes over decades.
In addition, we continued to:
• Adjust and direct our tree breeding strategy using modelled future climate data. This will help us to produce and select the most
optimally suited hybrid varieties for each climatic zone
• Replace pure species with hybrids more suited to future climatic conditions to enhance security of supply
• Together with rapid understanding of the relative tolerance/susceptibility of our growing stock to new pests or disease, these
techniques are critical in successfully managing the viability of our woodfibre base
• Use of satellite imagery and drones to rapidly detect and respond to change
• Monitor soil – under hotter and drier climatic conditions, the importance of soil organic matter will increase because of its ability
to reduce soil temperature, and to increase the soil water infiltration rate and soil water holding capacity
• Implement an extensive fire protection strategy, as climate change raises the potential for fires.
Understanding climate risks
A preliminary climate change investigation conducted by Sappi Forests’ scientists indicated that climate change is likely
to be larger in Southern Africa compared to the world average. The study indicated that maximum temperatures are
more likely to increase than minimum temperatures, especially during the spring and summer months. It is also likely
that spring rainfall will decrease, with more high-intensity rainfall in summer. The combined effect of higher temperatures
and lower rainfall in spring is likely to increase tree stress. This in-house study highlighted that simply understanding
changes to annual averages is not enough if we are to mitigate potential losses. Currently, the available climate
projections do not meet Sappi’s needs for the following reasons:
• The time resolution is too infrequent – projections are typically for mid-century and end of century, whereas we need
something closer to decadal intervals
• The spatial resolution is too coarse – often regional, rather than plantation block specific.
The variables provided are too general – annual rainfall rather than its monthly distribution, mean temperatures rather
than the extremes, wind, humidity and other variables absent.
Understanding climate risks continued
Accordingly, together with other forestry companies in South Africa and financial support from the Department of
Science and Technology Forest Sector Innovation Fund, Sappi has initiated a detailed climate change mapping project
with the Global Change Institute (GCI) at the University of the Witwatersrand. The GCI team is made up of South Africa’s
leading climate change experts. The project entails two phases:
• Phase 1: 2020: Generation of raster climate surfaces for the entire forestry domain of South Africa, at 8 km
resolution, with monthly time resolution, for the years 2020, 2030, 2040 to 2100. The variables would include up to
20 important bioclimatic indicators as well as averages and information about their statistical distribution, such as
variances, confidence ranges and probabilities of exceedance
• Phase 2: 2021 onward: A second iteration of the variables generated for the one-year product, refining the indicators
or making them more specific for species or issues; and/or including more ensemble members or scenarios to
broaden the robustness of the evaluation; and/or 1 km data for selected parts of the country.
The regional climate modelling capacity established at Wits GCI can resolve all the needs of the industry, listed above.
Wits GCI runs the CCAM Global Climate Model, a state-of-the-art Global Circulation Model (GCM), fully coupled with
land and ocean. It can seamlessly use the same framework to incorporate the output of ensembles of other GCMs, and
downscale them for Southern Africa in a very robust way. Outputs can be generated at any time interval. The Southern
African downscalings already under way produce coverage at a fundamental resolution of 8 x 8 km over the entire
South African forestry domain, fine enough to be able to represent important local phenomena (like the escarpment) that
are invisible to GCMs. All primary climate variables are generated, so producing them as output tailored to the needs of
forest bioclimatology is relatively straightforward.
The Variable Resolution Earth System Model used for the regional downscalings can then be used a second time, to
generate projections with a resolution of as fine as 1 x 1 km, over an area of 200 x 200 km. This is a ‘cloud-resolving’
scale, so it can capture the specificity of rainfall in relation to terrain and aspect. The process is computationally intensive,
so cannot immediately be applied to all the forest extent in South Africa, but over time key areas will be prioritised.
Energy
MATERIAL ISSUE
Why it is important
Given the high-energy intensity
of our industry, the cost and
availability of energy is a key
consideration that must be
weighed up in the context of
a carbon-constrained world.
How it links to other
aspects of our business
Achieve cost
advantages
Operating context: Increasing
consumer and brand
owner concerns about
sustainability-related issues
How it links to risk
5
Natural resource
constraints
Emerging risks
Integration of sustainability
Climate change
WHAT WE DID ABOUT IT IN 2019
• Energy is a key input for our industry. Aggressively managing
energy use reduces carbon emissions and enhances cost
efficiencies. Globally, purchased energy costs as a percentage
of cost of sales have not fluctuated significantly over the last
five years and were 8.74% in FY19 (2018: 8.98%).
• Environmental impact is reduced by the amount of energy as
well as type consumed. We have made significant efforts to
reduce our reliance on fossil fuels, thereby reducing fossil-fuel
related greenhouse gas (GHG) emissions and separating our
operations from the volatility of energy prices. In 2019, our
global use of renewable energy as a percentage of total energy
used was 52.9%. However, while our global direct (Scope 1)
GHG emissions were stable in the year under review, indirect
(Scope 2) emissions increased by 5.7% year-on-year. The main
reason for the increase was the deteriorating emissions
factor of energy derived from Eskom, the South African
state power utility.
Renewable energy (%)
90
80
70
60
50
40
30
20
10
0
8
.
9
7
8
.
7
7
5
.
1
8
0
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1
8
0
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1
8
9
.
6
4
7
.
6
4
6
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2
4
3
.
8
3
4
.
9
3
8
.
4
5
8
.
3
5
7
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5
1
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2
5
9
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2
5
7
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1
4
2
.
1
4
5
.
2
4
3
9
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3
4
6
2
.
4
4
EU
NA
SA
Global
■ 2015
■ 2016
■ 2017
■ 2018
■ 2019
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OUR KEY
MATERIAL ISSUES continued
How it links to other
aspects of our business
Operating context: Increasing
consumer and brand
owner concerns about
sustainability-related issues
How it links to risk
5
Natural resource
constraints
Emerging risks
Climate change
Integration of sustainability
Social unrest
Water
MATERIAL ISSUE
Why it is important
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,
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.
WHAT WE DID ABOUT IT IN 2019
• Globally, in 2019, we extracted 288.91 million cubic metres of total water for all purposes. However, our total water consumption
is much lower than the amount extracted would indicate, because we return a high percentage of the water we use to the
environment – 95% of water drawn was returned to the environment in the past year. Water that is ‘consumed’ in our operations
is primarily water lost to the environment due to evaporation in the paper drying process and a small amount of moisture
contained in our finished products.
Specific process water returned versus extracted (m3/adt)
40
35
30
25
20
15
10
2
3
.
4
3
7
2
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1
3
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8
2
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4
3
5
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7
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3
2
3
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2016
2017
2018
2019
■ Specific process water extracted (m3/adt)
■ Specific process effluent discharged (m3/adt)
■ Ratio of effluent to extracted water (rhs)
1.00
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0.90
0.85
0.80
0.75
0.70
0.65
0.60
0.55
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Biodiversity
MATERIAL ISSUE
Why it is important
The plantations and forests
from which we source
woodfibre depend on healthy
ecosystems and beneficial
biotic processes taking place.
How it links to other
aspects of our business
Operating context: Increasing
consumer and brand
owner concerns about
sustainability-related issues
How it links to risk
5
Natural resource
constraints
Emerging risks
Integration of sustainability
Climate change
WHAT WE DID ABOUT IT IN 2019
• Globally, 74.8% of fibre supplied to our mills is certified. The internationally accepted, independently verified forest
certification systems we use – PEFC™, SFI® and FSC™ – all make provision for biodiversity management. In PEFC™-
certified forests, for example, managers must “ensure that forest management activities maintain, conserve and enhance
biodiversity” while SFI® guidelines stipulate the protection of biodiversity. Principle 6 of the FSC™’s principles and criteria,
states: “Forest management shall conserve biological diversity and its associated values, water resources, soils, and
unique and fragile ecosystems and landscapes, and, by so doing, maintain the ecological functions and the integrity of
the forest”.
• We set aside some 30% permanently unplanted land on our owned and leased landholdings in South Africa to conserve
natural habitats and their biodiversity.
• In Sappi Southern Africa, we have used systematic conservation planning to identify 166 important conservation areas
(ICAs) on our land using a systematic conservation planning approach based on the presence of both plant and animal
red data species, the size, connectedness, condition and aesthetic and recreational value of the area.
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OUR PRODUCT REVIEW
Dissolving
wood pulp
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 truly sustainable brand.
We continue to invest in all three of our world-class production sites – further
entrenching our leadership position as a trusted source for responsible and
sustainable DWP.
Graphic
papers
Coated and uncoated papers designed to get
the best results for you and your customers.
When companies build brands, picking the right paper can mean the difference
between creating something average and something memorable.
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Packaging and
speciality papers
We are your value-creating partner, offering an extensive
range of innovative products and services.
With our broad and innovative portfolio of premium products, we have the right solutions to meet
our customers’ needs, and we offer a broad range of paper based sustainable solutions as an
alternative to fossil-fuel based, non-renewable packaging in many of our product segments.
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OUR PRODUCT REVIEW continued
Dissolving
wood pulp
Our dissolving wood pulp (DWP) brand,
Verve, is a significant participant in this
market. With 16% share of the DWP
market and capable of producing
1.4 million tons per annum, Verve
is a truly sustainable brand. 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.
and ultimately textiles, providing
naturally soft, smooth and breathable
fabrics. Cellulosic fibre far exceeds
cotton and polyester when it comes to
sustainability – what consumers want,
and our environment needs, are goods
that are renewable, biodegradable and
have superior resource efficiency, and
that is where cellulosic fibres
differentiate themselves from the
alternatives.
In FY19, 19% of Sappi’s sales were
dissolving wood pulp
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
used to make textiles, such as viscose
and lyocell, where DWP is converted to
viscose and lyocell staple fibres. From
there, the fibres are spun into yarns
DWP can also be processed into
products 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
We continue to invest in our three world-
class production sites – further entrenching
our leadership as a trusted source
for responsible and sustainable dissolving
wood pulp.
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.
Market prices for DWP are influenced
by viscose staple fibre (VSF) and other
textile market dynamics, paper pulp
market pricing which can also influence
swing mills as well as general macro-
economic uncertainties pertaining to
the ongoing United States/China trade
dispute and subsequent US$/RMB
exchange rate fluctuations.
Our markets in 2019 and outlook
for 2020
FY19 marked a period where a
substantial portion of the integrated
VSF and DWP capacity disrupted
market dynamics; installed VSF
capacity now exceeds global demand
by approximately 25%. This surplus
of new low-cost VSF capacity has
disrupted the market, lowering
operating rates and resulting in VSF
and DWP prices reaching historical
lows. Over FY19, the index price for
DWP declined by over US$300 per ton.
We believe current pricing is below the
cash cost of production for a significant
proportion of global supply and
therefore unsustainable over a
prolonged period. Underlying demand
for DWP is still growing at rates
consistent with our long-term forecasts
of around 6%. A recovery in DWP
prices is therefore likely to be prompted
by a recovery in VSF prices which in
turn have been depressed by excess
VSF capacity and a weak Chinese
textile market.
Despite these low prices, EBITDA
was similar to the prior year.
EBITDA margins for this segment
declined from 29% to 28% on lower
US Dollar prices, offset by a weaker
Rand/Dollar exchange rate and
increased sales volumes. We believe
DWP prices in the coming year will
be lower than the historical trend price,
and that profitability for this segment
will therefore be below that of the
prior year.
Volumes increased 7%, or 86,000 tons,
from last year as we used the
expanded production capacity at our
three sites after debottlenecking
projects. Our 110,000 ton expansion
project at Saiccor Mill remains on track
for a late FY20 start-up. The project
is expected to yield long-term safety,
efficiency and reliability improvements
and reflects our ongoing focus on
productivity and operational
efficiencies. This investment is a key
part of our strategic vision as we
expand into fast-growing, higher-
margin segments.
In 2020, a year expected to be
characterised by macro-economic
uncertainty and disruptive market
dynamics, we aim to remain focused
on meeting and exceeding the needs
of our customers. We will capitalise
on our competitive advantages: our
world-class and sustainably managed
plantations, geographic positioning and
sterling reputation as a reliable partner
to bring our customers sustainable
products that create shared value for
everyone.
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OUR PRODUCT REVIEW continued
Packaging
and speciality
papers
for conversion to packaging grades
that require some form of coating.
Ahead of commissioning the various
conversion projects, we carefully
analysed our assets, specifically their
production capabilities for packaging
and speciality grades, 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. With the construction
complete, and our ramp-ups
progressing, we are winning new
business with customers with
a compelling value proposition,
propensity for innovation and
superlative service record. We aim
to create solutions that solve our
customers’ most critical challenges,
helping them grow their sales, lower
cost, improve their sustainability
metrics and minimise their risk.
We work in partnerships based on
trust and respect. As such, we place
great value on reliability. Our superior
logistics network, financial stability,
global availability and consistent
premium quality are vital to our
customers. That is why we manage well
what we can control, always aiming to
exceed our customers’ expectations,
making sure we optimise the full value
chain, leveraging the strengths and
flexibility of our network.
In FY19, 22% of Sappi’s sales came
from packaging and speciality
papers, up from 19% 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.
Both legislative edicts and consumer
pressure are forcing companies to
rethink their packaging needs.
Governments, retailers and brand
owners all over the world are demanding
paper based packaging solutions for
their products, and eco-conscious
consumers and shoppers are pressuring
brand owners for more biodegradable,
recyclable and compostable packaging,
all reflecting a more circular economy.
We estimate the increasing need for
more sustainable and environmentally
friendly packaging solutions will lead to
demand growth of 3% to 6% per year,
globally, across the spectrum of our
products.
The evolution of our focus from graphic
papers to packaging and speciality
papers derives from the suitability of
many of our graphic paper machines
With our broad and innovative portfolio
of premium products, we have the right
solutions to meet our customers’ needs. We
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sustainable solutions as an alternative to fossil
fuel based, non-renewable packaging in many
of our product segments.
• Paperboard such as solid bleached
board and folding boxboard for
luxury packaging with more graphic
applications. Packaging for cosmetic,
perfume, confectionery and premium
beverages uses our products
• Release liner with silicon base
papers and glassine papers for
self-adhesive applications, such as
graphic art applications with outdoor
advertisements, adhesive tapes and
office materials
• Technical papers for interleaving
and thermal coating. Examples
include tickets for boarding passes
and concert/stadium tickets
• Casting and release papers used
by suppliers to the fashion, textiles,
automobile and household industries.
It is used in the manufacture of
synthetic leather and decorative
laminate products, creating textures
that make designs come to life
• 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
• Digital imaging 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.
We manufacture from a suite of
machines in Europe, North America
and South Africa, ensuring scale-based
efficiencies and security of supply. Our
South African operations mainly focus
on the local containerboard market.
We supply 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, following our Somerset
conversion, paperboard for folding
cartons. Examples include perfume
boxes, packaging for items like toys,
small electronics, chocolates 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 can coat paper
to give it unprecedented functionality
such as moisture controls, oxygen
barriers, grease resistant barriers,
vapour barriers and more. Our European
operations are ideally located in a region
leading the ‘paper-for-plastic’ packaging
movement. Last year, the European
Union introduced rules to reduce marine
litter by banning certain single-use
plastic items, like cutlery, straws and
drink stirrers, alongside a measure that
holds those plastic producers
responsible for the cost of cleaning
these items from European beaches.
The industry will also be given incentives
to develop less-polluting alternatives for
these products. With a comprehensive
product range on three continents, R&D
centres in each region sharing best
practices and new findings from new
customers, our customers benefit from
reliable supply from a broad geographic
footprint, and a leader in innovation in
the sector.
Our markets in 2019 and outlook
for 2020
The review period was characterised
by increased volumes and costs.
Volumes were nearly 12% higher than
last year as ongoing customer trials
and qualifications turned into customer
wins and subsequent volume
commitments. Net sales were up 15%
from last year. Despite the increase in
volume, EBITDA margins declined from
12.7% last year to 9.8% in FY19. While
our realised price per ton increased by
some 3% through the year, our average
cost per ton rose over 7% from last
year, mainly due to purchased paper
pulp. Increasing our level of pulp
integration has been a group priority for
some time. Accordingly, in November
2019, we purchased the Matane pulp
mill in Quebec, Canada, which will
increase pulp integration for the group.
Pulp prices began declining in the
second quarter of our fiscal with the
benefit most evident in our fourth
quarter, as we worked through
higher-cost inventory in our supply
chain. EBITDA margins rose to 13.7%
in our fourth quarter, and given the
Matane acquisition and lower market
paper pulp prices, we believe margins
will be better for this segment in FY20.
Along with higher EBITDA margins,
we also believe FY20 will bring
additional volume growth, aided by the
shift from plastics to paper in various
packaging and speciality categories.
We expect continued success from
conversion projects we completed in
2018. Customer qualifications and
trial-runs of our new products prove
we are capable of developing
innovative and quality products that
our customers can depend on.
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OUR PRODUCT REVIEW continued
Graphic
papers
declines. In FY19 demand dropped
relative to 2018 for all grades and in all
regions. Having noticed this trend
developing in our markets in 2017 and
2018, we converted the most ideal
paper machines in our portfolio from
graphic paper to packaging and
speciality papers, where demand is
growing world-wide. Our graphics
business is declining and part of our
strategy is to rationalise this business.
For Sappi, this means maximising its
significant cash flow generation,
continuously improving our cost
position, and optimising the use of
our best-in-class production assets.
Executing this strategic pillar means
more funds available to invest in our
other, faster-growing, higher-margin
segments and ultimately returning cash
to shareholders.
In FY19, global industry statistics
showed volume declines between
8% and 9% for both coated woodfree
and coated mechanical papers. Our
volumes from the segment were some
7% lower year-on-year due to
increases in market share in coated
woodfree paper. Despite the decline
in market demand, average prices
realised were flat relative to 2018 as
industry capacity closed in the United
States and Europe and producers took
downtime to manage inventories,
keeping our major markets in balance.
Input cost pressures eased in the
second half as prices for paper pulp
declined from their historical highs in
late 2018 and early 2019. Our EBITDA
margin declined relative to last year,
from 8.8% to 7.4%, reflecting the
decline in volumes and higher costs
in the first half FY19.
In 2020, we expect to sell marginally
lower volumes of graphic papers as
we ramp up production and sales of
packaging and speciality papers from
our converted machines. We believe
our cost position next year will be
better than 2019. Prices for our main
raw material – paper pulp – declined
in the latter half of 2019 and, while
forecasts vary, we see pulp market
dynamics showing little reason for pulp
prices to rise above their historical
highs of last year.
At Sappi, we understand this difference
and use our expertise to develop a
variety of printing papers designed to
meet specific needs, whether a
high-end product with extra wow
factor, a comprehensive solution that
caters to numerous requirements or
a paper that is more budget-friendly.
Sappi delivers so that brands can
have a more memorable impact.
Our markets in 2019 and outlook
for 2020
Demand for graphic papers has been
in secular decline in mature markets
for several years, while growing in
developing economies around the
world. Taken together, global demand
for graphic papers netted modest
When companies build brands, picking
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between creating something average
and something memorable.
In FY19, 64% of Sappi’s sales were
in four different grades of graphic
papers discussed below:
Coated woodfree paper
Share of sales: 41%
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 FY19,
41% of Sappi’s sales were in this
segment, typically through large paper
merchants.
Demand trends: Global advertising
expenditure is forecast to grow, but the
print share of that spend is expected to
decline. 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 from around 22 million tons in
2019 to 18 million tons by 2023.
Sales: Sappi’s net revenue from
coated woodfree paper was 7% less
than last year due to slack demand
and the subsequent downtime taken
during the year. Sales volumes declined
around 10% in 2019, due to this
downtime and our conversion projects
away from graphic paper. Globally,
demand for coated woodfree paper
declined by 8.5%.
Coated mechanical paper
Share of sales: 10%
newspaper inserts and other
advertising materials. In FY19, 10%
of Sappi’s sales constituted coated
mechanical paper, all 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 demand for magazines.
Readership, subscriptions, circulation,
pagination and advertising revenue per
page continue to decrease in larger
markets as consumers opt for digital
formats.
Sales: Sappi’s net revenue from
coated mechanical paper was 11%
lower than last year, due to lower
volumes as we took both market-
related downtime and converted
coated mechanical capacity into
coated woodfree capacity. Volumes
were around 12% lower than the prior
period. This year, the global market
contracted by 8.4%.
Uncoated woodfree paper
Share of sales: 6%
Uncoated woodfree paper is used for
letterheads, business stationery and
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 South African
businesses. In FY19, 6% of Sappi’s
sales were uncoated woodfree paper.
Our main customers in this sector are
paper merchants and converters.
Coated mechanical paper is primarily
used in magazines, catalogues,
Demand trends: Demand for
uncoated woodfree paper is expected
to post modest declines of about 2%
over the next few years. Like other
graphic papers, demand continues to
decline in most markets, with limited
growth from emerging markets.
Sales: Our net revenue from uncoated
woodfree paper was 9% higher than
last year, reflecting increased volumes
and prices in both Europe and South
Africa. Globally, demand was relatively
stable this financial year, with a modest
decline of 1.4%.
Newsprint paper
Share of sales: 1%
Newsprint, 1% of Sappi’s sales, is
manufactured from mechanical and
bleached chemical pulp, with uses
including advertising inserts and
newspapers. We manufacture and
sell newsprint from our South African
business.
Demand trends: Demand for
newsprint is principally derived from
newspaper circulation and overall retail
advertising. As newspaper readership
declines around the world, publishers
are consolidating and many titles have
closed. There are pockets of growth in
advertising-financed daily newspapers
typically found in large metropolitan
cities.
Sales: Production problems limited
our newsprint volumes this year, which
were 4% behind last year although net
revenues rose marginally. Globally,
newsprint demand declined 11%
versus 2018.
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CHIEF FINANCIAL
OFFICER’S REPORT
Observance of
the four pillars of
our long-term
group strategy
reduced the
impact of the
prevailing global
economic
uncertainty.
GT Pearce
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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)
2019
5,746
687
402
211
12.0%
7.0%
11.5%
1
1,501
39
2018
5,806
762
480
323
13.1%
8.3%
14.6%
(254)
1,568
60
%
change
(1)
(10)
(16)
(35)
n/a
n/a
n/a
n/a
(4)
(35)
Observance of the four pillars of our long-term group strategy reduced the impact
of the prevailing global economic uncertainty. Volume growth in our dissolving
wood pulp and packaging and speciality segments offset the majority of the
7% volume decline in our graphics segment. The continuous improvement
initiatives supported by projects to improve our cost base and enhance our
competitiveness yielded US$88 million savings for the year. We strengthened the
balance sheet by improving our debt maturity profile and refinanced the 2022
bonds with 2026 bonds at the lower coupon of 3.125%. Although net working
capital levels increased during the first half of the year, a strong focus on inventory
and payment terms reduced net working capital to 7.9% of annual net sales.
The year under review was
challenging in many respects, but
served to reinforce our commitment
to our strategic initiatives.
Exchange rates and their impact on the
group’s results
The group reports its results in US Dollar and, as such, the
main foreign exchange rates used in the preparation of the
financial statements were:
Income statement
average rates
Balance sheet
closing rates
2019
2018
2019
2018
EUR1 = US$
1.1282
US$1 = ZAR 14.3464
1.1902
1.0939
13.0518 15.1563
1.1609
14.1473
Two of our three geographic business units (Europe and
Southern Africa) have home or ‘functional’ currencies of
Euro and ZAR 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.
Weak markets in all our segments constricted EBITDA
margin by 1% to 12%. The conversion projects in North
America and Europe from graphic paper to packaging and
specialities gained traction towards the end of the fiscal
following lengthy qualification processes. Dissolving wood
pulp volumes increased by 7% following the capacity
increase projects at the Cloquet and Ngodwana Mills in
the previous fiscal. The reduced margins and volumes
(excluding forestry volumes) resulted in EBITDA of
US$687 million (LY = US$762 million).
Net finance costs increased by 24% to US$85 million
as they included the 2026 bond refinancing costs of
US$13 million. The average tax rate of 29% was above
the average statutory rate due mainly to unutilised tax losses
in Europe. Profit for the year was US$211 million
(LY = US$323 million) and earnings per share excluding
special items reduced from US60 cents to US44 cents.
The directors have considered it prudent to temporarily halt
dividends until such time as market conditions improve.
Cash generated for the year of US$1 million includes a
dividend payment of US$92 million, tax payments of
US$51 million and capital expenditure of US$471 million.
Segment reporting
Our reporting is based on the geographical location of our
businesses, ie Europe, North America and South Africa.
The selected product line information is reviewed by our
Executive Committee in addition to the geographical basis
upon which the group is managed. This additional
information is presented in this report to assist our
stakeholders in obtaining a complete understanding
of our business.
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CHIEF FINANCIAL
OFFICER’S REPORT continued
Section 2
Financial performance
The discussion in this section focuses on the group financial performance in 2019
compared with 2018. A detailed discussion, in local currencies, of each of our
three operating regions follows in Section 3.
Income statement
Our group financial results can be summarised as follows:
(Metric tons ’000)
Sales volume
US$ million
Sales revenue
Variable manufacturing and
delivery costs
Fixed costs
Sundry items(1)
US$ million
Operating profit excluding
special items
Special items
Operating profit
Net finance costs
Taxation
Net profit
EPS excluding special items
(US cents)
2019
7,622
5,746
(3,530)
(1,711)
(43)
402
(19)
383
(85)
(87)
211
44
2018
7,591
5,806
(3,521)
(1,767)
(38)
480
9
489
(68)
(98)
323
60
%
change
–
(1)
–
–
13
(16)
–
(22)
25
(11)
(35)
(27)
(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 2019, sales volume increased by 31,000 tons compared with 2018. The
regional and product segment contributions to sales volume are shown below:
Sales volume
(metric tons ’000)
North America
Europe
Southern Africa
Group
Graphics
Packaging and specialities
Dissolving wood pulp
Forestry
2019
1,379
3,241
3,002
7,622
3,846
1,129
1,284
1,363
2018
1,371
3,366
2,854
7,591
4,150
1,009
1,198
1,234
%
change
1
(4)
5
–
(7)
12
7
10
In North America, increases in the packaging and speciality papers and dissolving
wood pulp sales volumes offset the reduced Graphics volumes due to the
conversion of PM1 at Somerset.
European volumes decreased by 4% with lower demand in the mechanical
coated and coated woodfree markets. The decrease in sales volumes was
partially offset by strong growth in the packaging and speciality product
segments.
Volumes in South Africa increased by 5% mainly due to growth in dissolving wood
pulp and forestry volumes. Packaging and speciality volumes decreased due to
lower demand in the local citrus market.
Capacity utilisation reduced to an average of 88% for the group as weak graphic
markets forced us to take 268 000 tons of production downtime during the year.
Sales volume to capacity
North America
Europe
Southern Africa
Group
2019
%
82
88
94
88
2018
%
93
93
95
95
Sales revenue
Sales revenue decreased by 1% from US$5.8 billion in 2018 to US$5.7 billion in
2019. The stronger US Dollar resulted in a negative US$188 million conversion
impact which was offset by selling price and mix improvements of US$163 million.
Consolidated volumes were marginally down on last year.
Variable and delivery costs
Variable and delivery costs increased by US$9 million from 2018. This is in line
with sales volumes increasing marginally. There were offsetting variances amongst
the different product categories which resulted in variable costs remaining stable
relative to last year.
The net paper and dissolving wood pulp purchases and sales of the Sappi group
are detailed in the graph below:
Sappi group pulp balance (US$ million)
7
8
7
6
0
1
Net pulp sales
8
1
2
900
600
300
0
(300)
(600)
(900)
(1,200)
)
5
7
6
(
Eu
NA
SA
Sappi group
■ Net sales
■ Net purchases
83
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CHIEF FINANCIAL
OFFICER’S REPORT continued
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
Group
2019
624
417
811
1,243
435
3,530
2018
598
411
851
1,171
490
3,521
%
change
4
1
(5)
6
(11)
–
Fixed costs
Fixed costs increased by US$4 million from fiscal 2018. This increase was mainly
due to a higher depreciation charge (US$31 million) as a result of the increased
capital spend offset by lower personnel cost (US$29 million). The weaker ZAR
and EUR resulted in a decrease in US Dollar costs (US$77 million). Excluding the
currency impact fixed costs increased by US$81 million.
Details of the make-up of fixed costs are provided in the table below:
Fixed costs
(US$ million)
Personnel
Maintenance
Depreciation
Other
Group
2019
1,014
234
277
246
1,771
2018
1,043
235
274
215
1,767
%
change
(3)
(0)
1
14
–
(cid:44)(cid:41)(cid:48)(cid:59)(cid:43)(cid:40)(cid:3)(cid:72)(cid:85)(cid:75)(cid:3)(cid:86)(cid:87)(cid:76)(cid:89)(cid:72)(cid:91)(cid:80)(cid:85)(cid:78)(cid:3)(cid:87)(cid:89)(cid:86)(cid:196)(cid:91)(cid:3)(cid:76)(cid:95)(cid:74)(cid:83)(cid:92)(cid:75)(cid:80)(cid:85)(cid:78)(cid:3)(cid:90)(cid:87)(cid:76)(cid:74)(cid:80)(cid:72)(cid:83)(cid:3)(cid:80)(cid:91)(cid:76)(cid:84)(cid:90)
EBITDA excluding special items decreased to US$687 million, 10% lower than
the previous year. Operating profit excluding special items declined from
US$480 million last year to US$402 million in 2019.
The EBITDA bridge reflected in the graph below shows the impact on profitability
from higher sales volumes, higher sales prices and improved sales mix which
were offset by increased variable and fixed cost.
Reconciliation of EBITDA excluding special items: 2019 compared to 2018(1) (US$ million)
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(
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(
)
1
3
1
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900
850
800
750
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650
600
550
500
450
2
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(1) All variance were calculated excluding Sappi Forestry.
(2) “Currency conversion” reflects translation and transactional effect on consolidation.
The tables below detail the EBITDA and operating profit excluding special items
of the business for both 2019 and 2018 and the margins of each.
EBITDA excluding special items by region
(US$ million)
2019
2018
North America
Europe
Southern Africa
Corporate and other
Group
EBITDA margin by region (%)
110
232
339
6
687
126
299
337
–
762
30
25
20
15
10
5
0
0
.
4
2
8
.
3
2
8
.
8
5
.
7
1
.
0
1
0
.
8
1
.
3
1
0
.
2
1
NA
EU
SA
Sappi group
■ 2018
■ 2019
EBITDA excluding special items by product
category
(US$ million)
2019
2018
Dissolving wood pulp
Specialities and packaging papers
Printing and writing papers
Other
Group
Operating profit excluding special items by
region
(US$ million)
North America
Europe
Southern Africa
Corporate and other
Group
304
126
251
6
687
306
138
318
–
762
2019
2018
27
104
267
4
402
49
163
270
(2)
480
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CHIEF FINANCIAL
OFFICER’S REPORT continued
Operating profit margin by region (%)
25
20
15
10
5
0
2
.
9
1
8
.
8
1
3
.
8
0
.
7
SA
Sappi group
8
.
1
5
.
5
4
.
3
NA
6
.
3
EU
■ 2018
■ 2019
Operating profit excluding special items by
product category
(US$ million)
Dissolving wood pulp
Specialities and packaging papers
Printing and writing papers
Other
Group
2019
2018
245
52
101
4
402
251
78
153
(2)
480
The charts below illustrate that 75% of the groups’ EBITDA originates from
growing markets in the dissolving wood pulp and packaging and speciality
segments. The Graphics segment, which contributes 37% of the EBITDA remains
an important strategic component of our business.
Operating profit excluding special items by
product 2019: US$402 million (%)
EBITDA excluding special items by product
2019: US$687 million (%)
25
14
37
44
61
0
6
0
6
(cid:81) Dissolving wood pulp
(cid:81)(cid:3)Packaging and specialities
(cid:81) Graphics
19
(cid:81) Dissolving wood pulp
(cid:81)(cid:3)Packaging and specialities
(cid:81) Graphics
For information regarding the financial performance of the regions, please refer
to Section 3 of this report.
Key operating targets
Our financial targets and performance against them are dealt with in the Letter
to Shareholders section.
Special items
Special items consist of those items which management believe are material,
by nature or amount, to the results for the year and require separate disclosure.
A breakdown of special items for 2019 and 2018 is reflected in the table below:
Special items – gain (loss)
(US$ million)
Plantation price fair value adjustment
Acquisition costs
Net restructuring provisions
Profit (loss) on disposal and written off assets
Net asset (impairment) reversals
Black economic empowerment charge
Fire, flood, storm and other events
Total
2019
2018
19
(2)
–
(11)
(10)
–
(15)
(19)
27
(2)
(1)
4
3
(1)
(21)
9
The net impact of special items in 2019 was US$19 million. The major
components are described below:
• A positive non-cash US$19 million plantation price fair value adjustment was
recognised following increases to the market price of timber
• Various assets in Sappi Southern Africa and Europe amounting to US$7 million
and US$4 million were scrapped
• A net asset impairment of US$10 million was incurred of which US$18 million
related to our Westbrook Mill which was offset by impairment reversals of
US$8 million at our Tugela and Stanger Mills
• Fire, flood, storm and other events includes turbine damage at the Stockstadt
Mill amounting to US$10 million, fire damaged timber of US$4 million in South
Africa, integration costs of US$2 million offset by a contingent consideration
release of US$7 million.
(cid:53)(cid:76)(cid:91)(cid:3)(cid:196)(cid:85)(cid:72)(cid:85)(cid:74)(cid:76)(cid:3)(cid:74)(cid:86)(cid:90)(cid:91)(cid:90)
(US$ million)
Finance costs
Finance income
Net foreign exchange gains
Total
2019
2018
98
(9)
(4)
85
92
(18)
(6)
68
Finance costs include a charge of US$13 million for the cost of refinancing the
2022 bonds. Finance income reduced in the current year as a result of lower
South African cash balances due to the increased capital expenditure in the
region.
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CHIEF FINANCIAL
OFFICER’S REPORT continued
Taxation
A regional breakdown of the tax charge is provided below:
(US$ million)
Europe
North America
Southern Africa
Total
Profit
before tax
Tax
(charge)
relief
Effective
tax rate
%
30
(17)
285
298
(11)
4
(80)
(87)
(37)
(24)
(28)
(29)
The tax charge of US$11 million in Europe was predominantly incurred in
Germany and Italy. Unutilised tax losses in Austria and Belgium increased
the effective tax rate to 37%.
In North America and Southern Africa, the effective tax rate is in line with the
statutory tax rates in those countries.
(cid:53)(cid:76)(cid:91)(cid:3)(cid:87)(cid:89)(cid:86)(cid:196)(cid:91)(cid:19)(cid:3)(cid:76)(cid:72)(cid:89)(cid:85)(cid:80)(cid:85)(cid:78)(cid:90)(cid:3)(cid:87)(cid:76)(cid:89)(cid:3)(cid:90)(cid:79)(cid:72)(cid:89)(cid:76)(cid:3)(cid:72)(cid:85)(cid:75)(cid:3)(cid:75)(cid:80)(cid:93)(cid:80)(cid:75)(cid:76)(cid:85)(cid:75)(cid:90)
After taking into account net finance costs and taxation, our net profit and
earnings per share for 2019, with comparatives for 2018, were as follows:
(US$ million)
Operating profit
Net finance costs
Profit before taxation
Taxation
Profit for the period
Weighted average number of shares in
issue (millions)
Basic earnings per share (US cents)
2019
2018
383
85
298
87
211
542.0
39
489
68
421
98
323
538.1
60
The directors have elected not to declare a dividend and temporarily halt
dividends until such time as market conditions improve.
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Section 3
Below we discuss the performance of the regional businesses. The discussion is based on performance in local currencies
as we believe this facilitates a better understanding of the revenue and costs in the European and Southern African
operations.
North America
(Metric tons ’000)
Sales volume
Sales
Variable manufacturing and
delivery costs
Contribution
Fixed costs
Sundry costs and consolidation
entries
Operating profit excluding special
items
EBITDA excluding special items
2019
1,379
%
change
US$
per ton
2019
2018
1,379
US$
per ton
2018
%
change
1
%
change
2
8
(6)
(1)
(33)
(45)
(13)
1,063
1,044
(670)
393
(363)
(10)
20
80
(624)
420
(369)
(15)
36
92
2
7
(6)
(2)
(33)
(44)
(13)
US$
million
2019
1,466
(924)
542
(501)
(14)
27
110
US$
million
2018
1,432
(856)
576
(506)
(21)
49
126
The conversion of PM1 at Somerset Mill to produce paperboard grades and the increased dissolving wood pulp capacity
at Cloquet offset the drop in graphic sales volumes. The weak graphic markets forced the region to take 155, 000 tons
of production downtime which had a negative impact on costs. Customer acceptance of the new paperboard products
increased during the year, but the extended qualification runs had an adverse impact on costs during the first half of the year.
As a result, EBITDA margin reduced to 8% from 9% in the previous year.
EBITDA of US$110 million was 13% lower than the previous year.
Europe
(Metric tons ’000)
Sales volume
2019
3,241
2018
3,366
%
change
(4)
€ million
2019
€ million
2018 % change
€ per ton
2019
€ per ton
2018
%
change
Sales
Variable manufacturing and delivery
costs
Contribution
Fixed costs
Sundry costs and consolidation
entries
Operating profit excluding special
items
EBITDA excluding special items
2,587
2,494
(1,707)
880
(762)
(25)
93
206
(1,632)
862
(712)
(13)
137
254
4
5
2
7
92
(32)
(19)
798
(527)
271
(235)
(7)
29
64
741
(485)
256
(212)
(3)
41
75
8
9
6
11
133
(29)
(15)
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CHIEF FINANCIAL
OFFICER’S REPORT continued
Market conditions for graphic paper in Europe were challenging as overall demand shrunk by more than 10%. The European
operations were able to reduce the impact of the demand reduction by increasing market share, but was nevertheless forced
to take 113,000 tons of production downtime during the year. The extended shut at Lanaken for the conversion of PM8
further impacted profitability. Selling prices were resilient in the face of the declining demand as the region managed the
effects of increasing input costs. Strong volume growth of 14% in the packaging and speciality segment provided some
relief.
Variable costs per ton increased by 9% relative to last year due mainly to an increase in purchased pulp prices. The
purchased pulp prices reduced during the fourth fiscal quarter, which improved margins at the contribution level but was
offset by increased fixed costs per ton due to lower absorption of fixed costs on lower sales volumes. EBITDA margins
reduced from 10% to 8% as a consequence.
Southern Africa
(Metric tons ’000)
Sales volume*
Sales*
Variable manufacturing and delivery
cost
Contribution
Fixed costs
Sundry income and consolidation
entries
Operating profit excluding special
items
EBITDA excluding special items
* Excludes forestry.
2019
1,639
%
change
ZAR
per ton
2019
2018
1,620
ZAR
per ton
2018
%
change
1
%
change
11
13
8
9
11
9
11
11,747
10,699
(7,178)
4,569
(3,597)
(6,429)
4,270
(3,335)
(1,366)
1,240
2,338
2,968
2,175
2,715
10
12
7
8
10
7
9
ZAR
million
2019
19,253
(11,764)
7,489
(5,896)
ZAR
million
2018
17,333
(10,415)
6,918
(5,403)
2,239
2,009
3,832
4,864
3,524
4,398
The debottlenecking projects at Ngodwana and Saiccor increased dissolving wood pulp sales volumes during the current
year by 5%. The South African packaging and paper business came under pressure as citrus fruit exports dropped and the
weak South African economy impacted other paper sales volumes. Net selling prices of dissolving wood pulp reduced in
US Dollar terms, but the weaker exchange rate resulted in price increases in local currency. Variable costs per ton increased
by 12% mainly due to increased wood and purchased pulp costs. The variable costs were also impacted by a ZAR20 million
charge for carbon tax which was introduced during the fourth fiscal quarter. Fixed costs were mainly influenced by wage
inflationary increases at 7% and the employment of additional personnel in anticipation of the increased capacity at Saiccor
planned for fiscal 2020. The net result of the above is an increase in EBITDA to ZAR4,864 million with annual operating profit
of ZAR3,832 million.
The region’s capital expenditure focused on increasing dissolving wood pulp capacity during the year.
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Major sensitivities
Some of the more important factors which impact the group’s EBITDA excluding special items, based on current anticipated
revenue and cost levels, are summarised in the table below:
Sensitivities
Net selling prices
Dissolving wood pulp
prices
Variable costs
Sales volume
Fixed costs
Paper pulp price
Oil price
ZAR/US$ (weakening)
Euro/US$ (weakening)
Europe
€ million
North
America
US$ million
Southern
Africa
ZAR million
Translation
impact*
US$ million
Group
US$ million
25
–
14
9
7
5
2
–
(2)
16
3
8
6
5
4
–
–
(4)
200
145
113
74
54
7
3
68
–
–
–
–
–
–
–
–
(1)
(23)
58
13
32
22
15
11
2
3
(29)
Change
1%
US$10
1%
1%
1%
US$10
US$1
10 cents
10 cents
* Based on currency impact on translation of EBITDA.
The table demonstrates that EBITDA excluding special items is most sensitive to changes in the selling prices of our
products.
The calculation of the impact of these sensitivities assumes all other factors remain constant and does not consider potential
management interventions to mitigate negative impacts or enhance benefits.
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CHIEF FINANCIAL
OFFICER’S REPORT continued
Section 4
(cid:42)(cid:72)(cid:90)(cid:79)(cid:3)(cid:197)(cid:86)(cid:94)
In the table below, we present the group’s cash flow statement for 2019 and 2018
in a summarised format:
(US$ million)
2019
2018
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 generated (utilised)
402
285
687
(41)
27
673
(15)
(42)
(51)
(92)
(471)
3
–
(4)
1
480
282
762
(45)
(8)
709
(79)
(66)
(73)
(81)
(541)
11
(132)
(2)
(254)
Net cash generated for the financial year was US$1 million (FY18: US$254 million
utilised which includes the acquisition of Cham Paper Group for US$132 million).
Lower profitability was offset by tight working capital control and lower capital
expenditure of US$471 million (LY = US$541 million). The lower cash finance
charge is due to the timing of the fiscal year-end date.
Investment in fixed assets versus depreciation (US$ million)
600
500
400
300
200
100
0
1
4
5
1
7
4
7
5
3
8
4
2
1
4
2
2015
2016
2017
2018
2019
■ Cash flow capex
■ Depreciation
Section 5
Balance sheet
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
2019
3,061
451
452
291
(298)
(508)
3,449
1,948
1,501
3,449
2018
3,010
466
493
323
(261)
(516)
3,515
1,947
1,568
3,515
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, please refer
to the Where we operate section.
During 2019, capital expenditure for property, plant and equipment was
US$471 million. The capacity replacement value of property, plant and equipment
for insurance purposes has been assessed at approximately US$20 billion.
(cid:55)(cid:89)(cid:86)(cid:87)(cid:76)(cid:89)(cid:91)(cid:96)(cid:19)(cid:3)(cid:87)(cid:83)(cid:72)(cid:85)(cid:91)(cid:3)(cid:72)(cid:85)(cid:75)(cid:3)(cid:76)(cid:88)(cid:92)(cid:80)(cid:87)(cid:84)(cid:76)(cid:85)(cid:91)
The cost and depreciation related to our property are set out in the table below:
Book value of property, plant and equipment
(US$ million)
Cost
Accumulated depreciation and impairment
Net book value
2019
9,033
5,972
3,061
2018
9,077
6,067
3,010
The group incurred capital expenditure of US$471 million during the year on
various capital improvement projects. This was largely offset by depreciation
of US$277 million and foreign currency exposure of US$139 million due to
the strengthening of the US Dollar against the ZAR and the EUR.
Plantations
We regard ownership of our plantations in South Africa as a key strategic resource
as it gives us access to low-cost fibre for pulp production and ensures continuity
of supply on an important raw material input source.
We currently have access to approximately 529,000 hectares of land of which
approximately 394,000 hectares are planted with pine and eucalyptus. These
plantations provide approximately 66% of the wood requirements for our South
Africa mills.
During the year, there were market price increases coupled with higher average
fair value rates. These increases were offset by the rising cost of fuel and an
increase in the discount rate. As we manage our plantations on a sustainable
basis, the growth for the year was offset by timber felled during the year.
93
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9
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2
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S
CHIEF FINANCIAL
OFFICER’S REPORT continued
Our plantations are valued on the balance sheet at fair value less the estimated
costs of delivery, including harvesting and transport costs. In notes 2.3.4 and
11 to the financial statements, we provide more detail on our accounting policies
for plantations, how we manage our plantations as well as the major assumptions
used in the calculation of fair value.
Working capital
The component parts of our working capital at the 2019 and 2018 fiscal year-
ends are shown in the table below:
Net working capital
(US$ million)
Inventories
Trade and other receivables
Trade and other payables and provisions
Net working capital
2019
709
718
(975)
452
2018
741
767
(1,015)
493
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 decreased to US$452 million in 2019 from US$493 million
in 2018. The material movements in working capital are discussed below:
• Inventories decreased by US$32 million, caused mainly by a favourable
currency translation impact of US$31 million
• Receivables decreased by US$49 million following lower net selling prices and
decreased volumes in the fourth quarter, and a favourable currency translation
impact of US$27 million
• Payables decreased by US$40 million. The decrease in payables is largely due
to an unfavourable currency translation impact of US$49 million, decreased raw
material prices and decreases in bonus accruals. This was partially offset by
higher accruals for capital expenditure.
Post-employment liabilities
We operate various defined benefit pension/lump sum plans, post-employment
healthcare subsidies and other employee benefits in the various countries in which
we operate. A summary of defined benefit assets and liabilities (pension and
post-employment healthcare subsidies) is as follows:
Defined benefit liabilities
(US$ 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’**
2019
(1,525)
1,227
(298)
36
26
17
2018
(1,431)
1,170
(261)
40
18
19
* There was a significant non-routine past service credit during fiscal 18, which causes the total charge
to appear much lower compared to the amount charged in fiscal 19.
** ‘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) increased by
US$94 million compared with last year. The main cause of the overall increase
was a significant drop in discount rates due to falling yields in respective bond
markets.
Fair value of plan assets rose by US$57 million over the year due to favourable
investment returns of assets in our funded plans from outperforming bonds
markets. Significant portions of our assets are held in bonds as part of liability
matching strategic allocation.
Included in the liability and asset movements above is a US$12 million gain
resulting from movements relative to the reporting currency.
The increase in liabilities exceeded the increase in assets, which contributed to
an increase in the overall net liability by US$37 million as at September 2019.
A reconciliation of the movement in the balance sheet over the year is shown
graphically below and disclosed in more detail in note 28 of the annual financial
statements.
Sappi Limited defined benefit pensions balance sheet movement (US$ million)
50
0
(50)
100)
(150)
(200)
(250)
)
4
6
1
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2
Sappi Limited post-retirement medical aid subsidy balance sheet movement (US$ million)
20
0
(20)
(40)
(60)
(80)
(100)
(120)
)
7
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S
CHIEF FINANCIAL
OFFICER’S REPORT continued
(cid:44)(cid:88)(cid:92)(cid:80)(cid:91)(cid:96)
Year-on-year, equity increased by US$1 million to US$1,948 million as
summarised below:
Equity reconciliation
(US$ million)
Equity as at September 2018
Profit for the year
Dividend paid
Actuarial losses
Share based movements
Movement in hedging reserves
Foreign currency movements
Equity as at September 2019
2019
1,947
211
(92)
(49)
9
(11)
(67)
1,948
Profit for the year of US$211 million was offset by dividends of US$92 million,
actuarial losses of US$49 million and foreign currency movements of
US$67 million.
Debt
Debt is a major source of funding for the group. In the management of debt, we
focus on net debt, which is the sum of current and non-current interest-bearing
borrowings and bank overdrafts, net of cash and cash equivalents.
Debt funding structure
The Sappi group principally takes up debt in two legal entities. Sappi Southern
Africa Limited issues debt in the local 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 below.
The diagram below depicts our debt funding structure:
Sappi Limited guarantee*
Sappi Limited
Sappi Southern Africa
(SSA)
South African debt
Sappi Papier Holdings (SPH)
Non-South African debt
Sappi Europe
Sappi North America
Sappi Trading
* Sappi Limited provides guarantees for long-term non-South African debt.
Below we highlight the main financing activities that occurred during the year:
• The previous €330 million securitisation facility at Sappi Papier Holding was
increased to €380 million and extended to 2022. The increase was required
to cater for the additional receivables arising from the Cham Paper Group
acquisition in 2018
• The €450 million 2022 public bond was repaid at the April 2019 call window.
The repayment was refinanced with a new €450 million public bond maturing
in 2026
• The 110,000 tons expansion project at Saiccor was partially financed with a
new long-term facility. An unlisted ZAR1.5 billion five-year private placement
under the Domestic Medium-Term Note programme was issued in May 2019
• Shortly after the financial year-end the US$175 million Matane acquisition was
finalised. The purchase price was financed with a new eight-year term loan from
the Oesterreichische Kontrollbank in Austria. The term loan has a €74 million
tranche and a CAD129 million tranche, with both tranches amortising in equal
instalments from December 2021 to December 2027.
(cid:58)(cid:91)(cid:89)(cid:92)(cid:74)(cid:91)(cid:92)(cid:89)(cid:76)(cid:3)(cid:86)(cid:77)(cid:3)(cid:85)(cid:76)(cid:91)(cid:3)(cid:75)(cid:76)(cid:73)(cid:91)(cid:3)(cid:72)(cid:85)(cid:75)(cid:3)(cid:83)(cid:80)(cid:88)(cid:92)(cid:80)(cid:75)(cid:80)(cid:91)(cid:96)
We consider the liquidity position to be sufficient, with cash holdings exceeding
short-term obligations by US$212 million at fiscal year-end. In addition, Sappi has
US$640 million of unutilised committed credit facilities, including the revolving
credit facility at SPH of €525 million (US$574 million).
The structure of our net debt at September 2019 and 2018 is summarised below:
(US$ 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
2019
1,713
1,465
366
(118)
(212)
63
118
(393)
1,501
2018
1,818
1,471
376
(29)
(250)
84
29
(363)
1,568
Movement in net debt
The movement of our net debt from fiscal 2018 to fiscal 2019 is explained in the
table below:
(US$ million)
Net debt as at September 2018
Net cash generated
Currency and other movements
Net debt as at September 2019
2019
1,568
(1)
(66)
1,501
97
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CHIEF FINANCIAL
OFFICER’S REPORT continued
(cid:46)(cid:89)(cid:86)(cid:92)(cid:87)(cid:3)(cid:75)(cid:76)(cid:73)(cid:91)(cid:3)(cid:87)(cid:89)(cid:86)(cid:196)(cid:83)(cid:76)
We show the major components and maturities of our net debt at September 2019 below. These are split between our debt
in South Africa and our debt outside South Africa.
Interest
rates
(local
currencies)
%
Amount
US$
million
Fixed/
variable
Maturity (Sappi fiscal years)
2020
2021
2022
2023
Thereafter
9.72
9.25
8.06
Variable
Fixed
Fixed
3.44
1.38
1.25
2.20
0.33
4.00
3.13
7.5
Variable
Variable
Fixed
Fixed
Variable
Fixed
Fixed
Fixed
South Africa
Bank debt
DMTN Private Placement
2020 Bond
Gross debt
Less: Cash
Net South Africa debt
Non-South African
Securitisation (US$)
Securitisation (EUR)
OeKB term loan 1
OeKB term loan 2
Other bank debt (EUR)
2023 public bonds (EUR)
2026 public bonds (EUR)
2032 Bonds (US$)
IFRS adjustments
Gross debt
Less: Cash
Net non-South African
debt
Net group debt
26
99
49
175
(124)
51
130
236
45
164
65
383
492
221
(16)
1,720
(270)
1,450
1,501
26
49
(124)
(48)
22
20
64
(270)
(164)
(212)
99
–
99
85
1
492
221
(16)
783
882
–
22
20
0.2
–
130
236
20
0.1
20
0.3
383
42
42
386
386
403
403
The majority of our non-South African long-term debt is guaranteed by Sappi Limited, the group holding company.
A diagram of the debt maturity profile for Sappi fiscal years is shown below:
t
r
Debt maturity profile for Sappi fiscal years (US$ million)
Includes €350 million 2023 bond
Includes €450 million 2026 bond
2
9
4
3
9
3
6
6
3
3
0
4
n
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1
2
2
$
S
U
d
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b
2
3
0
2
1
2
2
4
6
6
7
2
4
2
4
– –––– –– –
9
9
6
8
––––
–––
––––– –––– –– ––– ––––
0
2
600
500
400
300
200
100
0
2020
2021
2022
2023
2024
2025
2026
2027
2032
■ Cash
■ Short term
■ Securitisation
■ SSA
■ SPH term debt
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Covenants
Non-South African covenants
Financial covenants apply to US$209 million of our non-South African bank debt,
the €525 million revolving credit facility and the securitisation facility.
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:
September
2019
December
2019
3.75
4.25
March
2020
to June
2021
4.50
September
2021 to
September
2022
December
2022
4.25
4.00
March
2023
3.75
• the ratio of group EBITDA to net interest expense should not be less than
2.50-to-1.
The table below shows that at September 2019 we were well in compliance with
these covenants:
Non-South Africa covenants
2019
Covenant
Net debt to EBITDA
EBITDA to net interest
2.20
9.49
<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.
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 at the end of March and September is not greater
than 65%
• 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 2019 the South African
financial covenants were comfortably met.
South African covenants
2019
Covenant
Net debt to equity (%)
EBITDA to net interest
3.41
42.9
<65
>2.00
99
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CHIEF FINANCIAL
OFFICER’S REPORT continued
Credit ratings
Global credit ratings: South African national rating
Sappi Southern Africa Limited: AA (za)/A1+(za)/stable outlook (November 2019)
Moody’s
Sappi corporate family rating: Ba1/NP/stable outlook (January 2019)
SPH debt rating:
• 2023/2026 bonds and RCF: Ba1/stable outlook (January 2019)
• 2032 bonds: Ba3
S&P Global Ratings
Corporate credit rating: BB/B/stable outlook (March 2019)
SPH Debt Rating:
• 2023/2026/2032 bonds and RCF: BB stable outlook (March 2019)
Section 6
Share price performance
Sappi share price – September 2016 to September 2019 (ZAR/share)
120
100
80
60
40
20
0
6
1
0
2
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Conclusion
The year under review was challenging in many respects but served to reinforce
our commitment to our strategic initiatives. The foundation laid during fiscal 2018
in terms of conversions and capacity increases reduced the severity of the
economic headwinds we experienced during the second half of fiscal 2019.
We were able to adjust our short-term plans without compromising the long-term
initiatives by focusing on cash generation and balance sheet management. One of
the regrettable consequences of the balance sheet management has been the
decision to suspend dividends.
The conversion projects in Europe and North America showed promise as
packaging and speciality volumes increased by 12% year-on-year, denting the
impact of the demand decline in the graphics sector. Similarly, the dissolving
wood pulp volumes increased by 7% following the completion of the capacity
increases at Cloquet and Ngodwana. The Saiccor capacity expansion project is
scheduled to be completed towards the end of fiscal 2020. Our input costs were
well controlled and cost improvement projects of US$88 million were recorded
for the year.
Fiscal 2020 promises to be a challenging year, but we are well positioned to rise
to the challenge.
GT Pearce
(cid:42)(cid:79)(cid:80)(cid:76)(cid:77)(cid:3)(cid:45)(cid:80)(cid:85)(cid:72)(cid:85)(cid:74)(cid:80)(cid:72)(cid:83)(cid:3)(cid:54)(cid:1117)(cid:74)(cid:76)(cid:89)
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IIIIIIIIIIIIIIIINNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNCCCCCCCCCCCCCCCCCCCCCCCCCCLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLUUUUUUSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSIIIIIIIIIIIIIIIIIIIIIIIIIVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE
CLCLUS
ASASS
FEFEG
HHU
HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUMMMMMMMMMMMMMMMMMMMMMMMMMMMMAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAANNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNIIIIIIIIIIIIIIIIIIIIIIITTTTTTTTTTTTTTTTTTTTTTTTTTTTTYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYY
WW
MPMPA
CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOONNNNNNNNNNNNNNNNNNNNNNNNNNNNCCCCCCCCCCCCCCCCCCCCCCCEEEEEEEEEEERRRRRRRRRRNNNNNNNNNNNNNN
ONCONCE
CARE
RRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPOOOOOOOOOOOOOOOOOOOOOOOOOOOOORRRRRRRRRRRRTTTTTTTT
The possibilities are vast: the only
limits are the edges of our collective
imagination.
But for us at Sappi, the real value
lies in greater levels of inclusivity,
the more seamless linking of people
and the implications this has for
the way we reach out to, talk to and
care about each other. It will enable
individualised communication and
create one-to-one relationships with
all our stakeholders.
That is profoundly important in a
world of ever-accelerating changes,
where just being able to stand
still, take time out and instantly
share a rapport with someone can
transform lives.
The speed of now. That is the reality
of 5G technology which takes
advantage of higher-frequency
bands in the radio spectrum that
have a lot of capacity but shorter
wavelengths. 5G technology offers
an extremely low latency rate,
or the delay between sending
and receiving information.
From 200 milliseconds for 4G,
we go down to 1 millisecond (1ms)
with 5G.
That is extraordinary when you
consider that a millisecond is
1/1,000 of a second and that the
average reaction time for humans
to a visual stimulus is 250ms or
one-quarter of a second.
The power of 5G will reshape
the way we think and operate,
enabling connected cars, smart
cities and factories and enhanced
healthcare, among other things.
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OUR
LEADERSHIP
Sappi board committee memberships:
Audit and Risk Committee
Human Resources and Compensation Committee
Nomination and Governance Committee
Social, Ethics, Transformation and Sustainability Committee
* Committee Chairman
Non-executive directors
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36
43
Tenure
2019
(cid:81) Zero to three years
(cid:81)(cid:3)Three to 10 years
(cid:81) Over 10 years
*
*
Sir Nigel Rudd (72)
Independent Chairman
Qualifications: DL, Chartered Accountant
Nationality: British
Appointed: April 2006
Skills, expertise and experience
Sir Nigel Rudd has held various senior
management and board positions in a career
spanning more than 35 years. He founded
Williams plc in 1982, one of the largest
industrial holding companies in the United
Kingdom (UK). Sir Nigel Rudd brings his
expertise in finance, management,
governance and leadership to the Sappi
board.
Michael Anthony Fallon
(Mike) (61)
Independent
Qualifications: BSc (Hons) (first class)
Nationality: British
Appointed: September 2011
Skills, expertise and experience
Mr Fallon brings management and leadership
experience that extends across a wide range
of functions from research and development,
human resources, finance, plant management,
sales and marketing and supply chain to
general management, including mergers and
acquisitions.
Nkateko Peter Mageza
(Peter) (64)
Independent
Qualifications: FCCA (UK)
Nationality: South African
Appointed: January 2010
Skills, expertise and experience
Mr Mageza brings his knowledge and
experience having held senior executive
positions across a wide range of industries.
*
*
John David McKenzie
(Jock) (72)
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, among 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.
Mohammed Valli Moosa
(Valli) (62)
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.
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Diversity
2019
50
22
14
14
Average age
2019
50
Independence
2019
14
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(cid:81) Diverse
(cid:81)(cid:3)Other
(cid:81) 60s
(cid:81)(cid:3)70s
(cid:81) 40s
(cid:81)(cid:3)50s
(cid:81) Independant non-executives
(cid:81)(cid:3)Executives
Karen Rohn Osar (70)
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) (66)
Independent
Brian Richard Beamish
(Brian) (62)
Independent
Qualifications: MSc (Mechanical
Engineering), MDP
Nationality: Dutch
Appointed: October 2015
Skills, expertise and experience
Mr Renders currently serves as a business
consultant and brings to the board his
extensive experience in governance and
leadership as well as operational expertise in
manufacturing and packaging internationally.
Qualifications: BSc (Mechanical
Engineering), HBS PMD
Nationality: British/South African
Appointed: March 2019
Skills, expertise and experience
Mr Beamish, a qualified mechanical engineer,
brings more than 40 years’ experience in
management, business and leadership in
capital intensive industries to the board.
Zola Nwabisa Malinga (41)
Independent
Qualifications: BCom, CA(SA)
Nationality: South African
Appointed: October 2018
Skills, expertise and experience
Mrs Malinga has over 10 years’ experience
in investment banking and corporate finance,
having held senior roles at various financial
institutions. She is also the founder and
Executive Director of Jade Capital Partners,
a women-owned investment holding
company.
James Michael Lopez
(Jim) (59)
Independent
Qualifications: BA (Economics)
Nationality: American
Appointed: March 2019
Skills, expertise and experience
Mr Lopez brings his experience as the
former President and CEO of Tembec Inc
(2006 – 2017) a manufacturer of lumber, pulp,
paper/paperboard and speciality cellulose
and a global leader in sustainable forest
management practices.
Janice Elaine Stipp
(Janice) (60)
Independent
Qualifications: BA (Accounting), MBA
Nationality: American
Appointed: June 2019
Skills, expertise and experience
Ms Stipp brings with her a wealth of
experience in leadership, finance and
treasury to the Sappi board.
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OUR
LEADERSHIP continued
Executive directors
Stephen Robert Binnie
(Steve) (52)
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 and
brings extensive experience in financial
management, leadership, corporate activity
and strategy to the role.
Glen Thomas Pearce (56)
Chief Financial Officer
Qualifications: BCom, BCom (Hons), CA(SA)
Nationality: South African
Appointed: July 2014
Skills, expertise and experience
Mr Pearce joined Sappi Limited in June 1997
and was promoted to Chief Financial Officer
and executive director of Sappi Limited in July
2014. Mr Pearce has extensive financial
management experience, both locally and
abroad.
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 vast experience in the
paper and packaging industry across
Europe, as well as mergers and acquisitions,
to the Sappi board.
Mark Gardner (64)
President and Chief Executive Officer
of Sappi North America
Qualifications: BSc (Industrial Technology)
Appointed: September 1981
Skills, expertise and experience
Mr Gardner, who has qualifications in
statistical process control, management
effectiveness design, change management
and business optimisation, offers his
experience in manufacturing, production and
supply chain management to the Sappi
board.
Michael George Haws
(Mike) (56)
President and Chief Executive Officer
of Sappi North America
Qualifications: BSc (Paper Science and
Engineering)
Appointed: October 2019
Skills, expertise and experience
Mr Haws brings his extensive industry
leadership and strategy experience to the
business. Mr Haws was integral to the
development and execution of Sappi’s
2020Vision and the investments made in
North America to grow the dissolving wood
pulp and packaging and speciality papers
businesses.
Alexander van Coller Thiel
(Alex) (58)
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 Roy Bowles (59)
Group Head Technology
Qualifications: BSc (Electrical Engineering),
GCC, PR Eng, PMD, EDP
Appointed: November 1990
Skills, expertise and experience
Mr Bowles brings more than 28 years of
experience with Sappi as well as expertise in
engineering, research, manufacturing, project
execution, operational and risk management
to his role.
Mohamed Mansoor (52)
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 Conan Salvador
Marupen (Fergus) (54)
Group Head Human Resources
Qualifications: BA (Hons) (Psychology), BEd
(Education Management), MBA, LCOR
(Stanford University)
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, among many other fields
Maarten van Hoven (46)
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, in the private and public sectors, as well
as experience in mergers and acquisitions.
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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.
98% overall
committee
attendance rate
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 and minimising the negative impacts of trade-offs that have
to be made, as set out in Our key material issues
See Key material issues on page
58
The group endorses the recommendations contained in the King Code of
Governance Principles for South Africa 2016 (King IV) and applies the various
principles to achieve the following good governance outcomes
An application register of how Sappi applies King IV principles is provided
on the group’s website (www.sappi.com)
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
creates and protects sustainable value
by collectively determining strategies,
approving major policies and plans,
taking responsibility for risk
management, and providing oversight
as well as monitoring, to help to ensure
accountability. The board is satisfied
that it has fulfilled its responsibilities
in accordance with its charter for the
reporting period.
For further information about the
board and the board charter please
refer to www.sappi.com.
Board experience (Sappi’s board members have experience across multiple industries
and leadership roles) (%)
Sustainability
HR and transformation
Global, multinational
M&A
Finance, accounting and banking
Forestry, pulp, paper and packaging
Manufacturing, industrial and mining
CFO roles
Chairman roles
CEO/executive director roles
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36
36
50
50
50
50
64
64
0
20
40
60
80
100
100
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The Sappi board and diversity
Sappi operates globally and across a variety of markets, jurisdictions and cultures, requiring a diverse mix of experience,
skills, gender, age and backgrounds. It is important that our board composition reflects this diversity, both in a South African
context as well as globally.
Directors’ independence (%)
Directors’ age: average 60 years (%)
14
86
(cid:81) Independent non-executives
(cid:81)(cid:3)Executives
(cid:81) 60s
(cid:81) 70s
50
22
14
14
(cid:81)(cid:3)40s
(cid:81)(cid:3)50s
Diversity (%)
Directors’ tenure: average 6.25 years
(as at financial year-end) (%)
50
50
21
36
43
(cid:81) Diverse (50% are female or ethnically diverse)
(cid:81)(cid:3)Other
(cid:81) Zero to three years
(cid:81)(cid:3)Three to 10 years
(cid:81) Over 10 years
The composition of the board and attendance at board meetings and board committee meetings is set out below for the
year ended September 2019:
BOARD
BOARD COMMITTEES
AGM
Name
Appointed
(Retiring)
from Board
Independent non-executives
BR Beamish
01 March 2019
MA Fallon
JM Lopez
01 March 2019
NP Mageza
ZN Malinga
JD McKenzie
(31 December 2019)
B Mehlomakulu
MV Moosa
KR Osar
(31 December 2019)
RJAM Renders
Sir Nigel Rudd
JE Stipp
01 June 2019
Executives
SR Binnie (CEO)
GT Pearce (CFO)
Audit and Risk
Nomination and
Governance
Human
Resources
and
Compensation
%
attendance
during
tenure
SETS
100
100
100
90
100
100
100
90
100
100
100
100
100
Lead director
Committee member (present)
Chairman
Ex officio
Absent
By invitation
Indicates appointed to committee 01 August 2019
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CORPORATE
GOVERNANCE continued
All top risks and emerging risks
received attention from the board
in 2019.
The following specific areas will be
added to the board’s agenda in 2020:
• A revised approach for reviewing the
risks facing the group
• Project management and oversight
for large capital projects
• A review of gender diversification
across regions and the group
• Commercialisation of biotech
• Consideration of additional cost
improvement areas
• Review of risks and opportunities
related to climate change in line with
the Task Force on Climate-related
Finance Disclosure (TCFD)
recommendations
• Consideration and approval of the
2025 strategic plan.
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 Citizenship
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
42 for more information.
Sappi board and management committees
Board and management committees have been established and are
discussed from pages
111 to 117
Strategic focus areas
In addition to standard items on the
board’s agenda, 2019 focus areas
included:
• External overviews of global and
regional economies and related
developments
• Each serious safety incident was
reviewed in detail
• Biotech and related research and
development
• A renewed focus on new products,
the exciter (R&D) programme and
go-to-market strategies
• The acquisition of Matane pulp mill in
Canada
• Carbon emissions and reduction of
Sappi’s carbon footprint
• Human resource capacity building
and transformation for the Southern
Africa region
• Review of all major shuts and the
project management process
• Review of regional market
peculiarities
• Review of results from the
engagement survey
• A review of the Code of Ethics and
related policies, such as anti-trust
and anti-fraud and corruption policies
• A review of cyber-security risks
• The Sefate employee share scheme
• Land reform in South Africa and fibre
supply in Europe
• Cost reduction targets and strategies
• Review of supply and demand, of
dissolving wood pulp and impact on
the group
• Review of the packaging and
speciality papers business
• Planning for the 2025 strategic plan.
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Board committees
The board has established committees to assist it to discharge its duties. The committees operate under written terms of
reference set by the board.
• Strategic leadership and guidance
• The board delegates certain oversight
responsibilities to board committees
• Ultimate oversight, accountability and responsibility
• The board assigns responsibilities for management
of the group to the CEO
Board of directors
Sappi’s board committees create and maintain sustainable value by focusing on these key areas:
Audit
and Risk
Committee
Nomination and
Governance
Committee
Human
Resources and
Compensation
Committee
Social, Ethics,
Transformation
and Sustainability
Committee
(cid:120) Financial and sustainability
(cid:120) Board size, composition
systems and reporting
(cid:120) Risk management
(cid:120) Compliance and ethics
(cid:120) Combined assurance
(cid:120) Internal and external audit
(cid:120) IT governance
and diversity
(cid:120) Selection and recruitment
of directors
(cid:120) Evaluation of board
performance
(cid:120) Corporate governance
developments
(cid:120) Directors’ remuneration
(cid:120) Succession planning
(cid:120) Remuneration policy
(cid:120) Incentive schemes
(cid:120) Labour and industrial
relations management
(cid:120) Group corporate
citizenship
(cid:120) Ethics
(cid:120) Environment
(cid:120) Safety
(cid:120) Broad-based black
economic empowerment
Executive Committee
(cid:120) Executive directors
(CEO and CFO)
(cid:120) Other senior executives
(cid:120) Execute strategic
decisions approved
by the board
Disclosure
Committee
Control and
Assurance
Committee
Accounting
Standards
Committee
Treasury
Committee
Taxation
Committee
Global
Business
Systems
Council
Group Risk
Management
Committees
IT Steering
Committee
Project
Steering
Committees
Sustainability
Councils
Global Brand
Council
Technical
Committee
Management committees
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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 six independent non-executive directors. The committee assists
the board in discharging its duties relating to the following:
• 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 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 FY19, this included
close monitoring of the audit activities of the 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
• 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 create and 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, 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 dissolving wood pulp, packaging and speciality papers, the biotech and renewable energy fields
• Review of cyber-security incidents impacting on specific outsourced service suppliers
• Oversight of the establishment of a Control and Assurance Committee, which uses combined assurance to focus
on risks facing the group
• Suggestions and oversight for the development of a revised approach to reviewing the group’s risks
• Regulatory compliance with global privacy legislation.
Areas of additional oversight for the committee in 2020 will be:
• refinement of the risk framework and approach to reviewing risks
• oversight of the risk topics to be reviewed by the Control and Assurance Committee (CAC)
• oversight of the progress of the expanded project management approach.
Stakeholders
The Audit and Risk Committee has helped to create and protect value for many stakeholders, specifically
employees, customers, shareholders and regulators.
See Our key relationships on page 42 for further details.
Risks
The Audit and Risk Committee has provided oversight for all the risks in the group risk register and this
includes addressing the following top 10 risks:
1 Safety
2 Cyclical macro-economic context
3 Evolving technologies and consumer preferences
4 Highly competitive industry
5 Natural resource constraints
6 Project implementation and execution
7 Uncertain and evolving regulatory landscape
8 Market share and customer concentration
9 Employee relations
10 Failure to attract and retain key skills
See Risk management on page 34 for more information.
NP Mageza
Chairman
Membership details at
September 2019:
• NP Mageza
• MA Fallon
• KR Osar
• RJAM Renders
• ZN Malinga
• JE Stipp
96%
committee
attendance rate
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 2019.
Mr NP Mageza is the Chairman
and designated financial expert of
the Audit and Risk Committee and
attended the Annual General
Meeting held on 6 February 2019.
Ms ZN Malinga, joined the board
and the Audit and Risk Committee
with effect from 1 October 2018.
Ms JE Stipp, joined the board
with effect from 1 June 2019 and
was appointed to the Audit and
Risk Committee with effect from
1 August 2019.
See 2019 Audit and Risk
Committee Report on www.
sappi.com/annual-reports
for more information.
Sir Nigel Rudd
Chairman
Membership details at
September 2019:
• Sir Nigel Rudd
• JD McKenzie
• MV Moosa
100%
committee
attendance rate
Nomination and Governance Committee
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. It 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. It has oversight of appraising the performance of the board and
all 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 2019 and established that the board and board committees
functioned well.
Strategic focus areas
The Nomination and Governance committee helped to protect value by providing oversight
and guidance in 2019 on:
• Corporate governance
• Tone at the top
• Succession plans for senior executives and the board with a focus on board composition
• Assessment of the board and board committee performance
• Rotation and replacement of directors
A focus area for 2020 will be executive and board succession planning.
Stakeholders
The Nomination and Governance Committee has helped to protect value primarily for the
shareholders and regulators.
See Our key relationships on page 42 for more information.
Risks
The Nomination and Governance Committee focused on some of the top 10 risks:
1 Safety
6 Project implementation and execution
7 Uncertain and evolving regulatory landscape
10 Failure to attract and retain key skills
See Risk management on page 34 for more information.
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GOVERNANCE continued
Human Resources and Compensation Committee
Roles and responsibilities
The Human Resources and Compensation Committee consists of five 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.
Strategic focus areas
The key focus area in 2019 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 06 February 2019 and
the requisite ordinary resolutions endorsing the remuneration policy (96% majority) and implementation
reports (93% 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 2020 will include:
• To maintain high standards of corporate governance in line with King IV
• Action points from the employment engagement survey
• Leadership development
• Global HR systems implementation
• To review succession and retirement plans for key positions in Sappi
• To engage with key stakeholders to discuss areas of mutual concern.
See Remuneration Report on page 123 for more information.
Stakeholders
The Human Resources and Compensation Committee has helped to protect value primarily
for the employees, shareholders and regulators.
See Our key relationships on page 42 and Remuneration Report on page 123 for more information.
Risks
The Human Resources and Compensation Committee has focused on the following top 10 risks:
1 Safety
2 Cyclical macro-economic context
6 Project implementation and execution
7 Uncertain and evolving regulatory landscape
9 Employee relations
10 Failure to attract and retain key skills
See Risk management on page 34 for more information.
MA Fallon
Chairman
Membership details at
September 2019:
• MA Fallon
• NP Mageza
• JD McKenzie
• RJAM Renders
• BR Beamish
100%
committee
attendance rate
Mr BR Beamish was appointed
to the committee from
01 August 2019.
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MV Moosa
Chairman
Membership details at
September 2019:
• MV Moosa
• SR Binnie
• B Mehlomakulu
• BR Beamish
• JM Lopez
100%
committee
attendance rate
Mr BR Beamish and Mr JM Lopez
were appointed to the Human
Resources and Compensation
Committee from 01 August 2019.
Social, Ethics, Transformation and Sustainability Committee
Roles and responsibilities
The Social, Ethics, Transformation and Sustainability (SETS) Committee comprises two independent
non-executive directors and the CEO. Other executive and group management committee members
attend committee meetings by invitation. It should be noted that a number of other non-executive directors
attend SETS committee meetings ex officio. The chairmen of the Audit and Risk Committee and SETS
Committee attend each other’s meetings to avoid unnecessary repetition of discussions.
The committee’s 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, for the group’s South African subsidiaries, the strategic business priority of
transformation.
The committee is supported by the Global Sustainability Council and by Regional Sustainability Committees
in dealing with day-to-day sustainability issues and helping to develop and entrench related initiatives in the
business.
Strategic focus areas
In 2019 the committee:
• Oversaw the implementation of a Supplier Code of Conduct intended to enable Sappi to manage our
supply chain risks more closely
• Provided oversight of safety initiatives and reviewed serious safety incidents
• Oversaw external assurance on LTIFR and emissions data as well as environmental impact analyses
for major investment projects
• Considered trade-offs between the following:
– Productivity and safety advantages of mechanisation and the social and human capital implications
– 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 2020 will include:
• Further reduction of the group’s carbon footprint
• Safety initiatives
• Sappi Southern Africa’s performance against the applicable BBBEE legislation.
Stakeholders
The SETS Committee has a broad spread of stakeholders for which it helps to protect (or create)
value, namely suppliers, customers, employees, regulators, shareholders and society.
See Our key relationships on page 42 for more information.
Risks
The SETS Committee focused on the top 10 risks:
1 Safety
2 Cyclical macro-economic context
3 Evolving technologies and consumer preferences
4 Highly competitive industry
5 Natural resource constraints
6 Project implementation and execution
7 Uncertain and evolving regulatory landscape
8 Market share and customer concentration
9 Employee relations
10 Failure to attract and retain key skills
See Risk management on page 34 for more information.
See SETS Committee Report on page 123 and summary of the group’s sustainability initiatives
at www.sappi.com/sustainability.
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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. Refer to pages
34 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 business operations, and the dissolving wood pulp business. The CEO has assigned responsibility to the
Executive Committee for a number of functional areas relating to the management of the group, including the development
of policies and alignment of initiatives for 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, on 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.
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.
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Control and Assurance Committee
The Control and Assurance Committee (CAC) is supported by the internal control function and provides regular oversight
and guidance to the business on internal controls and combined assurance for financial, strategic and operational risks.
The committee is accountable to GRMT and the Audit and Risk Committee.
Among other duties, the committee provided oversight for the activities of control and assurance workgroups (CAW)
established to review key risks, identified risk mitigations and controls, assurance provision and identification of any gaps
and subsequent remediation activities. The working group focused on IT security risks, fibre certification risk, corporate
communications risks 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. In 2020, the CAW will assist the CAC to create and protect value
by undertaking reviews of combined assurance, risks and controls relating to retirement benefits,
taxation, safety, and environmental sustainability.
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
group-wide risk framework supported by risk management software. The committee has helped to create value
for shareholders in 2019 by its oversight of:
• The integration of SAP systems of operating units in Italy into Sappi’s SAP environment
• Coordination with group internal audit of reviews of IT security arrangements for specific service providers who
experienced or may have been at risk of cyber-security attacks
• The implementation of COBIT 2019.
Oversight by the committee will continue in 2020 for these IT initiatives, as well as:
• The integration of SAP systems of the recently acquired Matane Mill in Canada, into Sappi’s SAP environment
• The implementation of reviews of IT security arrangements for key suppliers.
Global Business Systems Council
This council meets monthly to provide direction for strategic business improvement projects, in particular,
harmonisation, One Sappi and effective use of resources.
Sustainability Council
This council provides direction for Sappi’s efforts to achieve its sustainable value creation objectives.
Brand Council
This council coordinates Sappi’s brand communication programme, monitors brand performance and ensures
effective brand management to enhance Sappi’s reputation.
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GOVERNANCE continued
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
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, anti-bribery and
corruption training as well as social media training has been
provided to employees across the group over the past three
years.
A Group Supplier Code of Conduct (code) has been
developed to help ensure that Sappi’s values and ethical
standards are clearly understood and supported by all our
suppliers, their first-tier suppliers and other stakeholders.
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. The
group compliance officer
reports twice per annum
to the Audit and Risk
Committee.
LEGAL
COMPLIANCE
PROGRAMME
Sappi enhanced the legal
compliance programme in 2019
by progressing implementation of
Exclaim legal compliance software for
Sappi group functions 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 Exclaim software in support
of our legal compliance responsibilities in 2020. We have
implemented a policy passport tool to support our legal
compliance efforts. The introduction of these software tools
and related training and online learning is helping to create
and protect value primarily for employees, customers,
shareholders and regulators.
CONFLICT OF
INTERESTS
The group has a policy that
obliges all employees to
disclose any interest in
contracts or business
dealings with Sappi to
assess any possible
conflict of interest. The
policy also dictates that
directors and senior officers
of the group must disclose
any interest in contracts as well
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) at
www.sappi.com/
code-of-ethics.
INSIDER
TRADING
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,
categories of hotline calls and ethics reports, and outcome of 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 per annum
Analysis of hotline and ethics reports by
category (%)
Analysis of hotline and ethics reports case
outcomes (%)
8
.
3
5
.
3
1
.
3
3
.
3
2
.
4
5
4
3
2
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1
3
1
5
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3
5
4
5
6
5
2
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1
4
4
3
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3
8
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90
80
70
60
50
40
30
20
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5
5
3
6
5
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6
3
6
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80
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50
40
30
20
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0
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
■ Corruption, fraud and theft
■ Employment-related matters
■ 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
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
• 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 help Sappi to
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. More information on these
capitals and integrated thinking in the
context of Sappi’s sustainable business
model can be found in Our Strategy
and performance, as well as Our global
sustainability goals.
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 2019 we further developed our
approach to combined assurance
which was overseen by the Control
and Assurance Committee (CAC).
The committee and its workgroups
provided more holistic feedback to the
GRMT and Audit and Risk Committee
on the state of controls quality as well
as coverage of assurance from various
assurance providers across Sappi’s
three lines of defence.
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GOVERNANCE continued
Sappi’s combined assurance framework, incorporating the three lines of defence and oversight by the board
and board committees
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
First line of defence
Second line of defence
Third line of defence
Business management
operations supported by
appropriate controls and
systems
Monitoring and oversight
functions
Independent assurance
provided by external audit,
internal audit and other
assurance providers
Control and Assurance Committee
management self-assessments
Internal audit
Executive Committee, Group Head
Strategy, Control and Assurance
Committee, management
self-assessments
Internal audit
Oversight by
the board
Board and
board
committees
Audit and Risk
Committee
Nomination and
Governance
Committee
Control and assurance, accounting
standards, taxation, treasury and
disclosure committees, management
self-assessments
KPMG, tax authorities,
internal audit
Audit and Risk
Committee
Legal and compliance
Legal compliance programme, Group
Compliance Manager
Legal compliance audits,
internal audit
IT
Day-to-day risk management
activity
Established risk and control
environment
IT Steering Committee, group IT
governance functions, management
self-assessments
KPMG, ISA 3402s,
penetration testing, internal
audit
Audit and Risk,
SETS, HR and
Compensation
Committees
Audit and Risk
Committee
Planet, environment,
natural capital
Executive, corporate and
regional lead teams
Sustainability councils, Environmental
and Energy (E4) Global Cluster, GRMT
ISO 14001, FSC™, PEFC™,
EMAS, KPMG
SETS Committee
Corporate and regional business
functions, eg sales, finance, IT,
HR, purchasing
Government reviews
emissions effluent etc,
internal audit
Ethics
People, HR and
transformation
Business units, eg forestry, mills,
sales offices
Group Compliance Manager,
ethics surveys, management
self-assessments
Internal audit
SETS Committee
Business unit operations,
eg production, engineering,
controlling, materials
management
Global HR Committee, regional
labour forums, employee engagement
surveys, management
self-assessments
BBBEE audits, internal audit
Audit and Risk,
SETS, HR and
Compensation
Committees
Research and
development, intellectual
property
Manufacturing, supply
chain management, quality,
forestry
Stakeholders,
communication, reputation,
society
Safety
Group technical cluster, management
self-assessments
ISO 17025, internal audit
SETS Committee
Technical clusters and platforms,
regional SHEQ audits, supplier audits,
management self-assessments
ISO 9001, ISO 50001, FSCTM
PEFCTM, Matrix, internal audit
SETS Committee
Group corporate affairs, sustainability
and investor relations functions
Internal audit
SETS Committee
Group and regional risk management
teams, safety audits
OHSAS 18000, ISO 22000
regulatory inspections,
internal audit
SETS Committee
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 for 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 Annual Integrated Report and
annual financial statements, on risk
management and the effectiveness
of internal controls and assurance in
Sappi.
As part of combined assurance on
reported information, Sappi has
obtained assurance on data in the
Annual Integrated Report from the
following sources:
• KPMG have audited the Group
Annual Financial Statements
• External sustainability assurance was
obtained from KPMG in 2019 for
scope 1 and 2 emissions 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
• Limited reviews of sustainability
information have been undertaken by
central technical management and
internal audit.
The role of internal audit at Sappi is set out in the following diagram:
Internal audit value proposition
Mission, vision, values
Stakeholders
• Board, Audit and Risk Committee
• Management
• Employees
• Other
Strategy
Objectives
People, Planet and Prosperity
• Strategic
• Operational
• Compliance
• Reporting
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 below:
Performance and outcomes
Capitals
• Manufactured
• Financial
• Human
• Natural
• Societal
• Intellectual
Governance, risk and opportunity management, controls
Support
Internal audit activities
Support
Advisory and assistance
• Forensic, hotline and ethics management
• Projects, new business processes
• Ad hoc management requests
• Governance, risk, controls consulting
• King IV, governance disclosures
• Secondments to business
• Internal control support (risk and control framework,
self-assessments, segregation of duties, workgroups)
Assurance (risk based)
• 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
Core
principles
Integrity
Quality and
continuous
improvement
Competence and
due professional
care
Objective and
independent
Effective
communication
Risk based
assurance
Aligned with
strategies, risks
and objectives
Insightful,
future-focused and
proactive
Appropriately
positioned and
resourced
Promotes
organisational
improvement
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CORPORATE
GOVERNANCE continued
During 2019, 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, shared service centre
optimisation)
• Rationalising declining
businesses: project
management reviews for
business optimisation projects.
• Accelerate growth in higher
margin growth segments:
Integration and control
onboarding reviews of
operating units in the United
Kingdom and Italy. Assurance
reviews of contractors and
capital expenditure for the
Vulindlela project at Sappi’s
Saiccor Mill in South Africa.
In 2020, 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
• Developing our 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 Combined Assurance
Workgroup (CAW) which will
address key group risks, provision
of assurance and identification of
gaps, with feedback to the Control
and Assurance Committee (CAC),
GRMT and Audit and Risk
Committee
• Continuing with capital
expenditure and contractor
reviews for the Vulindlela
project in Sappi
Southern Africa
• Integration and control
onboarding reviews of the
acquired Matane Mill in
Canada.
Internal audit maintains an internal
quality assurance programme. An
external quality assurance review is
undertaken periodically. The last 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 2019 internal quality assurance
review highlighted a need for more
regular review of our audit strategy
and assessment of risks. This will
be addressed in 2020.
Board assessment of the
company’s risk management,
compliance function and
(cid:76)(cid:584)(cid:76)(cid:74)(cid:91)(cid:80)(cid:93)(cid:76)(cid:85)(cid:76)(cid:90)(cid:90)(cid:3)(cid:86)(cid:77)(cid:3)(cid:80)(cid:85)(cid:91)(cid:76)(cid:89)(cid:85)(cid:72)(cid:83)(cid:3)
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 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 2019. The results of the
reviews did not indicate any material
breakdown in the functioning of these
controls, procedures and systems
during the year. The internal controls in
place, including the financial controls
and financial control environment, are
considered to be effective and provide
a sound basis for the preparation of
the Group Annual Financial Statements,
Annual Integrated Report and other
reports used internally for management
decision making.
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
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 implementation
of the remuneration policy in 2019.
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 remuneration 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)
and as part of our commitment to good
corporate governance.
Sappi Limited’s AGM was held on
06 February 2019 and ordinary
resolutions endorsing the remuneration
policy and implementation reports were
passed with 95.94% and 93.43%
majorities, respectively. This vote by
our shareholders is an endorsement
of Sappi’s good governance and
disclosure.
Following positive feedback and
support from our shareholders, we
have further improved the following
in the 2019 report:
• Disclosed reasons why Performance
Share Plan (PSP) allocations were
being adjusted up or down
• Disclosed executive directors’
key objectives
• Included working capital in the
calculation of the cash flow return
on net assets (CFRONA)
• Adjusted limits of the PSP in line
with shareholder recommendation
of 5% of issued share capital
See resolutions on page
• Disclosed that the terms and
155.
conditions of the annual incentive
scheme for executive directors and
executive committee members also
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.
We value the input of our shareholders
and will continue to seek their input to
ensure good disclosure.
As detailed in the Chairman and CEO’s
report, in the year ended September
2019 a number of major factors
influenced the group’s results, namely:
• Prolonged weakness in global
graphic paper markets was
experienced
• In the second half of the year, the
graphic paper segment started to
benefit from a reduction in input
costs, particularly paper pulp, helping
to mitigate the impact of lower
volumes
• The year started strongly for
dissolving wood pulp (DWP)
markets, with pricing above long-
term averages for the first six
months. Thereafter, the combination
of the impact from global trade wars
on Chinese textile markets, excess
viscose staple fibre (VSF) capacity
and a weaker Renminbi exchange
rate drove DWP prices to historical
lows, impacting profitability in this
segment
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REMUNERATION
REPORT continued
• To mitigate the impact from lower
profitability, capital expenditure was
postponed and reduced. Tighter
working capital measures were also
implemented.
During the year, Sappi made further
strides towards diversifying its
product portfolio into higher-margin
growth segments. This involved plant
conversions to increase our packaging
capacity in Sappi North America (SNA)
and Sappi Europe (SEU), and in Sappi
Southern Africa (SSA) to debottleneck
and to improve our DWP plants, for
both capacity and sustainability
footprint. These projects removed
production capacity from our
operations during the conversion and
subsequent ramp-up periods which
had an impact on short-term EBITDA.
In the year ahead we will continue the
project to boost DWP capacity by
110,000 tons at Saiccor Mill in South
Africa. Following the recent conversions
at Somerset, Maastricht and Lanaken,
the product portfolio will be further
optimised with a significant increase in
packaging volumes.
The remuneration policy and its
implementation aims where possible
to balance short-term market
conditions with the need to incentivise
management to continue to drive
performance and implement the
long-term strategy.
Two resolutions will be put forward to
shareholders at the AGM in February
2020 to reset the number of shares
under the plan (Performance Share
Plan). Our existing number of shares
under the plan and the scheme have
been in place for 14 years and the
board was prudent in the allocation of
the shares over this time. This allowed
for an effective annual burn rate of just
under 1%. However, these shares are
almost fully utilised. During the year we
engaged with and received the input
from large shareholders before finalising
the resolutions.
For 2020, the focus for Mr Binnie and
his leadership team will be as follows:
• Drive the Safety-first programme
• Continue leading the Sappi Values
(of integrity, speed, courage and
Smart decision making)
• Lead the roll out of the Sappi 2025
strategy
• Execute Saiccor expansion projects
as planned and guide the DWP
business through challenging times
• Grow the packaging and speciality
business with optimal volumes
• Manage the graphics business
capacity
• Drive operational excellence across
all plants
• Integrate Matane Mill into the Sappi
environment
• Ongoing training and development
of people
• Drive Sappi’s sustainability footprint
• Work to ensure the short-term
incentive plan is mindful of
challenging trading conditions and
to gain optimum performance in
FY20 results
• Show significant progress on
commercialisation of new biotech
products
• Talent management and succession
– managing key retirements over the
next 12 months and near-term
succession.
Our remuneration policy is continuously
benchmarked against relevant industry
peers to ensure 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 in 2019
reflects our challenges and successes
to date in the delivery of our strategy.
Thank you for the support and advice
that you have given for our 2019
Remuneration Report. The improved
disclosures on our policy and the
implementation report reflect this
feedback. I look forward to continuing
engaging with you in future.
• Drive One Sappi initiatives across
Mike Fallon
all regions
Chairman of the Human Resources and
Compensation Committee
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Statement of voting at AGM
The AGM of Sappi Limited was held on 06 February 2019 and the requisite resolutions endorsing the remuneration policy
and implementation report were passed as follows:
Ordinary resolution number 7: Non-binding endorsement of remuneration policy
For
401,173,338
95.94%
Against
Shares voted
Abstain
16,971,270
418,144,608
4.06%
74.75%
(voteable shares)
287,954
(0.05%)
Ordinary resolution number 8: Non-binding endorsement of implementation report
For
388,806,540
93.43%
Against
Shares voted
Abstain
27,338,144
416,144,684
6.57%
74.39%
(voteable shares)
287,878
(0.05%)
At the February 2018 AGM, results
for the requisite ordinary resolutions
endorsing the remuneration policy
and implementation report were
99.43% and 92.14% 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 include:
• Make recommendations on
remuneration policies and practices,
including Sappi’s employee share
schemes
• Ensure effective executive
succession planning
• 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 five independent non-
executive directors:
• Mr MA Fallon – Chairman
• Mr B Beamish
• 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
CEO, Mr SR Binnie and Group Head
Human Resources, Mr Fergus Marupen
attend meetings by invitation.
Mr JD McKenzie retires at the end
of December 2019.
Mrs A Mahendranath, 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
109.
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 running
the business.
Executive directors and managers
are not present during committee
discussions relating to their own
compensation.
The committee ensures that
compensation practices and structures
in the group support its strategy and
performance goals. The policy also
enables the attraction, retention and
motivation of executives and all
employees.
Key activities of the committee in 2019
are summarised as follows:
• Reviewed and approved the vesting,
or otherwise, of performance share
plan awards awarded on
04 December 2015
• Approved winding up of the Sefate
employee empowerment scheme
for South Africa
• Approved allocation of 2019
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 2020
• Recommended fee levels for
non-executive directors of Sappi
Limited for consideration and
recommendation to shareholders
for approval
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REMUNERATION
REPORT continued
• Approved the allocation model and
comparator peer group for the 2019
performance share plan
• Reviewed the Remuneration Report,
including the content of the company
compensation policy and practices,
which was put to shareholders
for a non-binding vote at the AGM
in February 2019
• Approved the 2020 Management
Incentive Scheme rules and reviewed
the Share Incentive Plan rules,
including changes to the
Performance Share Plan
• Reviewed the share limits of the PSP
and recommended two resolutions
to the AGM
• Reviewed succession, retirement
and development plans for key
management positions
• Reviewed the group’s Industrial
Relations Policy and implementation
• Reviewed the group’s training and
development policy and
implementation
• Sought advice on the implementation
of a return measure, ROCE, as part
of future incentive plans.
Independent advice
Management engaged the services
from the following organisations to
assist in compensation work during
the year:
• Mercer Kepler, United Kingdom
• Korn Ferry, South Africa
• KPMG Inc, South Africa
• Bowmans, South Africa
• 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
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.
The committee believes the objectives
stated in the remuneration policy
have been achieved for the period
under review. The committee is
satisfied 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 2020
Key activities for the committee in
2020 will include 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,
visit 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 vested
in August 2019.
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
• Through the executive management
incentive bonus scheme, provide for
a voluntary deferral of 40% of the
CEO’s annual bonus, and 30% of
executive managers’ annual bonuses
(to purchase Sappi shares), as this
ensures a long-term focus on the
company’s performance by the
individual concerned and establishes
a personal stake in the company.
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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.
Structure
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 and market
conditions.
• Private medical insurance
• Income in the event of death or disability
These are:
• Appropriate in terms of level of seniority
• Market related
• Death benefit is a multiple of base salary
• Non-pensionable.
• None
Component – pension
• To provide market-related
• Comprises defined benefit and defined
benefits
• Facilitate accumulation
of savings for post-
retirement years.
contribution plans
• A large number of defined benefit plans are
closed to new hires
• Employees in legacy defined benefit plans
continue to accrue benefits in such plans
for both past and future service
• Retirement plans differ by region.
• 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.
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REMUNERATION
REPORT continued
Purpose
Variable
Component – annual cash incentive
Structure
Opportunity
• All measures and objectives are reviewed
• 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.
• None
• 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
and set at the beginning of the financial year.
• Payments are reviewed and approved at year-end
by the committee based on performance against
targets
• Threshold must be met for any bonus payment
to occur
• Target level of bonuses varies from 65% to 85%
of base salary
• Weightings for 2019 were: EBITDA – 50%,
working capital – 20% and safety – 10%,
individual – 20%
• Deferred share proportion
• Bonuses are paid in cash. The Group CEO and
of the annual bonus
aligns interests with
shareholders.
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.
Component – long-term share incentive plans
• Align the interests of
executive members with
those of the shareholder
• Reward execution of
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, 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
CEO, and between 39,000 and 79,000
conditional share awards to each executive
committee member
• Measures for 2019 awards were relative total
shareholder return (TSR) – 50% and relative
cash flow return on net assets (CFRONA) – 50%.
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Purpose
Variable continued
Structure
Opportunity
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 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
level of protection to both
the executive and to
Sappi.
periods of 12 months or less
• Separation agreements, when appropriate, are
negotiated with the individual concerned with
prior approval being obtained in terms of our
governance structures.
• In terms of the rules of the
scheme, A units for both
schemes lapsed as the
threshold of R73.50 was not
achieved. B units delivered
value for participants. The
board approved an ex gratia
payment, in lieu of all units that
lapsed under the scheme of
approximately US$1 million.
This was distributed to current
permanent Sappi employees.
Value to each participant was
determined based on the
number of A units they hold.
• 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.
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.
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.
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.
Executive directors are required to retire from the company at the age of 63. The retirement age of executive committee
members is generally between 63 and 65 years, and differs by region.
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Choice of performance measures and approach to target setting
Short-term incentive
The table below shows the metrics for 2019, why they were chosen and how targets are set.
Metric
Percentage (%)
Relevance
How do we set the targets?
EBITDA
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.
Targets and ranges are set each
year by the board taking account
of required progress towards
strategic goals, and the prevailing
market conditions.
Working
capital
20
A key indicator of accounts payable,
accounts receivable, cash management
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.
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.
An indicator of the contribution of each
executive director. Individual performance
includes several key non-financial targets
for sustainability (environment, energy
consumption, water usage and waste
management), living the Sappi values,
discipline in executing all projects and
operating machines as efficiently
as possible, BBBEE in the case of
South Africa.
Priorities are set for the CEO by
the Chairman of the board in line
with the business plan for the
applicable year. Targets and
ranges are then cascaded to the
rest of the business teams.
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Performance Share Plan (PSP)
The table below shows the metrics for 2019 grants, why they were chosen and how targets are set.
Metric
Relevance
How do we set the targets?
Total
shareholder
return (TSR)
Cash flow
return on net
assets
TSR measures the total returns to Sappi’s
shareholders, so provides close alignment
with shareholder interests.
A key indicator of the effective use of
capital.
Cash flow return on net assets (CFRONA)
is calculated as cash generated by
operations after working capital
movements (before interest, tax and
dividends) divided by average total assets
(excluding cash) less interest-free liabilities.
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
(cid:75)(cid:80)(cid:584)(cid:76)(cid:89)(cid:76)(cid:85)(cid:91)(cid:3)(cid:87)(cid:76)(cid:89)(cid:77)(cid:86)(cid:89)(cid:84)(cid:72)(cid:85)(cid:74)(cid:76)(cid:3)(cid:83)(cid:76)(cid:93)(cid:76)(cid:83)(cid:90)
The chart below illustrate the total
potential remuneration (base pay and
short-term incentives) for executive
directors at different performance
levels.
Remuneration levels (CEO and CFO)
6
1
1
0
0
1
0
0
1
5
8
140
120
100
80
60
40
20
0
Target
Stretch
■ Base pay
■ Short-term incentive (MIS)
Performance Share Plans (PSPs) are
excluded from these scenarios as their
vesting depends on performance
conditions being met. Vesting is based
on a linear vesting schedule over a
four-year period.
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, also the
committee 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
JSE. Sappi participates in global
remuneration surveys and uses data
from global remuneration surveys
ie PwC, Mercer, et al to determine
appropriate remuneration levels.
Ensuring an appropriate peer
group 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.
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REMUNERATION
REPORT continued
The remuneration package for a newly appointed executive director would be set in accordance with the terms of the
group’s approved remuneration policy in force at the time of appointment. The variable remuneration for a new executive
director would be determined in the same way as for existing executive directors. For internal and external appointments,
the group may meet certain relocation expenses, as appropriate.
Remuneration policy for non-executive directors (fees)
Element
Purpose
How it works?
Fees
Non-executive
Chairman
(fees)
• To attract and retain
high-calibre chairman, with
the necessary experience
and skills
• To provide fees which
take account of the time
commitment and
responsibilities of the role.
• The Chairman receives an
• The Chairman’s fees are
all-inclusive fee.
reviewed periodically by the
committee
• Fees are set by reference
to market median data for
companies of similar size
and complexity to Sappi.
Other non-
executive
directors
(fees)
• To attract and retain
• The non-executives are
• Non-executive directors’
high-calibre non-executives,
with the necessary
experience and skills
• To provide fees which take
account of the time
commitment and
responsibilities of the role.
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.
paid a basic fee.
• Attendance fees are also
paid to reflect the
requirement for non-
executive directors to
attend meetings in various
international locations.
• The chairmen of the main
board committees and the
lead independent director
are paid additional fees
to reflect their extra
responsibilities.
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 AGM
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 need to
be tabled for separate non-binding
advisory votes by shareholders at
the upcoming AGM. In the event that
either the remuneration policy or the
implementation report, or both, are
voted against by 25% or more of the
voting rights entitled to be exercised
by shareholders at such AGM, then
the committee will ensure that the
following measures are taken in good
faith and with best reasonable efforts:
• An engagement process to
ascertain the reasons for the
dissenting votes
• Appropriately addressing legitimate
and reasonable objections and
concerns raised which may include
amending the remuneration
policy or clarifying or adjusting
remuneration governance and/or
processes.
You can also view the full
remuneration policy on
www.sappi.com
Section C: Remuneration
implementation report
Compensation structure
Total compensation comprises fixed
pay (ie base salary and benefits) and
variable performance-related pay,
which is divided further into short-term
incentives with a one-year performance
period and long-term incentives which
have a four-year performance period.
Compensation mix
The compensation mix for executive
directors and executive committee
members is shown in the schematics
below and alongside.
The long-term incentive awards are
based on the face value of the
performance plan shares issued in
December 2019 (share price at date
of allocation: ZAR80.60 November
2018). Details of the executive
directors’ remuneration can be found
on page
138.
Executive directors (number of employees
at September 2019 = 2) (%)
US$ million
2,877,296
%
9
2
%
5
3
%
7
3
3.0
2.5
2.0
1.5
1.0
0.5
0
1,954,349
%
8
4
%
2
5
2018
2019
■ Guaranteed package
■ Performance shares issued
■ Short-term incentives
Executive Committee (number of employees
at 30 September 2019 = 7) (%)
US$ million
7.5
7,121,202
%
6
2
%
7
2
%
7
4
5,682,992
%
5
%
5
3
%
9
5
5.6
3.7
1.8
0
2018
2019
■ Guaranteed package
■ Performance shares issued
■ Short-term incentives
Our compensation policy aims to have
a balance between base salary, short
and long-term incentives. No short-
term bonuses were paid in 2019 to
the majority of executive committee
members.
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 2019 salary increases were based
on individuals’ performances and
contributions, internal relativities,
inflation rates in the countries of
operation, general market salary
movement and overall affordability.
The same salary increase percentages
were applied in determining the salaries
for executive directors and executive
committee members’ increases as
was the mandate for general staff,
dependent on location.
For 2019 Mr Binnie received a salary
increase of 5% on the South African
portion of his salary and 1.5% on the
offshore portion. His salary with effect
from 01 January 2019 was
US$539,629 per annum.
Mr Pearce received a salary increase
of 5% on the South African portion of
his salary and 1.5% on the offshore
portion. Mr Pearce’s salary with effect
from 01 January 2019 was
US$312,014 per annum.
For the Executive Committee, two
members were awarded a short-
term bonus.
(cid:57)(cid:76)(cid:91)(cid:80)(cid:89)(cid:76)(cid:84)(cid:76)(cid:85)(cid:91)(cid:3)(cid:73)(cid:76)(cid:85)(cid:76)(cid:196)(cid:91)(cid:90)
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 2019 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 year.
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The bonus payment opportunity available to executive directors and executive committee members is as follows:
On-target bonus
Stretch target
Executive director
85% of base salary
116% of base salary
Regional chief executive officer
70% of base salary
95% of base salary
Other prescribed officers (ie Executive
Committee members)
65% of base salary
88.5% of base salary
A performance threshold of 85% of budgeted 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. Only Sappi Southern African will be entitled to a bonus payment for fiscal 2019.
They have met the 85% threshold on EBITDA.
The group’s performance for the 2019 financial year:
Performance criteria
Points
2019 actual achievement
EBITDA*
Working capital**
Safety***
Total
50
20
10
80
0
0
0
0
* Budgeted EBITDA as less than the 85% threshold, hence zero.
** Working capital needs to be at least 110% of target, 2019 was above at 112%, hence zero.
*** 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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Personal objectives of executives for 2019 Management Incentive Scheme
Key objectives and achievements
The executives share many key objectives and have individual objectives specific to their role, some examples are as follows:
Rationalising declining
business
(cid:198) During 2018 Sappi continued to balance paper supply and demand. Capacity
was reduced by conversions, carouselling opportunities. The graphic paper
manufacturing capacity reduced by approximately 550,000 tons since 2014.
Converting paper machines to higher-margin businesses with the implementation
of transformation programmes in Europe and North America. In total, 11 mills are
now converted in the group to produce speciality and/or packaging paper.
Maintain healthy balance
sheet
(cid:198) The focus was on strong cash generation, sale of non-core assets and debt
reduction.
Accelerate growth in
higher margin growth
segments
The improved balance sheet enabled the investment in further pulp integration
with the acquisition of the Matane Mill from Rayonier.
(cid:198) Expanding the packaging grades is an ongoing process. The Cham operations
have been successfully integrated in the Sappi Europe business.
The specialised cellulose portfolio is also being enhanced by expansion at
Ngodwana (completed), Saiccor (in progress) and Cloquet (completed).
The lignosulphonate business was expanded, but, commercialising biotech
products are more challenging than expected.
Achieve cost advantages (cid:198) The optimisation of the business process continues to gain momentum with
the establishment of global business centres and the Global Business Council.
IT centres of excellence were established, HR was unified into nine global
processes and a brand council was created to focus on global marketing efforts.
Through our cost-saving initiatives, pulp buying and the global freight programme,
Sappi’s savings for 2019 exceeded US$80 million.
Energy and efficiency investments were made at several of the operations.
(cid:198) Developed the Sappi sustainability strategy. See more details on Sappi’s
sustainability performance in our key material issues on page
Annual Integrated Report.
58 of the
(cid:198) During this period, a new CEO for Sappi North America (SNA) was appointed from
the SNA team. This is proof of the good succession planning process in place.
CEO and Chairman of the board followed a rigorous process to appoint three new
non-executive directors.
(cid:198) Sappi Southern Africa retained a level 2 rating after the independent Empowerdex
audit in 2019 and 2018.
Sustainability
Talent and succession
Sappi Southern Africa’s
(SSA) performance relative
to the Employment Equity
Act and new Forestry
Charter
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REMUNERATION
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2019 Management Incentive Scheme outcomes for executives
%
Weight
Steve Binnie
Glen Pearce
Based on 2019 performance against
the set targets as defined by the board
in October 2018, neither Mr Binnie or
Pearce will not qualify for a bonus
payment in 2019.
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.
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 2019 PSP
award consisted of:
• Fortress Paper
• Lenzing
• Rayonier Advance Materials
• Ahlstrom-Munksjo
• Borrogaard
• Domtar
• West Rock
EBITDA
Working
capital
Safety
Personal
Total
50
–
–
20
–
–
10
–
–
20
20
18
100
–
–
• Sun Paper
• UPM-Kymmene
• Holmen
• Metsá Board
• Verso
• Mondi plc
• International Paper
• Stora Enso
• Resolute Forest Products.
Performance Share Plan
As disclosed in previous reports, the
committee approved the linear vesting
schedule for 2015 allocations which will
be applicable from the 2019 vesting
and onwards. This will have the impact
that, at median performance, 25% of
the allocation vests. The vesting
schedule for 2015 allocation for both
TSR and CFRONA is as follows:
Position
1 – 5
6
7
8
9
10 – 17
Vesting
%
100
80
65
45
25
–
For the four-year period ended
September 2019, Sappi’s performance
relative to the peer group measured
on TSR was ranked sixth, which
meant that 80% TSR component
shares vested on the due date
in December 2019.
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.
In aggregate, therefore 90% of the
total 2015 awards vested.
In December 2015, Mr Binnie was
granted 190,000 conditional
performance plan shares of which
171,000 will vest in December 2019.
In December 2015, Mr Pearce was
granted 90,000 conditional
performance plan shares of which
81,000 will vest in December 2019.
The historical vesting of PSP awards:
Share awards
TSR
CFRONA
Aggregate
2015
%
–
100
50
2016
%
100
100
100
2017
%
100
100
100
2018
%
100
100
100
2019
%
80
100
90
Vesting since 2016 which had been
at 100% on both performance criteria,
reduced to 90% for 2019. However,
the markets we operate in are
expected to remain challenging in the
coming year, and profitability is likely
to be negatively impacted as a result.
DWP pricing, in particular, will have
a significant impact on earnings as
this segment is a major contributor
to our profits and cash flow generation.
Performance Share Plan
allocations for 2019
Each year, Mercer Kepler provides
management with a recommendation
for an appropriate pool size. For the
2019 allocation, it was approved to
grant the number of shares implied
by the same ZAR value of prior-year
PSP awards, where value is based on
trailing long-run average share price at
grant (eg 12 months). This approach
has been applied for the last three
years and is consistent with
recommendations by our shareholders,
to disclose the allocation method. This
meant the pool size was adjusted by
some 10% (6% based on share price
movement and 4% based on an
average salary adjustment across
all regions).
Mr Binnie was awarded 156,000
conditional performance plan shares
in December 2019 that will vest in
December 2023.
Mr Pearce was awarded 71,000
conditional performance plan shares
in December 2019 that will vest in
December 2023.
Changes to the long-term
incentive scheme
Sappi received authority to use
7.95% of shares for the Sappi Limited
Share Incentive Trust (the scheme)
and/or the Sappi Limited Performance
Share Incentive Trust (the plan)
from shareholders at the AGM on
07 March 2005. This was equivalent
to 19 million shares subject to
adjustment in case of any increase
or reduction of Sappi’s issued
share capital on any conversion,
redemptions, consolidations, sub-
division and/or any rights or
capitalisation issues of shares.
After the rights issue undertaken by
Sappi in November 2008, this number
increased to 42.7 million (still equivalent
to 7.95% of the shares in issue at the
time). Since obtaining shareholder
approval in 2005, Sappi has been
allocating shares to participants and
currently has only 5.8 million shares
available to issue and is therefore close
to the shareholder-approved limit. The
authority to use the shares in the plan
and the scheme has been in place for
14 years and with an annual burn rate
of just under 1%.
Sappi has prepared the requisite
ordinary resolutions to be tabled
at the AGM in February 2020,
requesting shareholders to (i) approve
an additional 27.8 million shares,
being approximately 5% of Sappi’s
issued shares as at September 2019,
that can be used to incentivise
management under the rules of the
plan in years ahead and (ii) to place
these shares under the specific control
of directors to issue in terms of the
rules of the plan. Approval will be
sought from shareholders to reset the
numbers of shares under the plan only
as Sappi is liquidating the scheme. This
reset will happen with effect from date
of approval of the resolution and all
future outstanding shares will be
calculated accordingly.
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 Employee Share
Ownership Plan (ESOP) and
Management Share Ownership Plan
(MSOP). There were 5,607 participants
in the schemes at the end of
September 2014. Eligible employees
receive an allocation based on seniority,
of A ordinary shares and ordinary
shares. Shares vest 40% after three
years and 10% each year thereafter.
Shares may, however, only be taken
up after September 2019. Employees
receive the net value in shares or cash
at the end of the lock-in period.
In terms of the rules of the scheme,
the A units for both schemes lapsed
as the threshold of ZAR73.50 was not
achieved. The B units delivered value
for the participants. The board
approved an ex gratia payment, in lieu
of all the units that lapsed under the
scheme of approximately US$1 million.
This was distributed to current
permanent Sappi employees. Value
to each participant was determined
based on the number of A units they
hold. The scheme has come to an end.
Management, together with the board,
are working on alternatives to replace
the Sefate scheme. Sappi will,
however, retain its ownership points
under the Forestry Charters for the
next nine years.
Dilution
If all outstanding option and plan
shares were to be exercised or vest
as at September 2019, the resulting
dilution effect would be 2.26%
(2018: 2.42%) 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 2 x his annual base
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REMUNERATION
REPORT continued
salary by December 2020. He currently holds shares to the value of approximately 134% of his annual base salary. The lower
share price has impacted the short-term value of his holding, however, he is committed to achieving this target as soon as
possible. 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.
(cid:57)(cid:76)(cid:84)(cid:92)(cid:85)(cid:76)(cid:89)(cid:72)(cid:91)(cid:80)(cid:86)(cid:85)(cid:3)(cid:75)(cid:80)(cid:90)(cid:74)(cid:83)(cid:86)(cid:90)(cid:92)(cid:89)(cid:76)(cid:3)(cid:86)(cid:77)(cid:3)(cid:76)(cid:95)(cid:76)(cid:74)(cid:92)(cid:91)(cid:80)(cid:93)(cid:76)(cid:3)(cid:75)(cid:80)(cid:89)(cid:76)(cid:74)(cid:91)(cid:86)(cid:89)(cid:90)(cid:3)(cid:72)(cid:85)(cid:75)(cid:3)(cid:87)(cid:89)(cid:76)(cid:90)(cid:74)(cid:89)(cid:80)(cid:73)(cid:76)(cid:75)(cid:3)(cid:86)(cid:585)(cid:74)(cid:76)(cid:89)(cid:90)
Executive directors’ emoluments for 2019 (US$)
US$
SR Binnie1
GT Pearce2
Salary
539,629
312,014
Performance-
related
remuneration
Sums paid
by way of
expense
allowance
Contributions
paid under
pension
and medical
aid schemes
Share-
based
payment
benefit
Total
–
–
14,819
8,422
82,317
60,185
635,321
301,641
1,272,086
682,263
1 SR Binnie received a 5% increase on the South African portion (72% of total salary), and a 1.5% increase on the offshore portion (28% of total salary).
Overall salary expressed in reporting currency was 3.3% lower than in 2018.
2 GT Pearce received a 5% increase on the South African portion (73% of total salary), and a 1.5% increase on the offshore portion (27% of total salary).
Overall salary expressed in reporting currency was 3.4% lower than in 2018.
• Base salary – the actual salary earned during 2019
• 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 – expense allowances
• Annual cash bonus – the actual bonus earned in 2019 based on the rules of the Management Incentive Scheme
• Long-term incentive – conditional performance plan shares awarded in 2019 financial year which will vest in 2023 if the
TSR and CFRONA targets are met
• Local earnings are translated into the reporting currency (US Dollar) using the average exchange rate over the financial
year. The average rate for the South African Rand depreciated by 10%, and for the Swiss Franc 2.2%
• Due to the earnings currencies (ZAR) depreciating against the reporting currency (US$) over the year, this had the effect
of showing earnings in US Dollar terms to be lower than last year.
Executive directors’ emoluments for 2018 (US$)
Performance-
related
remuneration
Sums paid
by way of
expense
allowance
Contributions
paid under
pension
and medical
aid schemes
525,830
303,971
14,907
8,473
85,129
63,461
Salary
558,318
322,878
Share-
based
payment
benefit
701,472
292,857
Total
1,885,656
991,640
US$
SR Binnie
GT Pearce
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Prescribed officers are members of the Group Executive Committee.
The table below sets out the remuneration for prescribed officers for 2019:
Bonuses
and
performance-
related
payments
Sums paid
by way of
expense
allowance
Contributions
paid under
pension
and medical
aid schemes
–
–
189,876
–
–
–
106,828
2,820
–
9,379
4,964
7,865
5,219
157,904
258,045
57,222
57,939
43,939
106,199
47,238
105,498
Salary
756,218
564,133
325,447
167,871
253,087
182,354
276,886
US$
B Wiersum
M Gardner(1)
A Thiel
M van Hoven
G Bowles
F Marupen
M Mansoor
The table below sets out the remuneration for prescribed officers for 2018:
Bonuses
and
performance-
related
payments
Sums paid
by way of
expense
allowance
Contributions
paid under
pension
and medical
aid schemes
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
Salary
779,507
548,690
336,541
84,049
173,061
250,935
188,705
205,370
US$
B Wiersum
M Gardner
A Thiel
A Rossi(2)
M van Hoven
G Bowles
F Marupen
M Mansoor(3)
(1) Retired in September 2019.
(2) Retired in December 2017.
(3) Appointed in January 2018.
Share-
based
payment
benefit
360,596
360,596
360,596
282,976
301,641
235,658
111,072
Share-
based
payment
benefit
353,023
353,023
384,436
–
279,116
297,682
196,818
66,188
Total
1,377,679
981,951
943,237
499,750
668,792
470,469
758,188
Total
1,908,013
1,400,572
1,021,872
129,900
628,082
844,329
575,750
612,684
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REMUNERATION
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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.
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.
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
they are based. The extreme volatility
of currencies, in particular the
ZAR/US Dollar exchange rate in recent
years, caused distortions of the relative
fees in US Dollar paid to individual
directors. Every second year, Mercer
provides a recommendation on fees
to the committee.
Non-executive directors’ fees are
proposed by the Executive Committee,
agreed by the Compensation
Committee, recommended by the
board and approved at the AGM
by the shareholders.
The non-executive directors’ fees for 2019 financial year were approved by shareholders. The table below sets out the
remuneration for non-executive directors for 2019:
US$
KR Osar
JD McKenzie
ANR Rudd
NP Mageza
MV Moosa
MA Fallon
RJAM Renders
B Mehlomakulu
Z Malinga1
BR Beamish2
JM Lopez2
JE Stipp3
Total
1 Appointed to the board in October 2018.
2 Appointed to the board in March 2019.
3 Appointed to the board in June 2019.
2019
Board fees
Committee
fees
Travel
allowance
69,320
44,944
402,325
30,037
30,037
58,687
69,238
30,037
30,037
34,235
40,419
23,097
862,413
35,050
19,518
–
40,950
28,512
65,376
64,601
9,759
15,596
8,271
4,175
5,842
18,500
7,400
11,100
7,400
7,400
11,100
11,100
7,400
7,400
–
7,400
3,700
Total
122,870
71,862
413,425
78,387
65,949
135,163
144,939
47,196
53,033
42,506
51,994
32,639
297,650
99,900
1,259,963
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D Konar(1)
KR Osar
JD McKenzie
ANR Rudd
NP Mageza
R Thummer(2)
MV Moosa
MA Fallon
RJ De Koch(3)
RJAM Renders
B Mehlomakulu
Total
2018
Board fees
Committee
fees
Travel
allowance
13,686
74,140
50,394
419,684
34,729
24,700
34,729
66,335
65,806
78,937
31,565
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
Total
28,030
126,240
78,105
430,484
79,498
39,178
66,763
144,358
101,563
156,759
49,020
894,705
304,693
100,600
1,299,998
(1) Retired from the board in January 2018.
(2) Retired from the board in December 2017.
(3) Retired from the board in August 2018.
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.
141
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SOCIAL, ETHICS,
TRANSFORMATION AND
SUSTAINABILITY
COMMITTEE REPORT
Introduction
The Social, Ethics, Transformation and Sustainability
(SETS) Committee presents its report for the
financial year ended September 2019. This 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.
Multifunctional 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 to deliberate
on all aspects relating to its terms.
A 100% attendance record was
achieved by board committee
members for 2019.
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 2019 financial year were:
• Mr MV Moosa (Chairman from
01 March 2016)
• Mr SR Binnie
• Dr B Mehlomakulu
• Mr BR Beamish (from 01 August
2019)
• Mr JM Lopez (from 01 August 2019)
Four members of the committee were
independent non-executive directors
and one the CEO. 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
• Reviewed the Corporate Social
Development programme
• Reviewed the UN Sustainable
Development Goals most relevant
to Sappi
• Reviewed Sappi’s standing in terms
of:
– The principles set out in the United
Nations Global Compact
– The OECD recommendations
regarding corruption
– The Employment Equity Act, and
– The Broad-based Black Economic
Empowerment Act
• Reviewed the Code of Ethics, ethics
programme and their effectiveness
• Obtained feedback from the ethics
reporting hotlines
• Reviewed the South African skills
audit as well as the training and
development plan
• Reviewed the staff training progress
• Reviewed the company performance
relative to the Employment Equity
Act, Broad-based Black Economic
Empowerment (BBBEE) Act and the
company’s transformation strategies
• Reviewed the Sappi Southern Africa
Transformation Charter
• Reviewed Sappi’s policy and
standing in terms of the International
Labour Organization (ILO) protocol
on decent work and working
conditions
• Reviewed the group safety
programmes, safety performance
and actions being taken to improve
the safety performance of the group
• Reviewed the group unfair
discrimination and equality policy
• Reviewed the Group Sustainability
Charter and Environmental Policy
• Reviewed the material indicators
of the group’s environmental
performance
• Reviewed regional sustainability
performance against goals for 2019
• 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
2019
• Indepth review of the European
industry dynamics, particularly risks
and opportunities related to the
single use plastic directive and the
transition to a low-carbon economy
• Indepth review of factors influencing
the sustainability of Sappi’s timber
plantations and related actions taken
to mitigate risks and improve growth
• Indepth review of Sappi North
America’s energy and carbon
emissions strategy
• 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 indepth 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 European industry
dynamics, including the single-use
plastic legislation, shift to paper
packaging and the transition to a
low-carbon economy. Secondly, factors
influencing the sustainability of Sappi’s
South African timber plantations and
new technologies being implemented
to lower cost, enhance productivity and
improve safety. Lastly, the committee
reviewed Sappi North America’s energy
and carbon emissions reduction
strategy.
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 its
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
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RERECTI
DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDIIIIIIIIIIIIIIIIIIIIIRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRREEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEECCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTION
D
ATATIO
UUS
MMA
SSPE
SSSSSSSSSPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD
UUM
CCIT
PPPPPPPPAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAASSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSIIIIIIIOOOOOOONNNN
DETERMINATION
LLLLEEEEAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAADDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD
TETE
RPORPOSE
PPPUUURRRRPPPPOOOOSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSEEEEEEEEEEEEEEEEEEEEEEEEEE
Every marathon runner has their own
individual race strategy – intervals and
tempo runs that increase cardio capacity,
rest and recovery periods that help
prevent injuries. However different their
strategies may be, they all have one
characteristic in common: determination.
It begins with the long, hard slog of
training, often at inconvenient times,
sometimes in inclement weather.
Determination continues as runners have
to contend with meeting the increasingly
stringent criteria for cut off times.
Nobody forces anybody to participate,
nobody needs to participate. For all the
hundreds of thousands of those who
participate in marathons every year, it
is not only a competition against other
runners, it is a competition against
themselves. That is what drives them to
finish the race even when their bodies are
saying they cannot possibly do so and the
power of the mind and positive thinking
drives them on.
This individual and collective
determination demonstrates how success
is achieved – not just by the record
breakers or race winners, but everyone
who finishes within the cut-off time.
At Sappi, we believe in the power of
determination, of overcoming the
impossible and constantly challenging
ourselves to do better than our best. It is
what underpins our focus on our chosen
markets, our approach to leveraging the
power of woodfibre and our drive to be a
trusted and sustainable organisation with
an exciting future.
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FIVE-YEAR
REVIEW
US$ million
2019
2018
2017
2016
2015
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 Euro exchange rate – closing
US$ per one Euro exchange rate – average
(financial year)
ZAR to one US$ exchange rate – closing
ZAR to one US$ exchange rate – average
(financial year)
5,746
3,530
1,771
43
402
19
383
85
298
87
211
687
5,623
3,789
1,834
1,214
1,948
1,501
1,894
(393)
3,449
673
(15)
(51)
9
(51)
(92)
473
1
56
471
148
323
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
1,094
1,161
1,181
1,123
1,120
1,128
15,156
1,190
14,147
1,106
13,556
1,111
13,714
1,150
13,914
14,346
13,052
13,381
14,788
11,964
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.
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US$ million
2019
2018
2017
2016
2015
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 (ton/adt)
Emissions
542.8
539.3
535.0
530.6
526.4
542.0
538.1
533.9
529.4
525.7
39
39
42
42
44
359
6.7
7.0
12.0
11.5
2.2
9.3
10.8
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
43.5
44.6
43.1
50.5
63.6
1.0
7.0
1.5
46
7.6
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
7,622
12,821
7,591
12,645
7,410
12,158
7,253
12,051
7,306
12,548
0.54
0.43
0.44
0.46
0.48
22.84
52.93
34.17
32.32
22.44
52.15
34.28
32.15
22.63
53.71
33.74
31.66
22.75
53.78
34.93
31.74
22.64
54.84
34.32
31.27
0.059
0.064
0.079
0.069
0.077
Specific Scope 1 emissions (ton CO2 eq/adt)
Absolute Scope 1 (ton CO2e)
Specific Scope 2 emissions (ton CO2 eq/adt)
Absolute Scope 2 (ton CO2e)
0.69
4,395,556
0.25
1,608,661
0.69
4,456,032
0.24
1,537,231
0.68
4,330,484
0.25
1,583,499
0.69
4,233,863
0.28
1,699,092
0.67
4,098,481
0.27
1,667,942
Refer to share statistics section for other market and share-related information.
1 Net of treasury shares (refer to note 18 to the group financial statements).
2
Certain energy, water, waste and emissions data for the comparative years have been restated using the latest reporting standards and measurement
methodology.
Note: Definitions for various terms and ratios used above are included in the glossary section.
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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
SHARE
STATISTICS
as at September 2019
Number
of
shareholders
5,145
210
396
157
357
76
6,341
%
81.1
3.3
6.3
2.5
5.6
1.2
Number
of shares1
% of shares
in issue
2,714,091
1,526,010
9,952,385
11,063,470
110,244,899
407,274,585
0.5
0.3
1.9
2.0
20.3
75.0
100.0
542,775,440
100.0
1 The number of shares excludes 5,278,023 treasury shares held by the group.
Shareholder spread
Type of shareholder
Non-public
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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 2019 was 6,330)
% of shares
in issue
0.4
0.4
–
–
–
–
99.6
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.
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 2019,
the following are beneficial holders of more than 5% of the issued share capital of Sappi Limited:
Beneficial holder
Public Investment Corporation
Shares
81,646,282
%
15.0
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 2019, the following fund managers
were responsible for managing 5% or more of the share capital of Sappi Limited:
Fund manager
Allan Gray Proprietary Limited
Public Investment Corporation
Prudential Investment Managers
Shares
89,790,341
73,976,923
68,923,170
%
16.5
13.6
12.7
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Share statistics
Ordinary shares in issue (millions)1
Net asset value per share (US cents)
Number of shares traded (millions)
JSE
New York
Value of shares traded
JSE (ZAR million)
New York (US$ million)
Percentage of issued shares traded
Market price per share
– year-end JSE (South African cents)
– highest
– lowest
New York (US cents)
JSE (SA cents)
New York (US cents)
JSE (SA cents)
New York (US cents)
Earnings yield (%)2
Price/earnings ratio (times)2
Total market capitalisation (US$ million)2
2019
542.8
359
537.1
0.3
33,141.3
1.5
99.0
3,629.0
251.0
9,059.0
640.0
3,542.0
241.0
16.29
6.14
1,300
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
54,760.0
20.3
118.5
35,428.6
4.2
102.8
15,642.5
4.4
66.9
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
1 The number of shares excludes 5,278,023 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 section.
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GLOSSARY
(cid:46)(cid:76)(cid:85)(cid:76)(cid:89)(cid:72)(cid:83)(cid:3)(cid:75)(cid:76)(cid:196)(cid:85)(cid:80)(cid:91)(cid:80)(cid:86)(cid:85)(cid:90)
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 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 (CM) – 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 (CWF) – 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.
ESG – Environmental, social and corporate governance.
energy – Is present in many forms such as solar,
mechanical, thermal, electrical and chemical. Any source of
energy can be tapped to perform work. In power plants, coal
is burned and its chemical energy is converted into electrical
energy. To generate steam, coal and other fossil fuels are
burned, thus converting stored chemical energy into thermal
energy.
fibre – Fibre is generally referred to as pulp in the paper
industry. Wood is treated chemically or mechanically to
separate the fibres during the pulping process.
fine paper – Paper usually produced from chemical pulp for
printing and writing purposes and consisting of coated and
uncoated paper.
FMCG – Fast-moving consumer goods. Examples include
non-durable goods such as packaged foods, beverages,
toiletries, over-the-counter medicines and many other
consumables.
Forestry South Africa – Largest forestry organisation
representing growers of timber in South Africa.
Forest Stewardship Council™ (FSC™) – A global,
not-for-profit organisation dedicated to the promotion of
responsible forest management world-wide. (FSC-N003159)
(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.
Ideas that Matter (ITM) – More than a decade ago Sappi
North America established the Ideas that Matter grant
programme to recognise and support designers who use
their skills and expertise to solve communications problems
for a wide range of charitable activities.
ISO – Developed by the International Standardisation
Organisation (ISO), ISO 9000 is a series of standards
focused on quality management systems, while the
ISO 14001 series is focused on environmental performance
and management.
JSE Limited – The main securities exchange in South
Africa.
kraft paper – Packaging paper (bleached or unbleached)
made from kraft pulp.
kraft pulp – Chemical wood pulp produced by digesting
wood by means of the sulphate pulping process.
Kyoto Protocol – A document signed by over 160 countries
at Kyoto, Japan in December 1997 which commits
signatories to reducing their emission of greenhouse gases
relative to levels emitted in 1990.
lignosulphonate – Lignosulphonate is a highly soluble lignin
derivative and a product of the sulphite pulping process.
linerboard – The grade of paperboard used for the exterior
facings of corrugated board. Linerboard is combined with
corrugating medium by converters to produce corrugated
board used in boxes.
liquor – White liquor is the aqueous solution of sodium
hydroxide and sodium sulphide used to extract lignin during
kraft pulping. Black liquor is the resultant combination of
lignin, water and chemicals.
lost-time injury frequency rate (LTIFR) – Number of
lost-time injuries x 200,000 divided by man hours.
managed forest – Naturally occurring forests that are
harvested commercially.
market pulp – Pulp produced for sale on the open market,
as opposed to that produced for own consumption in an
integrated mill.
mechanical pulp – Pulp produced by means of the
mechanical grinding or refining of wood or woodchips.
nanocellulose – Cellulose is the main component of plant
stems, leaves and roots. Traditionally, its main commercial
use was in producing paper and textiles. Nanocellulose
opens up opportunities for advanced, planet-friendly
solutions in place of environmentally harmful products.
National Development Plan (NDP) – Aims to eliminate
poverty and reduce inequality by 2030. South Africa can
realise these goals by drawing on the energies of its people,
growing an inclusive economy, building capabilities,
enhancing the capacity of the state, and promoting
leadership and partnerships throughout society.
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
United States of America.
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
United States of America. The price of NBSK is a benchmark
widely used in the pulp and paper industry for comparative
purposes.
newsprint – Paper produced for the printing of newspapers
mainly from mechanical pulp and/or recycled waste paper.
NGO – Non-governmental organisation.
NPO – Non-profit organisation.
OHSAS – 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 and speciality 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.
packaging paper – Paper used for packaging purposes.
PAMSA – Paper Manufacturers’ Association of South Africa.
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GLOSSARY continued
Programme for the Endorsement of Forest
Certification™ (PEFC™) – 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.
SETS – Social, ethics, transformation and sustainability.
silviculture costs – Growing and tending costs of trees in
forestry operations.
solid waste – Dry organic and inorganic waste materials.
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.
PM – Paper machine.
printing and writing papers – A generic term for a group
of papers intended for commercial printing use such as
coated woodfree, coated mechanical, uncoated woodfree
and newsprint.
power – The rate at which energy is used or produced.
pulpwood – Wood suitable for producing pulp – usually not
of sufficient standard for sawmilling.
raster – A rectangular pattern of parallel scanning lines
followed by the electron beam on a television screen or
computer monitor.
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.
Sappi Biotech – The business unit within Sappi which
drives innovation and commercialisation of biomaterials
and biochemicals.
Sappi Europe (SEU) – The business unit within Sappi
which oversees operations in the European region.
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
• Indirect GHG emissions are emissions from purchased
electricity, steam, heat or cooling.
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.
Sustainable Forestry Initiative® (SFI®) – 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 in the PEFC™ programme.
(http://www.sfiprogram.org).
thermo-mechanical pulp – Pulp produced by processing
woodfibres using heat and mechanical grinding or refining
wood or woodchips.
ton – Metric ton of 1,000 kg.
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 that
can be twisted to form yarn.
woodfree paper – Paper made from chemical pulp.
World Wildlife Fund (WWF) – The world’s largest
conservation organisation, focused on supporting biological
diversity.
(cid:46)(cid:76)(cid:85)(cid:76)(cid:89)(cid:72)(cid:83)(cid:3)(cid:196)(cid:85)(cid:72)(cid:85)(cid:74)(cid:80)(cid:72)(cid:83)(cid:3)(cid:75)(cid:76)(cid:196)(cid:85)(cid:80)(cid:91)(cid:80)(cid:86)(cid:85)(cid:90)
acquisition date – The date on which control in respect
of subsidiaries, joint control in respect of joint arrangements
and significant influence in associates commences.
associate – An entity over which the investor has significant
influence.
basic earnings per share – Net profit for the year divided
by the weighted average number of shares in issue during
the year.
commissioning date – The date that an item of property,
plant and equipment, whether acquired or constructed, is
brought into use.
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.
joint arrangement – Is an arrangement of which two or
more parties have joint control.
joint venture – Is a joint arrangement whereby the parties
that have joint control of the arrangement have rights to the
net assets of the arrangement.
operation – A component of the group:
• That represents a separate major line of business or
geographical area of operation that is distinguished
separately for financial and operating purposes.
operating profit – A profit from business operations before
deduction of net finance costs and taxes.
presentation currency – The currency in which the
financial results of an entity are presented.
qualifying asset – An asset that necessarily takes a
substantial period (normally in excess of six months) to get
ready for its intended use.
recoverable amount – The recoverable amount of an asset
or cash-generating unit is the higher of its fair value less
costs of disposal and its value in use. In determining the
value in use, expected future cash flows are discounted to
their net present values using the discount rate.
related party – Parties are considered to be related if one
party directly or indirectly has the ability to control the other
party or exercise significant influence over the other party in
making financial and operating decisions or is a member of
the key management of Sappi Limited.
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.
(cid:53)(cid:86)(cid:85)(cid:20)(cid:46)(cid:40)(cid:40)(cid:55)(cid:3)(cid:196)(cid:85)(cid:72)(cid:85)(cid:74)(cid:80)(cid:72)(cid:83)(cid:3)(cid:75)(cid:76)(cid:196)(cid:85)(cid:80)(cid:91)(cid:80)(cid:86)(cid:85)(cid:90)
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.
asset turnover (times) – Sales divided by total assets.
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GLOSSARY continued
average – Averages are calculated as the sum of the
opening and closing balances for the relevant period divided
by two.
black economic empowerment (BEE) charge –
Represents the IFRS 2 non-cash charge associated with
the BEE transaction implemented in 2010 in terms of BEE
legislation in South Africa.
capital employed – Shareholders’ equity plus net debt.
cash interest cover – Cash generated by operations
divided by finance costs less finance revenue.
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.
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.
EBITDA excluding special items – Earnings before
interest (net finance costs), taxation, depreciation,
amortisation and special items.
EPS excluding special items – Earnings per share
excluding special items and certain once-off finance and
tax items.
fellings – The amount charged against the income
statement representing the standing value of the plantations
harvested.
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.
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.
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.
ordinary shareholders’ interest per share –
Shareholders’ equity divided by the actual number of shares
in issue at year-end.
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.
revolving credit facility (RCF) – A variable line of credit
used by public and private businesses.
ROCE – Return on average capital employed. Operating
profit excluding special items divided by average capital
employed.
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.
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.
total shareholder return (TSR) – A measure of the
performance of different companies’ stocks and shares over
time. It combines share price appreciation and dividends
paid to show the total return to the shareholder expressed
as an annualised percentage.
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 advisor immediately.
Sappi Limited
(Registration number: 1936/008963/06)
(Sappi or the Company)
The eighty-third 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, 2198, Republic of South
Africa on Wednesday, 05 February 2020 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, 31 January 2020.
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 2019, including the
Directors’ Report, the Report of the Auditors and the
Report of the Audit and Risk Committee.
Summarised financial information is contained in the
Financial Officer’s Report of the Annual Integrated
Report (see page
Financial Statements for the year ended September
2019 are available on the Sappi website:
www.sappi.com/2019AFS
80). The complete Group Annual
“Resolved that the Group Annual Financial Statements
for the year ended September 2019 of the company,
including the Directors’ Report, the Report of the
auditors and the Report of the Audit and Risk
Committee, be and are hereby received and accepted.”
In order for this resolution to be adopted, the support
of more than 50% of the voting rights exercised on the
resolution by shareholders present or represented by
proxy at the AGM and entitled to exercise voting rights
on the resolution is required.
2. Ordinary resolution number 2: Approval and
confirmation of appointment of directors
appointed subsequent to the last AGM and
subsequent to the financial year-end
Ordinary resolution number 2.1
“Resolved that the appointment of Mr BR Beamish with
effect from 01 March 2019 is approved and confirmed
as required in terms of Sappi’s Memorandum of
Incorporation.”
Ordinary resolution number 2.2
“Resolved that the appointment of Mr JM Lopez with
effect from 01 March 2019 is approved and confirmed
as required in terms of Sappi’s Memorandum of
Incorporation.”
Ordinary resolution number 2.3
“Resolved that the appointment of Ms JE Stipp with
effect from 01 June 2019 is approved and confirmed
as required in terms of Sappi’s Memorandum of
Incorporation.”
The board recommends and supports the approval
and confirmation of the appointment of Mr BR Beamish,
Mr JM Lopez and Ms JE Stipp. For their brief
biographical details, see note 1 in Notice to
shareholders on page
162.
In order for these resolutions to be adopted, the support
of more than 50% of the voting rights exercised on the
resolution by shareholders present or represented by
proxy at the AGM and entitled to exercise voting rights
on the resolution, is required.
3. Ordinary resolutions numbers 3.1 to 3.2: 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,
refer to note 2 in Notice to shareholders on page
162.
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.
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NOTICE TO
SHAREHOLDERS continued
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 MA Fallon is re-elected as a director
of Sappi.”
Ordinary resolution number 3.2
“Resolved that Mr NP Mageza is re-elected as a director
of Sappi.”
Ordinary resolution number 3.3
“Resolved that Dr B Mehlomakulu is re-elected as a
director of Sappi.”
Ordinary resolution number 3.4
“Resolved that Mr GT Pearce is re-elected as a director
of Sappi.”
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 of at least three
members.
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
104).
“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 Mrs ZN Malinga
4.3 Dr B Mehlomakulu
4.4 Mr RJAM Renders
4.5 Ms JE Stipp
Chairman*
Member
Member*
Member
Member**
in terms of the Companies Act, to hold office until the
conclusion of the next AGM and to perform the duties
and responsibilities stipulated in section 94(7) of the
Companies Act and in King IV and to perform such
other duties and responsibilities as may from time to
time be delegated to it by the board.”
In order for these resolutions to be adopted, the support
in each case of more than 50% of the voting rights
exercised on the resolution by shareholders present or
represented by proxy at the AGM and entitled to
exercise voting rights on the resolution is required.
*
Subject to his/her re-election as a director pursuant to ordinary
resolution number 3.2 and 3.3, respectively.
** Subject to her confirmation as a director pursuant to ordinary
resolution number 2.3.
5. Ordinary resolution number 5: Appointment of
auditors
The board has evaluated the performance of KPMG Inc.
and recommends their reappointment as auditors of
Sappi.
“Resolved that KPMG Inc. (with the designated
registered auditor to be Mr Coenie Basson) be
reappointed as the auditors of Sappi for the financial
year ending September 2020 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.
6. Ordinary resolution number 6: Authority from
shareholders
In March 2005, shareholders approved the maximum
allocation of shares allowed under The Sappi Limited
Share Incentive Trust (the scheme) and The Sappi
Limited Performance Share Incentive Trust (the plan).
Sappi intends liquidating the Scheme but believes that
the plan is an effective long-term incentive plan for
employees. Over the last 14 years, since the approved
maximum allocation for the scheme and the plan, the
shares originally allocated for these purposes have
almost been utilised, and the company wishes to seek
the requisite approval and authority from shareholders
for 27,402,673 ordinary shares, being 5% of the issued
shares of the company at the date of the passing of this
resolution, to be set aside for the purposes of the plan
in order to settle obligations to employees under the
plan in the years ahead. The plan document is available
for inspection by shareholders during normal business
hours at the company’s registered office until
05 February 2020.
“Resolved that, from the date of the passing of this
resolution, the maximum number of ordinary shares
which may be allocated and issued or acquired in
respect of which shares may be granted to employees
of the company under The Sappi Limited Performance
Share Incentive Trust (the plan) (excluding any broad-
based ownership schemes replacing the Sappi
ESOP Trust and the Sappi MSOP Trust) be set at
27,402,673 ordinary shares, which constitutes 5% of
the total issued shares of the company at the date of
the passing of this resolution.”
The percentage of voting rights required for ordinary
resolution number 6 to be adopted is 75% (seventy-five
percent) majority of the votes.
7. Ordinary resolution number 7: The provision of
Sappi Limited shares as required by the Sappi
Limited Performance Share Incentive Trust
The passing of resolution number 7 will enable the
directors to continue to meet the share requirements of
The Sappi Limited Performance Share Incentive Trust
(the plan), which is already in place and is subject to the
Listings Requirements of the JSE Limited (JSE).
“Resolved that, subject to the passing of ordinary
resolution number 7, 27,402,673 ordinary shares
required for the purposes of carrying out the terms of
the plan be and are hereby specifically placed under the
control of the directors who are hereby authorised to
issue and deal with those shares in terms of the rules of
the plan.”
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
policy
“Resolved as an ordinary resolution, that the company’s
remuneration policy as contained under Remuneration
Report of the Annual Integrated Report (see page
126), 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.
9. Ordinary resolution number 9: 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
a non-binding advisory vote.”
133), be and is hereby endorsed by way of
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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NOTICE TO
SHAREHOLDERS continued
10. Special resolution number 1: Non-executive directors’ fees
“Resolved that, with effect from 01 October 2019 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
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
2. 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
£315,210
£319,9402
ZAR644,790
£69,030
US$103,950
€92,120
ZAR674,450
£70,070
US$105,820
€93,500
ZAR430,930
£45,980
US$69,290
€61,370
ZAR450,750
£46,670
US$70,540
€62,290
ZAR447,470 ZAR468,050
£47,390
US$73,060
€63,240
£46,690
US$71,770
€62,310
ZAR223,740
£23,480
US$35,050
€31,320
ZAR234,030
£23,830
US$35,680
€31,790
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3. Human Resources and Compensation Committee, Nomination and Governance
Committee, Social, Ethics, Sustainability and Transformation Committee and
any other 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
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
(applicable to long-haul flights with a duration of at least 10 hours)
If South African resident
If United Kingdom resident
If United States of America resident
If European resident
From
To
ZAR269,030
£27,740
US$41,010
€37,010
ZAR281,400
£28,160
US$41,750
€37,570
ZAR140,010
£19,440
US$25,050
€25,940
ZAR146,450
£19,730
US$25,500
€26,330
ZAR43,200
per meeting
£4,560
per meeting
US$6,930
per meeting
€6,080
per meeting
ZAR45,190
per meeting
£4,630
per meeting
US$7,050
per meeting
€6,170
per meeting
US$3,700
per meeting
US$3,700
per meeting
US$3,700
per meeting
US$3,700
per meeting
US$3,800
per meeting
US$3,800
per meeting
US$3,800
per meeting
US$3,800
per meeting
1 Fees per annum unless otherwise indicated.
2 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.
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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 1.5% 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 2019. The fees were last increased with
effect from 01 October 2018 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 2019 onwards.
Initially the December 2019 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 2019 payment will be made
up in the March 2020 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.
either for the specific recipient or generally for a category
of potential recipients and the specific recipient falls
within that category.
“Resolved that the directors of the company be and are
hereby authorised, in accordance with the Companies
Act, to authorise the company to provide direct or
indirect financial assistance to any company or
corporation which is related or inter-related to the
company.”
In order for this resolution to be adopted, the support
of at least 75% of the voting rights exercised on the
resolution by shareholders present or represented by
proxy at the AGM and entitled to exercise voting rights
on the resolution is required.
12. Ordinary resolution number 10: 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 05 February
2020 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.
13. 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
142).
11. Special resolution number 2: Loans or other
Proxies
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
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).
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, 31 January 2020 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
Secretaries: per A Mahendranath
Group Company Secretary
Sappi Southern Africa Limited
108 Oxford Road
Houghton Estate
Johannesburg, 2198
South Africa
06 December 2019
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 05 February 2020 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
164), to be received by the
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
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.
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NOTICE TO
SHAREHOLDERS continued
Notes
1. Approval and confirmation of appointment of
directors appointed since the last AGM and
subsequent to the year-end
Mr Lopez is currently the Co-Chairman of the Bi-
National Softwood Lumber Council. Previous
chairmanships included the Softwood Lumber Board,
Forest products Innovation and Ontario Forest Products
Association.
Brian Richard Beamish (Brian) (62)
(Independent)
Qualifications: BSc (Mech Eng): HBS PMD
Nationality: British and South African
Appointed: March 2019
Sappi board committee memberships
• Social, Ethics, Transformation and Sustainability
Committee
• Human Resources and Compensation Committee
Other board and organisation memberships
• Nordgold (member of the Audit and Risk Committee
and Remuneration Committee, as well as Chairman of
the Safety and Sustainable Development Committee)
• Sita Capital Global Mining Opportunities Fund
(Associate Partner)
Skills, expertise and experience
Mr Beamish, a qualified mechanical engineer with over
40 years of relevant management, business and
leadership experience in capital intensive industries. He
was appointed to the Lonmin Board in 2013 and served
as Chairman from May 2014 until June 2019 when the
corporate action with Sibanye-Stillwater completed. He
also served as Chair of the Nomination Committee and
as a member of the Remuneration and Safety, Health
and Environment Committees. His senior executive
career was spent within Anglo American, where his final
role until retirement was that of Group Director Mining
and Technology, before he was the CEO of the Base
Metals Division.
James Michael Lopez (Jim) (59)
(Independent)
Qualifications: BA (Economics)
Nationality: American
Appointed: March 2019
Janice Elaine Stipp (Janice) (60)
(Independent)
Qualifications: BA (Accounting) MBA
Nationality: American
Appointed: June 2019
Sappi board committee memberships
• Audit and Risk Committee
Other board and organisation memberships
• ArcBest Corp (Chairperson of the Audit Committee)
• Commercial Vehicle Group Inc.
• NN Inc.
Skills, expertise and experience:
Ms Stipp retired from Rogers Corporation in 2018 where
she served as Senior Vice-President (2017 – 2018),
Chief Financial Officer and Treasurer from 2015. Prior to
that, Ms Stipp was employed at several companies in
senior financial positions, including Tecumseh Products,
Acument Global Technologies, GDX Automotive and
TI Group Automotive Systems. Ms Stipp holds a
Bachelor’s degree in Accounting from Michigan State
University and a Master of Business Administration from
Wayne State University. She is a Certified Public
Accountant and a Chartered Global Management
Accountant.
Ms Stipp is currently non-executive director and Chair of
the Audit Committee of ArcBest Corporation.
2. Directors retiring by rotation who are seeking
re-election
Michael Anthony Fallon (Mike) (61)
(Independent)
Qualifications: BSc (Hons) (first class)
Nationality: British
Appointed: September 2011
Sappi board committee memberships
• Social, Ethics, Transformation and Sustainability
Committee
Skills, expertise and experience
Mr Lopez is the former President and CEO of Tembec
Inc (2006 – 2017) having progressed through
management, senior management and executive
positions within Tembec since 1989. In 2017 Mr Lopez
successfully negotiated the sale of Tembec Inc., a
manufacturer of lumber, pulp, paper/paperboard and
specialty cellulose and a global leader in sustainable
forest management practices.
Sappi board committee memberships
• Human Resources and Compensation Committee
(Chairman)
• Audit and Risk Committee (until 31 December 2019)
• Nomination and Governance Committee (appointed
from 01 January 2020)
Skills, expertise and experience
Mr Fallon retired as an executive director of Nippon
Sheet Glass Company Limited (NSG Group) at the end
of June 2012. Prior to retirement, Mr Fallon was
President of NSG’s Global Automotive Division, with
17,500 employees, heading up all the glass and glazing
operations in the key automotive regions across the
world. With annual sales of around €6 billion, the NSG
Group is one of the world’s largest manufacturers of
glass and glazing products for the building, automotive
and speciality glass sectors. His management and
leadership experience extend across a wide range of
functions from plant management, sales and marketing
and supply chain to general management, including
mergers and acquisition experience.
During his 30-year career in a highly competitive industry
he held a wide range of roles, including President of
Pilkington operations in North America and has been
director and chairman of companies in the United
Kingdom, New Zealand and Finland. In his last four
years at NSG he was both a main board director and
leader of their Global Automotive Division. He was
responsible for leading and developing the strategic
direction and ultimately the performance and
governance of this business. His leadership and
experience covered all aspects of the business, from
its research and development, sales and marketing,
30 manufacturing sites, supply chain, including
150 warehouses and distribution centres, purchasing,
human resources and finance.
Nkateko Peter Mageza (Peter) (64)
(Independent)
Qualifications: FCCA (United Kingdom)
Nationality: South African
Appointed: January 2010
Sappi board committee memberships
• Audit and Risk Committee (Chairman)
• Human Resources and Compensation Committee
Other board and organisation memberships
• Anglo American Platinum Limited
• Ethos Private Equity Proprietary Limited (Chairman)
• RCL Foods Limited
• Remgro Limited
• MTN Group Limited
Skills, expertise and experience
Mr Mageza joined the Sappi board after having held
senior executive positions across a wide range of
industries. He is a former Group Chief Operating Officer
and executive director of Absa Group Limited, Assistant
General Manager at Nedcor Limited and Chief Executive
Officer of Autonet, the Road Passenger and Freight
Logistics division of Transnet Limited.
Dr Bonakele Mehlomakulu (Boni) (46)
(Independent)
Qualifications: PhD (Chemical Engineering)
Nationality: South African
Appointed: March 2017
Sappi board committee memberships
• Social, Ethics, Transformation and Sustainability
Committee
• Audit and Risk Committee (appointed from
01 January 2020)
Other board and organisation memberships
Hulamin Limited
Yokogawa South Africa
Ububanzi Investments Proprietary Limited
Renewable Energy Systems Proprietary Limited
The Imp Proprietary Limited
Skills, expertise and experience
Dr Boni Mehlomakulu holds a PhD in Chemical
Engineering from the University of Cape Town. Her
career started at Sasol before joining the Department
of Science and Technology occupying various
management roles. Her recent executive role was a
Chief Executive Officer of the South African Bureau of
Standards (SABS), the position she held for nine years.
In addition to her non-executive directorship at Sappi
Limited, her portfolio includes non-executive director
of Hulamin Limited and Yokagawa South Africa. She is
currently managing a portfolio of acquisitions and
investments in various industry sectors as a shareholder
in Ububanzi Investments Proprietary Limited, Renewable
Energy Systems Proprietary Limited and The Imp
Proprietary Limited. Her past directorships include
PBMR Proprietary Limited, Nuclear Energy Corporation
of South Africa (Necsa), Eskom Holdings SOC Limited
and the Technology Innovation Agency (TIA), as well as
having served as the Deputy Chair of Unisa Council and
a country representative on the Council of International
Standards Organisation (ISO, Geneva).
Glen Thomas Pearce (56)
(Chief Financial Officer)
Qualifications: BCom, BCom (Hons), CA(SA)
Nationality: South African
Appointed: July 2014
Sappi board committee memberships
Expected to attend Audit and Risk Committee meetings
by invitation
Skills, expertise and experience
Mr Pearce joined Sappi Limited in June 1997 as Financial
Manager and subsequently held various senior finance
roles in South Africa and in Belgium before being
promoted to Chief Financial Officer and executive director
of Sappi Limited in July 2014. Prior to joining Sappi, he
worked at Murray & Roberts Limited from 1992 to 1996.
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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
05 February 2020
February 2020
May 2020
August 2020
September 2020
November 2020
December 2020
Sappi Limited
Registration number: 1936/008963/06
JSE code: SAP
ISIN: 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
ADMINISTRATION
Transfer secretaries
JSE sponsor
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
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 Limited
(Registration number: 1936/008963/06)
(Incorporated in the Republic of South Africa)
(Sappi or the Company)
Issuer code: SAP
JSE code: SAP
ISIN: 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-third Annual General Meeting of the members to be held at 14:00 on Wednesday, 05 February 2020 at Sappi in the Oxford Room, Ground
Floor, 108 Oxford Road (entrance on Ninth Street), Houghton Estate, Johannesburg, 2198, Republic of South Africa, you should complete and return the form of proxy as soon
as possible, but in any event to be received by not later than 14:00 South African time on Monday, 03 February 2020, 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
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, 05 February 2020 or any adjournment thereof, as follows:
Sappi shares and entitled to vote at the abovementioned Annual General Meeting, appoint
Number of shares
For
Against Abstain
Ordinary resolution number 1 – Receipt and acceptance of 2019 Annual Financial Statements, including Directors’ Report, Auditors’ Report and
Audit and Risk Committee Report
Ordinary resolution number 2 – Approval and confirmation of appointment of directors appointed subsequent to the last AGM and subsequent to
the financial year-end
Ordinary resolution number 2.1 – Approval and confirmation of appointment of Mr BR Beamish as a director of Sappi
Ordinary resolution number 2.2 – Approval and confirmation of appointment of Mr JM Lopez as a director of Sappi
Ordinary resolution number 2.3 – Approval and confirmation of appointment of Ms JE Stipp 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 MA Fallon as a director of Sappi
Ordinary resolution number 3.2 – Re-election of Mr NP Mageza as a director of Sappi
Ordinary resolution number 3.3 – Re-election of Dr B Mehlomakulu as a director of Sappi
Ordinary resolution number 3.4 – Re-election of Mr GT Pearce 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 Mrs ZN Malinga as a member of the Audit and Risk Committee
Ordinary resolution number 4.3 – Election of Dr B Mehlomakulu as a member of the Audit and Risk Committee2
Ordinary resolution number 4.4 – Election of Mr RJAM Renders as a member of the Audit and Risk Committee
Ordinary resolution number 4.5 – Election of Ms JE Stipp as a member of the Audit and Risk Committee3
Ordinary resolution number 5 – Reappointment of KPMG Inc. as auditors of Sappi for the year ending September 2020 and until the next Annual
General Meeting of Sappi
Ordinary resolution number 6 – Authority from shareholders for the maximum number of ordinary shares which may be utilised under the plan.
Ordinary resolution number 7 – Authority from shareholders to place the ordinary shares required for the purposes of the plan under the control of
the directors
Ordinary resolution number 8 – Non-binding endorsement of remuneration policy
Ordinary resolution number 9 – 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 10 – 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 155.
2 Subject to her re-election as a director pursuant to ordinary resolution 3.3 above.
3 Subject to her appointment under ordinary resolution number 2.3 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
Assisted by me (where applicable)
on
Each shareholder is entitled to appoint one or more proxies (who need not be shareholders of Sappi) to attend, speak, and on a poll, vote in place of that shareholder at the
Annual General Meeting or any adjournment thereof.
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NOTES TO THE
FORM OF 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.
7.
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.
Instructions on signing and lodging the
Annual General Meeting proxy form
1. A deletion of any printed matter (only where a
shareholder is allowed to choose between more than
one alternative option) and the completion of any blank
spaces need not be signed or initialled. Any alteration
must be signed, not initialled.
2. The chairman shall be entitled to decline to accept the
authority of the signatory:
2.1 under a power of attorney, or
2.2 on behalf of a company,
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.
3. 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.
4. 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.
5. 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.
6. 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, 03 February 2020 or handed to
the chairman of the Annual General Meeting before the
appointed proxy exercises any of the relevant
shareholder’s rights.
8. The chairman of the Annual General Meeting may reject
any proxy form which is completed other than in
accordance with these instructions and may accept
any proxy form when he is satisfied as to the manner
in which a member wishes to vote.
Summary in terms of section 58(8)(b)(i) of the
South African 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.
FORWARD-LOOKING
STATEMENTS
Certain statements in this release that are neither reported financial results nor other historical information are forward-looking
statements, including but not limited to statements that are predictions of or indicate future earnings, savings, synergies,
events, trends, plans or objectives. The words “believe”, “anticipate”, “expect”, “intend”, “estimate”, “plan”, “assume”,
“positioned”, “will”, “may”, “should”, “risk” and other similar expressions, which are predictions of or indicate future events
and future trends and which do not relate to historical matters, may be used to identify forward-looking statements. You
should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other
factors which are in some cases beyond our control and may cause our actual results, performance or achievements to
differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking
statements (and from past results, performance or achievements). Certain factors that may cause such differences include
but are not limited to the following:
• The highly cyclical nature of the pulp and paper industry (and the factors that contribute to such cyclicality, such as levels
of demand, production capacity, production, input costs including raw material, energy and employee costs, and pricing)
• The impact on our business of adverse changes in global economic conditions
• Unanticipated production disruptions (including as a result of planned or unexpected power outages)
• Changes in environmental, tax and other laws and regulations
• Adverse changes in the markets for our products
• The emergence of new technologies and changes in consumer trends including increased preferences for digital media
• Consequences of our leverage, including as a result of adverse changes in credit markets that affect our ability to raise
capital when needed
• Adverse changes in the political situation and economy in the countries in which we operate or the effect of governmental
efforts to address present or future economic or social problems
• The impact of restructurings, investments, acquisitions, dispositions and other strategic initiatives (including related
financing), any delays, unexpected costs or other problems experienced in connection with dispositions or with integrating
acquisitions or implementing restructuring and other strategic initiatives and achieving expected savings and synergies
• Currency fluctuations.
We undertake no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new
information or future events or circumstances or otherwise.
About our theme: Focus
In 2019, the international economic order was under significant pressure, reducing global growth
prospects. Ongoing trade conflicts and Brexit uncertainty weighed further on economic prospects.
Populism spread and protests erupted around the world.
Given that some 90% of an iceberg’s mass is hidden under water making them extremely difficult to
navigate around, they are a powerful metaphor for operating in a business context where all the threats
are not immediately visible or obvious.
An iceberg is also a valid metaphor in that much of the hard work to achieve our strategy happens away
from the public gaze and is not always recognised. Equally so the breadth and depth of engagement with
our customers to provide the solutions their customers demand and with our employees to ensure they
are aligned with our strategy. Despite the turbulent global economy, we did not lose focus and are well
positioned to benefit from our recent investments. We are determined to maintain our line of sight
on our end goal as encapsulated in our 2020Vision and strategy: providing enhanced returns to all
our stakeholders.
Our 2019 annual integrated report reflects the focused actions we have taken over the last year. It is
supported by various other sources of information including our website and our group and regional
sustainability reports, available on www.sappi.com.
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