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Contents
How to navigate our report
About this report
Throughout our annual integrated report, the following
icons are used to show the connectivity between
sections:
Sappi’s 3Ps
Referencing
Prosperity
People
Planet
Page
Online
Risk
Thrive25
strategy
Grow our
business
Drive operational
excellence
Sustain our
financial health
Enhance
trust
Please refer to pages
Thrive25
strategy.
15 and 19 for more information on our
Our capitals
Human capital
Intellectual capital
Finance capital
Natural capital
Social and
relationship capital
Manufactured
capital
Sappi and the United Nations (UN)
Sustainable Development Goals (SDGs)
*
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* Sappi Southern Africa (SSA) priority SDGs.
Please refer to pages
we integrate the SDGs into our business.
64 and 65 for more information about how
Group overview
6
7
8
Our 2020 reporting theme
Who we are
Where we operate
10 Our strategy and performance
16 Moving towards our
Thrive25
strategy
20 How we create value
22 Our business model
26 Letter to stakeholders
31 Q&A with the CEO
Creating value by responding
strategically
36 Risk management
44 Our key relationships
Our performance review
60 Our operating context
62 Covid-19 impacts and our response
64 SDGs Q&A
66 Integrating our key material issues
68 Our key material issues
86 Product review
98 Chief Financial Officer’s Report
Governance and compensation
120 Our leadership
124 Corporate governance
138 Remuneration Report
156 Social, Ethics, Transformation and
Sustainability (SETS) Committee Report
Appendices
160 Five-year review
162 Share statistics
164 Glossary
169 Notice to shareholders
178 Shareholders’ diary
179 Proxy form for the Annual
General Meeting
180 Notes to the proxy
181 Administration
182 Forward-looking statements
About this report
Our annual integrated report for the year ended September 2020 provides an overview of how we
create value in terms of our purpose, vision and strategy. The report deals with key opportunities and
risks in our markets as well as our performance against financial and non-financial objectives, together
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 157), we have included supporting appendices
(pages 160 to 180).
Integrated thinking
and the 3Ps
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
INTELLECTUAL CAPITAL
FINANCIAL CAPITAL
MANUFACTURED
CAPITAL
Sustainable
value
creation
People
HUMAN CAPITAL
SOCIAL AND
RELATIONSHIP
CAPITAL
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.
Planet
NATURAL CAPITAL
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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GROUP OVERVIEW
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 value created,
preserved and eroded in terms
of our defined, holistic targets, as
outlined and set out in the Business
model on pages
22 to 25.
Forward-looking
statements
For important information relating
to forward-looking statements,
refer to page
182.
Scope and boundary
8). We aim to present information that is material, comparable,
The scope of this report includes all our operations (see Where we operate
on page
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
66).
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.
G lobal forces
U N S D G s
Risks and
opportunities
i a l
t e r
i t y determination
M a
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O p eratin
co nte xt
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Inte g r a
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Sappi
Europe
Sappi
Southern
Africa
n d ary
Sappi
North
America
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Sappi 2020 ANNUAL INTEGRATED REPORT Our reporting suite
Report
Frameworks
2020 Sappi Annual
Integrated Report
www.sappi.com/annual-reports
• IIRC's International Framework
• Companies Act, No 71 of 2008, as amended (Companies Act)
• JSE Listings Requirements
• King IV Code on Corporate Governance (King IVTM 1
)
2020 Sappi Group Annual
Financial Statements
www.sappi.com/annual-reports
• International Financial Reporting Standards (IFRS)
• Companies Act
• JSE Listings Requirements
• King IV
2020 Sappi Group
Sustainability Report
www.sappi.com/sustainability
• Global Reporting Initiative (GRI) standards
• United Nations Global Compact (UNGC)
• UN SDGs
For up-to-date information, please refer to our quarterly results announcements and analyst presentations (www.sappi.com/quarterly-reports).
1 Copyright and trademarks are owned by the Institute of Directors in South Africa NPC and all of its rights are reserved.
Assurance
We obtained external assurance on selected sustainability key performance indicators (KPIs) in our 2020 Sappi Group
Sustainability Report. The independent practitioner’s limited assurance report is included in the 2020 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 2020 Sappi Limited was a constituent of the
FTSE/JSE Responsible Investment Index.
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.
summarised financials. However, the full 2020 Sappi Annual Integrated Report with financials is available on
www.sappi.com/annual-reports
This year’s report does not include
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 2020 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 International Framework. The report has been
prepared in line with best practice and the board confirms that it has approved the 2020 Sappi Annual Integrated Report and
authorised it for release on 17 December 2020.
Sir Nigel Rudd
Chairman
Steve Binnie
Chief Executive Officer (CEO)
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4
Evolve
Evolution in the natural world is a slow process. But
in the hyperconnected world in which we live and
work, it’s fast – and becoming faster all the time. As an
example, twenty years ago, very few people had ever
heard of the ‘Internet of Things’. Ten years ago, the
term ‘Industry 4.0’ had not yet been coined. At the
start of 2020, few people had paid attention to terms
such as coronavirus, social distancing, lockdowns or
infection waves. Yet today, these terms are part of our
everyday vocabulary, showing just how fast the world
around us is changing.
In response to our rapidly changing landscape, five
years ago, we embarked on a strategy of intentional
evolution, which involved diversifying our product
portfolio in higher margin segments. By 2020, despite
market challenges, we had essentially met and in
many ways, exceeded this ambition.
Evolution is based on a series of events, processes and
responses. Around the world, people are responding to
natural resources constraints by seeking responsible
alternatives to non-renewables and solutions that are
truly sustainable from seed to final product.
We are responding to these needs by building on
our success in intentional evolution to accelerate
an enhanced journey of evolution aligned with our
Thrive25 strategy. We are doing so from a foundation
based on a coalition of diverse perspectives and
expertise; as well as a history of seeking out and
investing in breakthroughs that enable lasting
outcomes for our partners and a lighter footprint on
the world. We are building on these to ensure that
every solution we create supports our goal of making
everyday products more sustainable and that we
accelerate meaningful change.
5
5
GROUP OVERVIEW
Our 2020 reporting theme
There are few straight lines in nature. Even the horizon
is not straight at all, but rather a curve of such diameter
that it can’t be discerned by the naked eye. Instead,
the natural world abounds with twists and turns.
new global context – the ‘new normal’ as some are
calling it – also demonstrated that no organisation
or individual alone can address the economic,
environmental, social and technological challenges
of our interconnected world.
The images used on the cover and throughout this
report illustrate the fact that the power, resilience and
beauty of nature lie in its ability to adapt, curve and go
in unexpected directions.
It’s appropriate to reflect on this at a time when
the coronavirus pandemic and Covid-19 have taken
the world in a totally new direction and dramatically
altered the global landscape in which we live and work.
The pandemic highlighted the complexity and
vulnerability of our interdependence on each other
and on nature. It’s reminded us that our general
expectation that life and business should be a series
of linear progressions, is unrealistic. This challenging
In a world of uncertainty and constant change,
the ability to adjust and change on a business and
personal level is now the constant and will be the
measure of success going forward.
Together, we had to adapt – and fast – to changing
circumstances related to commerce, community
and connection. We’re proud of the way our
people have pulled together to do so. And we’re
confident, that working with them and with all our
other stakeholders we can leverage the window
of opportunity created by Covid-19 to reflect,
reimagine and reset our world.
6
Sappi 2020 ANNUAL INTEGRATED REPORT Who we are
Sappi is a leading global provider of powerful everyday
materials made from woodfibre-based renewable
resources. Together with our partners, we are moving
quickly toward a more circular economy.
Sappi works to build a thriving world by acting boldly to
support the planet, people and prosperity.
Our products are manufactured from woodfibre sourced
from sustainably managed forests and plantations, in
production facilities powered, in many cases, with
bioenergy from steam and existing waste streams, and
many of our operations are energy self-sufficient.
Our products include raw material offerings (such as
dissolving pulp (DP), wood pulp and biomaterials) and
end-use products (packaging and specialities
papers, graphic papers, casting and release papers
and forestry products).
Paper production
per year
5.7
million tons
Paper pulp
production per year
2.4 million tons
Dissolving pulp
production per year
1.4 million tons
394,000 ha
Owned and leased sustainably
managed forests in
South Africa
Globally we have
12,800
employees1
1 Includes Corporate and Sappi Trading employees.
7
7
GROUP OVERVIEW GROUP OVERVIEW
Where we operate
Europe
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
• Sales offices
Hong Kong
Bogotá
Johannesburg
México City
Nairobi
São Paulo
Shanghai
Sydney
Vienna
• Logistics offices
Durban
8
North America
South Africa
5
3
1
1
15
1
1
1
1
6
2
1
1
1
6
paper mills
speciality paper mills
paper and speciality
paper mill
other operation
sales offices
Employees
5,600
paper mill
speciality paper mill
paper and dissolving
pulp mill
pulp mill
sales offices
Employees
2,100
paper mills
dissolving pulp mill
paper and dissolving
pulp mill
sawmill
sales offices
Employees
4,800
Sappi 2020 ANNUAL INTEGRATED REPORT
Mills
Products produced
Capacity (1) (’000 tons)
Paper
Pulp
Bleached chemical pulp for own consumption
Speciality paper; flexible packaging paper, paperboard, containerboard, release liner, label paper, functional papers
Speciality paper; dye sublimation paper, flexible packaging paper, inkjet paper and label paper
Speciality paper; dye sublimation paper, flexible packaging paper, inkjet paper and silicone base paper
Bleached chemical pulp for own consumption and market pulp
Coated woodfree paper and containerboard
Bleached chemical pulp for own consumption
Coated woodfree paper
Bleached mechanical pulp for own consumption
Coated mechanical paper
Bleached chemi-thermo mechanical pulp for own consumption
Coated mechanical (CM) paper and coated woodfree paper
Coated woodfree paper and paperboard
Bleached chemical pulp for own consumption and market pulp
Coated woodfree (CWF) paper and uncoated woodfree paper
275
100
60
280
980
750
530
280
445
120
140
250
300
165
145
Alfeld Mill
Carmignano Mill
Condino Mill
Ehingen Mill
Gratkorn Mill
Kirkniemi Mill
Lanaken Mill
Maastricht Mill
Stockstadt Mill
Total Sappi Europe
Other operation
Rockwell Solutions Coated barrier film and paper
(1) Capacity at maximum continuous run rate per annum.
Mills
Products produced
Cloquet Mill
Dissolving pulp, kraft pulp for own consumption and market pulp*
Coated woodfree paper
Matane Mill
Somerset Mill
Westbrook Mill
High yield hardwood pulp for own consumption and market pulp
Bleached chemical pulp for own consumption and market pulp
Coated woodfree and packaging paper
Speciality paper; casting and release paper
Total Sappi North America
Plantations*
Products produced
KwaZulu-Natal
Mpumalanga
Plantations (pulpwood and sawlogs)**
Plantations (pulpwood and sawlogs)**
Total Sappi Forests
(owned and leased
supply)
Of which 140,000 ha is contracted supply
Mills
Products produced
Lomati Sawmill
Ngodwana Mill
Stanger Mill
Tugela Mill
Sappi ReFibre***
Sawn timber (m3)
Unbleached chemical pulp for own consumption
Mechanical pulp for own consumption
Kraft linerboard
Newsprint
Bleached bagasse pulp for own consumption
Office paper and tissue paper
Neutral Sulfite Semi Chemical pulp for own consumption
Corrugating medium
Waste paper collection and recycling for own consumption
Total Sappi Paper and Paper Packaging
Ngodwana Mill
Saiccor Mill
Dissolving pulp
Dissolving pulp
Total Dissolving pulp
Total Sappi Southern Africa
3,700
1,120
Capacity(1) (million m2)
100
Capacity (1) (’000 tons)
Paper
Pulp
370
270
525
340
970
23
1,333
1,165
Capacity(1) (’000)
Hectares
Standing
Tons
263
271
10,671
17,067
534
27,738
Capacity (m3) Capacity (’000 tons)
Timber
Paper
Pulp
102
240
140
110
200
102
690
210
110
60
150
103
633
255
800
1,055
102
690
1,688
9
9
(1) Capacity at maximum continuous run rate per annum.
* Approximately 135,000 hectares of our land is set aside and maintained by Sappi Forests to conserve the natural habitat and biodiversity found there.
** Plantations include owned and leased areas as well as projects.
*** Sappi ReFibre collects waste paper in the South African market which is used to produce packaging paper.
GROUP OVERVIEW GROUP OVERVIEW
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 pulp (DP), paper and products in adjacent fields.
Closing out
2015 – 2020
• During the last five years,
Sappi dramatically increased
its focus on costs and
embedded a culture of
achieving ongoing efficiencies
and savings throughout
the group
• Sappi effectively managed and
rationalised its graphic paper
capacity through conversions,
closures and carrousel
opportunities to ensure
it remains relevant and
profitable in these segments
What this means
How we performed in 2020
• Continuously improve cost
position
• Continue to maximise
global benefits
• Best-in-class production
efficiencies
• Group efficiency, procurement
and continuous improvement
savings > US$100 million
• Unfortunate significant downtime
in graphic paper due to Covid-19
drop in demand resulted
in increased cost per ton
• Maximised the benefits of
OneSappi to achieve cost
advantages
• Successfully integrated Matane
Mill in Sappi
• Maximise production at
• Where possible graphic paper
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
production was allocated to the
lowest cost machines to reduce
cost per ton. Unfortunately, the
supply and demand balance were
severely affected by Covid-19
• Packaging and speciality paper
volumes and profitability
continued to grow
• Substituted growing packaging
and speciality grades for graphic
grades on swing machines which
cushioned the drop in demand
brought by Covid-19
• Announced the closure of
graphic coated paper machine
capacity in Stockstadt and
Westbrook Mills
Achieve cost
advantages
Rationalise
declining
businesses
• Maintain net debt:EBITDA
at ~2x
• Continuously improve
working capital
• Continue to monitor bond
market for opportunities
• Net debt:EBITDA at 5.2x
• Reduced capital expenditure
to essential projects to effectively
manage liquidity and cash flow.
Negotiated covenant suspension
period until September 2021 –
first measurement
December 2021
• The targeted net debt:EBITDA
ratio of 2x was well maintained
during the period to balance
future growth opportunities
with lower debt. Unfortunately,
the unexpected Covid-19
pandemic negatively impacted
the objective
Maintain a
healthy balance
sheet
• Grow DP 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 Sappi
Biotech opportunities
•
Increased packaging and
speciality volumes year on year
up 12.9% vs 2019 sustained
packaging and specialities
EBITDA margin at 13.7%
• Saiccor Mill expansion was
delayed by Covid-19, but project
continues and should be
concluded during 2021 providing
additional DP capacity
• Strong growth in lignin sales and
favourable advancement of other
Sappi Biotech opportunities
• The business was transformed
during the period with the
substantial growth
in packaging and speciality
papers, which contributes
meaningfully to the growth
of the business. Continued
investment in DP and Sappi
Biotech opportunities resulted
in a stronger and more resilient
business
Accelerate
growth in
higher margin
growth
segments
10
Sappi 2020 ANNUAL INTEGRATED REPORT 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.
Return on average capital employed (ROCE)
Our strategic performance
indicators
ROCE (%)
15
12
9
6
3
0
.
6
4
1
.
5
1
1
6
1
.
2018
2019
2020
EBITDA (US$ million)
Our strategic performance
indicators
EBITDA (US$ million)
800
600
400
200
0
2
6
7
7
8
6
8
7
3
2018
2019
2020
Why is this important?
ROCE long-term profitability by comparing
how effectively assets are performing with
how these assets are financed
Linked to executive remuneration
Self-assessment of 2020 performance
Thrive25
Link to
see page
strategic objectives –
18 for more info
2021 objectives
Finalise Saiccor Mill expansion and ramp up
Somerset and Maastricht Mill conversions.
Maximise recovery of the graphic paper
volume declines from 2020 Covid-19 impact
Link to 3Ps
Why is this important?
EBITDA measures how we performed
operationally by excluding the impact of
financing, accounting treatments or tax
implications
Linked to executive remuneration
Self-assessment of 2020 performance
Thrive25
Link to
see page
strategic objectives –
18 for more info
2021 objectives
Focus on maximising cash generation through
efficient capital expenditure and working
capital management
Link to 3Ps
Satisfactory Unsatisfactory Progress to be made/ongoing
Prosperity
People
Planet
11
11
Grow our business
Sustain our financial health
Drive operational excellence
Enhance trust
GROUP OVERVIEW GROUP OVERVIEW
Our strategy and performance continued
EBITDA margin (%)
Our strategic performance
indicators
EBITDA margin (%)
15
12
9
6
3
0
.
1
3
1
.
0
2
1
2
8
.
2018
2019
2020
Sales (US$ million)
Our strategic performance
indicators
Sales (US$ million)
6,000
4,000
2,000
0
6
0
8
5
,
6
4
7
5
,
9
0
6
4
,
2018
2019
2020
Net debt (US$ million)
Our strategic performance
indicators
Net debt (US$ million)
7
5
9
1
,
8
6
5
1
,
1
0
5
1
,
2,000
1,500
1,000
500
0
Why is this important?
EBITDA margin is an important and
comparable measure of our profitability
(excluding the impact of financing, accounting
treatments or tax implications) against our
revenue
Self-assessment of 2020 performance
Thrive25
Link to
see page
strategic objectives –
18 for more info
2021 objectives
Focus on reducing fixed and variable costs
and maximise pricing
Link to 3Ps
Why is this important?
While not the only determinant of financial
success, sales is a key measure of demand,
customer loyalty and a critical contributor
to profit
Self-assessment of 2020 performance
Thrive25
Link to
see page
strategic objectives –
18 for more info
2021 objectives
Continue to grow packaging and specialities
post conversions and regain and grow graphic
paper volumes from lower 2020 sales
Maximise DP volumes to capacity
Link to 3Ps
Why is this important?
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)
Self-assessment of 2020 performance
Thrive25
Link to
see page
strategic objectives –
18 for more info
2018
2019
2020
2021 objectives
During 2021 net debt will increase due to
finalising strategic capital projects
Link to 3Ps
12
Satisfactory Unsatisfactory Progress to be made/ongoing
Prosperity
People
Planet
Sappi 2020 ANNUAL INTEGRATED REPORT Net debt:EBITDA
Our strategic performance
indicators
Net debt:EBITDA
6
5
4
3
2
1
0
2
5
.
1
2
.
2
2
.
2018
2019
2020
Why is this important?
The net debt: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
Linked to executive remuneration
Self-assessment of 2020 performance
Thrive25
Link to
see page
strategic objectives –
18 for more info
2021 objectives
Covenant suspension negotiated during 2021
Link to 3Ps
Lost-time injury frequency rate (LTIFR)
Our strategic performance
indicators
LTIFR
4
5
0
.
3
4
0
.
5
3
0
.
0.6
0.5
0.4
0.3
0.2
0.1
0
Why is this important?
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
Linked to executive remuneration
Identified sustainability goal1
2021 objectives
Reduce LTIFR and zero fatalities
Self-assessment of 2020 performance
Thrive25
Link to
see page
strategic objectives –
18 for more info
2018
2019
2020
Link to 3Ps
Sustainable engagement (%)
Our strategic performance
indicators
Sustainable engagement (%)
80
60
40
20
0
9
7
d
e
r
u
s
a
e
m
t
o
N
d
e
r
u
s
a
e
m
t
o
N
2018
2019
2020
Survey takes place every
second year
Why is this important?
We rely on a productive and engaged
workforce. Employee engagement has been
linked to higher safety performance, lower
staff turnover, improved productivity and
efficiency. We aim to maintain or improve from
our 2015 base of 74%
Identified sustainability goal2
Self-assessment of 2020 performance
Thrive25
Link to
see page
strategic objectives –
18 for more info
2021 objectives
Sustain and/or improve engagement
Link to 3Ps
Grow our business
Sustain our financial health
Drive operational excellence
Enhance trust
13
13
GROUP OVERVIEW
GROUP OVERVIEW
Our strategy and performance continued
Energy intensity GJ/adt
Our strategic performance
indicators
Energy intensity (GJ/adt)
8
3
2
2
.
4
8
2
2
.
1
7
3
2
.
25
20
15
10
5
0
Why is this important?
Energy intensity is a measure of how
efficiently we are operating. By continually
improving this metric, we manage costs and
lower our impact
Identified sustainability goal1
2021 objectives
5% improvement from 2014 base year
Self-assessment of 2020 performance
Thrive25
Link to
see page
strategic objectives –
18 for more info
2018
2019
2020
Link to 3Ps
Certified fibre (%)
Our strategic performance
indicators
Certified fibre (%)
.
2
5
7
.
8
4
7
.
4
3
7
80
60
40
20
0
Why is this important?
We are committed to sourcing woodfibre from
forests and timber plantations in a manner
that promotes their health and supports
community well-being
Identified sustainability goal1
2021 objectives
Maintain or improve percentage certified fibre
Self-assessment of 2020 performance
Thrive25
Link to
see page
strategic objectives –
18 for more info
2018
2019
2020
Link to 3Ps
1 For this indicator, we have clear targets for 2020 that we are working towards. See our 2020 Sappi Group Sustainability Report for more
information.
2 Not measured as survey takes place every second year.
14
Satisfactory Unsatisfactory Progress to be made/ongoing
Prosperity
People
Planet
Grow our business
Sustain our financial health
Drive operational excellence
Enhance trust
Sappi 2020 ANNUAL INTEGRATED REPORT
Our strategy
is uniquely Sappi,
but influenced by
global forces.
15
15
GROUP OVERVIEW Thrive25
T
R
O
P
E
R
D
E
T
A
R
G
E
T
N
I
L
A
U
N
N
A
0
2
0
2
i
p
p
a
S
Moving towards
our Thrive25
strategy
While we’re proud of all we’ve
achieved and learnt over the past
80 years, we know that a proud
history doesn’t necessarily mean
a bright future. To thrive as a
business, we need to embrace
the future and respond to the
megatrends that continue to shape
our world with a view to be more
resilient and adaptive. That’s why
we’re proud to launch our new
Thrive25
strategy –
– designed to
deliver value for our stakeholders
in a constantly evolving world.
Moving towards
our Thrive25
strategy
At the heart of all we do – as individuals, as
an organisation and a society – is the
essential need to not only survive, but to
thrive. This principle gave rise to Thrive25.
However, just like us, our business is a
living organism – growing, adapting and
evolving in a continually shifting context.
Global forces
To continue thriving as a global business, we must
understand the forces that heavily impact our lives and work.
These are listed below, along with how Sappi responds.
Global forces
Our response
The move towards a
circular economy
Pursuing circular ecosystems and
economies – including utilising 100% of
each tree we harvest
Climate change
continuing to impact
businesses and
reshape societies
Creating responsibly sourced and
sustainable solutions as viable alternatives
to fossil-based products
Coronavirus
pandemic and the
impact of Covid-19
Ensuring employees' safety, supporting our
customers and communities and adjusting
our business priorities
Resource scarcity
and growing concern
for natural capital
Rising social
inequality
Continued erosion
of trust in business,
coupled with
increasing social
activism
Changing consumer
and employee
profiles
Globalisation and
high levels of
connectivity
The rapid pace of
technological
innovation,
including artificial
intelligence (AI)
Promoting the responsible management of
natural resources and leading by example
Helping local communities prosper, and
promoting a diverse and inclusive
workforce
Partnering with all stakeholders, including
non-governmental organisations (NGOs)
and our communities, to ensure we are
creating solutions for our collective needs
Evaluating our product mix to align with
evolving needs and demand
Collaborating with our partners and
providing an integrated OneSappi
approach
Capitalising on emerging technologies with
corresponding internal systems
16
Growing populations
with increasing rates
of urbanisation
Addressing the changing needs of
these populations while managing our
environmental footprint
Our purpose
Why we exist
Sappi exists to build a thriving world
by unlocking the power of renewable
resources to benefit people,
communities, and the planet
Context
A purpose is so much more than words on a page – it’s why we exist.
It is our definition, our inspiration, our call to create a brighter future
for the world and our business
Our vision
What we’re
striving to achieve
We will be a sustainable business with
an exciting future in woodfibre that
provides relevant solutions, delivers
enhanced value, and is a trusted partner
to all our stakeholders
Context
Our vision keeps us clearly focused – bolstering our commitment to
reaching our organisational goals over the next five years
Our values
How we do
business
As OneSappi, we do business safely, with
integrity and courage, making smart
decisions that we execute with speed
Context
At Sappi, our values are the backbone of our everyday attitude,
conduct, and operations
17
17
GROUP OVERVIEW GROUP OVERVIEW
Our
business
strategy
How we’ll get there
Through collaboration and innovation,
we will grow profitably, using our
strength as a sustainable and diversified
global woodfibre group, focused on
dissolving pulp, graphic, packaging and
speciality papers, and biomaterials
Context
Thrive25
, our new business strategy, builds upon the hard work we
began with our 2020Vision - leveraging the power of OneSappi to
drive real and sustained value creation
Our strategy demands a clear focus on four key fundamentals:
Grow our business
Committing to core business
segments while investing
in innovation, growth
opportunities, and ongoing
customer relationships
Sustain our financial
health
Drive operational
excellence
Reducing and managing
our debt, growing EBITDA,
maximising product value,
optimising processes
globally, and strategically
disposing of our non-core
assets
Strengthening our safety-
first culture and reducing
resource use while
enhancing efficiency and
making smart data
investments
How it will be applied to each business segment
Enhance trust
Improving our understanding
of – and proactively
partnering with – clients and
communities, driving
sustainability solutions, and
meeting the changing needs
of every employee at Sappi
Dissolving pulp
Focusing on the completion
of projects – all while
reducing costs and driving
sustainability. This happens
by optimising product mix,
managing South African
forestry risks,and carefully
tracking timber usage
Graphic papers
Strengthening our
competitive position in
these contracting markets,
realising their strategic
importance to the group, and
maximising their significant
cash flow generation
Biomaterials
Responding to a world
looking for more sustainable
chemical and material
solutions. We will extract
value from our biorefinery
stream
Packaging and
speciality papers
Capitalising on existing
strengths and
commercialising new
products. We will continue
to advance paperboard
in North America and
Europe, cautiously expand
paperboard in South Africa,
and create new solutions
to address global forces
Our
sustainability
strategy
How sustainability
will drive value
18
Our commitment to sustainability is
based on being a trusted, transparent,
and innovative partner in building a
biobased circular economy
Context
We will create long-term value for all stakeholders from relevant
sustainable woodfibre products and through ongoing
improvement in key areas.
Sappi 2020 ANNUAL INTEGRATED REPORT The strategy we’ve unfolded
marks a pivotal moment in
Sappi’s history. Harnessing this
momentum will ensure that our
business - and our world - thrives
for years to come.
19
19
GROUP OVERVIEW GROUP OVERVIEW
How we
create value
Through our six value
streams, we take an
integrated approach to
value creation, to
enable the delivery of
our purpose and
our Thrive25 strategy.
Forests
Our 100% Forest Stewardship CouncilTM (FSCTM )-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. (FSC-N003159). Our leading-edge tree
improvement programmes aim to grow better trees faster,
thereby ensuring this advantage is maintained and enhanced.
Manufacturing excellence
We focus on enhancing machine efficiencies, digitising our
processes to make the smart factory a reality, reducing variable
costs through new practices in logistics and procurement, as
well as implementing go-to-market strategies, which lower the
cost of serving our customers and increase customer
satisfaction.
South
African
plantations
100%
FSC-certified
Dissolving pulp
Dissolving pulp (DP) is a truly sustainable raw material.
Our customers transform our DP into products that meet the
needs of people around the globe every day. Products that
enable fashion, household comfort, personal beauty and
hygiene, as well as a healthy lifestyle.
110,000 tpa
expansion at
Saiccor Mill
underway
Packaging and speciality papers
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.
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.
Decarboni-
sation
is a key focus
Commercia-
lisation of
bioproducts is
gaining traction
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.
Robust
demand
Graphic papers
While the digital age has impacted 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 G
M A G
Our purpose
(cid:20)(cid:24)(cid:19)(cid:19)(cid:18)(cid:31)(cid:22)(cid:17)(cid:18)(cid:21)(cid:16)(cid:21)(cid:31)(cid:16)(cid:15)(cid:31)(cid:14)(cid:27)(cid:18)(cid:23)(cid:13)(cid:31)(cid:24)(cid:31)
(cid:16)(cid:12)(cid:26)(cid:18)(cid:25)(cid:18)(cid:11)(cid:10)(cid:31)(cid:9)(cid:15)(cid:26)(cid:23)(cid:13)(cid:31)(cid:14)(cid:8)(cid:31)(cid:27)(cid:11)(cid:23)(cid:15)(cid:7)(cid:6)(cid:18)(cid:11)(cid:10)(cid:31)
(cid:16)(cid:12)(cid:22)(cid:31)(cid:19)(cid:15)(cid:9)(cid:22)(cid:26)(cid:31)(cid:15)(cid:5)(cid:31)(cid:26)(cid:22)(cid:11)(cid:22)(cid:9)(cid:24)(cid:14)(cid:23)(cid:22)(cid:31)
(cid:26)(cid:22)(cid:21)(cid:15)(cid:27)(cid:26)(cid:7)(cid:22)(cid:21)(cid:31)(cid:16)(cid:15)(cid:31)(cid:14)(cid:22)(cid:11)(cid:22)(cid:4)(cid:16)(cid:31)(cid:19)(cid:22)(cid:15)(cid:19)(cid:23)(cid:22)(cid:3)(cid:31)
(cid:7)(cid:15)(cid:2)(cid:2)(cid:27)(cid:11)(cid:18)(cid:16)(cid:18)(cid:22)(cid:21)(cid:3)(cid:31)(cid:24)(cid:11)(cid:13)(cid:31)(cid:16)(cid:12)(cid:22)(cid:31)(cid:19)(cid:23)(cid:24)(cid:11)(cid:22)(cid:16)(cid:29)
(cid:31)(cid:30)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:25)(cid:24)(cid:23)(cid:27)(cid:22)(cid:21)
(cid:31)
(cid:31) (cid:144)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:6)(cid:22)(cid:8)
(cid:31) (cid:26)(cid:22)(cid:23)(cid:24)(cid:16)(cid:18)(cid:15)(cid:11)(cid:21)(cid:12)(cid:18)(cid:19)(cid:21)
(cid:31) (cid:143)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:18)(cid:11)(cid:19)(cid:27)(cid:16)(cid:21)
(cid:141)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:25)(cid:24)(cid:23)(cid:27)(cid:22)
(cid:21)(cid:16)(cid:26)(cid:22)(cid:24)(cid:2)(cid:21)
(cid:31) (cid:129)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:15)(cid:27)(cid:16)(cid:19)(cid:27)(cid:16)(cid:21)
(cid:127)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:15)(cid:27)(cid:16)(cid:7)(cid:15)(cid:2)(cid:22)(cid:21)
(cid:1)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:10)(cid:23)(cid:15)(cid:14)(cid:24)(cid:23)
(cid:21)(cid:27)(cid:21)(cid:16)(cid:24)(cid:18)(cid:11)(cid:24)(cid:14)(cid:18)(cid:23)(cid:18)(cid:16)(cid:8)(cid:31)(cid:10)(cid:15)(cid:24)(cid:23)(cid:21)
How we do business
How we remain relevant
As OneSappi, we do
business safely, with
integrity and courage,
making smart decisions
that we execute with
speed.
Ongoing engagement
with our stakeholders,
conducted in a spirit of
trust and mutual respect,
enables more tangible
business value creation.
20
What we need –
the resources and
relationships we
rely on
Our integrated
approach to sustainable
development
acknowledges that we
depend on Prosperity,
People and the Planet
(the 3Ps) to thrive. We
rely on certain inputs to
create value.
What we do –
our business activities
The value streams set
out above reflect our
belief that it’s our
responsibility to use the
full potential of each tree
harvested.
What we produce – our
products, services and
waste products
What we create, preserve or
What we are striving for –
erode – the broader impacts
our long-term, broader
of our business activities
outcomes
Our diverse product
range is designed to
serve our customers,
meeting their needs
today, tomorrow and
well into the future.
While we acknowledge that our
Monitoring and reporting
business activities have positive
transparently on our ambitious
and negative outcomes, we
3P targets aligns with our
strive to maximise the positive
OneSappi strategic approach.
consequences of our value
streams in terms of the 3Ps.
See page 17
See page 44
See page 22
See above
See page 23
See page 23
See our 2020 Sappi Group
Sustainability Report
Sappi 2020 ANNUAL INTEGRATED REPORT Through our six value
streams, we take an
integrated approach to
value creation, to
enable the delivery of
our purpose and
our Thrive25 strategy.
Forests
Our 100% Forest Stewardship CouncilTM (FSCTM )-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. (FSC-N003159). Our leading-edge tree
improvement programmes aim to grow better trees faster,
thereby ensuring this advantage is maintained and enhanced.
Dissolving pulp
Dissolving pulp (DP) is a truly sustainable raw material.
Our customers transform our DP into products that meet the
needs of people around the globe every day. Products that
enable fashion, household comfort, personal beauty and
hygiene, as well as a healthy lifestyle.
Manufacturing excellence
We focus on enhancing machine efficiencies, digitising our
processes to make the smart factory a reality, reducing variable
costs through new practices in logistics and procurement, as
well as implementing go-to-market strategies, which lower the
cost of serving our customers and increase customer
South
African
plantations
100%
FSC-certified
110,000 tpa
expansion at
Saiccor Mill
underway
Packaging and speciality papers
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.
Robust
demand
Graphic papers
While the digital age has impacted 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 G
M
A
G
Our purpose
(cid:20)(cid:24)(cid:19)(cid:19)(cid:18)(cid:31)(cid:22)(cid:17)(cid:18)(cid:21)(cid:16)(cid:21)(cid:31)(cid:16)(cid:15)(cid:31)(cid:14)(cid:27)(cid:18)(cid:23)(cid:13)(cid:31)(cid:24)(cid:31)
(cid:16)(cid:12)(cid:26)(cid:18)(cid:25)(cid:18)(cid:11)(cid:10)(cid:31)(cid:9)(cid:15)(cid:26)(cid:23)(cid:13)(cid:31)(cid:14)(cid:8)(cid:31)(cid:27)(cid:11)(cid:23)(cid:15)(cid:7)(cid:6)(cid:18)(cid:11)(cid:10)(cid:31)
(cid:16)(cid:12)(cid:22)(cid:31)(cid:19)(cid:15)(cid:9)(cid:22)(cid:26)(cid:31)(cid:15)(cid:5)(cid:31)(cid:26)(cid:22)(cid:11)(cid:22)(cid:9)(cid:24)(cid:14)(cid:23)(cid:22)(cid:31)
(cid:26)(cid:22)(cid:21)(cid:15)(cid:27)(cid:26)(cid:7)(cid:22)(cid:21)(cid:31)(cid:16)(cid:15)(cid:31)(cid:14)(cid:22)(cid:11)(cid:22)(cid:4)(cid:16)(cid:31)(cid:19)(cid:22)(cid:15)(cid:19)(cid:23)(cid:22)(cid:3)(cid:31)
(cid:7)(cid:15)(cid:2)(cid:2)(cid:27)(cid:11)(cid:18)(cid:16)(cid:18)(cid:22)(cid:21)(cid:3)(cid:31)(cid:24)(cid:11)(cid:13)(cid:31)(cid:16)(cid:12)(cid:22)(cid:31)(cid:19)(cid:23)(cid:24)(cid:11)(cid:22)(cid:16)(cid:29)
satisfaction.
Bioproducts
We are unlocking the chemistry of trees and meeting the
challenges of a carbon-constrained world by establishing
a strong position in adjacent businesses including
nanocellulose, sugars and furfural, lignosulphonates,
biocomposites and bio-energy. Extracting more value
from each tree is strengthening our core business model.
Decarboni-
sation
is a key focus
Commercia-
lisation of
bioproducts is
gaining traction
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.
(cid:31)(cid:30)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:25)(cid:24)(cid:23)(cid:27)(cid:22)(cid:21)
(cid:31)
(cid:31) (cid:144)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:6)(cid:22)(cid:8)
(cid:31) (cid:26)(cid:22)(cid:23)(cid:24)(cid:16)(cid:18)(cid:15)(cid:11)(cid:21)(cid:12)(cid:18)(cid:19)(cid:21)
(cid:31) (cid:143)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:18)(cid:11)(cid:19)(cid:27)(cid:16)(cid:21)
(cid:141)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:25)(cid:24)(cid:23)(cid:27)(cid:22)
(cid:21)(cid:16)(cid:26)(cid:22)(cid:24)(cid:2)(cid:21)
(cid:31) (cid:129)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:15)(cid:27)(cid:16)(cid:19)(cid:27)(cid:16)(cid:21)
(cid:127)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:15)(cid:27)(cid:16)(cid:7)(cid:15)(cid:2)(cid:22)(cid:21)
(cid:1)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:10)(cid:23)(cid:15)(cid:14)(cid:24)(cid:23)
(cid:21)(cid:27)(cid:21)(cid:16)(cid:24)(cid:18)(cid:11)(cid:24)(cid:14)(cid:18)(cid:23)(cid:18)(cid:16)(cid:8)(cid:31)(cid:10)(cid:15)(cid:24)(cid:23)(cid:21)
How we do business
How we remain relevant
What we need –
What we do –
As OneSappi, we do
business safely, with
integrity and courage,
Ongoing engagement
with our stakeholders,
conducted in a spirit of
the resources and
relationships we
rely on
making smart decisions
trust and mutual respect,
Our integrated
that we execute with
enables more tangible
approach to sustainable
responsibility to use the
speed.
business value creation.
development
full potential of each tree
our business activities
The value streams set
out above reflect our
belief that it’s our
harvested.
What we produce – our
products, services and
waste products
What we create, preserve or
erode – the broader impacts
of our business activities
What we are striving for –
our long-term, broader
outcomes
Our diverse product
range is designed to
serve our customers,
meeting their needs
today, tomorrow and
well into the future.
While we acknowledge that our
business activities have positive
and negative outcomes, we
strive to maximise the positive
consequences of our value
streams in terms of the 3Ps.
Monitoring and reporting
transparently on our ambitious
3P targets aligns with our
OneSappi strategic approach.
See page 17
See page 44
See page 22
See above
See page 23
See page 23
21
See our 2020 Sappi Group
Sustainability Report
acknowledges that we
depend on Prosperity,
People and the Planet
(the 3Ps) to thrive. We
rely on certain inputs to
create value.
GROUP OVERVIEW GROUP OVERVIEW
Our business model
Inputs
The resources and relationships we rely on
Our activities
Our value streams
Outputs
Our products, services and
waste products
Outcomes
The broader impacts of our
business activities
Actions to
enhance
outcomes
Prosperity
Financial,
intellectual and
manufactured
capitals
People
Human, and
social and
relationship
capitals
Planet
Natural
capital
• 18 production facilities across the
globe (see page 8)
• Debt: US$1,957 million
• Equity and liabilities: US$4,55 million
• Investment: US$39 million
• Investment in growth: US$298 million
• Employees: 12,805
• South African contractor employees:
approximately 9,250
• Ongoing stakeholder engagement
• Skilled employees – average training spend
of US$434 per employee
• Community upliftment: investment of
US$3 million
• Natural capital:
– Plantations:
• 394,000 owned and leased, of
which 259,000 is planted
• The remainder is managed to
conserve the natural habitat and
biodiversity found there
– Energy purchased: 2,381 MW
– Energy generated on site: 1,979 MW
– Renewable energy 54.4%, of which 68.3%
own black liquor
– Water extracted: 277 million m3 in
absolute terms, 36.82 m3/adt in specific
terms.
– Certified fibre used: 73%
Forests
Manufacturing
excellence
Bioproducts
Dissolving pulp
Packaging and
speciality papers
Graphic papers
• 5.7 million tons of saleable
production
• New products developed to
meet changing customer
expectations and market trends
• Our high levels of innovation
give our customers a
competitive edge in global
markets
• 1.4 million tons of waste, of
which 351,698 tons is sent to
landfill
• 4.08 million tCO2e absolute
direct (Scope 1) GHG
• 1.20 million tCO2e absolute
indirect (Scope 2) GHG
• 93.8% water drawn returned to
environment
Symbio chosen for
the development of
lightweight bio-composite
materials in the European
Life Biobcompo project
Total assets: US$5.4 billion
EBITDA: US$378 million, a decline of
45% year-on-year (y-o-y)
US$925 million paid to employees as salaries,
wages and other benefits
US$100 million paid to lenders as interest
6% reduction in cash fixed costs y-o-y
0 dividends
US$434
average
training spend
per employee
Loss of US$135 million
Net debt: up by 30.38%
US$54 million paid to governments
through taxation
High levels of
forest certification
= competitive
advantage
One fatality
Global average of 46 training hours per employee
Productivity: 4.3 hours worked/adt saleable production
Level 2 BBBEE contributor
22
23
Value created
Value preserved
Value eroded
Energy intensity: 23.71 GJ/adt
High levels of wood certification result in competitive advantage
World-leading tree improvement programmes have led to shorter
growth times and enhanced fibre gain
Training of smallholders in Sappi North America (SNA) and Sappi
Europe (SEU) to educate them on more sustainable forestry practices
DP used for clothing and household textiles, baby wipes and
wet wipes – reducing environmental impact
Lighter-weight packaging products – reduction in carbon footprint
Expanded packaging portfolio offers customers and consumers more
sustainable alternatives to fossil-fuel based packaging (plastics)
•
1.1 million tons of
• Continued investment in
• Committed to
commercial downtime
embedding a safety culture
science-based targets
(major repercussions for
across the group
• Focus on entrenching
transformation in our South
•
Increased energy
• Developed a
decarbonisation roadmap
operating efficiency, fixed
cost absorption and
profitability)
•
Investment in R&D to ensure
cutting-edge solutions for
customers
• Ongoing diversification of
our product portfolio into
higher margin segments
• Commercialisation of
bioproducts gaining traction
• Group Supplier Code of
African operations to
support inclusive growth
• Investment in training and
development of our
employees
• Strong governance and
Code of Ethics training
Conduct rolled out to
suppliers
self-sufficiency by 6.3%
over five years due to focus
on reducing purchased
energy
•
Impact on GHG emissions
offset by carbon
sequestration
• Continued to adjust our
tree breeding strategy to
mitigate the impacts of
climate change
• Made progress in terms of
our 2025 biodiversity goal
(vegetation assessment on
our land)
Sappi 2020 ANNUAL INTEGRATED REPORT
Inputs
The resources and relationships we rely on
Our activities
Our value streams
Outputs
Our products, services and
waste products
Outcomes
The broader impacts of our
business activities
Actions to
enhance
outcomes
Prosperity
Financial,
intellectual and
manufactured
capitals
People
Human, and
social and
relationship
capitals
Planet
Natural
capital
• 18 production facilities across the
globe (see page 8)
• Debt: US$1,957 million
• Equity and liabilities: US$4,55 million
• Investment: US$39 million
• Investment in growth: US$298 million
• Employees: 12,805
• South African contractor employees:
approximately 9,250
• Ongoing stakeholder engagement
• Skilled employees – average training spend
of US$434 per employee
• Community upliftment: investment of
US$3 million
• Natural capital:
– Plantations:
• 394,000 owned and leased, of
which 259,000 is planted
• The remainder is managed to
conserve the natural habitat and
biodiversity found there
– Energy purchased: 2,381 MW
– Energy generated on site: 1,979 MW
– Renewable energy 54.4%, of which 68.3%
own black liquor
– Water extracted: 277 million m3 in
absolute terms, 36.82 m3/adt in specific
terms.
– Certified fibre used: 73%
Forests
Manufacturing
excellence
Bioproducts
Dissolving pulp
Packaging and
speciality papers
Graphic papers
• 5.7 million tons of saleable
production
• New products developed to
meet changing customer
expectations and market trends
• Our high levels of innovation
give our customers a
competitive edge in global
markets
• 1.4 million tons of waste, of
which 351,698 tons is sent to
landfill
• 4.08 million tCO2e absolute
direct (Scope 1) GHG
• 1.20 million tCO2e absolute
indirect (Scope 2) GHG
• 93.8% water drawn returned to
environment
Symbio chosen for
the development of
lightweight bio-composite
materials in the European
Life Biobcompo project
US$434
average
training spend
per employee
Total assets: US$5.4 billion
EBITDA: US$378 million, a decline of
45% year-on-year (y-o-y)
US$925 million paid to employees as salaries,
wages and other benefits
US$100 million paid to lenders as interest
6% reduction in cash fixed costs y-o-y
0 dividends
Loss of US$135 million
Net debt: up by 30.38%
US$54 million paid to governments
through taxation
•
1.1 million tons of
• Continued investment in
• Committed to
commercial downtime
embedding a safety culture
science-based targets
(major repercussions for
across the group
• Focus on entrenching
transformation in our South
•
Increased energy
• Developed a
decarbonisation roadmap
operating efficiency, fixed
cost absorption and
profitability)
•
Investment in R&D to ensure
cutting-edge solutions for
customers
• Ongoing diversification of
our product portfolio into
higher margin segments
• Commercialisation of
bioproducts gaining traction
• Group Supplier Code of
African operations to
support inclusive growth
• Investment in training and
development of our
employees
• Strong governance and
Code of Ethics training
Conduct rolled out to
suppliers
self-sufficiency by 6.3%
over five years due to focus
on reducing purchased
energy
•
Impact on GHG emissions
offset by carbon
sequestration
• Continued to adjust our
tree breeding strategy to
mitigate the impacts of
climate change
• Made progress in terms of
our 2025 biodiversity goal
(vegetation assessment on
our land)
High levels of
forest certification
= competitive
advantage
One fatality
Global average of 46 training hours per employee
Productivity: 4.3 hours worked/adt saleable production
Level 2 BBBEE contributor
23
Value created
Value preserved
Value eroded
Energy intensity: 23.71 GJ/adt
High levels of wood certification result in competitive advantage
World-leading tree improvement programmes have led to shorter
growth times and enhanced fibre gain
Training of smallholders in Sappi North America (SNA) and Sappi
Europe (SEU) to educate them on more sustainable forestry practices
DP used for clothing and household textiles, baby wipes and
wet wipes – reducing environmental impact
Lighter-weight packaging products – reduction in carbon footprint
Expanded packaging portfolio offers customers and consumers more
sustainable alternatives to fossil-fuel based packaging (plastics)
Inputs
The resources and relationships we rely on
Our activities
Our value streams
Outputs
Our products, services and
waste products
Outcomes
The broader impacts of our
business activities
Actions to
enhance
outcomes
Prosperity
Financial,
intellectual and
manufactured
capitals
People
Human, and
social and
relationship
capitals
Planet
Natural
capital
• 18 production facilities across the
globe (see page 8)
• Debt: US$1,957 million
• Equity and liabilities: US$4,55 million
• Investment: US$39 million
• Investment in growth: US$298 million
• Employees: 12,805
• South African contractor employees:
approximately 9,250
• Ongoing stakeholder engagement
• Skilled employees – average training spend
of US$434 per employee
• Community upliftment: investment of
US$3 million
• Natural capital:
– Plantations:
• 394,000 owned and leased, of
which 259,000 is planted
• The remainder is managed to
conserve the natural habitat and
biodiversity found there
– Energy purchased: 2,381 MW
– Energy generated on site: 1,979 MW
– Renewable energy 54.4%, of which 68.3%
own black liquor
– Water extracted: 277 million m3 in
absolute terms, 36.82 m3/adt in specific
terms.
– Certified fibre used: 73%
Forests
Manufacturing
excellence
Bioproducts
Dissolving pulp
Packaging and
speciality papers
Graphic papers
• 5.7 million tons of saleable
production
• New products developed to
meet changing customer
expectations and market trends
• Our high levels of innovation
give our customers a
competitive edge in global
markets
• 1.4 million tons of waste, of
which 351,698 tons is sent to
landfill
• 4.08 million tCO2e absolute
direct (Scope 1) GHG
• 1.20 million tCO2e absolute
indirect (Scope 2) GHG
• 93.8% water drawn returned to
environment
•
•
1.1 million tons of
commercial downtime
(major repercussions for
operating efficiency, fixed
cost absorption and
profitability)
Investment in R&D to ensure
cutting-edge solutions for
customers
• Ongoing diversification of
our product portfolio into
higher margin segments
• Commercialisation of
bioproducts gaining traction
Symbio chosen for
the development of
lightweight bio-composite
materials in the European
Life Biobcompo project
Total assets: US$5.4 billion
EBITDA: US$378 million, a decline of
45% year-on-year (y-o-y)
US$925 million paid to employees as salaries,
wages and other benefits
US$100 million paid to lenders as interest
6% reduction in cash fixed costs y-o-y
0 dividends
US$434
average
training spend
per employee
Loss of US$135 million
Net debt: up by 30.38%
US$54 million paid to governments
through taxation
High levels of
forest certification
= competitive
advantage
One fatality
Global average of 46 training hours per employee
Productivity: 4.3 hours worked/adt saleable production
Level 2 BBBEE contributor
Value created
Value preserved
Value eroded
Energy intensity: 23.71 GJ/adt
High levels of wood certification result in competitive advantage
World-leading tree improvement programmes have led to shorter
growth times and enhanced fibre gain
Training of smallholders in Sappi North America (SNA) and Sappi
Europe (SEU) to educate them on more sustainable forestry practices
DP used for clothing and household textiles, baby wipes and
wet wipes – reducing environmental impact
Lighter-weight packaging products – reduction in carbon footprint
Expanded packaging portfolio offers customers and consumers more
sustainable alternatives to fossil-fuel based packaging (plastics)
• Continued investment in
embedding a safety culture
across the group
• Committed to
science-based targets
• Developed a
• Focus on entrenching
transformation in our South
•
African operations to
support inclusive growth
• Investment in training and
development of our
employees
•
• Strong governance and
Code of Ethics training
• Group Supplier Code of
Conduct rolled out to
suppliers
decarbonisation roadmap
Increased energy
self-sufficiency by 6.3%
over five years due to focus
on reducing purchased
energy
Impact on GHG emissions
offset by carbon
sequestration
• Continued to adjust our
tree breeding strategy to
mitigate the impacts of
climate change
• Made progress in terms of
our 2025 biodiversity goal
(vegetation assessment on
our land)
G
R
O
U
P
O
V
E
R
V
E
W
I
24
Examples of our trade-offs
The most difficult decisions made during the year
Balancing employee health and safety with operational
continuity as an essential service provider
As an essential business, we continued operations in most regions which meant
we had to carefully balance the need to protect the health of our employees, with
the need to protect livelihoods and support national economies. We mitigated
the risk to our employees through the implementation of strict protocols.
Risk: 1 Safety
Balancing afforestation
and biodiversity
At stand level, our plantations have a
negative impact on biodiversity. At
plantation level, we manage this impact by
managing approximately one third of our
landholdings for biodiversity.
Balancing demand with
capital investment and
employment
Our decision early in 2020 to close Paper
Machine 2 (PM2) at our Stockstadt Mill as well
as PM9 and the energy complex at Westbrook
Mill was accelerated by Covid-19 and poor
demand. In making this decision, the board
carefully balanced the need to manage liquidity,
with demand trends, current macro-economic
conditions and the people employed at the
mills. The closures followed a consultation
process which impacted 245 employees. While
the immediate financial consequence of the
decision resulted in an estimated restructuring
provision of US$46.4 million, the estimated
yearly saving will be about US$28 million,
reflecting our commitment to taking decisive
action to reduce costs and respond to market
dynamics.
G
R
O
U
P
O
V
E
R
V
E
W
I
Risk: 5 Sustainability expectations
Risk: 4 Liquidity
Balancing the need for
reduced production with
environmental considerations
The need to maintain liquidity by curtailing
production impacted on our environmental
performance. Curtailment reduces efficiency
of the various processes. Accordingly,
globally, specific Scope 1 emissions, specific
total energy consumption and specific
process water consumption all increased.
4 Liquidity
Risk: 5 Sustainability expectations
9 Climate change
Balancing capital investment
and liquidity
We declared force majeure on the Vulindlela
expansion project at Saiccor Mill, postponed
annual shuts at certain mills and took
downtime on several machines to reduce our
capital expenditure and preserve cash flow in
FY2020. We have a carefully planned capital
investment programme, with clear deadlines
and deliverable. In making this decision, the
board carefully balanced the short-term
benefits against the long-term consequences
as these projects will now roll into 2021.
Risk: 4 Liquidity
25
26
GROUP OVERVIEW
Letter to the stakeholders
from the Chairman and Chief Executive Officer (CEO)
Steve Binnie
CEO
Sir Nigel Rudd
Chairman
In the short term,
management’s
focus turned to
the preservation
of liquidity,
lowering costs
and re-prioritising
various strategic
actions.”
Operating review
The group’s performance was severely impacted by the Covid-19 pandemic,
related lockdowns and the economic aftereffect. Demand for graphic paper and
dissolving pulp (DP) was particularly hard hit. Sales volumes for these products
decreased by 20% and 18% respectively. The market conditions forced us to take
more than 1.1 million tons of commercial downtime, which had repercussions
for operating efficiency, fixed cost absorption and profitability. Lower DP volumes
exacerbated an already tough operating environment for the segment, as historic
low pricing levels persisted throughout the year. The positive highlight for the
year was strong growth in sales and profitability for the packaging and specialities
segment. A ramp up in volumes from Somerset and stable packaging demand
throughout the Covid-19 crisis contributed to this success. The group’s EBITDA
excluding special items was US$378 million, compared to US$687 million in
the prior year.
In the short term, management’s focus turned to the preservation of liquidity,
lowering costs and re-prioritising various strategic actions. Commercial downtime
was taken across all segments as required, to match supply to demand
and prevent the build-up of inventory. Additionally, non-critical projects were
deferred, and some annual maintenance shuts were postponed for a short period.
We made good progress in our efforts to improve safety across the group in the
past year. All three regions improved their safety metrics, with Sappi North
America following up an already impressive performance in 2019 to achieve
an all-time low LTIFR in 2020. This improvement is as a result of an unwavering
commitment to Project Zero. We do not accept injuries and accidents are
inevitable and safety programmes in each region aimed at personal behaviour, the
making of safe choices and leadership engagement. Regrettably we must report
a contractor fatality 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.
Our board places great emphasis on maintaining Sappi’s reputation as an ethical
corporate citizen, laying ethical behaviour as the foundation of our business.
Values and ethics are not only critical to maintain a licence to operate, but also
for developing and maintaining stakeholder trust and to drive performance. The
expected behaviour is encapsulated in our Code of Ethics, which guides our
directors, employees, suppliers and customers in their day-to-day interactions
and transactions.
In local currencies, each of the regions increased the profitability of their
packaging and specialities segments compared to the prior year, despite the
many challenges posed by lockdowns in various industries across the globe.
The ramp-up of Somerset PM1, the acquisition and integration of the Matane Mill,
the delayed maintenance shut at Ngodwana Mill as well as generally lower input
costs all contributed positively to the performance. EBITDA in this segment
increased from US$126 million to US$179 million. The business has proven to be
resilient in difficult economic circumstances and supports our strategy
to diversify the product portfolio into higher margin and growing segments.
DP prices started the year at historically low levels and, albeit with periods of
relative stability, ended the year even lower. This, in conjunction with the rapid
slowdown in customer demand in the third quarter as a result of the lockdown
measures implemented by various governments, resulted in EBITDA for this
segment dropping from US$304 million to US$63 million. Demand and pricing
Balancing employee health and safety with operational
Balancing demand with
continuity as an essential service provider
As an essential business, we continued operations in most regions which meant
we had to carefully balance the need to protect the health of our employees, with
the need to protect livelihoods and support national economies. We mitigated
the risk to our employees through the implementation of strict protocols.
Risk: 1 Safety
capital investment and
employment
Our decision early in 2020 to close Paper
Machine 2 (PM2) at our Stockstadt Mill as well
as PM9 and the energy complex at Westbrook
Mill was accelerated by Covid-19 and poor
demand. In making this decision, the board
carefully balanced the need to manage liquidity,
with demand trends, current macro-economic
conditions and the people employed at the
mills. The closures followed a consultation
process which impacted 245 employees. While
the immediate financial consequence of the
decision resulted in an estimated restructuring
provision of US$46.4 million, the estimated
yearly saving will be about US$28 million,
reflecting our commitment to taking decisive
action to reduce costs and respond to market
dynamics.
Balancing afforestation
and biodiversity
At stand level, our plantations have a
negative impact on biodiversity. At
plantation level, we manage this impact by
managing approximately one third of our
landholdings for biodiversity.
Risk: 5 Sustainability expectations
Risk: 4 Liquidity
Balancing the need for
reduced production with
environmental considerations
The need to maintain liquidity by curtailing
production impacted on our environmental
performance. Curtailment reduces efficiency
of the various processes. Accordingly,
globally, specific Scope 1 emissions, specific
total energy consumption and specific
process water consumption all increased.
4 Liquidity
Risk: 5 Sustainability expectations
9 Climate change
Balancing capital investment
and liquidity
We declared force majeure on the Vulindlela
expansion project at Saiccor Mill, postponed
annual shuts at certain mills and took
downtime on several machines to reduce our
capital expenditure and preserve cash flow in
FY2020. We have a carefully planned capital
investment programme, with clear deadlines
and deliverable. In making this decision, the
board carefully balanced the short-term
benefits against the long-term consequences
as these projects will now roll into 2021.
Risk: 4 Liquidity
26
Sappi 2020 ANNUAL INTEGRATED REPORT
began to recover in the fourth quarter;
however, our sales volumes lagged
this market recovery as a result
of commercial and operational
decisions taken to preserve profitability
and liquidity in the group. The project to
expand the Saiccor Mill capacity was
put on hold through the initial months
of the Covid-19 outbreak and is now
expected to be completed in the
Q3 FY21.
In the first half of the year, graphic
paper markets were characterised by
weaker orders, offset by lower input
costs which resulted in a constant
year-on-year performance compared
to FY2019. The outbreak of Covid-19
in the second half of the year led to a
significant decline in graphic paper
usage across the globe in line with the
slowdown in economic activity. EBITDA
in this segment declined from
US$251 million to US$131 million.
The poor demand, which is unlikely
to return to pre-Covid-19 levels,
accelerated the decision to close a
paper machine at each of Stockstadt
and Westbrook Mills during the year.
This action, along with closures by
other industry participants should
result in industry operating rates
returning to more profitable levels in
the coming year. From a low point in
June, we have experienced a gradual
improvement in sales each month.
Strategic review
(2015 – 2020)
Calendar 2020 was the final year of our
strategic 2020Vision. The weak pricing
environment for DP at the start of the
year, and then the unprecedented
effects of Covid-19 and the related
lockdowns and economic aftereffects
meant that while we remained
steadfastly committed to our strategy,
we had to adjust to the short and
medium-term impacts of the pandemic
on our markets, operations and people.
During the year we finalised the
strategy for the next five-year period,
ending 2025, and have named this
Thrive25
. The revised strategy does
not meaningfully change our focus or
chosen path; however, it embeds
sustainability and innovation at the
core of our focus and reflects the
changing markets and economic
conditions we are experiencing at the
start of the new decade. We describe
our new
strategy elsewhere
in this report on pages
Thrive25
16 – 19.
Our 2020 strategy encompassed
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
• Accelerate growth in higher margin
products – We will invest
in expanding our paper packaging
grades, enhancing our DP portfolio
and in the extraction of value from
our biorefinery stream
These strategic objectives were
supported by our value statement:
As OneSappi, we do business safely,
with integrity and courage, making
smart decisions that 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
(2015 – 2020)
Reducing both variable and fixed costs
throughout the business is integral
both to maintaining or improving
margins and to the sustainability of our
operations. This is especially true in
commodity businesses where we
faced declining demand, such as
graphic papers. In the past year we set
ourselves a target of a US$54 million
(subsequently revised to US$64 million)
reduction in third-party expenditure
compared to 2019 through efficiency
and raw material usage improvements
as well as delivering savings through
various procurement initiatives. We are
pleased to report that savings of
US$108 million were realised, which
helped offset the significant decline in
We made
good progress
in our efforts
to improve
safety across
the group in the
past year.”
graphic paper and DP volumes.
An additional US$104 million in fixed
cost savings was realised in the
second half of the year to mitigate as
far as possible the impacts of the
severe downturn in demand in the
graphics and segments. In 2021 we
are targeting a further US$70 million in
variable cost savings.
During 2020 we proceeded with the
Saiccor Mill 110,000 ton expansion.
This project, originally due to be
completed towards the end of 2020,
will improve our energy and chemical
recovery, lowering variable costs. As a
result of the Covid-19 lockdown in
South Africa we had to stop
construction on the project for a period
and we now estimate completion of the
project will occur in the third fiscal
quarter of 2021. During the period that
construction was halted we revised the
project somewhat, with a focus in
lowering future variable costs further.
As a result, the higher cost calcium line
at Saiccor Mill will now be converted to
a magnesium process, with additional
savings in energy costs and chemical
recovery.
In 2021 we will be undertaking
some small pulp mill debottlenecking
projects in Europe, which will help
improve the paper pulp integration
of our specialities and packaging
business, lowering our cost base
and reducing the volatility of earnings
through the pulp cycle.
27
GROUP OVERVIEW
Letter to the stakeholders continued
Rationalise declining businesses (2015 – 2020)
Graphic paper demand in Europe and North America continues to be in long-term
structural decline, and this was exacerbated in 2020 by the economic
consequences of the Covid-19 pandemic and associated lockdowns. Maintaining
operating rates and lowering costs are key to our strategy to maximise cash
generation in these markets. We had to take 970,000 tons of production downtime
in this segment during the year, which negatively impacted the profitability of the
graphic paper business.
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
2020, we ramped up production of the paperboard grades on this machine as we
qualified the various products with a range of customers. In 2021, we expect to
continue to increase paperboard volumes, thus gradually filling the machine as
graphic paper sales volumes decline. In July 2020 we announced the planned
closure of PM9 at our Westbrook Mill to lower costs. This machine made the base
paper for the speciality casting and release paper produced at that mill. We will now
supply this paper from our Cloquet and Somerset Mill facilities, lowering costs and
effectively reducing our coated paper capacity in North America by approximately
20,000 tons.
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 the coated woodfree (CWF)
grades and has seen us increase both direct sales and market share in a declining
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 furthermore undertook the conversion
of PM8 at Lanaken Mill to enable the machine to make either CWF or coated
mechanical paper (CM), allowing the transition from CM to CWF production on
that machine, bringing our CM capacity in line with that of the expected decline in
that market. We also made investments at Ehingen Mill to enhance their specialities
and packaging offering. In July 2020 we announced the closure of PM2 at our
Stockstadt Mill which was completed at the end of September 2020. The
combination of the above projects and closures has led to a 440,000 ton reduction
in our European graphic paper capacity over the past two years and a 200,000 ton
increase in packaging and speciality papers capacity.
In South Africa our exposure to declining markets is limited to newsprint, where we
are the last remaining local producer, and office paper. During 2020 we successfully
started producing sack grades on the newsprint machine, taking advantage of the
desire of retailers and consumers to reduce their use of plastic bags. This will help
keep the machine more fully utilised.
Maintain a healthy balance sheet (2015 – 2020)
The decline in profitability of the business in 2020 as a result of the factors
mentioned above, along with a largely committed capital expenditure pipeline during
the year, resulted in the net debt:EBITDA leverage ratio increasing from 2.2 to 5.2
over the course of the year, well away from our target leverage ratio of two times.
The maintenance of adequate liquidity became the major focus of management in
the second half of the year as the full impacts of Covid-19 became apparent.
Several steps were taken during the year, these included variable and fixed cost
containment initiatives, a reduction in capital expenditure, delays to major annual
maintenance shuts, furloughing of staff where possible and a focus on optimising
working capital.
With the completion of the Saiccor Mill expansion project and aforementioned
delays in shuts, capital expenditure levels in 2021 will remain elevated, however we
have not committed to any further major capital expenditure projects order to
28
preserve liquidity and with the aim of
managing debt and leverage levels.
During 2019 we refinanced the 2022
Euro bonds with a new seven-year Euro
bond at a rate of 3.125%, Sappi’s
lowest ever rate. We 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 US$100-110 million as
the net debt remains elevated in
the coming year. We proactively
negotiated the suspension of the
measurement of our revolving credit
facility (RCF) linked financial covenants
through to September 2021 (with
the first measurement due in
December 2021) to see us through
the worst of the Covid-19 impact on
our business and financial metrics.
Post year-end we announced a
ZAR1,8 billion convertible bond issue
to fund the completion of the Saiccor
Mill expansion project.
Accelerate growth
in higher margin products
(2015 – 2020)
Following the debottlenecking of the
Saiccor and Ngodwana DP Mills in
2018, in the second half of 2019
we completed the upgrades to the
Cloquet Mill, adding a further
30,000 tons of DP production capacity.
As mentioned above, we initiated the
110,000 ton expansion project at
Saiccor Mill during 2019, which, along
with additional sales volumes, will
decrease production costs for the
entire mill, introduce new technology,
reduce the environmental footprint and
future-proof manufacturing systems.
Current market conditions, with low
DP prices, viscose customers under
significant pressure and excess DP
and viscose capacity make a further
significant expansion difficult to justify
in the medium term.
The packaging and speciality papers
segment volumes grew by 7% in
2020, despite the negative impact of
Covid-19 on some of our product
segments. With higher sales volumes
on the converted machines and the
related improvement in sales mix and
production efficiencies, profitability of
the segment improved, aided by lower
GROUP OVERVIEWSappi 2020 ANNUAL INTEGRATED REPORT purchased paper pulp prices and the
increased pulp integration as a result
of the acquisition of the Matane Mill.
The pressure on fast-moving
consumer goods (FMCG) companies
to embrace alternative packaging
solutions that are more renewable,
recyclable and reusable is encouraging
joint R&D efforts to provide such
solutions. Many of our packaging
products are ideally placed to take
advantage of this accelerating demand
and we made good progress in the last
year in launching new products and
solutions for our customers. The
technology acquired from Rockwell
Solutions in 2017 is now ready to be
rolled out to additional machines within
the group, allowing us to capture more
of this market.
Sappi Biotech made further progress
in developing new and innovative
products, ideally suited to a world
looking for more sustainable chemical
and material solutions. We continued
to grow our lignin business and have
taken important steps 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 the xylose sugars
extraction technology on industrial
scale for markets such as xylitol.
Pending successful commercial
arrangements, this may result in final
product technology scale-up and
ultimate construction of commercial
xylose plants at our mills in the United
States or South Africa. We will also
invest in a pilot plant at our Saiccor
Mill in 2022 to test technologies
appropriate for the production of
furfural. 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 have been
successful in developing our fibre
composite product with automotive
producers, with the first commercial
applications occurring in 2020.
Sustainability
The events of the past year have
highlighted the importance of
managing a business in a sustainable
manner, balancing the the facets of the
3Ps, making trade-offs where required
to deliver the best long-term outcome.
While the economic pressures
resulting from the Covid-19 outbreak
impacted our operations and people,
as well as the communities we operate
in, the importance of addressing
climate change and biodiversity loss
have not diminished. Governments,
society and brand owners exert ever
more pressure on companies to do
more in this regard. Sappi has always
focused on the sustainable
management of our operations, on
increasing efficiency and maximising
value from our sustainable natural
resources. Our new
recognises that we need to be more
proactive in our dealings with various
stakeholder groups and that we must
become a trusted partner to these
groups to pursue growth opportunities
while minimising risk in a complex
operating environment. In the past year
we made great strides in assessing our
risk related to climate change, utilising
the recommendations of the Task
Force on Climate-Related Financial
Disclosure (TCFD), have committed to
set a science-based target for our
emissions and placed increasing focus
on managing risk in our supply chains
via our Supplier Code of Conduct.
strategy
Thrive25
Some products remain affected by
weaker economic activity in certain
regions or end-use markets impacted
by Covid-19.
Market conditions for DP have
improved and pricing has recovered
somewhat during October. At the end
of November, the Chinese market price
had improved to US$710/ton, driven
by an acceleration in DP demand,
tighter market balance and higher
viscose staple fibre (VSF) prices.
However, in the short term, the
combination of the mill maintenance
shut at Ngodwana Mill, constrained
production on the calcium line at
Saiccor Mill due to the closure of the
Lignotech joint venture and DP pricing
which still favours own consumption
paper pulp production at Cloquet Mill,
will mean that DP sales volumes in the
first quarter will be only marginally
higher than in the preceding quarter.
We are evaluating opportunities to
recover some of the lost DP production
prior to the completion of the Saiccor
Mill expansion project.
Graphic paper demand continues
to improve from the impact of
Covid-19, and a series of paper
machine and mill closures or
conversions in the industry recently
completed or imminent should improve
operating rates in the coming quarter
and year. However, a second wave of
Covid-19 infections in the US and
Looking forward
Underlying demand for most
packaging and speciality paper
products remains robust, driven by
consumer preference and the shift
from plastic to paper. First quarter
sales volumes will be impacted in both
Europe and South Africa by usual
seasonal weakness and exacerbated
by both the Ngodwana Mill annual
maintenance shut which was delayed
from the third quarter of FY2020 and
the scheduled Somerset Mill annual
maintenance shut. These shuts will
have an estimated US$30 million
impact on profitability, predominantly
linked to the packaging segment.
The initiative and
resourcefulness of
our people enabled
us to continue to
deliver our products
to our customers
and make it possible
to look forward to an
improvement in
our underlying
performance
in 2021.”
29
GROUP OVERVIEW
GROUP OVERVIEW
Letter to the stakeholders continued
Europe is leading to stricter lockdown
conditions and a slowing of the
recovery in many countries. Pricing is
largely expected to move in line with
variable cost movements. Due to the
improved supply/demand balance in
coated graphics paper in North
America, a price increase on SNA-
produced web brands has been
announced effective in January 2021,
matching similar announcements by
competitors.
Current liquidity headroom in the
group remains good, with cash
deposits at the end of the quarter
of US$279 million and committed
RCFs of approximately US$582 million.
We negotiated an extension of
our credit facility covenant waiver
suspension period until September
2021. The first measurement of these
covenants will now take place at the
end of December 2021.
Capital expenditure in FY2021 is
estimated to be US$370 million
and includes approximately
US$100 million related to the decision
to delay the Saiccor Mill expansion
project and the postponement of
major shuts at Saiccor and Ngodwana
Mills which reduced capital expenditure
in FY2020.
In the first quarter the recovery of the
business will continue, driven
by improving DP and graphic paper
markets. However, this will be offset
by the impact on the packaging and
speciality segment of the delayed shut
at Ngodwana Mill and the scheduled
annual maintenance shut at Somerset
Mill. As a result, EBITDA in Q1 FY2021
will be below that of Q4 FY2020. We
remain encouraged by the resilience
of our business and the opportunities
offered by our strategic focus on the
transition of the business towards
higher growth segments.
Appreciation
The Covid-19 pandemic impacted our
employees, communities, suppliers,
customers, funders and shareholders.
Without their support and willingness
to collectively seek solutions, the
impact of the pandemic on our
business would have been even more
severe. In these difficult times, close
relationships, transparency and trust
are most vital. We thank you for the
faith you have shown in us.
Our various stakeholder groups
contribute in many ways to our
performance and sustainability
as a group. Our interactions with
these stakeholders, their ideas,
suggestions and support guide us and
we thank them for their contribution.
To our customers who have placed
enormous trust on us and our ability
to meet their changing and growing
requirements through innovation
and investments, we thank you.
We undertake to continue to work
closely with you to ensure we meet
both your and our needs for value.
Our employees continue to support
the strategic initiatives of the group,
and in a year where Covid-19 had a
profound impact on how we work,
travel and on our day to day lives.
They have embraced the values and
ethics that are so important to good
corporate citizenship. The initiative and
resourcefulness of our people enabled
us to continue to deliver our products
to our customers and make it possible
to look forward to an improvement in
our underlying performance in 2021.
We also thank them for their dedication
and hard work.
Thanks to our board for their continued
commitment to the group and sound
corporate governance. Their valuable
insights and encouragement, all while
holding us to the highest ethical
standards, enable us to execute our
strategy with confidence.
In conclusion, we value the support
which our shareholders have provided
as we work to enhance sustainable
long-term shareholder returns. We look
forward to their participation at the
Annual General Meeting (AGM) on
03 February 2021.
30
Sappi 2020 ANNUAL INTEGRATED REPORT
Q&A with the CEO
Q1
How did the Covid-19 pandemic impact
Sappi, and what actions have you taken to
mitigate these affects?
The pandemic has had a profound impact on society. Our
priority remains the safety of our people across all of the
territories where they are present, and as such our mills
and other facilities apply stringent guidelines for social
distancing and sanitising. This ensures our operations
continued in a safe and uninterrupted manner. By the end
of November 2020, 308 confirmed cases of Covid-19
had occurred amongst our employees, predominantly
from community transmission outside of the workplace.
Sappi provided extensive employee well-being services
to all our employees to manage individual fears, stress,
loneliness, anxiety or depression through individual
sessions, education material, change management and
appropriate referrals. These services were furthermore
extended to those contractors that did not have ready
access to assistance programmes. Special care was
given to vulnerable employees to ensure they had the
coping skills and support structures in place through a
very difficult and abnormal time.
The group’s focus was to preserve liquidity and cash flow,
and we implemented various cost saving measures
across our operations, curtailed excess production and
where possible, deferred non-essential capital
expenditure and applied measures to optimise working
capital. On balance, our packaging and speciality paper
markets were relatively unaffected by the pandemic.
Certain categories of packaging products, generally
those related to food or medicine, were positively
affected, however, other packaging or speciality products
experienced periods of reduced demand, primarily as a
result of the temporary closure of customers’ plants or
operations as a result of lockdowns in various
geographies. Graphic paper demand was negatively
affected globally, and a slow recovery has been underway
since May/June. We do not expect a full return to
pre-Covid demand levels in this segment, perhaps
returning to 80-85% of 2019 demand by our second
fiscal quarter of 2021. The second wave of Covid-19
in Europe could de-rail this recovery once again.
DP demand experienced a very sharp correction in April
as retailers globally were forced to close outlets and
sales of garments declined by 80% or more in many
geographies. Demand, however, has returned quicker
than initially expected as retail outlets opened once again,
and supply chains were replenished. Demand for DP at
present is close to pre-Covid levels.
Steve Binnie
CEO
We are targeting
reductions
in both our
absolute
emissions and
emission
intensity and
in the past
year we have
committed
to setting a
science-based
target for our
emissions
reduction
initiatives.”
31
GROUP OVERVIEW Q&A with the CEO continued
Q2
DP prices remained
depressed throughout the
year, what do you believe
will lead to a sustained
recovery in pricing and
profitability?
DP prices remained below the cash cost of marginal cost producers for the entire
year, and while they have risen some US$70/ton from their lows, they remain
unsustainably low at present. A perfect storm of low paper pulp prices, excess
DP and VSF capacity, low cotton and polyester pricing and a Chinese textile industry
already impacted by US/China trade tensions was further impacted by the global
Covid-19 pandemic and lockdowns which closed clothing retailers for extended
periods. Clothing sales have rebounded quickly, and supply chains that emptied
rapidly during our third and fourth quarter are now being restocked, leading to a
more rapid increase in demand for DP than initially expected. Encouragingly, textile
prices increased, and this has led to the rise in DP prices. Excess DP capacity was
temporarily removed through the swinging of many DP mills capable thereof to
paper pulp. VSF operating rates also recovered and hence profitability improved for
our customers. A return to normalised levels of profitability for this segment will
require a combination of further textile price increases and higher paper pulp prices.
In the case of the latter, indications are that prices will start to rise in the coming
year, and that this will support further DP price increases.
Q3
Both absolute debt levels
and leverage have
increased in the past year.
How will you manage
these?
Market conditions are steadily improving for graphic papers and DP, albeit from a
low base. As operating rates in graphic paper improve with capacity reductions by
both Sappi and competitors in CWF and CM in the US and Europe, profitability will
improve. Higher DP prices, coupled with increased sales volumes in the latter part
of the year as the expansion of the project at Saiccor Mill is complete, will further
boost profitability. However, debt levels and leverage ratios are likely to remain
elevated as we complete the Saiccor Mill expansion project and the quarters most
impacted by the economic impacts of Covid-19 remain part of the bank covenant
calculation. As a result of this we negotiated the suspension of our covenant
measurement till end September 2021, when we believe much of the short-term
impact from Covid-19 will be behind us, and we have focused on the preservation of
liquidity and cash flow management since the onset of the pandemic. Discretionary
capex projects were postponed, and no new major capital commitments have been
made. We have no significant debt maturities due before 2023 and thus will not
need to refinance debt while credit metrics are under pressure, finance costs will be
a little higher in the coming year due to higher average net debt levels.
Q4
As the decline in graphic
paper demand seems to
have worsened in the past
year, do you have further
plans to convert
additional graphic paper
machines to packaging
and speciality paper
grades?
While we foresee a time when further conversions may be attractive, our focus in
the medium term is to expand our barrier paper technology capabilities via the
utilisation of the technology acquired in the Rockwell acquisition at our Alfeld Mill.
This should be complete by mid-2022 and will allow us to take advantage of the
growing demand for more environmentally friendly packaging solutions. Furthermore,
both Somerset PM1 and the Maastricht Mill conversions continue to ramp up
production of paperboard, displacing graphic paper production on these machines.
Operating rates on our graphic paper machines are likely to return to pre-Covid-19
levels in 2021, both as a result of the recovery in these markets from their lows, but
also as a result of significant capacity reductions already announced or implemented
by competitors and ourselves in 2020 and 2021. These improved operating rates will
not only support improved margins, but also reduce the need to convert machines
in the near term.
32
GROUP OVERVIEWSappi 2020 ANNUAL INTEGRATED REPORT Q5
Your Thrive25 strategy
seems to be an evolution
of the 2020Vision, was a
more radical change not
required given the
events of the
past year?
The board and senior management of Sappi believe that the core of our 2020Vision
strategy remains relevant to our business today. While the Covid-19 pandemic
rebased graphic paper demand to a lower level than previously envisaged, the
actions of the industry as a whole to balance supply and demand through closures
and conversions will allow this segment to operate at reasonable margins. More
importantly this will generate the cash that allows our business to fund the strategic
investments in growing and higher margin segments. Our position as leading
European and North American graphic paper suppliers, with well-invested low-cost
mills, gives us confidence that these assets have a sustainable future. DP
experienced a tough year for pricing in 2020 and a temporary drop in demand, but
the growth prospects for DP remain attractive as Viscose and Lyocell continue to
meet the demands of the textile industry for natural cellulosics. Our position as a
low-cost producer, particularly with the low-cost wood supply to our South African
operations and ongoing expansion and upgrade of the Saiccor Mill, gives us
confidence that we will again generate attractive returns in this segment. Legislation,
consumer preference and brand owner focus on sustainability continue to drive the
shift from plastic to paper in many categories of packaging and speciality paper.
Our investments in the packaging and speciality papers segment over the past
seven years have positioned us well in respect of technology, R&D, cost base and
customer service to take advantage of this shift. Given the impacts on our business
of the past year, the
strategy also recognises that there will need to be two
phases to the continued evolution of our business of the next five years. In the initial
period we will focus on strengthening the balance sheet and returning leverage
levels to more appropriate levels for a cyclical industry like ours, before making
further investments in the growing and higher margins segments. Where the
Thrive25
strategy does clearly differ is the embedding of sustainability and
Thrive25
innovation within the overall business strategy, recognising that as an industry
that utilises renewable resources there is both great opportunity and an ethical
obligation to reduce adverse impact inherent in our business.
Q6
Climate change has been
identified as a top risk for
business globally, how
does Sappi intend to
address this risk?
We are addressing climate change through two main mechanisms. Firstly, we are
targeting reductions in both our absolute emissions and emission intensity and in
the past year we have committed to setting a science-based target for our
emissions reduction initiatives. The first significant step towards this ambitious
target is the work we are currently doing at Saiccor Mill where we are installing a
new recovery boiler and converting the calcium line to magnesium. This will lead
to a significant reduction in the fossil fuel energy requirements and increase our
renewable energy usage. Secondly, we have created a working group to implement
the recommendations of the TCFD. See Helping to mitigate climate change on
page
opportunities, make better capital allocation decisions and make more informed
strategic decisions. This work will be completed in the coming year and will inform
our climate change strategy.
82. This will allow us to more effectively evaluate climate-related risks and
33
GROUP OVERVIEW 34
Reimagine
Stars form when celestial clouds collapse, feeding a
rotating disc of gas and dust into a dense, hot central
core. Amongst other things, pulsating stars give off
carbon, a key ingredient for life as we know it. From
chaos, something beautiful – and essential – is created.
maintain and even intensify the sense of connection,
caring and community that was one of the unexpected,
but welcome, impacts of the pandemic? How do we
deal with the uncertainty on the horizon when future
surges of Covid-19 occur?
We can view this as a metaphor for the coronavirus
pandemic that infected and affected people
regardless of nationality, class or wealth, leaving
intense disruption in its wake. However, it also
ushered in a global drive to reimagine our way of
being on the planet. A new agenda for change is
emerging, gaining traction and raising questions that
will not go away.
At Sappi we are taking bold, decisive action to
respond to these challenges by extracting the full
potential of trees and woodfibre to develop practical
innovations for everyday impact and innovate what we
should, not just what we can. We’re also establishing
and maintaining proactive dialogue with all our
stakeholders as well as working with and supporting
local communities.
Questions like: How do we reimagine a collective
future where changed behaviours will allow us to live
more in balance with nature than before? How do we
In doing so, we can not only create a more sustainable
future, but also unlock significant long-term value for
all our stakeholders.
35
Risk management
Our risk
management
philosophy
We have an established culture of managing
key risks to our business. We believe
effective risk management will safeguard
the continuity of our operations, and
contribute to the achievement of our
strategic objectives. Therefore, we ensure
that our risk management processes are
aligned and compatible with Sappi’s strategy,
taking into account recommendations as
set out in the following standards and
frameworks: ISO 31000 risk management -
principles and guidelines.
Over the years, we have implemented several processes, resources and structures
to ensure our risks are managed adequately and efficiently. Among these, we have
entrenched safety programmes, internal audit reviews, insurance, information
technology (IT) security, compliance and governance processes throughout the
group, along with quality management and a range of line management interventions.
Group board of directors
Assumes overall responsibility for risk
governance
Group Audit and Risk
Committee
Mandated to assist the board in carrying
out its risk management responsibilities at
group level
Line management in
each region, business
unit and operation
Responsible for implementing regional risk
management processes
Group Internal Audit
Provides independent assurance on the risk
management process
36
Sappi 2020 ANNUAL INTEGRATED REPORTCREATING VALUE BY RESPONDING STRATEGICALLY 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, e.g. return
on investment.
i
n
a
t
r
e
c
t
s
o
m
A
l
e
c
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e
r
u
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c
o
f
o
d
o
o
h
i
l
e
k
i
L
e
t
o
m
e
R
3
7
10
2
9
4
1
6
8
5
Very low
Impact
Very high
Worsening
Flat
Improving
Top 10 risks
Residual risk ranking
1
2
3
4
5
Safety
Cyclical macro-economic context and
competitive industry
Evolving technologies and consumer
preferences
Liquidity
6
7
8
9
Project implementation and execution
Uncertain and evolving regulatory
landscape
Employee relations
Climate change
Sustainability expectations
10
Cyber security
For an analysis of the principal financial risks we are exposed to, refer to note 32 to the Group Annual Financial Statements
on www.sappi.com/annual-reports
Our 2020 Risk Management Report provides a detailed discussion of the group’s risk factors, and can be accessed on
www.sappi.com/annual-reports
37
CREATING VALUE BY RESPONDING STRATEGICALLY
Risk management continued
1 Safety
(2019: 1)
Root cause
Mitigating actions
Due to the nature of our manufacturing
facilities and forestry operations, our
employees and contractors operate in
an inherently dangerous environment.
We continue to prioritise their health
and safety to ensure the continuity of
our business.
• Conduct root cause analyses of all major incidents and fatalities
• Drive continuous improvement in safety performance
• Ensure compliance with behaviour-based safety (BBS) principles
• Host regular training sessions
• Approach all transgressions of our safety policies with discipline
• Encourage reporting of near-miss incidents
• External safety reviews.
Thrive25
strategy objectives impacted
3Ps impacted
Related material issues
• Ensuring the safety of our employees and contractors
• Engaging more closely with our employees
• Supporting sound labour relations
2 Cyclical macro-economic context and competitive industry
(2019: 2)
Root cause
Mitigating actions
Impair operating assets when needed
Implement capacity closures as required
Improve efficiencies and reduce costs across the business
• Monitor the balance between supply and demand
•
•
•
• Enhance customer service, innovation, and efficient manufacturing and logistics
• Drive performance to set our businesses apart from competitors
•
Increase pulp integration – as an example, through our acquisition of Matane Mill.
Thrive25
strategy objectives impacted
3Ps impacted
Related material issues
• Containing costs and ensuring appropriate capital allocation
• Supporting sound labour relations
Our business is impacted by cyclical
changes in global economic conditions,
including fluctuations in exchange rates,
supply, industry capacity and output
levels, and demand. Global economic
turmoil (including that caused by the
Covid-19 pandemic) can lead to
significant decreases in volume, as well
as pressure on our prices in the markets
where we operate. We continue to
operate in a highly competitive
environment. Over the past few years,
consolidation in the pulp and paper
industry – leading to larger, more
focused companies – has become
more prevalent.
38
CREATING VALUE BY RESPONDING STRATEGICALLYSappi 2020 ANNUAL INTEGRATED REPORT 3 Evolving technologies and consumer preferences
(2019: 3)
Root cause
Mitigating actions
The advent of new technologies has
an unavoidable impact on the way we
operate. Similarly, changes in consumer
preferences driven by emerging trends
in advertising, electronic data
transmission and storage, the internet
and mobile devices, as well as digital
alternatives to traditional paper
applications, could materially affect
the sustainability of our business.
Improve profitability by implementing restructuring and other cost-saving projects
•
• Enhance productivity
• Drive growth in our higher-margin packaging and speciality paper businesses
• Leverage our position in the market to capture growth in the dissolving pulp market.
Thrive25
strategy objectives impacted
3Ps impacted
Related material issues
• Sourcing responsibly
• Meeting long-term demand growth for cellulosic-based fibres
•
Increasing the sustainability of our products through circular design and adjacent
markets
• Developing and commercialising innovations in addition to adjacent businesses
• Sourcing woodfibre responsibly
• Prioritising renewable and clean energy
• Helping to mitigate climate change
4 Liquidity
Root cause
Mitigating actions
(2019: not ranked)
Our principal sources of liquidity are
cash generated from operations and
available under our credit facilities, and
other debt arrangements. Our ability to
generate cash depends mainly on
general economic, financial,
competitive, market and regulatory
factors. Our cash flow from operations
may be adversely impacted by a
downturn in world-wide economic
conditions (including as a result of the
effects of the Covid-19 pandemic),
which could result in a decline in global
demand for our products.
• Cost saving initiatives
• Re-prioritising various strategic initiatives
• Commercial downtime taken to match supply to demand
• Deferral of non-critical capex projects
• Postponement of scheduled annual maintenance shuts.
Thrive25
strategy objectives impacted
3Ps impacted
Related material issues
• Containing costs and ensuring appropriate capital allocation
• Meeting long-term demand growth for cellulosic-based fibres
39
I
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V
A
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U
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B
Y
R
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S
P
O
N
D
N
G
S
T
R
A
T
E
G
C
A
L
L
Y
I
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CREATING VALUE BY RESPONDING STRATEGICALLY
Risk management continued
5 Sustainability expectations
Root cause
Mitigating actions
(2019: not ranked)
The requirements from stakeholders are
changing rapidly, challenging Sappi’s
ability to keep up to date, exceed or
even lead with regard to regulatory,
social, product and environmental
demands. Sappi’s operational impact
and environmental footprint need to
support and demonstrate Sappi’s
sustainability commitments and
actions.
• Product certifications
• Enhanced health and safety specifications
• Recyclability
• Product innovation (including R&D)
• Move fast to secure benefit from the high-value niche opportunities created by the
‘paper-for-plastics’ movement
• Build on our strong position and commitment to fibre certification
• Promote our social and environmental credentials through media – social and
otherwise.
Thrive25
strategy objectives impacted
3Ps impacted
T
R
O
P
E
R
D
E
T
A
R
G
E
T
N
I
L
A
U
N
N
A
0
2
0
2
i
p
p
a
S
Related material issues
• Sourcing responsibly
•
Increasing the sustainability of our products through circular design and adjacent
markets
• Developing and commercialising innovations in addition to adjacent businesses
• Sourcing woodfibre responsibly
• Prioritising renewable and clean energy
• Helping to mitigate climate change
• Focusing on water stewardship
• Accelerating circular business models
• Safeguarding and restoring biodiversity
6 Project implementation and execution
(2019: 6)
Root cause
Mitigating actions
To deliver against our strategy, we invest
in several capital expenditure projects
across the group. The success of these
projects depends on several factors,
including time to completion, delivery of
expected outcomes and remaining
within the parameters of the approved
budget. Should our projects not track
against expectations – it could impact
our reputation and, ultimately, our
market share.
• Select and appoint contractors dedicated to quality and safety
• Evaluate and address any shortcomings between contractor and supplier interfaces
• Ensure the adequate availability of skilled human resources
• Consider various contracting philosophies specific to the regions in which we
operate
• Leverage modern tools, including technology, to improve project management
functions across project phases
• Cultivate relationships with main suppliers
• Source cross-functional global teams and additional internal experts, where
applicable, to provide detailed oversight and review
• Track relevant risk metrics across project phases to ensure successful execution
• Provide operational and maintenance training.
Thrive25
strategy objectives impacted
3Ps impacted
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Related material issues
• Containing costs and ensuring appropriate capital allocation
• Meeting long-term demand growth for cellulosic-based fibres
7 Uncertain and evolving regulatory landscape
(2019: 7)
Root cause
Mitigating actions
Our business is subject to various
regulatory requirements across the
regions where we operate, including
requirements relating to environmental
stewardship, health and safety.
Significant changes to applicable laws
and regulations – along with instabilities
in political, financial and social spheres
– could impact our competitiveness and
profitability.
• Remain up to date on changes to applicable legislation
• Ensure compliance with all relevant laws and legislation
• Report regularly on compliance to the Group Audit and Risk Committee
• Reduce the impact of our operations on the environment, as guided by relevant and
•
recognised programmes
Invest in initiatives aimed at reducing our air emissions, wastewater discharges and
waste generation
• Monitor potential changes in pollution control laws, including greenhouse gas (GHG)
emission requirements, and take action accordingly
• Cooperate across regions to apply best practices in sustainability.
Thrive25
strategy objectives impacted
3Ps impacted
Related material issues
• Maintaining ethical behaviour and compliance
8 Employee relations
(2019: 9)
Root cause
Mitigating actions
The majority of our employees are
represented by labour unions and are
subject to collective bargaining
agreements. These agreements
are negotiated and renewed periodically,
and any corresponding wage increases
or work stoppages could impact our
business. The risk of workforce
reductions, closures or restructuring
remains a reality given the current
economic climate.
Interact and engage with union representatives and organised labour regularly
•
• Build constructive work relationships.
Thrive25
strategy objectives impacted
3Ps impacted
Related material issues
• Ensuring the safety of our employees and contractors
• Engaging more closely with our employees
• Supporting sound labour relations
• Attracting, developing and retaining key skills
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9 Climate change
Root cause
Mitigating actions
(2019: emerging risk)
Climate change will have an unavoidable
effect on our business in the form of
transitional, reputational and physical
impacts. The latter include the
frequency and intensity of forest
disturbances such as wildfires and
extreme storms. This, in turn, could
reduce forest productivity and change
the distribution of tree species.
The impact of climate change on
the availability of raw materials, including
the wood supply we need for our
operations, may adversely impact
our business.
Regarding transitional risk, governments
around the world are focusing on
carbon trading and taxes – already in
place in some regions in which we
operate (South Africa and Europe) – as a
response to climate change and such
taxes could impact profitability to an
increasing extent in future.
• Source pulp and woodfibre from a variety of sources and regions
•
Invest in fire, pests and disease prevention protocols in South Africa, as well as site
species matching to withstand abnormal weather events and reduce our water
footprint in this region
• Formulate a climate change strategy under the auspices of our Task Force on
Climate-Related Financial Disclosure (TCFD) work
• Sappi Southern Africa has engaged National Treasury to motivate taking into
account carbon sequestration by companies that own their own forests when
calculating carbon tax. Sappi’s process starts with the planting of trees and our
supply chain is carbon positive
• Group-wide decarbonisation initiatives are in place.
Thrive25
strategy objectives impacted
3Ps impacted
Related material issues
•
Increasing the sustainability of our products through circular design and adjacent
markets
• Developing and commercialising innovations in addition to adjacent businesses
• Sourcing woodfibre responsibly
• Prioritising renewable and clean energy
• Helping to mitigate climate change
• Focusing on water stewardship
• Accelerating circular business models
• Safeguarding and restoring biodiversity
10 Cyber security
Root cause
Mitigating actions
(2019: emerging risk)
During the normal course of our
business we make use of our digital
platforms to access and transact on
confidential customer, employee,
financial and commercial information,
through our transactional and
production systems. We also store,
access and share our trade and
proprietary information in our
databases. These could be vulnerable/
susceptible to cyber-attacks.
• Mitigate against cyber-attacks and information security breaches through our
multi-layered information technology security programme
• Adhere to relevant data protection laws in the jurisdictions where we operate
• Provide relevant cyber security training to all our employees
•
Identify the employees susceptible to social engineering and phishing attacks.
Thrive25
strategy objectives impacted
3Ps impacted
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Sappi 2020 ANNUAL INTEGRATED REPORTCREATING VALUE BY RESPONDING STRATEGICALLY
Emerging risks and opportunities
While we ensure that our risk management processes are aligned with our strategy, we also take into account that our risks are
liable to change. We continue to observe trends and developments within the macro-environment, and are monitoring the
following risks as they become topical.
Automation and data exchange in manufacturing technologies (Industry 4.0)
Root cause
Mitigating actions
At Sappi, we recognise the opportunities presented
by smart systems and automation, digitisation, data
analytics and machine learning. Similarly, we can
leverage these systems to optimise our production
and maintenance processes, logistics and supply
chains, together with enhanced innovation and
speed to market. Failing to invest in and pursue
Industry 4.0 opportunities, or keeping pace with
ongoing developments, could negatively impact
the sustainability of our business.
• Leverage our strong foundation of continuous technology improvement
and intentional evolution to enhance our competitive advantage
• Maximise the use of data analytics
• Enhance efficiency and productivity of our processes
• Track information on quality, raw materials and environmental
stewardship
• Enhance workforce training and development
• Utilise intelligent solutions through satellite imaging and drones in our
forestry operations.
Incidents of social unrest
Root cause
Mitigating actions
Social unrest in South Africa continues to escalate
– the result of a disaffected population protesting
about lack of service delivery and job opportunities.
This has been exacerbated by the outbreak of
Covid-19, leading to the country’s unemployment
rate reaching 30.8%. Should South Africa’s broader
issues not be resolved, the impact on our business
could be disruptive.
• Engage with relevant stakeholders through integrated community
forums
• Our Enterprise and Supplier Development (ESD) department is helping to
promote entrepreneurship through a focused capacity building
programme focused on small, medium and micro enterprises (SMMEs)
• We continue to promote entrepreneurship and drive social impact
through our Sappi Khulisa programme. Currently, the programme
involves over 3,644 growers and approximately 103 SMMEs.
Land restitution
Root cause
Mitigating actions
• Enter into supply agreements with land reform beneficiaries, which range
from pure supply agreements to comprehensive forestry enterprise
development agreements
• Provide technical and business training
• Offer administrative support
• Continue to buy timber from beneficiaries.
Generally, Sappi supports the land claim initiatives
in South Africa, and we continue to engage with
relevant parties in several land claims. Of concern
to us is the slow pace of implementation and the
length of time taken to conclude claims. The
forestry industry continues to be a key driver of
growth in the country’s rural areas – if government
could unlock this potential growth driver by
ensuring a faster process, the attendant benefit
would flow directly to the rural communities.
However, should this issue not be resolved, it could
heighten social tensions and social unrest which,
in turn, could negatively impact our operations.
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Our key relationships
Our key relationships
One of the strategic
fundamentals of
our Thrive25 strategy
is to enhance trust.
Employees
Unions
Suppliers and
contractors
Customers
Investors
Communities
Government and
regulatory bodies
Industry bodies
and business
Civil society
and media
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This means improving our
understanding of – and
proactively partnering with –
various stakeholders, driving
sustainability solutions and,
in particular, meeting the
changing needs of every
employee at Sappi.
To achieve this, we establish and maintain proactive dialogue
with all our stakeholders. In doing so we recognise that
stakeholder needs are dynamic and that we need to be
responsive to the evolving stakeholder landscape. In addition
to responsiveness, our approach to engagement is based
on the principles of inclusivity, materiality, relevance and
completeness.
We assess the quality of our relationships both informally,
as set out on the following pages and formally – regular
employee and customer surveys, community forums and
Poverty Stoplight in South Africa.
Our stakeholder work is aligned to the governance framework
of King IV namely performance and value creation, adequate
and effective controls and trust, as well as reputation and
legitimacy and ethics.
Trust is not possible without an ethical culture underpinning
our everyday activities, which is why we train our employees,
customers and suppliers on our Code of Ethics and also
promote awareness of the Sappi hotlines in each region which
allow all stakeholders to report breaches of the code in full
confidentiality without fear of reprisal.
Read more: Maintaining ethical behaviour and compliance
page
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United Nations Global Compact (UNGC) Principle 10:
Businesses should work against corruption in all its
forms, including extortion and bribery.
Sappi 2020 ANNUAL INTEGRATED REPORTCREATING VALUE BY RESPONDING STRATEGICALLY Employees
Self-assessment of quality of relationship: Good
Why we engage
As we take Sappi into the future based on the clear roadmap entrenched in our
leadership’s task is to help our people understand the plan and clear their path to success. Our aim is to
unlock the wide-ranging, significant expertise of our people today and tomorrow. In doing so, we secure
our exciting future in woodfibre as a business that provides relevant solutions, delivers enhanced value
and is a trusted partner to all our stakeholders.
strategy,
Thrive25
Shared priorities
Our response
Constructive action
with regard to
Covid-19
• Our main focus is on the safety of our people and on providing them with support, information and
•
resources
In addition, we were able to continue to operate throughout the lockdowns which enabled us to
reduce the impact on our people
• Our operations were classified as essential and wherever possible, we provided the IT support and
human resources processes to allow people to work from home
• Where people did contract coronavirus, they were provided with support and isolated according to
•
health and safety protocols
In each region, we established Covid-19 information hubs to support our staff, customers and
their families
Read more: Covid-19 and our response page
62.
Involvement
in safety
•
The theme for Global Safety Awareness week was ‘I Value Life’. In the light of the Covid-19
pandemic, virtual webinars and e-media were used to convey the messages to our people
• Ensuring the safety of our employees and contractors is part of our collaborative approach to doing
business. Health and safety committees are in place at all our operations. Through these
committees, our people are consulted about the development/review of policies and procedures
and changes that affect workplace safety or health:
–
In SEU, formal health and safety committees are in place at different levels of the business in line
with statutory requirements. All employees are represented by the safety committees
In SNA, all unions have the opportunity to participate in joint management worker safety
committees
In SSA, (including Sappi Limited), health and safety representatives are elected from non-
supervisory staff. In line with legislation, there is one representative for every 50 workers
Sappi Trading does not have formal joint management worker health and safety committees
due to the small size of the offices, but there are appointed safety officers
–
–
–
Effective wellness
and recognition
programmes
• Well-being and wellness programmes are tailored to the needs of each region
• Our recognition programmes include:
Sappi Limited
–
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Technical Innovation Awards
CEO Award for Excellence
SEU
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Annual Coryphaena Award
SNA
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TOUTS Recognition Awards and
periodic regional President’s Awards
SSA
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Excellence in Achievement Awards (EAA)
Annual Safety Awards
Sappi Trading
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SMART Awards
Read more: Ensuring the safety of our employees and contractors page
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Our key relationships continued
Employees continued
Shared priorities
Our response
Connection with
Sappi’s strategic
goals and high levels
of engagement
We conduct engagement surveys every second year, with the last one taking place in 2019. Questions
probe issues such as whether our people feel they have the right tools and resources to do their jobs
well; whether their goals for career growth are being met, whether they feel safe at work and whether
they are clear on the direction in which Sappi is moving.
In 2020, group and regional leadership engaged extensively on the close out of our 2020Vision
strategy. In South Africa, we introduced the Ask Alex
business strategy and the launch of our
initiative whereby the regional SSA Chief Executive Officer (CEO) held employee roadshows (in person
and online), with employees who were encouraged to ask him questions related to current and future
operating conditions. In Europe, the CEO established virtual update briefings and in North America
virtual briefings were also undertaken.
Thrive25
Resources that
enable our people to
grow intellectually,
fulfil their potential
and drive innovation
in Sappi; policies and
procedures that
promote a diverse
workforce
Encourage employee
volunteerism
through initiatives
like
Understanding of
Sappi’s commitment
to sustainability,
which underpins
our strategy
Read more: Engaging more closely with our employees page
76.
Invested an average of US$434 per person in training and development
In FY2020 we:
•
• Established a 2025 gender diversity target
• Continued to provide access to self-learning modules
Read more: Attracting, developing and retaining key skills page
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UNGC Principle 6:
The elimination of discrimination in respect of employment and occupation.
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. Sustainability Ambassadors also lead
and participate in local events, supporting community in programmes as well as educating the
community about the wood products industry, sustainable forestry practices, mill operations and
the importance of recycling.
SSA: Employee well-being committees at each mill support local community projects as well as
Mandela Day.
Read more: Sharing value with our communities page
79.
Globally, targeted internal publications and social media campaigns linked to global days like Global
Ethics Day and our signing up to Business for Nature’s call to action #natureiseveryonesbusiness
enhance understanding of the sustainability landscape in general as well as our actions to ensure
that we play an active role in driving responsibility within this landscape, in particular.
Thrive25
Given the launch of our
communication focused on SDG targets to show our people how they can become part of the global
and regional drive and raise awareness of how our individual actions can collectively count towards
a greater change.
strategy and 2025 targets, which are aligned with the UN SDGs,
SNA runs an active Sustainability Ambassador programme and held a virtual Sustainability
Ambassador Assembly workshop this year. Due to the virtual nature of the workshop, there was a
greater diversity of participation since there were no travel costs involved.
Opportunities for value creation
• Alignment with our strategic direction enables our people to contribute more positively
Challenges for value
creation
to the business as well as their personal and career development
• Recruitment and retention of
• By building our human capital base, we establish a base of technical skills needed by
key skills
the industry
• A diverse workforce enhances our ability to service global markets and promotes a culture
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of inclusivity
• 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
• Loss of institutional memory
as older employees retire
Sappi 2020 ANNUAL INTEGRATED REPORTCREATING VALUE BY RESPONDING STRATEGICALLY Unions
Self-assessment of quality of relationship: Fair
Why we engage
Unions are important members of civil society and can contribute meaningfully to addressing societal
challenges and creating sustainable growth and prosperity for all. In 2020, globally, 57% of our workforce
was unionised, with 75% belonging to a bargaining unit. Given these high levels of representation,
it makes sound business sense to maintain constructive relationships with our employees and their
representatives to maintain and promote productivity, stability and engagement.
Shared priorities
Our response
Freedom of
association,
collective bargaining
and disciplined
behaviour
Sappi endorses the principles of fair labour practice as entrenched in the UNGC and Universal
Declaration of Human Rights. At a minimum, we conform to and often exceed labour legislation
requirements in countries in which we operate. Protecting the right to freedom of association and
collective bargaining is fundamental to the manner in which we do business. We engage extensively
with representative trade unions. Discussions range from remuneration issues, to training and
development, health and safety and organisational changes.
Given the active role taken by labour in South Africa, we have established a number of structures to
enhance ongoing positive engagement with union leadership. This is facilitated by structures such
as the National Partnership Forum, which includes senior members of management and senior union
leaders who hold regular meetings where business, safety and union challenges are discussed.
Disciplined behaviour is essential for individual well-being, and to achieve our group goals and
objectives. In each region, disciplinary codes ensure appropriate procedures are applied consistently,
while grievance policies entrench the rights of employees, including the right to raise a grievance
without fear of victimisation, right to seek guidance and assistance from a member of the human
resources department or their representative at any time and the right to appeal to a higher authority,
without prejudice.
Read more: Supporting sound labour relations page
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UNGC Principle 3: Businesses should uphold freedom of association and the effective
recognition of the right to collective bargaining.
The health and safety committees at all our operations provide a forum for consultation about the
development/review of policies and procedures and changes that affect workplace safety or health.
Wellness programmes include fitness and medical screening programmes, as well as psychological
and financial support.
Our labour standards ensure that our remuneration practices are fair, with compensation levels set
to reflect competitive market practices and internal equity as well as company and individual
performance. In rural areas, forest products companies like Sappi are often the only, or major,
employers, which makes the local population very dependent on the company and which could, in
turn, lead to exploitative behaviour and an indirect form of forced labour. Against this backdrop, in all
three regions, labour is sourced on the open market, we pay market-related wages in line with or above
local legislation and ensure that working hours and practices are fair.
UNGC Principle 4: The elimination of all forms of forced and compulsory labour.
Safety and wellness
initiatives
Remuneration,
working hours and
other conditions of
service
Resolving
grievances, engaging
on strategy
• Well-established grievance channels, disciplinary procedures and whistleblower protocols provide a
non-retributory framework
• We regularly engage with unions on economic conditions, market dynamics and growth plans
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 more committed to Sappi, leading to a more stable labour force
and higher levels of productivity
Challenges for value creation
• Multi-union landscapes, particularly in
North America and South Africa, add
to complexities in the labour
environment
• Unrealistic expectations about wage
increases, particularly in light of the
Covid-19 pandemic
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Customers
Self-assessment of quality of relationships: Excellent
Why we engage
The more closely we engage and collaborate with our customers, the more likely we are to understand
and respond to their evolving needs by offering relevant solutions in the form of sustainable and
practical products and services. This partnership approach builds the loyalty and long-term
relationships that enable us to thrive.
Shared priorities
Our response
High levels of service
In SEU, we enhanced services levels by launching Paperini that allows customers to accurately track
their paper deliveries. The tool, which can create an automated arrival notification and, subsequently,
an automated credit note, is currently being trialled by several logistics and carrier companies in
Europe. We also established new infrastructure in Sweden and Denmark that enables us to distribute
paper to printers within 48 hours.
The SNA eCommerce site is a customer portal with multi-language capability that connects
customers 24/7 to real-time information such as order status, inventory checks, document printing,
claims reporting and order placement so they can plan and manage their business better. This
included access to our carbon calculator where the GHG emissions associated with their order can be
determined, as well as the amount of emissions avoided by using a Sappi product that has a lower
carbon footprint than the US pulp and paper industry average. In 2020, Sappi expanded the
eCommerce customer experience to include casting and release globally.
During Covid-19 lockdowns, all regions ensured that they engaged with customers to ensure we could
meet their immediate requirements.
New or enhanced
products that meet
rapidly changing
market demand
Consumers have become increasingly aware of social and environmental issues and our customers
are looking to us for help in this regard. Against this backdrop, our innovation and sustainability teams
enable us to put sustainability at the heart of everything we produce, enhance our understanding of
our customers’ current and future needs and enable us to bring new products to market at a faster
pace.
Where relevant, we will conduct R&D and develop products to suit customers’ specific needs.
Read more: Developing and commercialising innovations in addition to adjacent businesses
page
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Support for paper,
packaging,
dissolving pulp (DP)
and sustainability
goals
In FY2019, Sappi joined the Sustainable Apparel Coalition (SAC) and in 2020, Cloquet Mill completed
the Higg Facility Environmental Module (FEM) sustainability self-assessment for Verve, our DP brand.
The results position the mill as a leader in sustainable practices, evidenced by a low environmental
footprint. The Higg FEM self-assessment tool is part of the Higg Index suite of tools that was
developed by the apparel industry to evaluate materials, products, facilities, and processes based
on environmental performance, social labour practices, and product design choices.
Information and
campaigns to
promote print as a
communication
medium and
encourage the use
of packaging
• Globally and regionally, we continue to participate in industry initiatives like TwoSides
• SNA participates in the Paper and Paper Packaging check-off programme that promotes the
sustainable nature of paper and packaging
• We also participate in a number of tradeshows such as the PRINTING United tradeshow in Dallas,
Texas (USA) where we presented our new Transjet Drive dye sublimation paper, different papers for
large format inkjet printing and our new Ultracast casting and release papers
• The Covid-19 pandemic meant that events we sponsor, like the Citrus Symposium in South Africa
were postponed. The pandemic also precluded our participation in the usual number of trade
shows. However, where possible, we interacted on online platforms. For example, the Sappi
Packaging and Speciality Papers (PSP) sales and marketing teams hosted their first virtual Interpack
Fair. Based on the motto ‘Pro Planet: Paper Packaging – welcome to the new pack-age’, the virtual
event featured six livestream presentations that focused on our management of the Covid-19
situation, as well as our global packaging product offering
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Our response
Information about
the fibre sourcing
and production
processes behind
our brands
Technical and
thought leadership
information
Customers generally approach us for information about the fibre sourcing and production processes
behind our brands, including carbon footprint. In response to these requests, in SEU, SNA and SSA
we publish Paper Profiles and/or information sheets for our papers. We also respond to many
questionnaires from our customers that collect data on our carbon reduction plans and performance.
In SNA, we hold customer council meetings and have developed our own GHG emissions’ calculator
that quantifies the amount of emissions associated with a customer order and how those emissions
compare against the industry average.
• At the request of our customers we participate in EcoVadis. All three regions achieved platinum
medals in the latest EcoVadis rating. The platinum rating, a new medal category created in 2020,
recognises the top 1% of companies evaluated for their environment, labour and human rights,
ethics and sustainable procurement performance.
• We also publish covering topics like climate change, as well as forest and energy certification.
Globally, a series of technical brochures and thought leadership pieces are available on our website:
www.sappi.com
• Communication regarding the haptics of touch and neuroscience of touch speak to the power of
printed communication
• The PSP site provides targeted information on packaging and speciality papers
(www.sappi-psp.com)
• 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)
Our paper and paper pulp product offerings are supported by strong technical teams at our
technology and R&D centres.
Opportunities for value creation
Innovate to align with evolving market trends
Increase awareness of the importance of sustainability
• Meet customer needs for products with an enhanced environmental profile
•
•
• Promote our customers’ own sustainability journeys
• Keep abreast of market developments
• Showcase our products and promote the Sappi brand
Challenges for value creation
• Confusing harvesting and forest
management with deforestation and lack
of understanding about the manner in
which the forests and plantations from
which we source woodfibre help mitigate
global warming
Collaborating to
boost disruptive
innovation
We joined forces with VIGC (Flemish Innovation Centre for Graphic
Communication) and EY to launch one of the first graphic arts industry
hackathons – a method of creative problem solving designed to boost
disruptive innovation. During 24 hours, teams of start-ups, scale-ups,
corporates and students, supported by a team of experts and coaches,
could collaborate and create digital and innovative solutions relevant
for the graphic arts industry. After the hacking, ideas were presented
to a mixed jury. Winners of the innovation contest were given the
opportunity to showcase their Minimum Viable Product/s to experts
and industry decision-makers at VIGC’s Het Congress event. They also
received a Sappi sponsorship of EUR3,000 as well as three months of
mentorship by Sappi experts to help bring their ideas to fruition.
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Our key relationships continued
Communities
Self-assessment of quality of relationships: Fair to good
Why we engage
Recognising that we are part of the communities beyond our fence lines and that their prosperity is
linked to our own, we strive to make a purpose-driven, meaningful contribution towards their well-being
and development. We work to create positive social impact by jointly identifying and leveraging
opportunities, thereby demonstrating our commitment to transparency and collaboration.
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.
In response to the Covid-19 pandemic, we refocused our response to enable rapid community support
including through support for local (in our operating communities) clinics, hospitals, feeding schemes
and schools. Read more on page
62.
Shared priorities
Our response
Community
support including
employment, job
creation, business
opportunities,
economic and
social impacts/
contributions and
community support
SEU
• Employees are encouraged to nominate and participate in local community projects and events
• At a local community level our focus is to add to the well-being, safety and health of our
communities. We support various local schools, sports and hobby clubs, forest products industry
students, local safety and environmental organisations and local charities
• As a pilot project, one of our mills created an opportunity for youth in the community to be
sustainability ambassadors and engage with sustainability projects
• Sappi is a partner in the Marc Cornelissen Brightlands Award, which encourages talented pioneers
to persevere in creating a sustainable world
SNA
• Each unit has a community connections group to channel local support
• Education programmes are supported at targeted colleges and universities as are programmes to
encourage study in fields relevant to our operations
• Our employees participate in initiatives like Living Lands and Waters and the Charles River
Watershed Association focused on environmental stewardship and education
• The Ideas that Matter programme continues to recognise and support designers who support good
causes. Since 1999 the programme has funded over 500 non-profit projects and has contributed
more than US$13 million to a wide range of causes around the world that use design as a positive
force in society
• The Employee Ideas that Matter programme provides direct funding to the non-profit organisations
that our employees are most passionate about
SSA
• Community support has been bolstered by the creation of a dedicated multi-disciplinary team
comprising of the ESD team, the Human Resources team and the Corporate Citizenship team.
This structure has been rolled out at each mill site and is referred to as the Community Management
Committee (CMC). The purpose of this CMC is to identify shared value opportunities which help
identify and support local entrepreneurs as well as to promote the sourcing of goods and services
from local suppliers where possible. The CMC also reports on the employment of locals and ensures
investment in communities addresses specific needs. The CMC at all times aims to collaborate with
government, non-governmental organisations (NGOs) and the private sector for scale.
•
• 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:
–
–
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Sappi Khulisa, our enterprise development scheme for timber farmers
The Abashintshi Youth programme
Education throughout the education value chain, including early childhood development (ECD);
Khulisa Ulwazi, our training centres for small growers and two training centres for local
unemployed youth at Saiccor and the Ngodwana Mills
Support for local tourism through our mountain biking and trail running sponsorships and
promoting recreational riding on Sappi land
–
Read more: Sharing value with our communities page
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Opportunities for value creation
• Enhanced licence to operate and thrive
• Promoting socio-economic development that 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
• Unrealistic expectations for jobs, supplier
opportunities and service delivery
• Ensuring mutual ownership and
commitment
Sappi 2020 ANNUAL INTEGRATED REPORTCREATING VALUE BY RESPONDING STRATEGICALLY
Industry bodies, related memberships and organised
business
Self-assessment of quality of relationships: Good
Why we engage
Business makes a significant positive contribution to society and is a core partner in developing the
world we want to see. Being an active member of trade, voluntary and other business forums and bodies
ensures that we help to spread this message, and that issues of concern to us are included in the
agenda. We also support and partner with industry initiatives aimed at promoting the use of our
products. One of our longest global relationships is with the UNGC, to which we have been a signatory
since 2008. Under our
been focusing more intensively on working closely and more often with those who share both our values
and commitment to our industry.
strategy, which emphasises partnership and collaboration, we have
Thrive25
Shared priorities
Our response
• Issues that affect
the sustainability
of our industry and
products that
promote
sustainability
• The impact of
increased
regulations on
business
• The social and
environmental
credentials of our
products
• Ensuring that the
positive role played
by business in
society is amplified
and recognised
Clean energy
generation, climate
policy and climate
regulations
Globally we:
• Committed to the science-based targets initiative in line with our group-wide decarbonisation
strategy. Read more: Prioritising renewable and clean energy page
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• Signed up to Business for Nature’s Call to Action: #natureiseveryonesbusiness
• Participated in a biodiversity information pilot with a range of brand owners, and biodiversity experts
under the auspices of the Textile Exchange. The latter will be using the information to develop a
biodiversity rating tool for brand owners
• Collaborated with one of our DP customers on a blockchain project to enhance traceability within
the supply chain
• Joined the 4evergreen alliance, a group of prominent companies and organisations from all areas of
the fibre-based packaging industry, to work together towards a more sustainable economy that
minimises the product’s environmental impact. We are collaborating with the 4evergreen alliance to
develop a greater understanding of recyclability in packaging, understand the future need for
recycling systems and communicate findings to stakeholders
• Established a collaboration agreement with HP Indigo’s Alliance One programme, which covers
commercial and market-related topics. Our Magno Gloss and Satin ranges, and our GalerieArt Gloss
and Silk products have also all been certified for use on the HP Indigo-installed base
• Provided comments to the Nordic Swan criteria renewal process
• Participated in the task force under the auspices of the Green Resource Initiative established to
propose legislation to combat deforestation
• Continued to support The Prince of Wales Global Sustainability Fellowship in Transforming the Pulp
and Paper Industry (at the Cambridge Institute for Sustainability Leadership). The fellowship seeks
to contribute new pathways within the context of the sustainable pulp and paper industry
• Partnered with WWF-SA on a water stewardship project in a key catchment in South Africa
• Continued to be an active member of the Sustainable Apparel Coalition Raw Materials Roundtable,
and the 2020 Higg FEM Task Team
• The European Green Deal is a set of policy initiatives by the European Commission with the
overarching aim of making Europe climate neutral in 2050. Sappi regularly submits inputs to policy
consultations both directly and via the Confederation of European Paper Industries (CEPI)
• The Society of American Foresters (SAF) promotes and supports science-based policies and
actions that consistently recognise the positive role that forest management plays in: mitigating
GHG emissions through the sequestration of atmospheric carbon in resilient, well-managed forests
(trees and soil); producing wood-based products to replace both non-renewable materials and fossil
fuel-based energy sources. This policy was scheduled to be updated per SAF protocol. Sappi
helped to rewrite the policy, expanding the discussion on the role that trees play in sequestering
carbon, both as a living tree as well as a wood product
•
• The energy manager for Somerset Mill is a member of the Maine Climate Council, an assembly of
scientists, industry leaders, bipartisan local and state officials, and engaged citizens to develop a
four-year plan to put Maine on a trajectory to reduce emissions by 45% by 2030 and at least 80%
by 2050. By executive order, the state must also achieve carbon neutrality by 2045
In South Africa, Sappi is subject to a carbon tax that came into effect in 2019 and is due for payment
at the end of October 2020. While we recognise the need to reduce fossil fuel usage in South Africa,
the country urgently needs to promote socio-economic development and enhance
competitiveness. Carbon tax poses a potential risk to such growth and competitiveness. We
engaged National Treasury via PAMSA to motivate taking into account carbon sequestration by
companies that own their own forests. Sappi’s process starts with the planting of trees and our total
supply chain is carbon positive. We are still awaiting clarity on whether the proposal will be accepted
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Industry bodies, related memberships and organised business continued
Our response
Our membership of industry and related associations or
bodies.
Sappi Limited
• Business Leadership South Africa
• Cambridge Institute for Sustainability Leadership
(CISL)
• CEO Initiative
• Ethics Institute
•
International Stakeholder member of the programme
for the Endorsement of Forest Certification (PEFC)1
• Forest Products Working Group
• Forest Stewardship Council (FSC)
• Paper and Paper Packaging Board
• Ruffled Grouse Society
• Sustainable Packaging Coalition (SPC)
• Sustainable Forestry Initiative® (SFI®)
• TwoSides
• University of Maine Paper Surface Science Consortia
• University of Minnesota Sustainable Forests
Education Cooperative
• Paris Pledge for Action
• Sustainable Apparel Coalition
• TAPPI (Technical Association of the Pulp and Paper
SSA
• Business Unity South Africa
• Fibre Processing and Manufacturing Skills Education
Industry)
• Textile Exchange
• UNGC
SEU
• 4evergreen alliance
• Biobased Industries Consortium (BIC)
• BioChem Europe
• CELAB: Towards a Circular Economy for Labels
• CEFLEX: A circular economy for flexible packaging
• CEPI
• Eurograph
• Ligninclub
• Print Power
• The Alliance of Energy-Intensive Industries
• TwoSides
SNA
• American BioFuels Association (ABFA)
• American Forests and Paper Association (AF&PA)
• Alliance for Pulp & Paper Technology Innovation
(APPTI)
• Biorenewable Deployment Consortia (BDC)
• Forests in Focus
and Training Authority (SETA)
• Forestry South Africa
• FSC
• National Business Initiative (NBI)
• Manufacturing Circle
• Packaging SA
• Paper Manufacturers’ Association of South Africa
(PAMSA)
• Printing SA (PIFSA)
• Recycle Paper ZA
• South African Chamber of Commerce and Industry
(SACCI) and local chambers of commerce and
industry
• TwoSides
Sappi Forests
• BiCEP (Biological Control of Eucalypt Pests)
• Biorenewable Deployment Consortium (BDC)
• CAMCORE Eucalyptus Genome Network (EUCAGEN)
• Forestry and Agricultural Biotechnology Institute
(FABI)
• The Tree Protection Co-operative Programme (TPCP)
– founding member
Opportunities for value creation
• Address complex topics
• Develop sustainable, transparent supply chains
• Maintain and expand markets for our products
• Enhance understanding of our social and environmental credentials
•
Influence policy
• Promote dialogue
1 PEFC logo licence code: PEFC/07-32-76.
Challenges for value creation
• High costs and resource allocation of
certain industry memberships.
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Sappi 2020 ANNUAL INTEGRATED REPORTCREATING VALUE BY RESPONDING STRATEGICALLY Joining forces
to help progress
a sustainable
circular
economy
In FY2020 we joined the 4evergreen alliance that operates under the
auspices of CEPI and brings together participants across the packaging
value chain including pulp and paper manufacturers, converters and
brand owners. The alliance aims to boost the contribution of fibre-based
packaging in a circular and sustainable economy that minimises climate
and environmental impact.
The alliance works to:
•
•
•
Increase awareness about the benefits of fibre-based packaging
materials
Improve the overall recycling rates of fibre-based packaging materials
Produce guidelines and tools to enhance recyclability through
packaging design, collection and sorting
The alliance is a timely response to support Europe’s Single Use Plastics
Directive, designed to accelerate development of alternative packaging
and enable consumers to make more climate-friendly choices. The work
of the alliance is also championing change towards the aim of the
European Green Deal: climate neutrality by 2050. Our SEU Sustainability
Manager is a co-lead in 4evergreen’s Information Workstream.
Enhancing
understanding
of land use
and GHG
emissions
A member of the Sappi Forests Research team has been working with
the World Resources Institute on the GHG Protocol Carbon Removals
and Land Sector Initiative Project. This working group will develop
guidance on:
•
•
•
•
•
•
•
•
Types of emissions, removals and sequestration within the land sector
Carbon emissions and removals from land use (e.g., forest
management, crop and livestock production, bioenergy feedstock
production, soil carbon, etc.)
Carbon emissions and removals from land use change (e.g.,
deforestation, afforestation, wetland conversion, etc.), as well as
direct and indirect land use change and related impacts from changes
in production
Agricultural GHG emissions (e.g., livestock methane emissions,
soil nitrous oxide emissions, etc.)
Biogenic removals and temporary to long-term storage in biogenic
products/materials (e.g., furniture, building materials, etc.)
Biogenic carbon dioxide emissions and removals from bioenergy
production and consumption (e.g., biomass, biofuels, biogas)
Land sector accounting approaches
– Use of land-based vs. activity-based accounting methods
– Addressing the timing of removals and emissions
– Separate biogenic carbon emissions and removals accounting vs.
bringing biogenic emissions and removals into Scopes 1, 2 and 3
Quantification methods and data sources:
– Reporting requirements
– Target setting and tracking changes over time
– Alignment with or revisions to other GHG Protocol standards
and guidance
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Shareholders, bondholders and banks
Self-assessment of quality of relationships: Good to excellent
Why we engage
Our aim is to provide shareholders, bondholders and banks with transparent, timely, relevant
communication that provides them with an understanding of our industry, sets out the manner in
which we hope to achieve our growth ambitions and facilitates informed decisions.
Shared priorities
Our response
• Our Investor Relations (IR) department engages with shareholders and analysts on an ongoing basis
• Our Chairman and CEO also engage with shareholders on relevant issues. We conduct ad hoc mill
visits and road shows, and issue announcements through the Johannesburg Stock Exchange (JSE)
– Stock Exchange News Services (SENS), in the press and on our website (see www.sappi.com/
SENS)
sustainability reports (see www.sappi.com/sustainability)
can attend and participate in the Annual General Meeting (AGM) as well as the four quarterly
financial results briefings
. We publish our annual integrated report (see www.sappi.com/annual-reports)
and
on the group website. Shareholders
• We engage with various ratings agencies, particularly in terms of ESG performance. Recognising the
importance of climate change in a financial context, we are incorporating the recommendations of
the TCFD into our decision-making processes (read more: Helping to mitigate climate change
page
82)
• We participate in the Carbon Disclosure and Forest Footprint Disclosure projects every year, making
our submissions publicly available
• Our Chief Financial Officer (CFO) and Head of Treasury engage with bondholders, banks and rating
agencies continually on the performance of the company. A key point of discussion in FY2020 was
the suspension of our credit facility financial covenants from June 2020 to September 2021
• Understanding
Sappi’s strategy
return on
investment
• Transparent
information about
risks, opportunities
and environmental,
social and
governance (ESG)
performance, in
particular the
impact of climate
change on strategic
and financial
decisions
• Ability to generate
sufficient cash
flows to fund our
business and
service our debt
Opportunities for value creation
• Understanding of and commitment to our strategic direction
• Enhanced reputation
• Greater investment confidence
• Broader licence to invest
Challenges for value creation
• Slow post-Covid-19 economic recovery
• Uncertainty about regulatory
developments, for example: carbon tax
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Sappi 2020 ANNUAL INTEGRATED REPORTCREATING VALUE BY RESPONDING STRATEGICALLY Government and regulatory bodies
Self-assessment of quality of relationship: Good
Why we engage
We engage with government departments and regulatory bodies to provide input into issues and
regulations that affect our industry. We also engage with regional and local governments and local
authorities to obtain support for our operations, show how our activities contribute to local economic
and social development and identify issues where we can work together for our mutual benefit.
A key issue in FY2020 was the classification of our operations as essential to enable us to continue
with operations throughout the various national lockdown periods. Positive relations with governments
enable us to provide assistance or partner on larger scale projects to bring positive impacts to
communities and society.
Shared priorities
Our response
•
In Europe, we actively follow and influence policy processes to support the development of policies
that are both ambitious and practical for the private sector to implement. Sappi is represented on
the High-Level Group on Finance and Sustainability Transition as well as the High-Level Group on
Trade Policy Innovation
• We reviewed and provided input to the draft report of the European Parliament with
Recommendations to the Commission on an European Legal Framework to Halt and Reverse
European-driven Global Deforestation (2020/2006(INL))
• We support specific government initiatives, including in South Africa, the Public and Private Growth
Initiative (PPGI) which targets agriculture (including forestry) as one of the key sectors growth and
under which the Forestry Master Plan falls. Under the auspices of Forestry South Africa, we are
providing input into the plan
In North America we review and provide input to pending legislation and regulations impacting our
industry through state and Federal trade associations
•
• The social and
economic benefits
of our industry
nationally as well
as at a local level
• Increased
investment
• Energy issues in
general and in
particular
government moves
on carbon taxation
• The impact of
increased
regulations on
business
Opportunities for value creation
Challenges 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
• Policies that take neither our high use of biobased
energy into account nor recognise the important
carbon sequestration role played by the sustainably
managed forests and plantations from which we
source woodfibre
• Uncertainty about regulatory developments, for
example: carbon tax
• Administrative delays
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Suppliers and contractors
Self-assessment of quality of relationship: Good
Why we engage
Suppliers and contractors are partners in Sappi’s safety, sustainability and ethics journey. They
contribute to and enable our progress. Consumers are focused on the whole value-chain and not
merely the end-product. The actions and commitments of suppliers and contractors are thus critical to
us and our customers.
We want to build long-term value partnerships, based on the importance of suppliers to a sustainable
supply chain.
Shared priorities
Our response
• Safety
• Transparency
Given our focus on zero harm in the workplace, we work with our contractors to ensure that they follow
Sappi’s safety systems.
• Increased value
• Decreased costs
• Security of fibre
supply
• Certification
• Income generation
and job creation
In South Africa, Sappi Forests continues to work closely with contractors and their workers to
implement the innovative Stop and Think Before You Act safety initiative.
Globally, our procurement team made progress in assessing suppliers against our Supplier Code of
Conduct: SEU: 61% of spend covered; SNA: 10% and SSA 1%.
SEU: In Europe, we procure wood through the well-established wood sourcing companies Metsä
Forest in Finland, proNARO in Germany, Sapin in Belgium and Papierholz Austria in Austria all of which
operate with an established pool of forest owners and wood 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.
SNA: The Sappi Maine Forestry Programme and the Sappi Lake States Private Forestry Programme,
staffed by SNA foresters, offer a wide range of services to landowners including contracting with
experienced loggers and providing plans to enhance wildlife habitat and forest health. We work directly
with landowners, loggers and suppliers to encourage sustainable forest management and provide
markets for woodfibre material from harvesting and stand improvement activities. We continue to
evaluate, promote and support smallholder certification options where feasible, thereby adding
value to both the landowner and marketplace. 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 Sustainable Forestry Initiative® (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 high 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.
In the past 10 years, we have settled claims involving 39,950 hectares of which claimants took
ownership of 8,151 hectares and claims for 11,271 hectares in which claimants preferred to seek
compensation. 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 continues to pay growers in our group certification scheme a premium for certified
timber.
Our ESD department continues to develop and mentor SMMEs.
Opportunities for value creation
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• 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
• Ensuring that SMMEs have the right
social and environmental procedures
in place
Sappi 2020 ANNUAL INTEGRATED REPORTCREATING VALUE BY RESPONDING STRATEGICALLY Civil society and media
Self-assessment of quality of relationships: Good
Why we engage
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 engage with the media on our belief that it’s our responsibility to use the full potential
of each tree we harvest. 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 organisation (NGO), especially
through our participation with the forest certification systems (FSC, PEFC and SFI®) and our international
stakeholder membership of the PEFC. We leverage these platforms to actively contribute to the growth
of forest certification world-wide and collaborate with diverse stakeholders.
Shared priorities
Our response
• Business
developments
• The future of our
industry
• Our impacts on
our communities
• Protecting the
environment
• Join key credible organisations as members
• Develop personal relationships and engage continually
• Provide support to and sponsorship for key organisations on issues of mutual interest
SEU: We are actively involved in The Forests Dialogue (TFD) Steering Committee and provide annual
sponsorship to the organisation. We contributed to the development of a new forests and climate
initiative and supported the development of a number of publications including TFD’s 20th anniversary
book.
SNA: We support the Ruffed Grouse Society and the University of Minnesota Sustainable Forests
Education Cooperative.
SSA: In terms of civil society, 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.
Read more: see our 2020 Sappi Group Sustainability Report at www.sappi.com
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Inform and educate media
•
• Encourage civil society to share our sustainability and
Thrive25
vision through
positive actions
Challenges for value creation
• Misunderstanding of our environmental
impacts
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Resilience
Rocks are the ultimate symbol of resilience. They
are fused together over time from solid crystals of
different minerals. These natural processes bind
them all together, imparting strength and resilience.
But even rocks are shaped and reshaped over time
by natural forces like water, wind and sun.
We’ve proven our resilience to succeed in the ‘new
normal’ and we will continue to do so as we work to
accelerate our decarbonisation journey, meet the
changing needs of rapidly urbanising populations
while managing our environmental footprint and
promoting a diverse, inclusive workforce.
They’re a reminder that none of us are impervious to
the global forces shaping our world. Forces like climate
change, urbanisation, social inequality and of course,
the new reality brought about by the coronavirus
pandemic and Covid-19.
At Sappi we operate across different geographies,
meeting the needs of customers from New Zealand
to New Mexico, but our common purpose makes us
stronger and more resilient: Sappi exists to build a
thriving world by unlocking the power of renewable
resources to benefit people, communities, and the
planet. This is our inspiration and our call to create
a brighter future for the world and for our business.
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Our operating context
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. We expect to
see the global forces identified under our
Thrive25 strategy to continue until at least
2025. Set out below are specific issues that
arose in 2020, the one that dominated all
others, of course, being Covid-19.
Current issues
Our response
The fall-out of Covid-19
Please refer to the infographic on pages
62 and 63.
The purchasing power of
Millennials and Gen Z-ers
continues to grow
Reducing carbon
footprint and use
of plastic
The pace of the
development and adoption
of new technologies
continues to accelerate
Our innovative solutions and planet-positive
actions such as our commitment to the science-
based targets initiative and Business for Nature’s
‘Nature Is Everyone’s Business’ campaign, together
with our shared value/social impact approach to
doing business are widely communicated across
social media.
We have capitalised on the opportunity presented
by responsible consumerism to expand our
lightweight packaging to meet demands for
products with a lower carbon footprint and
eco-friendlier, natural alternatives. We are also
expanding our dissolving pulp (DP) capacity at
Saiccor Mill. As a fibre produced from natural and
renewable resources, Verve provides the value
chain with a sustainable choice not only within the
broader textile sphere which includes cotton and
polyester, but as a preferred sustainable choice
within the DP market.
We are taking advantage of new technologies and
eco-friendlier processes to offer sustainable
solutions that improve people’s lives.
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OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT Current issues
Our response
Inequality, gender
and social justice
Increased social need
The problems of systemic racism, gender-based
violence and citizen exclusion came to the fore
during 2020 in many geographies.
We draw on our history and culture as a South
African company to ensure that our internal
processes, policies and actions address these
issues. As engaged corporate citizens, we commit
to listening and ongoing learning.
Our focus on promoting a diverse, inclusive
workplace is highlighted by the fact that under our
Thrive25
SDG8: Decent work and economic growth
target, we have established a target to increase the
proportion of women in management roles.
The Covid-19 epidemic drove a rise in social need.
We took decisive action to keep our staff and
communities safe, also supporting people and
their families if they did become ill.
The nature of our business is such that we support
rural economies and rural communities, both of
which were severely impacted by Covid-19.
We created opportunities for skills development
and local businesses and supported medical and
social services as well as local clinics and hospitals,
thereby helping to mitigate the impact of economic
hardship. In line with our focus on social impact and
shared value, we engaged more extensively with
community leaders and community forums to
ensure alignment of support and management of
expectations.
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OUR PERFORMANCE REVIEW Covid-19 impacts and our response
The overall economic effect of Covid-19 and related lockdowns, together with changes in
consumer behaviour, severely impacted our business. The pandemic required swift action,
adaptability and resilience to mitigate the risk to all our stakeholders. As the health and
safety of our employees is the highest priority at Sappi, stringent safety and health measures
were implemented and responsibly adhered to by staff across all our sites. This kept our
infection rates relatively low and enabled us to continue operating as an essential service
provider. Our key priorities were providing support to our employees and to society. Next
was responding to our customers’ needs with product innovations and improved
efficiencies.
Support to our people
• Protocols including temperature checks, sanitiser
points and deep cleaning
• Covid-19 information sites on www.sappi.com
and the intranet with posters, live dashboards and
government information relevant to each region
• A dedicated mailbox allowed employees to ask
questions
Support to society
• Employees and Works Councils donated EUR100,000
• Ongoing communication with employees regarding
to the Hardship Fund
the latest developments
• Some employees were furloughed but there were no
large-scale Covid-related retrenchments
• Lanaken Mill donated 500 pairs of safety glasses to
local care homes for the elderly, as well as to
community nurses
Mills
• Access was restricted to employees essential to
production, with social distancing strictly enforced
• All unnecessary movement through the mills was
banned and communal areas closed off
• Shift handover became remote and all work areas
were professionally sanitised between shifts
• ‘No-go’ zones were for employees not involved in
operations in those areas
• Screen dividers were installed in control rooms
Offices
• Minimal number of employees on site
• Excellent IT support enabled the majority of
employees to work from home
• Cloquet Mill donated Tyvek suits and safety goggles
to the Cloquet Area Fire District which were used to
protect paramedics and other staff from Covid-19
infection while Somerset Mill donated over 500 Tyvek
suits to the Redington-Fairview General Hospital in
Skowhegan, Maine. Somerset Mill donated safety
glasses to the SKILLS Inc. organisation
• SNA donated US$5,000 to Allen Manufacturing
(our pick and pack/fulfilment centre in Maine) to help
them manufacture face masks for consumers
• Our Technology Centre in Pretoria partnered with a
local company to produce Sappi’s first prototype hand
sanitiser
• We donated scarce items to clinics and schools,
including 16,000
masks, paper products and 130,000 kg of instant
porridge
of hand sanitiser, 28,500 surgical
ℓ
• Using illustrated infographics on WhatsApp, Sappi’s
Abashintshi team educated community members on
how to combat the disease
• Saiccor and Ngodwana Mills trained apprentices in
mask making, manufacturing 73,000 masks
62
See page
79 for more information.
T
R
O
P
E
R
D
E
T
A
R
G
E
T
N
I
L
A
U
N
N
A
0
2
0
2
i
p
p
a
S
Resilience and agility
• Our board of directors and regional leadership teams
volunteered a 10% reduction in salaries or fees for the
three months ending June 2020, as well as forfeiting
short-term incentive bonuses for 2020. In SNA the
reduction applied to all salaried employees
• In all regions, our operations were classified as
‘essential’, which meant production could continue –
with the exception of Condino Mill, which had to close
for 10 days
• Our essential classification meant that we could
participate in Covid-related economic activity, such
as the provision of paper labels for canned goods,
packaging and specialities to meet e-commerce needs,
as well as DP used in disinfectant wipes and hospital
gowns
• Production was curtailed across all sites while annual
maintenance shuts and non-essential projects were
delayed
• Due to government lockdowns that stopped all
construction projects, we declared force majeure
declaration on our expansion project (Vulindlela) at
Saiccor Mill
• Graphic paper sales declined by 20% as retailers and
consumer-related businesses reduce advertising spend
and printers halted production
• DP demand reduced by 18% as retail stores were shut
and clothing sales suffered
• In response to reduced DP demand, we switched some
DP production at Ngodwana and Cloquet Mills to paper
pulp for internal consumption as well as external sales
–
• SSA responded to the decline in certain categories by:
Applying the newsprint machine at Ngodwana Mill to
produce lightweight liner in the light of significantly
reduced newspaper demand
Producing white packaging grades at Stanger Mill
in response to lower office paper sales
Expanding Lomati Mill’s product offering to include
pre-packaged shelving
–
–
• Resilient performance from the packaging and
specialities businesses, with an increase in EBITDA
from US$126 million in FY19 to US$179 million
Severe impact on planet
parameters
• Globally there was a 14% decrease in
saleable production for FY20 compared
to FY19 – due to weak markets,
especially for graphic papers in Europe.
Between Qs 1&2 (to end of March) and
Qs 3&4 (to end of September),
production dropped by 25.3%. As
curtailment reduces efficiency of the
various processes, globally there were
the following impacts:
–
–
–
Total specific energy intensity
increased by 14.5% when
comparing Qs 1&2 with Qs 3&4
and by 7% year-on-year (y-o-y)
Similarly, specific process water
usage was lower at the end of Q2
(33.36 m3/adt) than in FY2019
(34.17 m3/adt) but increased by
24.4% when comparing Qs 1&2 with
Qs 3&4 and by 7.2% y-o-y
Specific Scope 1 and 2 greenhouse
gas (GHG) emissions increased by
6.6% when comparing Qs 1&2 with
Qs 3&4.
O
U
R
P
E
R
F
O
R
M
A
N
C
E
R
E
V
E
W
I
63
63
Page heading continued
SDGs Q&A
Graeme Wild, Sappi Limited Group Head: Investor Relations and Sustainability
Q1
When did Sappi first commit to the United Nations (UN)
Sustainable Development Goals (SDGs)?
We formalised our commitment in 2019 in alignment with the UN Summit on
the SDGs – the first global summit since the adoption of the 2030 Agenda for
Sustainable Development in September 2015. Having said that, as a signatory
to the UN Global Compact (UNGC) since 2008, we have incorporated the UNGC’s
Ten Principles across all business operations and supply chains for more than
a decade – a good baseline for any company engaging with the SDGs. So, in a
way, we were working to integrate the SDGs into our business well before they
were finalised.
Q2
What did ‘formalising’ Sappi’s commitment to the SDGs involve?
We established a working group drawn from colleagues across all regions to
prioritise the SDGs most relevant to our business, develop related action plans
and translate them into specific business targets.
Q3
Could you describe the SDGs you have prioritised and their
relevance to Sappi’s business?
Let’s look at the SDGs we have prioritised at a global level first. SDG6: Clean water
and Sanitation is relevant to Sappi because water, a life-giving natural resource, is
one of our key process materials. In addition, our tree plantations in South Africa,
while not irrigated, depend on rainfall to grow. In terms of SDG7: Affordable and
Clean Energy, as an energy-intensive industry, Sappi’s fuel choices have a major
impact on air emissions. Our related action plan is to increase the share of
renewable energy within our total energy consumption and to continually improve
and look for new energy solutions. To this end, we have established a 1.5 Future
Energy Technologies & Decarbonisation ‘cluster’. This cluster is tasked
with exploring and developing novel technologies for fuel shift and deep
decarbonisation in terms of Scope 1 and 2 emissions, with a particular emphasis
on energy, pulping, papermaking and bleaching.
SDG8: Decent Work and Economic Growth aligns with our focus on being a
responsible corporate citizen by providing a safe working environment in which
our employees can reach their full potential. We facilitate social and economic
well-being by using labour drawn from local communities, and the services of
small and medium enterprises situated in the areas around plantations and
production facilities. We also have a best practice training programme and follow
a shared value approach to business, which means that communities close to our
operations benefit from our extensive socio-economic development programmes.
Graeme Wild
Sappi Limited Group Head:
Investor Relations and
Sustainability
“Enhancing
energy self-
sufficiency,
improving
energy-use
efficiency and
decreasing our
reliance on fossil
fuels, thereby
reducing our
carbon
footprint, are
key strategic
goals”
64
OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT Q3 continued
Could you describe the
SDGs you have prioritised
and their relevance to
Sappi’s business?
Q4
What SDGs have you
prioritised at local level?
Q5
Please explain the link
between your priority SDGs
and targets?
Q6
Any closing thoughts?
There are many points of relevance for how Sappi can contribute to
SDG12: Responsible Consumption and Production, especially from the perspectives
of manufacturing, product design and product use/end of life. Our manufacturing
process begins with sustainably managed, renewable forest resources and we
operate according to circular economy principles. We do so by using resources
efficiently and reducing waste generation, from manufacturing processes through
to end-of-life product recycling. With investments in research and development
(R&D) and new product development, we continually strive 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.
For Sappi the obvious and direct connection to SDG13: Climate Action is through
our CO2 emissions. Enhancing energy self-sufficiency, improving energy-use
efficiency and decreasing our reliance on fossil fuels, thereby reducing our
carbon footprint, are key strategic goals. For each of our mills we are developing
decarbonisation roadmaps to identify and plan for the necessary investments.
SDG15: Life on Land has particular relevance for Sappi, given that our business is
dependent on sustainably managed and sourced woodfibre. Globally, we enhance
sound forestry management practices by utilising credible, third-party verified forest
certification schemes. We neither harvest nor buy woodfibre which originates from
tropical natural forests and our wood sourcing causes zero deforestation. In South
Africa, Sappi owns and leases 394,000 ha of land of which approximately 26% is
managed for biodiversity conservation.
In terms of SDG17: Partnerships for the Goals, while Sappi is already engaged in
and has been contributing to many partnerships and collaborations, there are many
further opportunities in the sustainability field for us to become more involved. Over
the past year, we became a founding partner of 4evergreen, an alliance of fibre-
based packaging leaders in Europe, joined the Sustainable Apparel Coalition and
committed to setting science-based emission reduction targets in collaboration
with the Science Based Targets initiative (SBTi) in addition to many other
collaborations.
Sappi is headquartered in South Africa which is a developing country. Accordingly, in
this region we have also prioritised SDG1: No Poverty and SDG4: Quality Education,
both of which align with our commitment to the national drive to promote socio-
economic development.
Thrive25
In 2020 we closed off our previous set of targets and set new 2025 targets under
business strategy. The indicators we selected are aligned with our
our new
seven priority SDGs. We believe the targets set are sufficiently ambitious to enable
us to accelerate progress and support the achievement of these SDGs. We see
them as a way of entrenching sustainability further into our core business, while
strengthening our connection to the 2030 global agenda. For example, the goal
linked to SDG12: Responsible Consumption and Production involves the number
of products launched annually with defined sustainability benefits.
Given the sheer complexity of sustainability, the SDG framework gives us focus.
It also offers a common language to engage our employees and to guide our
interaction with our customers and other stakeholders. Integrating the SDGs into
our
unlocking the power of renewable resources to help build a thriving world.
business strategy has also given us more clarity and purpose for
Thrive25
65
OUR PERFORMANCE REVIEW Integrating our key material issues
into our value creation approach
Uncertain and evolving
regulatory landscape
Evolving technologies
and consumer preferences
Sustainability expectations
Risk
Maintaining ethical behaviour
and compliance
Sourcing responsibly
Key
material
issue
Global forces
The move towards a
circular economy
Climate change continuing
to impact businesses and
reshape societies
Resource scarcity and
growing concern for
natural capital
Rising social inequality
Continued erosion
of trust in business,
coupled with increasing
social activism
Workplace culture
Responsible procurement
Stakeholder
issue
Stakeholder
issue
Return on
investment
Risk
Industry 4.0
Cyclical macro-
economic context
and competitive
industry
Project
implementation
and execution
Liquidity
Evolving
Evolving
Evolving
technologies and
technologies and
technologies and
consumer preferences
consumer preferences
consumer preferences
Project
implementation
and execution
Liquidity
Sustainability
expectations
Sustainability
expectations
Climate change
Climate change
Key
material
issue
Containing costs
and ensuring
appropriate
capital allocation
Enhancing
efficiency through
machine learning
and digitisation
Meeting long-term
demand growth for
cellulosic-based
fibres
Increasing the
sustainability of our
products through
circular design and
adjacent markets
Developing and
commercialising
innovations in
addition to adjacent
businesses
New or enhanced
products that meet
rapidly changing
market demand
Responsible
consumption
Keep abreast
of market
developments
Support for paper,
Support for paper,
packaging,
packaging,
DP and sustainability
DP and sustainability
goals
goals
The links
between our
stakeholder issues,
key material issues,
risks and global
forces shaping our
world
Changing consumer
and employee profiles
Globalisation and high
levels of connectivity
The rapid pace of
technological innovation,
including artificial intelligence
(AI)
Growing populations
with increasing rates
of urbanisation
Social
responsibility
and social
inequity
Community
upliftment
Training and
development
Remuneration
Diversity and
inclusion
Fair,
equitable,
safe
workplace
Connection
to, and
understanding
of, our
business and
strategic
direction
Safety
as a
core value
Risk
Sharing value
with our
communities
Attracting,
developing
and retaining
key skills
Supporting
sound labour
relations
Engaging
more closely
with our
employees
Ensuring
the safety
of our
employees
and
contractors
Key
material
issue
Social
unrest
Land
restitution
Employee
relations
66
Safety
Cyclical
macro-
economic
context and
competitive
industry
Employee
relations
Safety
Safety
Employee
relations
Employee
relations
Stakeholder
issue
Risk
Global
GHG
emissions
Reduction
of fossil
fuel usage
Global
warming
Water quality
and quantity
Resource
scarcity
Biodiversity
loss
Key
material
issue
Sourcing
woodfibre
responsibly
Prioritising
Helping to
renewable and
mitigate climate
clean energy
change
Focusing
on water
stewardship
Accelerating
circular business
models
Safeguarding
and restoring
biodiversity
Stakeholder
issue
Evolving
technologies
and consumer
preferences
Sustainability
expectations
Evolving
technologies
and consumer
preferences
Sustainability
expectations
Evolving
technologies
and consumer
preferences
Sustainability
expectations
Climate change
Climate change
Climate change
Sustainability
expectations
Sustainability
expectations
Sustainability
expectations
Climate change
Climate change
Climate change
OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT Uncertain and evolving
regulatory landscape
Evolving technologies
and consumer preferences
Sustainability expectations
Risk
Risk
Cyclical macro-
economic context
and competitive
industry
Project
implementation
and execution
Liquidity
Industry 4.0
Evolving
technologies and
consumer preferences
Evolving
technologies and
consumer preferences
Evolving
technologies and
consumer preferences
Project
implementation
and execution
Liquidity
Sustainability
expectations
Sustainability
expectations
Climate change
Climate change
Maintaining ethical behaviour
and compliance
Sourcing responsibly
Key
material
issue
Key
material
issue
Containing costs
and ensuring
appropriate
capital allocation
Enhancing
efficiency through
machine learning
and digitisation
Meeting long-term
demand growth for
cellulosic-based
fibres
Increasing the
sustainability of our
products through
circular design and
adjacent markets
Developing and
commercialising
innovations in
addition to adjacent
businesses
Workplace culture
Responsible procurement
Stakeholder
issue
Stakeholder
issue
Return on
investment
New or enhanced
products that meet
rapidly changing
market demand
Responsible
consumption
Keep abreast
of market
developments
Support for paper,
packaging,
DP and sustainability
goals
Support for paper,
packaging,
DP and sustainability
goals
Social
responsibility
and social
inequity
Community
upliftment
Training and
development
Remuneration
equitable,
Fair,
safe
Diversity and
workplace
inclusion
Connection
to, and
understanding
of, our
strategic
direction
Safety
as a
Risk
business and
core value
Sharing value
with our
communities
Attracting,
developing
and retaining
key skills
Supporting
sound labour
relations
Engaging
more closely
with our
employees
Ensuring
the safety
of our
employees
and
contractors
Key
material
issue
Social
unrest
Land
restitution
Employee
relations
Safety
Safety
Employee
relations
Employee
relations
Stakeholder
issue
Safety
Cyclical
macro-
economic
context and
competitive
industry
Employee
relations
Risk
Global
GHG
emissions
Reduction
of fossil
fuel usage
Global
warming
Water quality
and quantity
Resource
scarcity
Biodiversity
loss
Key
material
issue
Sourcing
woodfibre
responsibly
Prioritising
renewable and
clean energy
Helping to
mitigate climate
change
Focusing
on water
stewardship
Accelerating
circular business
models
Safeguarding
and restoring
biodiversity
Stakeholder
issue
Evolving
technologies
and consumer
preferences
Sustainability
expectations
Evolving
technologies
and consumer
preferences
Sustainability
expectations
Evolving
technologies
and consumer
preferences
Sustainability
expectations
Climate change
Climate change
Climate change
Sustainability
expectations
Sustainability
expectations
Sustainability
expectations
Climate change
Climate change
Climate change
67
Global forces
The move towards a
circular economy
Climate change continuing
to impact businesses and
reshape societies
Resource scarcity and
growing concern for
natural capital
Rising social inequality
Continued erosion
of trust in business,
coupled with increasing
social activism
The links
between our
stakeholder issues,
key material issues,
risks and global
forces shaping our
world
Changing consumer
and employee profiles
Globalisation and high
levels of connectivity
The rapid pace of
technological innovation,
including artificial intelligence
(AI)
Growing populations
with increasing rates
of urbanisation
OUR PERFORMANCE REVIEW 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 – negative and positive – on
stakeholder value. Further information on each of these issues
can be found in our 2020 Sappi Group Sustainability Report
available at www.sappi.com
Prio ritisi n
viewing issu e s
e
R
Identifying regulatory a
M a p p ing stakeholder issues an
s u e s t h rough the lens of m
s
g i
n
d r
e
p
d lo
c
al a
o
r
t
i
n
aterialit
y
n
d
g
l
o
g
i
s
s
u
e
s
b
a
l
t
r
e
n
d
s
How we
determine
materiality
How we determine materiality
Step 1
Identifying regulatory and reporting issues
We take various stakeholder guidelines into account including
those set out in terms of the UN SDGs, the Global Reporting
Initiative (GRI), the International Integrated Reporting Council
(IIRC) and the King IV Code on Corporate Governance
(King IV); as well as ratings agencies such as
ISS-OEKOM, MSCI and FTSE4Good Index Series
Step 2
Mapping stakeholder issues and local and
global trends
Regulatory and reporting guidelines are mapped
against stakeholder issues, as well as trends
and developments in the external operating
environment
Step 3
Prioritising issues through the lens of materiality
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?
Step 4
Reviewing issues
How do our key material issues align with our
strategy and the global forces shaping that strategy?
Thrive25
How do they link to risk, our priority UN SDGs and
developments in our operating context?
T
R
O
P
E
R
D
E
T
A
R
G
E
T
N
I
L
A
U
N
N
A
0
2
0
2
i
p
p
a
S
68
OUR PERFORMANCE REVIEW
Principles
Sourcing responsibly
Why it’s material
As a responsible corporate citizen, sourcing ethically is not only the right thing to do, it’s important for value creation and a thriving
world. Visibility into the supply chain helps identify issues and risks early and address consumer concerns about issues like child
labour, illegal logging, bribery and corruption, among others.
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
Our strategic fundamentals
3 Evolving technologies
and consumer
preferences
5 Sustainability
expectations
The global forces shaping
our Thrive25 strategy
• Resource scarcity and
growing concern for
natural capital
• Continued erosion of trust
in business, coupled with
increasing social activism
Key developments in 2020
We continued to move forward with the implementation of the Supplier Code of Conduct. In SEU, 61% total spend is currently
covered by agreements into which the provisions of the code are embedded, 10% in SNA and 1% in SSA.
Maintaining ethical behaviour and compliance
Why it’s material
Our reputation as an ethical company – largely determined by the ethical behaviour of our employees and representatives –
underpins our ability to unlock further growth opportunities. Accordingly, we view ethics as the foundation of our business.
Values and ethics are not only critical to maintain a licence to operate but also for developing stakeholder trust and for driving
performance. We place a high premium on adherence to ethical behaviour as encapsulated in our Code of Ethics. The latter
creates clear boundaries and a consistent framework across cultures and geographies as to what constitutes ethical behaviour
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
Our strategic fundamentals
7 Uncertain and evolving
regulatory landscape
The global forces shaping
our Thrive25 strategy
• Continued erosion of trust
in business, coupled with
increasing social activism
Key developments in 2020
In line with our emphasis on ethical behaviour, we implemented a comprehensive training programme across all regions in 2020.
Topics covered ranged from environmental law to anti-fraud and corruption. These training initiatives – incorporating relevant and
practical examples – have been implemented to inculcate the correct ethical behaviour and responses to avoid a tick-box
approach to ethics.
69
OUR PERFORMANCE REVIEW
Our key material issues continued
Prosperity
Containing costs and ensuring appropriate capital allocation
Why it’s material
Unless we grow profitably, we cannot achieve our vision of being a sustainable business with an exciting future in woodfibre that
provides relevant solutions, delivers enhanced value and is a trusted partner to all our stakeholders.
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
Our strategic fundamentals
2 Cyclical macro-
economic context
4 Liquidity
6 Project implementation
and execution
The global forces shaping
our Thrive25 strategy
• Changing consumer
and employee profiles
• Growing populations with
increasing rates of
urbanisation
Key developments in 2020
During Covid-19, all our production, warehousing and distribution facilities were designated as essential throughout our
operating geographies. Other than the temporary closure of our Condino Mill in Italy for 10 days, all facilities were operational in
alignment with lockdown and social distancing guidelines. However, the actions taken by governments across the world to
reduce the spread of the virus created significant uncertainty in our markets and in general reduced demand or made it difficult
for product to reach its destination. This necessitated the implementation of various cost saving measures across our
operations to preserve liquidity and cash flow.
These measures included furloughing a number of employees in Europe and North America on temporary unemployment;
curtailing excess production including temporarily shutting Paper Machine 7 (PM7) at our Lanaken Mill and applying measures to
optimise working capital. Where possible, we deferred non-essential capital expenditure. Due to government lockdown
regulations which stopped all construction projects, we declared force majeure at Saiccor Mill (discussed in further on page
and 72). We also shifted annual maintenance shutdowns at Ngodwana, Saicccor and Tugela Mills to as late as possible and
postponed other material discretionary projects including Ngodwana Energy, our sugar extraction plant at Ngodwana Mill, the
fuel rod plant at Tugela Mill and the planned furfural pilot plant at Saiccor Mill.
63
In line with our focus on taking decisive action to reduce costs and respond to market demand and disclosure in 2019 that we
would review our assets in Europe and North America, we permanently shut PM9 and major components of the energy complex
at our Westbrook Mill. We shifted PM9’s base paper production to Cloquet and Somerset mills, thereby leveraging our premium
papermaking assets in the region and continuing to provide an integrated solution to our global casting and release paper
customer base. The restructuring has allowed us to compete more effectively and enabled Westbrook Mill to focus on its core
competencies of specialty coating, texture application and customised product designs, restoring the site as a healthy financial
contributor.
In addition, following a thorough consultation process, we reached an agreement with mill employees to permanently close PM2
at Stockstadt Mill (coated woodfree paper production capacity of 240,000 tpa). The mill will now focus on its growing uncoated
woodfree offering.
The actions taken mean that both mills are now better placed to compete in the marketplace and deliver increased returns.
70
OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT
Enhancing efficiency through machine learning and digitisation
Why it’s material
According to McKinsey, companies that are digital leaders in their sectors have faster revenue growth and higher productivity than
their less digitised peers. They improve profit margins three times more rapidly than average and, more often than not, have been
the fastest innovators and the disruptors and transformers of their sectors.1
How this issue links to other aspects of our business
Our global priority SDGs
Emerging risks
Our strategic fundamentals
Industry 4.0
The global forces shaping
our Thrive25 strategy
• Globalisation and high
levels of connectivity
• The rapid pace of
technological innovation,
including AI
Key developments in 2020
We continued to promote our data driven culture to drive productivity and profitability. This involves standardising and
consolidating regional data science platforms and digital transformation strategies to support our global Industry 4.0 initiatives,
including machine learning and advanced analytics technologies. We are making extensive use of digital twins to promote
discovery, interpretation, and communication of meaningful patterns in data.
In the Sappi context, a digital twin is a virtual model of a process, or semi-finished or finished product. By pairing the virtual and
physical worlds, we can analyse data and monitor systems, thereby anticipating and avoiding problems before they occur,
preventing downtime, developing new opportunities and planning for the future through the use of simulations.
As an example: we have created a digital twin for every DP batch produced at Saiccor Mill. Each batch contains information
relating to all the upstream processes that contributed to that batch, including timber, liquor and digester cook, washing and
bleaching. This digital twin data ensures that process engineers have all the necessary data available in context to analyse issues
in the plant.
Other workstreams include testing the suitability of using microdots for tracking and timber tracing from felling to the chip pile at
the mill.
1 The McKinsey Global Institute: Digitization, AI, and the future of work: imperatives for Europe.
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OUR PERFORMANCE REVIEW
Our key material issues continued
Meeting long-term demand growth for cellulosic-based fibres
Why it’s material
Our extensive capacity in the DP sector is aligned with our strategy of diversifying into higher margin segments and positioning
ourselves for future growth. This is highlighted by the completion of DP debottlenecking projects at Cloquet, Saiccor and
Ngodwana Mills in recent years, thereby expanding our capacity to offer consumers fibres manufactured from a natural, renewable
resource rather than from fossil fuels.
Global quarantine measures in 2020 negatively impacted textile and apparel markets, with our DP sales falling 18% year-on-year.
However, Hawkins Wright1 expect global textile markets to have recovered fully by 2022. This is partly due to the fact that while
demand for office and formal wear remains subdued, many retailers are reporting strong demand growth for casual clothing and
leisure wear, items which typically comprise a higher proportion of wood-based textile fibre than in the office wear segment.
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
Our strategic fundamentals
3 Evolving technologies
and consumer
preferences
4 Liquidity
6 Project implementation
and execution
The global forces shaping
our Thrive25 strategy
• Changing consumer and
employee profiles
• Growing populations with
increasing rates of
urbanisation
Key developments in 2020
We continued with our combined ZAR7.7 billion Vulindlela capacity expansion and upgrade project at Saiccor Mill in KwaZulu-
Natal in the first six months of FY2020. However, because of the coronavirus outbreak and nationwide lockdown, we declared
force majeure at the end of March, at which stage the project was 65% complete. Work on the expansion recommenced fully in
July and completion is now anticipated in Q3 FY2021.
In 2020, in view of our decarbonisation plans (discussed on page
sulphite technology, which is significantly more environmentally friendly than the calcium sulphite process currently in place at
Saiccor Mill. As the current calcium sulphite pulp line is the source of lignin raw material, this switch will result in the permanent
closure of LignoTech South Africa (SA), a joint venture between Borregaard and Sappi. Following the conversion, pulping
chemicals will be recovered and reused resulting in a more efficient and environmentally friendly plant. The conversion of the pulp
line will be completed mid-2021. In the interim, the calcium sulphite pulp line will be operated to some extent, resulting in limited
production of liquid lignin by LignoTech SA until the permanent closure comes into effect – this will take place when the
conversion of the calcium line is completed.
81), the decision was made to switch to magnesium
1 Hawkins Wright: The outlook for DP: Demand, supply, costs and prices, September 2020.
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OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT
Increasing the sustainability of our products through circular design
and adjacent markets
Why it’s material
Natural resources are the life force of our planet. Without many of these resources, life as we know it would not exist. Against this
backdrop, we use renewable woodfibre and strive to use the full potential of each tree we harvest to contribute to a biobased
circular economy. Our bioproducts are sustainable alternatives extracted from woodfibre to reduce the need for fossil-based
materials used in everyday products.
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
Our strategic fundamentals
3 Evolving technologies
and consumer
preferences
5 Sustainability
expectations
9 Climate change
The global forces shaping
our Thrive25 strategy
• The move towards a
circular economy
• Climate change
continuing to impact
businesses and reshape
societies
• Resource scarcity and
growing concern for
natural capital
Key developments in 2020
Symbio, our bio-composite cellulose
fibre, brings the haptics of nature,
strength and reduced environmental
footprint to plastic composite
materials. This product is present in
various components of large scale
production automobiles and has
been chosen as feedstock for the
development of lightweight bio-
composite materials, for the European
Life Biobcompo project. The project,
which includes leading vehicle and
automotive parts manufacturers, aims
to reduce vehicle carbon emissions
by 8% through the replacement of
conventional mineral fillers with
biobased fibres, promote the use
of more sustainable resources and
demonstrate these technologies at
industrial scale. Symbio is also being
successfully used in kitchen and
homeware products, bringing natural
content to daily use items.
The commercialisation of our Valida
nanocellulose gained traction with
many repeat orders. As the use of
sanitiser became more widespread
during Covid-19, Valida was used as
an opacifier and thickener in sanitising
gels, providing a natural alternative
for acrylate-based polymers and
microplastics. When suspended in
water, Valida cellulose fibrils form an
insoluble 3D network based on
hydrogen bonding and mechanical
entanglement. Valida’s other unique
benefits include:
• Derived from renewable resources
– sustainable alternative to fossil-fuel
based polymers and microplastics
• Superior skin feel and moisturising
qualities
• Unique texture
• High safety standards in terms of
skin irritation, sensitisation, blockage
and penetration – the product has
passed cosmetics ingredient safety
studies including those by SGS,
a leading inspection, verification,
testing and certification company
Other areas of use include:
• Personal care products and
cosmetics
• Decorative paints and coatings
• Construction applications
• Paper – we have been successfully
developing our own advanced paper
products, using our Valida
technology, on various paper
machines in all regions. This holds
potential for a next generation of
packaging, graphics and functional
papers
Sappi is becoming increasingly
recognised as a key player in
lignosulphonate markets – we
continue to target higher value
markets, many of which use lignin to
replace oil-derived products. This
particularly in view of the fact that
markets increasingly require products
based on renewable natural resources.
We are expanding from traditional uses
such as dust control and concrete
admixtures to:
• Lignin-based intermediates as
substitution for phenols which are
widely used in resins and polyols
used in rigid foams
• Lignin-based intermediates for use
in glues
• Lignin-based animal feed binders
with natural antimicrobial and
antifungal functionality to improve
animal performance (gut health)
• Granulation aids for agricultural
products
• Fuel pellet binders
• Replacement for starch in the
manufacture of recycled paper
We have successfully illustrated the
ability to extract xylose sugars as
co-product from DP production
at Ngodwana Mill, the technology is
now ready for deployment; the 25 MW
biomass power plant at Ngodwana Mill
in which we have a 30% stake is under
construction and our technologies to
produce furfural as co-product at our
DP mills is ready for industrial scale
illustration with plans to do so well
advanced.
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OUR PERFORMANCE REVIEW
Our key material issues continued
Developing and commercialising innovations in addition to adjacent
businesses
Why it’s material
Innovation is at the heart of Sappi’s strategy. No growth is possible without innovation. We view innovation not as an end in itself,
but as an avenue for the provision of sustainable, competitive advantage that will make a significant difference. We make ongoing
investments into R&D (US$39 million in FY20) and promote a culture of innovation through the annual Technical Innovation Awards.
Together with the wide-ranging, significant expertise of our people, these factors mean we are well positioned to collaborate with
our stakeholders and offer relevant solutions, thereby generating meaningful revenue. Our focus is on understanding what our
customers – and potential customers – need, and adapting to that need.
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
Our strategic fundamentals
3 Evolving technologies
and consumer
preferences
5 Sustainability
expectations
9 Climate change
The global forces shaping
our Thrive25 strategy
• The move towards a
circular economy
• Climate change
continuing to impact
businesses and reshape
societies
• Resource scarcity and
growing concern for
natural capital
Key developments in 2020
Ongoing legislative edicts and
consumer concern mean companies
are rethinking their packaging needs.
Governments, retailers and brand
owners all over the world are seeking
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. Against this
backdrop, we continued to develop
our packaging paper solutions with
integrated functionality. For example,
we recently added a 91 g/m² version
to our high-barrier paper range,
opening up additional applications for
manufacturers of branded goods. All
high-barrier papers from Sappi ensure
that the product quality of foods and
other goods is preserved. They feature
barriers against oxygen, water vapour,
grease and mineral oil as well as
outstanding print results, a wide range
of finishing options, complete
recyclability and integrated heat
sealability.
Sappi Rockwell Solutions launched a
new r-PET lidding film to give our
customers a greater choice of options
to meet their own sustainability goals.
This makes Sappi Rockwell one of only
two suppliers in this industry to provide
recycled peelable coatings. These
films combine the high performance
of Rockwell’s heat-seal, anti-fog and
barrier coatings with base polyester
film made from food-contact-approved
r-PET, delivering environmental,
waste and cost benefits to food
manufacturers and retailers.
There is a global movement to limit
or eliminate solvent-based casting
systems to reduce chemical waste and
pollution. We invested in chemistry and
technology to create the industry’s first
premium high-fidelity casting paper
compatible with solvent-free systems
– Ultracast Viva, which we launched in
2020. Performance improvements
include reduced curl, increased
reusability and easier handling with
expanded temperature limits for
polyvinyl chloride (PVC), semi-
polyurethane (PU) and 100% PU
including aqueous PU chemistry.
With the world rapidly moving to adopt
the internet of senses, one of printed
paper’s unique selling propositions,
touch, is becoming increasingly
important. Developed by SEU, our latest
graphic paper, Raw, takes this to a new
level. Raw offers a true uncoated feel
with a coated print performance, while
also delivering high bulk and natural
whiteness. We expect the product to be
used in high-value commercial print
products, such as books, coffee-table
journals and lifestyle catalogues.
In Europe, we collaborated with a
machine manufacturer on a project for
a well-known cereal manufacturer that
switched its fully automated production
to paper-based, sealable barrier
pouches. Two further application
projects focused on confectionery and
snacks are already in the development
stage. The project has given us and our
collaboration partner a strong position
to successfully implement paper-
based packaging solutions for future
customer demands.
High demand for low
grammages
Sappi’s considerable expertise
in functional paper packaging is
evident in low grammages with an
integrated mineral oil and grease
barrier. The light papers with
grammages of 75 g/m² and higher
are particularly popular. This keeps
products such as rice, cereals, tea
and chocolate free of mineral oil
saturated hydrocarbons (MOSH)
and mineral oil aromatic
hydrocarbons (MOAH) residue and
prevents any mineral oil from
getting into the final product during
production and transportation.
Sappi offers these packaging
papers in several other
grammages, which are ideally
suited to primary and secondary
packaging. Papers like Sappi Guard
MS also offer impressive heat
sealability, resulting in a reduction
in production steps as additional
sealing media are not required.
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OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT
People
Ensuring the safety of our employees and contractors
Why it’s material
In terms of our safety-first culture, we believe that nothing is so important that it cannot be done safely and that every individual
has the power to have a positive impact. We do not accept that injuries and accidents are inevitable and remain committed to zero
harm. We aim to achieve this through the continuance of improved personal behaviour and making safe choices underpinned by
risk assessments, group sharing of all incidents and root cause investigations, enforcement of compliance and leadership
engagement with our people.
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
Our strategic fundamentals
1 Safety
8 Employee relations
The global forces shaping
our Thrive25 strategy
• Continued erosion of trust
in business, coupled with
increasing social activism
Key developments in 2020
In response to the Covid-19
pandemic, all operations and sites
established the required sanitising and
hygiene protocols, social distancing,
temperature checks, self-declaration
health check requirements with
ongoing engagement and
communications for the necessity of
self-awareness at work and at home.
On the positive side, the pandemic
appears to have heightened adherence
to safe attitudes and behaviours
amongst our people.
Despite a concerted focus on safety,
tragically, there was one transport-
related contracter fatality in the Sappi
Forests division in South Africa. All
regions, however, showed an overall
improvement in injury and severity
rates. SEU completed the year with
an improved lost-time injury frequency
rate (LTIFR), underpinned by
the ongoing successful integration of
operations acquired in recent years
into the Sappi safety culture. SNA
established their best LTIFR on record,
completing the year with an LTIFR for
own employees of 0.20 compared with
0.25 for FY2019 and 0.35 for FY2018.
Safety performance also improved in
SSA. We undertook a complete review
of all risk assessments in
manufacturing areas to ensure that all
risks are identified and assessed
correctly for potential severity. The
findings of the survey were addressed
and the completed actions as well as
the effectiveness of the closeout will
be audited during FY2021.
Group LTIFR
1
7
0
.
0.80
0.60
0.40
0.20
0
6
5
0
.
9
5
0
.
8
5
0
.
5
5
0
.
8
3
0
.
1
4
0
.
4
3
0
.
6
3
0
.
4
3
0
.
1
7
0
.
4
4
0
.
1
4
0
.
9
2
0
.
100
80
60
40
20
0
2014
2015
2016
2017
2018
2019
2020
●
Sappi LTIFR (lhs)
●
Contractor LTIFR (lhs)
■
Sappi II (rhs)
■
Contractor II (rhs)
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OUR PERFORMANCE REVIEW
Our key material issues continued
Engaging more closely with our employees
Why it’s material
The days of employees simply collecting a pay check are over. In fact, research suggests that they’re willing to earn less if doing so
translates into more meaningful work1. Given the amount of time spent at work, it makes sense to look to the workplace as a
source of meaning. People want to come to work, understand their job and know how their work contributes to the overall purpose
and success of the organisation. When they do, there are positive implications for productivity and profitability.
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
Our strategic fundamentals
1 Safety
8 Employee relations
The global forces shaping
our Thrive25 strategy
• Continued erosion of trust
in business, coupled with
increasing social activism
• Changing consumer and
employee profiles
• Globalisation and high
levels of connectivity
Key developments in 2020
We conduct employee engagement surveys every two years, with the previous one taking place in 2019. This survey indicated
that employee engagement was high, with 42% of employees fully engaged, 39% unsupported or detached and 19% fully
disengaged. The key themes identified for action were talent and recognition; teamwork and communication; development and
empowerment and leadership and direction. We are on track to close out all the actions which are monitored quarterly. The 2021
survey, due to begin in March 2021, will be undertaken by a new survey provider that will provide faster and more granular
reporting, as well as prioritisation of focus areas and mobile (cellphone and tablet) solutions.
As we look to the future, we recognise that society in general and our people, in particular, expect us to play a role beyond making
and selling. Teams from all regions and product segments spent a year developing our 2020-2025
focuses strongly on the power of purpose: Sappi exists to build a thriving world by unlocking the power of renewable resources to
benefit people, communities, and the planet. We embarked on an extensive roll out of our
people with the strategy, our purpose and refreshed brand. We communicated through newsletters, posters, presentations and
detailed engagement with staff by management and leadership.
strategy to familiarise our
strategy which
Thrive25
Thrive25
1 https://hbr.org/2018/11/9-out-of-10-people-are-willing-to-earn-less-money-to-do-more-meaningful-work
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OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT
Supporting sound labour relations
Why it’s material
We believe open lines of communication between ourselves and organised labour are vital to achieving our ambitious growth and
value creation objectives. We continue to endorse the principles of fair labour practice as entrenched in the United Nations Global
Compact (UNGC) and the Universal Declaration of Human Rights. At a minimum, we conform to and often exceed, the labour
legislation requirements in countries in which we operate. Sappi promotes freedom of association and engages extensively with
representative trade unions. Globally, approximately 57% of our workforce is unionised, with 75% belonging to a bargaining unit.
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
Our strategic fundamentals
1 Safety
2
Cyclical macro-
economic context
8 Employee relations
The global forces shaping
our Thrive25 strategy
• Continued erosion of trust
in business, coupled with
increasing social activism
• Changing consumer and
employee profiles
a further 1% with effect from
01 January 2021. This represents
an overall increase of 3.5%. Shift
allowances remained at 10.5%, which
is still 0.5% ahead of the industry.
At year end, sawmilling wage
negotiations were still underway
at industry level with forestry
negotiating at company level.
Our forestry and sawmilling sector
wage negotiations were concluded
without a strike. For forestry, we
settled on a 3% wage increase
backdated to 01 July 2020, with a
further 1% increase coming into
effect from 01 January 2021.
Regarding sawmilling, we settled
on a 3% increase backdated to
01 July 2020.
Key developments in 2020
In SEU, there was an industry-wide
strike in Finland which affected
Kirkniemi Mill, and that lasted 15 days
for blue-collar employees and 24 days
for white-collar employees. To resolve
this strike, an industry-wide collective
bargaining agreement was entered
into, requiring us to waive three extra
days of work per annum that were
negotiated years ago in exchange for
shortening the summer stop and
cutting other Collective Labour
Agreement (CLA)-related benefits to
achieve a cost-neutral outcome.
The consultation process related to the
closure of the PM1 at Stockstadt Mill
and impact on 170 positions was
completed with the assistance of
the employee representatives and
facilitator at the mill. The machine was
closed from October 2020.
In SNA, the overall industrial relations
climate in SNA was satisfactory despite
furloughs due to Covid-19, the
decision to close PM9 and certain
biomass energy operations at
Westbrook Mill and some contract
negotiations with the Westbrook
United Steelworkers’ (USW) union
regarding proposed changes in the
union medical plan. The membership
ratified the package shortly after
year end.
In terms of the asset closures at
Westbrook Mill, we entered into ‘effects
bargaining’ with the USW and other
trade unions whereby a voluntary
severance package, equal to that
which was bargained for union
employees who were involuntarily
retrenched, was made available to
employees who accepted voluntary
retrenchment. This was offered to
encourage those union members who
were close to retirement to consider
the benefits of taking the package,
thereby enabling employees with less
seniority to remain with Sappi. Due to
voluntary resignations and other
attritions prior to the discontinuation of
these operations, the number of active
employees losing their positions was
significantly lower than originally
anticipated.
In SSA, collective bargaining was
extremely tough. The Pulp and Paper
Sector was unable to reach an industry
settlement as parties deadlocked and
unions issued a notice to strike
following a balloting process. The strike
was generally peaceful except at
Saiccor Mill where the company
experienced sporadic incidents of
violence, largely driven by the various
community groups. SSA reached a
settlement of 3% increase on basic
wage with labour at company level
backdated to 01 July 2020, and
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OUR PERFORMANCE REVIEW
Our key material issues continued
Attracting, developing and retaining key skills
Why it’s material
People play a critical role in the delivery of operational excellence and our culture, as well as the manner in which we lead, manage
and develop our people contribute significantly to our success.
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
Our strategic fundamentals
8 Employee relations
The global forces shaping
our Thrive25 strategy
• Continued erosion of trust
in business, coupled with
increasing social activism
• Globalisation and high
levels of connectivity
• Changing consumer and
employee profiles
Key developments in 2020
The attraction, development and retention of skills are all interlinked. As discussed under employee engagement, we
recognise that current and future employees, in particular Generation Z-ers, want companies to have a positive purpose that
improves the world in some way. We believe that the fact that we offer true circular economy solutions and that sustainability
underpins everything we do, plays a key role in attracting and retaining key skills.
In terms of training and development, our focus is to invest in current and future talent and develop the competencies of our
people in three categories; namely leadership, behavioural and technical competencies. Our emphasis on providing learning
solutions aligned with an increasingly tech-savvy workforce is important in retention, as are our compensation programmes.
These are designed to achieve our goals of building trust and attracting, motivating and retaining employees who can help to
deliver value. The primary components of pay include base salary, benefits e.g. medical and retirement, annual incentive awards
and long-term incentives. Compensation levels are set to reflect competitive market practices, internal equity as well as
company and individual performance, including sustainability aspects of performance.
A key development was reshaping our people strategy to align with our
enhances OneSappi; builds capability for current and future requirements; strengthens employee engagement and experience
and builds a world class human resources team.
to focus on leadership and culture that
Thrive25
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OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT
Sharing value with our communities
Why it’s material
While Covid-19 has highlighted the interconnected nature of our being, as a responsible corporate citizen we recognised many
years ago that our well-being and financial prosperity are inextricably linked to the communities in which we operate. Our
corporate citizenship initiatives and programmes are in line with, and supportive of, our business strategy and are developed with
input from key stakeholder groups. We have prioritised community support projects with a particular focus on education,
environment, health and welfare. Our preference is for multi-year programmes which create sustained impact in our communities.
The majority of our spend is allocated to South Africa, given the development needs of the country.
How this issue links to other aspects of our business
Our global priority SDGs
Emerging risks
Our strategic fundamentals
• Social unrest
• Land restitution
Our additional SSA
priority SDGs
The global forces shaping
our Thrive25 strategy
• Rising social inequality
• Continued erosion of trust
in business, coupled with
increasing social activism
Key developments in 2020
Our social impact strategy rests on two pillars: shared value and corporate social investment. Our aim is to create positive,
meaningful and sustainable systems change for the benefit of our communities, particularly for those at disadvantage as a
result of complex, long-term systemic issues. In doing so, we enhance our social licence to operate, become a more attractive
employer and build trust with customers and other stakeholders. The coronavirus pandemic impacted our regular corporate
citizenship programmes as regular activities were suspended. We responded swiftly to protect the safety of our stakeholders
and meet community needs.
Spend in 2020
• Sappi Europe: €100,000
• Sappi North America: US$362,173
• Sappi Southern Africa: ZAR40 million
Creating community-focused solutions during Covid-19
Thrive25
The coronavirus pandemic highlighted the plight of many vulnerable people situated in the rural areas of South Africa and in
our neighbouring communities. In line with our
entered into a partnership with the Southern Lodestar Foundation (https://lodestar.org.za/), a non-profit organisation which
provides innovative food solutions for children. Their highly nutritious instant porridge – known as A+ – is being used in
school breakfast programmes. Together, Sappi, the Southern Lodestar Foundation and the Spar Group spearheaded a
collaborative effort in terms of which 130,000 kg of A+ instant porridge was distributed to vulnerable communities in
KwaZulu-Natal and Mpumalanga. We used our knowledge and access to rural community health networks to ensure that the
porridge was reaching those that needed it most in many peri-urban and rural areas adjacent to our mills and plantations.
focus on partnering with our stakeholders to create solutions, we
In addition, in an effort to ease the shortage of masks, Sappi procured thousands of surgical masks for community clinics
and health care centres in KwaZulu-Natal and Mpumalanga. However, there was also a need for thousands more reusable
cloth masks for our own employees who were continuing to deliver essential services during the national lockdown. We
installed sewing machines at the Saiccor and Ngodwana Skills Centres, which meant that apprentices who were not able
to continue with their normal training schedule due to the restrictions, sprang into action making cloth masks. These were
distributed to own and contractor employees as well as to neighbouring schools. At year end, apprentices had produced
just under 73,000 masks. The mask venture has progressed further into the manufacture of overalls.
To heighten awareness of the pandemic and promote understanding we created and distributed easy-to-understand
illustrated infographics in English and Zulu within our own operations, the employees and families of our contractors and
the broader public via the Abashintshi. The latter are a group of Sappi-sponsored young people who act as change agents
within their communities.
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OUR PERFORMANCE REVIEW
Our key material issues continued
Planet
Sourcing woodfibre responsibly
Why it’s material
In August 2020, the Financial Times reported that forests were razed at an alarming rate across Asia, Africa and Latin America
during the coronavirus pandemic, as environmental law enforcement was sidelined and villagers in parts of the tropical world
turned to logging for income. One of consumers’ sustainability expectations is that their shopping baskets should not drive the
destruction of the world’s tropical forests. Forests and forestry play an important role in mitigating climate change reducing
deforestation and forest degradation lowers GHG emissions. In addition, sustainable forest management can maintain or enhance
forest carbon stocks and sinks, while wood products can store carbon over the long term and substitute for emissions-intensive
materials reducing emissions.
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
Our strategic fundamentals
3 Evolving technologies
and consumer
preferences
5 Sustainability
expectations
9 Climate change
The global forces shaping
our Thrive25 strategy
• Climate change
continuing to impact
businesses and reshape
societies
• Resource scarcity and
growing concern for
natural capital
Key developments in 2020
We continued to offer consumers an alternative to fossil-based packaging, based on wood from sustainably managed forests.
We neither harvest nor buy woodfibre which originates from tropical natural forests and our wood sourcing causes zero
deforestation. Our commitment to zero deforestation means knowing the source of woodfibre; ensuring that suppliers
implement practices to promptly regenerate forests post-harvest, which is required under the global forest certification
standards that Sappi is committed to upholding. It also means implementing our Supplier Code of Conduct to continually
assess supply-chain, ethical and legal risk; and not sourcing from suppliers associated with deforestation.
In 2020, globally 73% of the woodfibre supplied to our mills was sourced from certified forests with the rest procured from known
and controlled sources. All our owned and leased plantations in South Africa are FSC-certified. The 100% coverage of the FSC,
PEFC (including SFI®) Chain of Custody systems ascertains that all the woodfibre we purchase and process is traceable to its
origin, and is sourced from legal, controlled, non-controversial sources. In accordance with the FSC Controlled Wood Standard,
as well as PEFC (and SFI® in the United States of America) risk-based due diligence systems.
Sappi has actively participated in the development of Sustainable African Forestry Assurance Scheme (SAFAS), which
was endorsed by PEFC International in 2019. Following a two-stage audit process, Sappi Forests’ plantations expect to be
PEFC-certified by December 2020, thereby supplementing the FSC certification already achieved. Our South African mills will
soon be able to apply for PEFC CoC certification.
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OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT
Prioritising renewable and clean energy
Why it’s material
Prioritising renewable and clean energy is strongly linked to the need to mitigate climate change. To meet the ambitions of the
Paris Agreement, there is growing consensus around the world that CO2 emissions will need to fall to net zero by 2050. In certain
regions where we operate, we are experiencing strong regulatory pressures to decarbonise our operations. Additionally, within our
markets, we want to support our customers as they pursue their own ambitious targets
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
Our strategic fundamentals
3 Evolving technologies
and consumer
preferences
5 Sustainability
expectations
9 Climate change
The global forces shaping
our Thrive25 strategy
• Climate change
continuing to impact
businesses and reshape
societies
Key developments in 2020
Globally, our use of renewable energy
stood at 54.4%, of which 68.3% was
own black liquor. We took extensive
steps to increase this in 2020 by
developing detailed decarbonisation
plans in each region. This was in line
with our commitment, in June 2020,
to set science-based targets through
the Science Based Targets initiative
(SBTi).
Within the context of our 2025
sustainability targets, we have
established a global specific GHG
emissions target of 17% reduction in
combined Scope 1 and 2 emissions
under the UN SDG13: Climate Action.
In support of this, there are regional
targets in each region.
While these are not yet science-based
targets, they will catalyse an ambitious
emissions reduction trajectory. We now
have two years to work with the SBTi
on setting and validating our science-
based targets. This will give us
precision for our longer-term 2030 and
2050 targets, will help our customers
on their sustainability journeys and is
an important milestone of our own.
We established cluster 1.5 – so called
because of the identified global need
to limit global warming to 1.5 oC above
pre-industrial levels. The cluster has
prioritised novel technologies for fuel
switching and deep decarbonisation
in terms of Scope 1 and 2 emissions
across energy, pulping, papermaking
and bleaching.
We also took the decision to move
forward with our fuel rod project:
Some 150 years of intensive coal
mining in South Africa have produced
about a billion tons of discarded
thermal-grade coal fines. Once
discarded, these sulphur-containing
ultra-fines cause health problems.
They can also contribute to several
environmental problems, emitting GHG
Renewable energy (%)
as they decompose. To utilise this
energy source, we constructed a small-
scale plant to manufacture fuel rods
which comprise a mixture of coal slurry,
biomass and Sappi’s lignin-based
binder, which can be used as a coal
replacement, thereby reducing GHG
emissions. Following positive test
results at Tugela Mill, we plan to
construct a plant at the mill. This was
delayed because of Covid-19, but will
be progressed in FY2021.
Similarly, construction of the 25 MW
biomass power plant at Ngodwana
Mill in which we have a 30% stake and
which will use biomass from the
surrounding plantations, was delayed
because of the pandemic, but is now
moving forward.
100
80
60
40
20
0
.
5
1
8
.
0
1
8
.
7
1
8
.
8
7
7
.
7
9
7
.
7
6
4
.
6
2
4
.
3
8
3
.
3
9
3
.
6
9
3
.
4
2
4
.
9
3
4
.
3
4
4
.
2
7
4
.
2
1
4
.
8
3
5
.
7
3
5
.
1
2
5
.
5
3
5
.
4
4
5
Europe
North America
Southern Africa
Global
●
2016
●
2017
●
2018
●
2019
●
2020
81
OUR PERFORMANCE REVIEW
Our key material issues continued
Progressing decarbonisation at Gratkorn Mill
Thrive25
target, SEU aims to deliver a 25% specific GHG reduction by 2025. The complete
Under a regional-specific
modernisation of boiler 11 at Gratkorn Mill plays an important role in achieving this ambition. The investment into state-of-
the-art technology will see a shift from a coal boiler to a multi-fuel boiler in two phases with the goal to finally use only
sustainable and renewable fuels. The rebuild will enable the mill to reduce carbon emissions by 30%. In addition, the chosen
technology for the project will additionally allow us to sharply reduce dust and nitrous oxide (NOx) emissions.
The largest production site within Sappi Europe, Gratkorn Mill manufactures high quality coated woodfree paper for
the global printing and writing market. Ongoing investments have kept the site technologically ahead, with its facilities
housing one of the largest and most advanced coated fine paper production lines in the world.
This further investment proves our steadfast commitment to not only maintaining and improving our production sites but to
progressing our sustainability journey – and that of our customers. The rebuild is expected to be complete in late 2021.
Helping to mitigate climate change
Why it’s material
Concentrations of GHG in the Earth’s atmosphere are at record levels, and emissions that saw a temporary decline due to the
pandemic are heading towards pre-Covid-19 levels, while global temperatures continue to hit new highs. Climate change is
already affecting every country on every continent through changing weather patterns, rising sea levels, and more extreme
weather events. Recent reports of methane leaking from the sea floor in Antarctica and unprecedented wildfires in the Arctic in
2019 and 2020 highlight the seriousness of the situation.
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
Our strategic fundamentals
3 Evolving technologies
and consumer
preferences
5 Sustainability
expectations
9 Climate change
The global forces shaping
our Thrive25 strategy
• Climate change
continuing to impact
businesses and reshape
societies
Key developments in 2020
We are currently developing a climate
change strategy that will be published
in FY2021. In addition, following the
establishment of a working group to
implement the recommendations of
the Task Force on Climate-Related
Financial Disclosure, Sappi is taking a
purposeful phased approach to the
use of climate scenarios in our climate
change-related risk assessment and
strategic planning processes. Currently
we are involved in two projects using
climate scenarios.
The first scenario was modelled at
Saiccor Mill. We retained an
independent consultant who used
publicly available regional models. This
work builds on earlier flood risk
assessment work conducted in 2010
and again in 2017. We used
Representative Concentration
Pathways (RCPs) 2.6, 4.5 and 8.6. For
the middle of the road projection (RCP
6.0) we intend to upgrade the water
model with the work being done by the
Global Change Institute (GCI) at the
University of the Witwatersrand (further
described on this page) when it is
complete. The scenario planning
process used at Saiccor Mill could be
replicated at our other mills in
South Africa.
For our mills in SNA and SEU we will be
using climate data to assess physical
risk consistent with RCP8.5 values. For
our two primary upstream
considerations, water and woodfibre
sources, in both North America and
Europe we will be relying on available
government and academic reports
which generally use a combination of
RCP values.
The second climate scenario project is
with other industry members and the
GCI in South Africa. 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 and 2040 to 2100. Phase 2: 2021
onward: A second iteration of the
variables generated for the one-year
product, refining the indicators and
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.
Our plantations and Saiccor Mill have
been prioritised because South Africa
is already experiencing climate-related
physical and transitional risks whereas
the risk in North America and Europe is
not as profound. The overarching time
horizons for our assessments to
ensure a more consistent approach in
all three regions are short: one to two
years; medium: three to five years
(2025); and long: five to 30 years
(2050), consistent with our five-year
goal setting process as well as our
commitment to the SBTi.
82
OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT
Focusing on water stewardship
Why it’s material
Globally, water withdrawal rates have tripled over the last 50 years, a trend that is expected to continue, doubling by 2050. While
water is a renewable resource, with the expected rate of groundwater withdrawal over the next few decades, we run the risk of
removing more water from our aquifers than can be replenished by nature. In addition, demands and competition for water are
expected to increase even further as the global climate changes, putting more pressure on water supplies.
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
Our strategic fundamentals
5 Sustainability
expectations
9 Climate change
The global forces shaping
our Thrive25 strategy
• Climate change
continuing to impact
businesses and reshape
societies
• Resource scarcity and
growing concern for
natural capital
Key developments in 2020
Water is a significant input for Sappi.
In 2020, globally we extracted
277 million3 of water for all purposes.
The impact of Covid-19 on our specific
water consumption was significant,
with production curtailment and
downtime taking their toll. At half year
(the end of March 2020) consumption
was 33.36 m3/adt (FY2019: 34.17 m3/
adt, while at year end (30 September),
it was 41.51 m3/adt – an increase
of 24.4%, giving a total average of
36.82 m3/adt.
Throughout our operations, we
continue to focus on the responsible
use of water. For example, in addition to
the other environmental benefits, our
Vulindlela expansion project at Saiccor
Mill will result in water consumption
being reduced by around 5% and
water use efficiency increasing by
approximately 17%.
In South Africa, which is classified as
a water-scarce country in terms of the
World Resources Institute criteria,
climate change has meant we are
increasingly focusing on water
availability and cost. As discussed
under Helping to mitigate climate
change on page
engaged a third party service provider
to run water-related scenarios on
Saiccor Mill. We have also established
a water stewardship working group
which is currently assessing the water
risk and mitigation actions related to all
our mills and forestry operations, as
well as to our neighbouring
communities.
82, we have
Specific process water returned to extracted (m3/adt)
40
35
30
25
20
15
10
5
0
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3
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3
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5
9
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4
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4
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3
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3
3
4
3
.
9
1
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8
6
3
.
3
5
4
3
.
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0
2016
2017
2019
2020
●
■
Specific process water extracted (m3/adt)
Ratio of effluent to extracted process water
2018
●
Specific process effluent discharged (m3/adt)
83
OUR PERFORMANCE REVIEW
Our key material issues continued
Accelerating circular business models
Why it’s material
There is a growing recognition among designers, businesses and consumers that we must move away from a linear ‘take, make,
waste’ model of consumption where we extract raw materials, manufacture products and discard them to landfills. The pulp and
paper industry is circular by nature, producing recyclable products made from renewable resources that are manufactured using
a high proportion of renewable energy. We approach the environmental impact of our operations from a holistic perspective
grounded in lifecycle thinking, from procurement of raw materials and energy through manufacturing, use and the next life of
our products. The benefits of this holistic approach include less waste, lower costs and reduced environmental impact.
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
Our strategic fundamentals
5 Sustainability
expectations
9 Climate change
The global forces shaping
our Thrive25 strategy
• The move towards a
circular economy
• Climate change
continuing to impact
businesses and reshape
societies
• Resource scarcity and
growing concern for
natural capital
Key developments in 2020
In keeping with our focus on circular
economy principles, we are working to
increase our use of renewable energy
and eliminate waste through superior
product and process design. As an
example, we increased the percentage
of solid waste beneficiated from
72.08% in 2019 to 75.3%. This meant
that waste sent to landfill decreased
by 7.6% year-on-year – a positive
environmental benefit as landfills
generate methane, a powerful GHG
associated with global warming.
Recognising that our sphere of
influence extends beyond our mill
gates, we work collaboratively across
the supply chain to share best
practices and drive meaningful change.
As examples, we worked with members
of the textile value chain to assess the
use of recovered textiles in pulping and
also continued work as the co-lead of
the committee operating under the
auspices of the Alliance for Pulp and
Paper Technology Innovation (APPTI),
based in North America, to
demonstrate and deploy membrane-
based technology for black liquor.
Other members of the committee
include the Georgia Institute of
Technology (Georgia Tech), members
of the US forest products industry, and
membrane system/process
developers.
84
Beneficial use of solid waste (%)
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6
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5
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6
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7
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0
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8
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5
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5
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8
1
9
3
.
Europe
North America
Southern Africa
Global
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2016
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2017
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2018
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2019
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2020
Sappi North America honoured with the SEAL Business
Sustainability Award
In 2020, Cloquet Mill was named a winner in the 2019 SEAL Business
Sustainability Awards for Environmental Leadership. The award celebrates
companies for their leadership, transparency, and commitment to sustainable
business, and honours specific environmental and sustainability initiatives.
The mill received the award for its land application programme, initiated in 2004
with the Minnesota Department of Agriculture’s ag-lime programme and the
Minnesota Pollution Control Agency as a solution to an impending challenge
with landfill space. Essentially, the programme repurposes boiler ash and lime
mud byproducts into sustainable agricultural fertiliser which is accessible to
the local community at a minimal cost. This reduces the commercial chemical
products needed for high-quality growing conditions in the region.
To date, SNA has provided 200 tons of materials to 300 sites per year, with
some farmers seeing a 30% increase in crop yield.
OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT
Safeguarding and restoring biodiversity
Why it’s material
Science tells us that about 25% of our assessed plant and animal species are threatened by human actions, with a million species
facing extinction, many within decades. In addition, US$44 trillion of economic value generation – over half the world’s total gross
domestic product (GDP) – is moderately or highly dependent on nature and its services and, as a result, exposed to risks from
nature loss. As our primary input, woodfibre is a renewable natural resource, Sappi depends on ecosystem services such as
healthy soils, clean water, pollination and a stable climate.
Accordingly, biodiversity is a key focus area.
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
Our strategic fundamentals
5 Sustainability
expectations
9 Climate change
The global forces shaping
our Thrive25 strategy
• The move towards a
circular economy
• Climate change
continuing to impact
businesses and reshape
societies
• Resource scarcity and
growing concern for
natural capital
Key developments in 2020
We signed up to Business for Nature’s call to action, a global coalition of non-governmental organisations (NGOs) and business
groups. Their campaign, ‘Nature Is Everyone’s Business’, has particular relevance for Sappi, given that our business is dependent
on sustainably sourced woodfibre.
Thrive25
We made progress in terms of our
target by addressing our first biodiversity objective underpinning this task –
understanding what types of vegetation are present on our plantations, as well as their conservation value. This enables
managers to develop appropriate management plans for implementation. It is also important, from a conservation management
perspective, to identify those vegetation types that are least protected, to prioritise efforts to safeguard the vegetation type from
possible extinction.
85
OUR PERFORMANCE REVIEW
Dissolving
pulp
Our renowned dissolving and market pulps
provide a sustainable, versatile approach, to
creating a better tomorrow.
Our dissolving pulp (DP) brand, Verve, creates renewable
alternatives to textiles, pharmaceuticals, foodstuffs, and more.
T
R
O
P
E
R
D
E
T
A
R
G
E
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2
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a
S
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“
Dissolving pulp
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 dissolving pulp.”
Our DP brand Verve is a significant
player within this market. With 17%
share of the DP market and 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 the track record to meet almost
any challenge from these DP market
segments.
In November 2019, Sappi acquired
the 270,000 ton Matane high-yield
hardwood pulp mill in Quebec, Canada.
The acquisition increases our pulp
integration for our packaging
businesses and lowers our costs of
pulp, reduces its volatility of earnings
through the pulp cycle and provides
certainty of supply. External high-yield
pulp sales are included in the DP
segment.
In FY2020, the DP segment made
up 17% of Sappi’s sales. This figure
includes high-yield bleached chemi-
thermo mechanical pulp (BCTMP) from
Matane Mill and paper pulp produced
at both Cloquet and Ngodwana mills to
mitigate the impacts of the downturn in
DP demand during the initial period of
the Covid-19 pandemic.
DP is a highly purified form of cellulose
extracted from sustainably grown and
responsibly managed trees using
unique cellulose chemistry technology.
The majority of DP is consumed to
make textiles, such as viscose and
lyocell, where DP is converted to
88
Sappi 2020 ANNUAL INTEGRATED REPORT Product review
viscose and lyocell staple fibres. From
there, the fibre is spun into yarns and
ultimately textiles, providing naturally
soft and breathable fabrics which are
smooth to the touch, hold colour and
drape well. The fibres produced from
DP also act as good blend partners
in fabric with cotton and polyester.
Cellulosic fibre, however, far exceeds
cotton and polyester when it comes to
sustainability. What consumers want
are goods that are renewable,
biodegradable and have superior
resource efficiency. This is where
cellulosic fibres differentiate
themselves versus the alternatives.
Viscose staple fibre (VSF) is the
most prominent of the manmade
cellulosic fibres, and accounts for
approximately 70% of global DP
demand. VSF is most commonly
used in fashion, home and
decorating textiles as well as non-
woven applications such as the fibre
component in face masks, health and
hygiene clothing and sanitation. Verve
DP provides both the quality and the
sustainability assurance into this major
market segment.
Lyocell represents the next generation
of fibres. With its sustainable raw
material, reduced chemical processing
and closed loop systems, Lyocell
continues to be the most sustainable
wood-based cellulosic fibre. Our
commitment to and investment in
sustainability shows in that almost
two-thirds of the world’s Lyocell DP is
produced at a Sappi mill.
DP can also be processed into
products that are used in food and
beverages, health and hygiene,
wrapping and packaging,
pharmaceuticals and many more
applications that touch our daily lives.
Demand for DP used in textiles,
particularly viscose and lyocell fibres, is
expected to continue to grow post the
Covid-19 pandemic. 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
to be between 4-6% per annum for DP.
Market prices for DP are influenced by
VSF and other textile market dynamics,
paper pulp market pricing which
influences swing mills, as well as
general macro-economic uncertainties
pertaining to the ongoing US/China
trade dispute and US$/RMB exchange
rates fluctuations.
The pulp produced at Matane Mill is
a high-quality, high-yield BCTMP made
from either Aspen or Maple hardwood.
Sappi Matane Aspen pulp is a
high-yield fibre with good bulk,
excellent brightness and exceptional
drainage. It is ideal for the
manufacturing of tissue grades as well
as printing and writing paper grades.
Sappi Matane Maple is a high-yield
pulp with superior bulk and drainage
properties, as well as excellent opacity
and formation. It is an excellent fibre for
the manufacturing of paperboard and
linerboard products as well as
speciality papers, tissue and towelling.
Our markets in 2020 and
outlook for 2021
During 2019 a substantial increase
in integrated VSF and DP capacity
disrupted market dynamics; installed
VSF capacity now exceeds global
demand by approximately 25%.
This surplus of new low-cost VSF
capacity as well as the Covid-19
pandemic has disrupted the market,
lowering operating rates, and resulting
in DP prices reaching historical lows
during August 2020 of US$607/ton.
Market conditions and pricing for DP
improved during the latter part of
the fourth fiscal quarter of 2020.
Underlying demand for DP is still
growing at a rate of approximately 5%.
At the end of November 2020, the
Chinese market price had risen to
US$710/ton, driven by an acceleration
in DP demand, tighter market balance
and higher VSF prices.
The economic impact of Covid-19
during FY2020 has been dramatic,
resulting in EBITDA for the year being
substantially lower than the prior year.
EBITDA margins for this segment
declined from approximately 28% to 8%
as a result of the lower US$ prices and
DP sales volumes, slightly offset by
a weaker ZAR/US Dollar exchange rate,
which benefits our South African
operations.
Segment volumes increased 2%, or
31,000 tons compared to last year as a
result of the inclusion of approximately
255,000 tons of BCTMP and market
paper pulp in the segmental volumes.
Construction work at our 110,000 ton
expansion project at Saiccor was
temporarily halted from end March to
early June due to Covid-19 lockdown
restrictions. Construction resumed
in June and the project is now
expected to be completed in Q3
FY2021. The project is additionally
expected to yield long-term safety,
efficiency and reliability improvements.
This investment is a key part of our
strategic vision as we expand into
fast-growing, higher-margin segments.
Since November 2019, Matane Mill
volumes have been fully sold out with
strong Asian demand offsetting any
weakness we have experienced in
other markets. Our focus remains on
meeting our own growing need for
high-quality, high-yield pulp for our
packaging and speciality businesses in
Europe and North America, as well as
external sales to third parties.
In a year characterised by macro-
economic uncertainty, disruptive
market dynamics and the economic
impact of Covid-19, we aim to remain
focused on meeting and exceeding
the needs of our customers. We will
continue to capitalise on our
competitive advantages: our world-
class and sustainably managed
plantations, our geographic positioning
and our sterling reputation as a reliable
partner, to bring our customers
sustainable products that create
shared value for everyone.
89
OUR PERFORMANCE REVIEW
90
OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT Packaging and
speciality papers
We are your value-creating partner,
offering an extensive range of innovative
products and services.
Use stunning, sustainable alternatives to plastic to help
your product stand out on the shelf.
91
Packaging
and speciality
papers
“
With our broad and
innovative portfolio
of premium products,
we have the right
solutions to meet our
customers’ needs.”
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.
Both legislative changes and consumer
pressure are forcing companies to
re-think their packaging choices.
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 reflective
of a more circular economy. The
increasing need for more sustainable
and environmentally friendly packaging
solutions, we estimate will lead to
demand growth of 3-6% per year
globally, across the spectrum of our
products.
The evolution of our focus from
graphics toward packaging and
specialities is derived from the
suitability of many of our graphic paper
machines for conversion to packaging
grades that require a variety of surface
treatments or coatings for functionality.
Ahead of commissioning the various
conversion projects, we carefully
analysed our assets, specifically
their production capabilities for
specialities and packaging 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. We have made progress in
growing our business with a compelling
value proposition, a propensity for
innovation, and a superlative service
record. We aim to create solutions that
92
Sappi 2020 ANNUAL INTEGRATED REPORT Product review continued
solve our customers most critical
challenges, helping them grow their
sales, lower costs, improve their
sustainability metrics, and minimise
their risk.
We work in partnerships based on trust
and respect. For that reason, we place
great value on reliability. Our excellent
logistics network, financial stability,
global availability and consistent
premium quality are vital to our
customers.
In FY2020, 27% of Sappi’s sales were
packaging and specialities, up from
22% last year.
Sappi offers products and solutions in
many different segments including:
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.
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.
Digital imaging papers: for large
format inkjet printing. Posters, for
indoor/outdoor applications,
and technical printing in the
construction industry (CAD/
Engineering).
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.
Flexible packaging: can be coated or
uncoated, for food and non-food
applications, such as sachets, pouches
and wrappers.
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.
Label papers: for pressure sensitive
applications as well as for wet glue and
wet strength labels.
Paperboard: solid bleached board and
folding boxboard for luxury packaging
applications that require functionality
and superior graphics across a range
of market segments including
cosmetic, perfume, confectionery and
premium beverages.
Release liner: with silicone 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.
Tissue paper: used for toilet tissue,
kitchen towels, serviettes and medical
and industrial wipes.
We manufacture from a suite of
machines within 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,
supplying 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 paperboard for folding
cartons. Examples include perfume
boxes, packaging for items like toys,
small electronics, health and beauty
products and other fast-moving
consumer goods. The focus of our
European operations in this segment
is much more diverse, and niche.
Our portfolio has higher levels of
specialisation and customisation than
most other speciality paper producers.
We are capable of engineering specific
products for specific customers,
particularly those who want more than
just a package. We are capable of
coating paper to give the paper
functionality that was previously
unavailable; such as moisture controls,
oxygen barriers, grease resistant
barriers, vapour barriers, etc.
Globally we are well positioned to
support and benefit from the paper
for plastic packaging movement.
For example, in 2019, the European
Union introduced new rules to reduce
marine litter by banning certain
single-use plastic items, like cutlery,
straws, and drink stirrers, alongside a
measure which holds those plastic
producers responsible for the cost of
cleaning these items from European
beaches. The industry will also be
given incentives to develop less-
polluting alternatives for these
products. So, with this comprehensive
product range on three continents,
R&D centres in each region sharing
best practices and new findings from
new customers, our customers can
expect reliability of supply from a broad
geographic footprint, and a leader in
innovation within the sector.
Our markets in 2020 and
outlook for 2021
The highlight of the year for this
business segment was good growth in
sales and profitability despite the many
challenges posed by lockdowns in
various industries across the globe.
Volumes were 7% higher than last year
as continued customer trials and
qualifications turned into customer
wins and subsequent volume
commitments. Net sales were flat year
on year. Good cost control resulted in
EBITDA margins improving from 10.1%
last year to 14.1% in fiscal 2020. While
our realised price per ton decreased by
approximately 7% through the year, our
average cost per ton decreased over
11% from last year. The acquisition
and integration of the Matane Mill,
the delayed maintenance shut at
Ngodwana as well as generally lower
input costs all contributed to the
improved performance.
This business segment has proven
to be resilient in difficult economic
circumstances and supports our
strategy to diversify the product
portfolio into higher margin and
growing segments. We believe we will
achieve additional volume growth in
2021, aided by the shift from plastics
to paper in various packaging and
specialities categories. We expect
continued success from our
conversion projects which were
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.
93
OUR PERFORMANCE REVIEW Graphic
papers
Our wide range of versatile surfaces and
superior papers make any project outstanding
Create impactful brand experiences with our brilliant, high-performing
range of graphic papers.
T
R
O
P
E
R
D
E
T
A
R
G
E
T
N
I
L
A
U
N
N
A
0
2
0
2
i
p
p
a
S
94
95
Graphic papers
When companies build brands, picking the
right paper can mean the difference between
creating something average and something
memorable.”
“
At Sappi, we understand this difference and use our expertise to develop a variety
of graphic papers designed to meet specific needs, whether a high-end product
with the extra wow factor, a comprehensive solution that caters to numerous
requirements or a paper that is more budget friendly. We at Sappi deliver so that
brands can have a more memorable impact.
Our markets in 2020 and outlook for 2021
Global demand for graphic papers has generally been in secular decline. The
outbreak of Covid-19 during the year led to a significant decline in graphic paper
usage across the globe in line with the slowdown in economic activity. Our graphics
business volumes have consequently declined, and part of our strategy is to
rationalise this business over time in line with the market. In 2017 and 2018, we
converted various paper machines within our portfolio from graphic paper to
packaging and specialities grades, where demand is growing world-wide. For Sappi,
this means maximising its significant cash flow generation, continuously improving
our cost position, and optimising the utilisation of our best-in-class production
assets.
96
In our fiscal 2020, global industry
statistics show significant volume
declines when compared to the prior
year of between 20-22% for both
coated woodfree and coated
mechanical papers largely as a result
of the severe impact of the Covid-19
pandemic, related lockdowns and the
economic aftereffect on the industry.
Our volumes from the segment were
approximately 20% lower this year
relative to last. Average prices realised
were 6% down relative to 2019 as
selling prices moved in line with lower
input costs. Significant curtailment was
taken during the year to match supply
to demand and prevent the build-up of
inventory. Our EBITDA margin declined
Sappi 2020 ANNUAL INTEGRATED REPORT Product review continued
relative to last year, from 7.4% to 5.1%,
due to the significant decline in
volumes and lower selling prices,
partially offset by lower variable costs.
The poor demand, which we believe is
unlikely to return to pre-Covid-19
levels, accelerated our decision to
close a paper machine at each of
Stockstadt and Westbrook Mills during
the year. This action, along with
closures by other industry participants
should result in industry operating
rates returning to more profitable levels
in the coming year. From a low point in
June, we have experienced a gradual
improvement in sales each month.
In 2021, we expect to sell marginally
higher volumes of graphic paper as
demand continues to improve, and
a series of paper machine and mill
closures or conversions in the industry
recently completed or imminent should
improve operating rates in the coming
year. We expect pricing to move in line
with variable cost movements and
margins to be marginally higher than
the prior year. Due to the improved
supply/demand balance in coated
graphics paper in North America, a
price increase on our North American-
produced web brands has been
announced effective in January 2021,
matching similar announcements by
competitors.
In FY2020, 56% of Sappi’s sales were
from the graphics segment. The four
major grades of graphic paper are
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 provides
smooth and uniform surface for
optimal print fidelity. We manufacture
coated woodfree paper in our North
American and European businesses
but sell to customers all over the world.
In FY2020, 41% of Sappi’s sales were
in this segment, sold through large
paper merchants, as well as directly to
commercial printers.
Demand trends: Global advertising
expenditure is forecast to grow, but the
share of that spend relative to print 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
approximately 21 million tons in 2019
to approximately 16 million tons
by 2024.
Sales: Sappi’s sales volumes for
coated woodfree paper declined
16% from last year and net sales was
21% lower, largely due to a decline
in demand, amplified by the Covid-19
pandemic and the economic
aftereffect of related lockdowns.
Globally, demand for coated woodfree
paper declined by approximately 20%
with Sappi gaining market share.
Coated mechanical paper
Share of sales: 8%
Coated mechanical paper is primarily
used in magazines, catalogues,
newspaper inserts and other
advertising materials. In FY2020,
8% of Sappi’s sales constituted coated
mechanical paper, all coming from our
European business. Customers for this
paper are typically large web printers,
publishing houses.
Demand trends: Demand for coated
mechanical paper is more closely
linked to that of demand for magazines.
Readership, subscriptions, circulation,
pagination and advertising revenue per
page continue to decrease in larger
markets as consumers opt for
digital formats.
Sales: Sappi’s net sales from coated
mechanical paper was 35% lower than
last year, as we took market related
downtime in response to poor demand.
Volumes were approximately 33% lower
than the prior period. This year, the
global market contracted by
approximately 22%.
Uncoated woodfree paper
Share of sales: 6%
Uncoated woodfree paper is used
for letterheads, business stationery,
photocopy paper, books, brochures,
envelopes, pamphlets and magazines.
Sappi manufactures and sells
uncoated woodfree paper in our
European and South African
businesses. In FY2020, 6% of Sappi’s
sales were uncoated woodfree paper.
Our main customers in this sector are
paper merchants and commercial
printers.
Demand trends: Demand for uncoated
woodfree paper is expected to post
modest declines in demand of about
1% over the next several years. Like
most graphic papers, demand
continues to decline in most markets,
with limited growth coming from
emerging markets.
Sales: Our net sales from uncoated
woodfree paper was 12% lower than
last year, largely as a result of the
impact of the Covid-19 crisis. Globally,
demand declined by approximately
12% in the current financial year.
Newsprint
Share of sales: 1%
Newsprint, 1% of Sappi’s sales, is
manufactured from mechanical and
bleached chemical pulp, with uses
including the manufacture of
newspapers and advertising inserts.
We manufacture and sell newsprint
from our South African business.
Demand trends: Demand for
newsprint principally is derived from
newspaper circulation and overall retail
advertising. Newspaper readership is
declining around the world. This
industry segment was hard hit by the
Covid-19 pandemic with an estimated
drop in demand of approximately
20% during the year and an estimated
decline of 5% annually through to
2025. Publishers are consolidating,
while some titles have closed. Pockets
of growth exist in advertising-financed
daily newspapers typically found in
large metropolitan cities.
Sales: Due to the weaker domestic
economy, production curtailment
was taken on the newsprint machine
resulting in our volumes being
approximately 37% behind last year.
Net sales declined by 42% relative to
last year. Globally, newsprint demand
declined 20% versus 2019.
97
OUR PERFORMANCE REVIEW Chief Financial Officer’s report
Section 1
Financial highlights
US$ million
Sales
EBITDA excluding special
items
Operating profit excluding
special items
Profit/(loss) for the year
EBITDA excluding special
items to sales %
Operating profit excluding
special items to sales %
Operating profit excluding
special items to capital
employed (ROCE) %
Net cash (utilised) generated
Net debt
Basic earnings per share
(US cents)
2020
4,609
378
57
(135)
8.2%
1.2%
1.6%
(257)
1,957
(25)
2019
% change
5,746
687
402
211
12.0%
7.0%
11.5%
1
1,501
39
(20)
(45)
(86)
n/a
n/a
n/a
n/a
n/a
30
n/a
The sudden drop in demand in the capital-intensive Sappi environment focused
the attention to managing liquidity and cash fixed costs. Cooperation from
financiers of the business who understood the short-term challenges, became
paramount. The effects of the pandemic forced Sappi to realign its attention and
engage with lenders on the consequences of the new environment. During the
early stages of the pandemic we negotiated a suspension of our covenants for a
year – the agreement was subsequently extended by a further six months to
September 2021. Fixed costs were critically reviewed and where possible
maintenance shuts or high value interventions were curbed or delayed. Financing
and the access to liquidity became the overriding theme as levels of debt
securitisation funding dropped in line with the reduction in turnover. We offset the
reduction with bridging facilities, private placements of long-term bonds and an
increase in our South African revolving credit facilities (RCF). The initiatives
provided the necessary breathing space to get through the lowermost demand
levels during the May and June months. The ensuing progressive recovery
alleviated the liquidity pressure as the business focus turned to volume recovery.
The fiscal year ended with cash reserves of US$279 million and US$582 million
available from committed RCFs. Net working capital as a percentage of sales was
10%, down from the June high of 17%.
Weak markets in our dominant segments constricted EBITDA margin by 4%
points to 8%. Graphics and dissolving pulp (DP) volumes (excluding Matane Mill
volumes) reduced by 20% and were partially offset by 7% growth in the packaging
segment. The earlier investments to support the strategic direction of increasing
capacity in packaging and speciality papers reduced the impact of the crisis and
vindicated our decision to expand in these markets. It should be noted that DP
volumes had recovered to available capacity by the end of the fourth quarter.
The crisis accelerated plans to close or restructure parts of the business with
announcements at our Westbrook and Stockstadt Mills resulting in restructuring
and closure charges of US$34 million.
GT Pearce
Chief Financial Officer (CFO)
“Fixed costs
were critically
reviewed and
where possible
maintenance
shuts or high
value
interventions
were curbed or
delayed.”
98
OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT Section 1 continued
Financial highlights continued
Net finance costs increased in line with expectations by 4% to US$88 million.
The US$9 million tax charge includes a net impairment of the deferred tax asset
of US$34 million as well as unutilised tax losses in Europe. Loss for the year was
US$135 million (LY profit = US$211 million) and earnings per share excluding
special items reduced from US44 cents to a loss of US5 cents. The directors have
considered it prudent to temporarily halt dividends until such time as market
conditions improve.
Cash utilised for the year of US$257 million includes the acquisition of the Matane
Mill for US$160 million, tax payments of US$26 million and capital expenditure of
US$351 million.
Segment reporting
Our reporting is based on the geographical location of our businesses, i.e. Europe,
North America and South Africa.
The selected product line information is reviewed by our Executive Committee in
addition to the geographical basis upon which the group is managed. This additional
information is presented in this report to assist our stakeholders in obtaining a
complete understanding of our business.
Exchange rates and their impact on the group’s results
The group reports its results in US Dollar and, as such, the main foreign exchange
rates used in the preparation of the financial statements were:
Income statement
average rates
Balance sheet
closing rates
2020
2019
2020
2019
EUR1 = US$
US$1 = ZAR
1.1195
16.2265
1.1282
14.3464
1.1632
17.1311
1.0939
15.1563
Two of our three geographic business units (Europe and South Africa) have home or
‘functional’ currencies of Euro and ZAR respectively. The results and cash flows of
these two non-US Dollar units are translated into US Dollar at the average exchange
rate for the reporting period to arrive at the consolidated US Dollar results and cash
flows. When exchange rates differ from one period to the next, the impact of
translation from the functional currency to reporting currency can be significant.
99
OUR PERFORMANCE REVIEW Chief Financial Officer’s report continued
Section 2
Financial performance
Income statement
Our group financial results can be summarised as follows:
The discussion in this section focuses
on the group financial performance
in 2020 compared with 2019.
A detailed discussion, in local
currencies, of each of our three
operating regions follows in section 3.
(Metric tons ’000)
Sales volume
US$ million
Sales revenue
Variable manufacturing and
delivery costs
Fixed costs
Sundry items(1)
Operating profit excluding
special items
Special items
Operating profit
Net finance costs
Taxation
Net profit
EPS excluding special items
(US cents)
2020
6,788
4,609
(2,838)
(1,673)
(41)
57
(95)
(38)
(88)
(9)
(135)
(5)
2019
% change
7,622
5,746
(3,530)
(1,771)
(43)
402
(19)
383
(85)
(87)
211
44
(11)
(20)
(20)
(6)
(5)
(86)
–
(110)
4
(90)
(164)
(111)
(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 2020, sales volume decreased by 834,000 tons compared with 2019. The
regional and product segment contributions to sales volume are shown below:
Sales volume (metric tons ‘000)
North America
Europe
South Africa
Group
Dissolving pulp
Packaging and specialities
Graphics
Forestry
2020
1,516
2,698
2,574
6,788
1,315
1,209
3,096
1,168
2019
% change
1,379
3,241
3,002
7,622
1,284
1,129
3,846
1,363
10
(17)
(14)
(11)
2
7
(20)
(14)
In North America, increases in the packaging and speciality paper and the
acquisition of Matane Mill more than offset the reduced DP sales volumes and
reduced graphics volumes due to the impact of Covid-19 on market demand.
European volumes decreased by 17% with lower demand in the mechanical coated
and coated woodfree markets. The packaging and speciality product segments
were in line with previous years’ volumes.
Volumes in South Africa decreased by 14% mainly in DP and graphics segments
due to the effect of the pandemic. A shift in seasonal changes caused packaging
volumes to be marginally down on the previous year.
Capacity utilisation reduced to an average of 78% for the group as weak DP and
graphic markets forced us to take 1.1 million tons of production downtime during
the year.
100
OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT Sales volume to capacity
North America
Europe
South Africa
Group
Sales revenue
Section 2 continued
Financial performance continued
2020
%
85
73
81
78
2019
%
82
88
94
88
Sales revenue decreased by 20% from US$5.8 billion in 2019 to US$4.6 billion
in 2020. Selling price and mix changes resulted in sales revenue declining by
US$846 million. Consolidated volumes were down on last year as discussed on the
previous page resulting in sales revenue declining by US$224 million. The stronger
US Dollar resulted in a negative US$67 million conversion impact.
Variable and delivery costs
Variable and delivery costs decreased by US$692 million from 2019. This is in line
with sales volume reductions.
The net pulp purchases and sales of the Sappi group is detailed in the graph below.
Group pulp balance (US$ million)
1
7
1
4
1
5
Net pulp sales
6
8
2
600
400
200
0
(200)
(400)
(600)
)
9
9
3
(
Europe
North America
South Africa
Sappi group
●
Net sales
●
Net purchases
The table below reflects the breakdown of variable and delivery costs by type.
Variable manufacturing and
delivery costs (US$ million)
2020
2019
% change
Wood
Energy
Chemicals
Pulp and other
Delivery
Group
561
352
679
851
395
2,838
624
417
811
1,243
435
3,530
(10)
(16)
(16)
(32)
(9)
(20)
101
OUR PERFORMANCE REVIEW Chief Financial Officer’s report continued
Section 2 continued
Financial performance continued
Fixed costs
Fixed costs decreased by US$98 million from fiscal 2019. This decrease was mainly
due to lower personnel cost (US$56 million) and maintenance cost (US$18 million)
offset by a higher depreciation charge (US$35 million) as a result of the increased
capital spend and the acquisition of Matane. The weaker ZAR and EUR resulted in
a decrease in US Dollar costs (US$44 million). Excluding the currency impact fixed
costs decreased by US$54 million.
Details of the make-up of fixed costs are provided in the table below.
Fixed costs (US$ million)
2020
2019
% change
Personnel
Maintenance
Depreciation
Other
Group
959
217
313
184
1,673
1,014
234
277
246
1,771
(6)
(8)
13
(24)
(6)
EBITDA and operating profit excluding special items
EBITDA excluding special items decreased to US$378 million, 45% lower than the
previous year. Operating profit excluding special items declined from US$402 million
last year to US$57 million in 2020.
The EBITDA bridge reflected in the graph below shows the impact on profitability
from lower sales volumes and selling prices offset by reduced variable and fixed
costs.
Reconciliation of EBITDA excluding special items: 2020 compared to 2019(1)
700
600
500
400
300
200
100
0
(100)
(200)
(300)
(400)
(500)
Sales revenue
Variable and
delivery costs
Fixed costs
7
8
6
)
4
2
2
(
)
6
4
8
(
9
1
0
2
Y
F
A
D
T
B
E
I
l
s
e
a
S
e
m
u
o
v
l
i
x
m
d
n
a
e
c
i
r
P
8
2
6
4
6
)
7
6
(
y
c
n
e
r
r
u
C
)
(
i
2
n
o
s
r
e
v
n
o
c
l
d
n
a
e
b
a
i
r
a
V
s
t
s
o
c
y
r
e
v
i
l
e
d
y
c
n
e
r
r
u
C
)
(
i
2
n
o
s
r
e
v
n
o
c
4
5
s
t
s
o
c
d
e
x
F
i
4
4
0
4
8
7
3
r
e
h
t
O
0
2
0
2
Y
F
A
D
T
B
E
I
e
t
a
r
e
g
n
a
h
c
x
E
(1)
(2)
All variances were calculated excluding Sappi Forestry.
‘Currency conversion’ reflects translation and transactional effect on consolidation.
102
OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT
The tables below detail the EBITDA and operating profit excluding special items of
the business for both 2020 and 2019 and the margins of each.
Section 2 continued
Financial performance continued
EBITDA excluding special items by region
(US$ million)
2020
2019
North America
Europe
South Africa
Corporate and other
Group
EBITDA margin by region (%)
79
143
151
5
378
110
232
339
6
687
30
25
20
15
10
5
0
.
8
3
2
.
4
5
1
.
0
2
1
2
8
.
5
7
.
7
5
.
0
8
.
2
6
.
North America
Europe
South Africa
Sappi group
●
2019
●
2020
EBITDA excluding special items by
product category
(US$ million)
Dissolving pulp
Packaging and specialities
Graphics
Other
Group
2020
2019
63
179
131
5
378
304
126
251
6
687
103
OUR PERFORMANCE REVIEW Chief Financial Officer’s report continued
Section 2 continued
Financial performance continued
Operating profit excluding special items
by region
(US$ million)
North America
Europe
South Africa
Corporate and other
Group
Operating profit margin by region (%)
20
15
10
5
0
(5)
8
1
.
6
3
.
4
0
.
)
0
2
(
.
2020
2019
(27)
8
75
1
57
27
104
267
4
402
.
8
8
1
7
7
.
0
7
.
2
1
.
North America
Europe
South Africa
Sappi group
●
2019
●
2020
Operating profit excluding special items by
product category
(US$ million)
Dissolving pulp
Packaging and specialities
Graphics
Other
Group
2020
2019
(2)
88
(30)
1
57
245
52
101
4
402
The chart below illustrate that 65% of the group’s EBITDA originates from growing
markets in the DP and packaging and speciality segments. The graphics segment,
which contributes 35% of the EBITDA remains an important strategic component of
our business.
EBITDA excluding special items by
product 2020: US$379 million
5
63
131
179
●
●
Dissolving pulp
Graphics
●
●
Packaging and specialities
Unallocated and eliminations
For information regarding the financial performance of the regions, please refer to
section 3 of this report.
104
OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT Key operating targets
Our financial targets and performance against the key operating targets are dealt
with in the Letter to Shareholders section.
Section 2 continued
Financial performance continued
Special items
Special items consist of those items that management believe are material, by
nature or amount, to the results for the year and require separate disclosure.
A breakdown of special items for 2020 and 2019 is reflected in the table below:
Special items – gain/(loss)
(US$ million)
Plantation price fair value adjustment
Acquisition costs
Net restructuring provisions
Profit (loss) on disposal and written off assets
Net asset (impairment) reversals
Equity accounted investees impairments
Fire, flood, storm and other events
Total
2020
2019
20
(6)
(34)
1
(15)
(19)
(42)
(95)
19
(2)
–
(11)
(10)
–
(15)
(19)
The net impact of special items in 2020 was US$95 million. The major components
are described below:
• A positive non-cash US$20 million plantation price fair value adjustment was
recognised following increases to the market price of timber
• Matane acquisition costs amounted to US$6 million
• The announced closure of Stockstadt’s PM2 resulted in restructuring charges of
US$18 million and asset impairment charges of US$11 million and the closure of
Westbrook’s PM9 and energy complex resulted in restructuring charges of
US$12 million and asset impairment charges of US$4 million
• The group’s Lignotech equity investment was fully impaired by US$10 million and
its’ equity accounted forestry investment was impaired by US$9 million
• Fire, flood, storm and other events includes turbine damage at the Stockstadt and
Alfeld Mills of US$18 million, fire damaged timber of US$11 million in South Africa,
general closure costs at Stockstadt Mill of US$4 million, business interruption
costs of US$3 million at Kirkniemi Mill, a settlement accrual of US$2 million and
US$2 million of bond issuance costs
Net finance costs
(US$ million)
2020
2019
Finance costs
Finance income
Net foreign exchange gains
Total
93
(5)
–
88
98
(9)
(4)
85
Finance costs of US$88 million were higher than the prior due to higher net debt
following the Matane Mill acquisition and cash utilisation throughout the year due
to the impact from Covid-19 on sales volumes and lower average DP prices.
105
OUR PERFORMANCE REVIEW Chief Financial Officer’s report continued
Section 2 continued
Financial performance continued
Taxation
A regional breakdown of the tax charge is provided below.
(US$ million)
Europe
North America
South Africa
Total
Profit (loss)
before tax
Tax (charge)
relief
Effective tax
rate %
(103)
(75)
52
126
9
(18)
–
(9)
(9)
24
1
7
In Europe, the total tax relief mainly relates to the reassessment and consequent
increase in the deferred tax asset and settlements in tax audits at Austrian
subsidiaries. This was partially offset by a derecognition of the deferred tax asset
in Belgium.
In North America, the company derecognised the deferred tax asset for its
US operations after reassessing the recoverability of accumulated losses over the
next five years.
The South African tax charge on annual taxable profits is offset by a positive impact
from the settlement of a tax audit.
Net profit, earnings per share and dividends
After taking into account net finance costs and taxation, our net profit and earnings
per share for 2020, with comparatives for 2019, were as follows:
(US$ million)
Operating profit
Net finance costs
Profit (loss) before taxation
Taxation
Profit (loss) for the period
Weighted average number of shares in issue
(millions)
Basic earnings per share (US cents)
2020
(38)
88
(126)
9
(135)
545.5
(25)
2019
383
85
298
87
211
542.0
39
The directors have elected not to declare a dividend and temporarily halt dividends
until such time as market conditions improve.
106
OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT 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
Dissolving pulp
Packaging and specialities
Graphics
Sales
Variable manufacturing and
delivery costs
Contribution
Fixed costs
Sundry costs and
consolidation entries
Operating profit excluding
special items
EBITDA excluding special items
US$ million
2020
US$ million
2019 % change
1,385
1,466
(968)
417
(508)
64
(27)
79
(924)
542
(501)
(14)
27
110
(6)
5
(23)
1
(557)
(200)
(28)
2020
1,516
453
330
733
US$
per ton
2020
914
(639)
275
(335)
42
(18)
52
2019 % change
10
59
74
(19)
1,379
285
190
904
US$
per ton
2019 % change
1,063
(670)
393
(363)
(10)
20
80
(14)
(5)
(30)
(8)
(520)
(190)
(35)
EBITDA of US$79 million was 28% lower than the previous year while EBITDA margin declined from 8% to 6%. The lower
profitability was due mainly to the lower DP prices and the impact of Covid-19 on graphics and DP demand. Higher packaging
and specialties sales due to the continued ramp-up of the paperboard business and the strong demand for C1S packaging
during the pandemic offset some of the sales miss in DP and graphics. As a result of the weak graphics market, the region took
187,000 tons of production downtime to balance supply with balance and to lower fixed costs. During the year, the acquisition of
the Matane Mill was completed and the integration of the mill proceeded as planned. Volume for 2020 include 208,000 tons of
pulp sales from the Matane Mill. Excluding this volume, sales tons were down 5% versus the previous year.
Europe
(Metric tons ’000)
Sales volume
Packaging and specialities
Graphics
Sales
Variable manufacturing and
delivery costs
Contribution
Fixed costs
Sundry costs and
consolidation entries
Operating profit excluding
special items
EBITDA excluding special items
2020
2,698
478
2,220
2019 % change
3,241
477
2,764
(17)
0
(20)
€ million
2020
€ million
2019 % change
€ per ton
2020
€ per ton
2019 % change
2,067
2,587
(1,268)
(1,707)
799
(722)
(70)
7
128
880
(762)
(25)
93
206
(20)
(26)
(9)
(5)
180
(92)
(38)
766
(470)
296
(268)
(25)
3
47
798
(527)
271
(235)
(7)
29
64
(4)
(11)
9
14
257
(90)
(27)
Market conditions for graphic paper in Europe were challenging as demand shrunk by 20%. The European operations were able
to reduce the impact of the demand reduction by increasing market share but were nevertheless forced to take 727,000 tons of
production downtime during the year. Selling prices were resilient in the face of the declining demand as the region managed the
effects of the lower demand. Packaging and speciality volumes were in line with the previous year as growth in the food
packaging sectors was offset by reductions in the luxury goods markets.
107
OUR PERFORMANCE REVIEW Chief Financial Officer’s report continued
Variable costs per ton reduced by 11% relative to last year due mainly to lower purchased pulp prices. Sundry costs include the
closure of the PM2 machine at Stockstadt Mill. The reduction in fixed costs by €40 million lessened the impact of the 9%
reduction in contribution. EBITDA margins reduced from 8% to 3% as a consequence.
South Africa
(Metric tons ’000)
Sales volume*
Dissolving pulp
Packaging and specialities
Graphics
Sales*
Variable manufacturing and
delivery costs
Contribution
Fixed costs
Sundry costs and
consolidation entries
Operating profit excluding
special items
EBITDA excluding special items
* Excludes Forestry.
ZAR million
2020
ZAR million
2019 % change
14,928
19,253
(9,460)
5,468
(5,809)
1,558
1,217
2,450
(11,764)
7,489
(5,896)
2,239
3,832
4,864
(22)
(20)
(27)
(1)
(30)
(68)
(50)
2020
1,406
861
399
146
ZAR
per ton
2020
10,617
(6,728)
3,889
(4,132)
1,109
866
1,743
2019 % change
(14)
(14)
(9)
(28)
1,639
999
438
202
ZAR
per ton
2019 % change
11,747
(7,178)
4,569
(3,597)
1,366
2,338
2,968
(10)
(6)
(15)
15
(19)
(63)
(41)
Net selling prices of DP reduced to historic lows in US Dollar terms, the full impact diluted by a weaker exchange rate. Volumes
during the height of the pandemic reduced to over 50% for a short period, only to recover to available capacity by the end to the
fiscal. A decision to stop production on the calcium line at Saiccor Mill resulted in the closure of Lignotech, our joint venture with
Borregaard. The recovery of demand during Q4 to pre-pandemic levels resulted in constrained capacity as we were unable to
return the calcium line to full capacity following the Lignotech closure. Full capacity will be restored following the completion of
the Saiccor Mill expansion project in Q4 2021. Variable costs per ton reduced by 6% mainly due to lower purchased pulp costs
and chemicals. Fixed costs were well controlled despite wage inflationary increases of approximately 7%. The net result of the
above is a decrease in EBITDA to ZAR2,450 million with annual operating profit of ZAR1,217 million.
The region’s capital expenditure focused on increasing DP capacity during the year.
Major sensitivities
Some of the more important factors which impact the group’s EBITDA excluding special items, based on current anticipated
revenue and cost levels, are summarised in the table below:
Sensitivities
Net selling prices
Dissolving pulp prices
Variable costs
Sales volume
Fixed costs
Paper pulp price
Oil price
ZAR/US$ (Weakening)
Euro/US$ (Weakening)
Change
1%
US$10
1%
1%
1%
US$10
US$1
10 cents
10 cents
Europe
€ million
North
America
US$ million
Southern
Africa
ZAR million
Translation
Impact*
US$ million
Group
US$ million
22
–
12
8
6
5
2
–
(2)
16
2
8
6
5
1
0
–
(4)
184
158
103
68
54
7
3
54
–
–
–
–
–
–
–
–
(1)
(15)
51
11
27
19
15
6
3
2
(21)
* 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.
108
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.
OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT In the table below, we present the group’s cash flow statement for 2020 and 2019 in
a summarised format:
Section 4
Cash flow
(US$ million)
2020
2019
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
Other
Net cash generated (utilised)
57
321
378
(40)
(15)
323
65
(102)
(26)
–
(351)
1
(160)
(7)
(257)
402
285
687
(41)
27
673
(15)
(42)
(51)
(92)
(471)
3
–
(4)
1
Net cash utilised for the financial year was US$257 million (FY2019: US$1 million
generated). The deterioration in cash generation was largely due to the impact
Covid-19 had on sales volumes, lower average DP prices, the acquisition of the
Matane Pulp Mill and an increase in finance costs. Reduced capital expenditure and
a reduction in working capital offset these impacts.
Investment in fixed assets versus depreciation (US$ million)
600
500
400
300
200
100
0
1
4
5
1
7
4
1
5
3
7
5
3
1
4
2
2016
2017
2018
2019
2020
●
Cash flow
■
Depreciation
109
OUR PERFORMANCE REVIEW Chief Financial Officer’s report continued
Section 5
Balance sheet
Summarised balance sheet
(US$ million)
Property, plant and equipment
Right-of-use assets
Plantations
Net working capital
Other assets
Net post-employment liabilities
Other liabilities
Employment of capital
Equity
Net debt
Capital employed
2020
3,103
101
419
441
296
(306)
(465)
3,589
1,632
1,957
3,589
2019
3,061
–
451
452
291
(298)
(508)
3,449
1,948
1,501
3,449
Sappi has 19 production facilities in eight countries, capable of producing
approximately 4 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 2020, capital expenditure for property, plant and equipment was
US$351 million. The capacity replacement value of property, plant and equipment
for insurance purposes has been assessed at approximately US$22 billion.
Property, plant and equipment
The cost and depreciation related to our property are set out in the table below.
Book value of property, plant and equipment
(US$ million)
Cost
Accumulated depreciation and impairment
Net book value
2020
9,348
6,245
3,103
2019
9,033
5,972
3,061
The group incurred capital expenditure of US$351 million during the year on various
capital improvement projects. This was largely offset by depreciation of US$287
million and foreign currency exposure of US$57 million due to the strengthening of
the US Dollar against the ZAR and the EUR.
Right-of-use assets
The group adopted International Financial Reporting Standards (IFRS) 16 Leases at
the beginning of the fiscal year applying the modified retrospective transition
approach and did not restate comparatives. This resulted in the group recognising
right-of-use assets of US$91 million at adoption.
(US$ million)
2020
2019
Cost
Accumulated depreciation
Net book value
126
(25)
101
–
–
–
110
OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT Plantations
Section 5 continued
We regard ownership of our plantations in Southern Africa as a key strategic
resource as it gives us access to low-cost fibre for pulp production and ensures
continuity of supply on an important raw material input source.
We currently have access to approximately 534,000 hectares of owned, leased and
contracted land of which approximately 399,000 hectares are planted with pine and
eucalyptus. These plantations provide approximately 67% of the wood requirements
for our South African mills.
During the year, there were market price increases coupled with higher average fair
value rates. These increases were offset by the rising cost of fuel and an increase in
the discount rate. As we manage our plantations on a sustainable basis, the growth
for the year was offset by timber felled during the year.
Our plantations are valued on the balance sheet at fair value less the estimated
costs of delivery, including harvesting and transport costs. In notes 2.3.4 and 11
to the financial statements, we provide more detail on our accounting policies for
plantations, how we manage our plantations as well as the major assumptions used
in the calculation of fair value.
Working capital
The component parts of our working capital at the 2020 and 2019 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
2020
673
584
(816)
441
2019
709
718
(975)
452
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$441 million in 2020 from US$452 million
in 2019. The material movements in working capital are discussed below:
• Inventories decreased by US$36 million, caused mainly by reduced inventory
levels. This was partially offset by an unfavourable currency translation impact
of US$3 million
• Receivables decreased by US$134 million following lower net selling prices and
decreased volumes in the fourth quarter. This was partially offset by an
unfavourable currency translation impact of US$16 million
• Payables decreased by US$159 million largely due to a reduction in trade
payables due to lower sales volumes, decreases in bonus accruals, accruals for
capital expenditure and rebates and an unfavourable currency translation impact
of US$1 million
Post-employment liabilities
We operate various defined benefit pension/lump sum plans, post-employment
healthcare subsidies and other employee benefits in the various countries in which
we operate. A summary of defined benefit assets and liabilities (pension and
post-employment healthcare subsidies) is as follows:
111
OUR PERFORMANCE REVIEW Chief Financial Officer’s report continued
Section 5 continued
Defined benefit liabilities
(US$ 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’*
2020
(1,600)
1,294
(306)
36
25
16
2019
(1,525)
1,227
(298)
36
26
17
* ‘Catch-up’ is cash contributions paid to defined benefit plans in excess of current service
cost.
Gross liabilities from all our plans increased by US$75 million from US$1,525 million
to US$1,600 million over the year. The main cause of the increase was due to a drop
in discount rates in regions where we hold significant liabilities.
Fair value of plan assets rose by US$67 million from US$1,227 million to
US$1,294 million over the year due to favourable investment returns of assets in
our funded plans from outperforming bonds.
Included in the net balance sheet liability above is a net loss of US$12 million
resulting from movements of local results 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$8 million from US$298 million to
US$306 million over the year. A reconciliation of the movement in the balance sheet
over the year is shown graphically below and disclosed in more detail in note 28 of
the Group Annual Financial Statements.
Sappi Limited defined benefit pensions balance sheet movement (US$ million)
50
0
(50)
(100)
(150)
(200)
(250)
)
5
9
1
(
)
6
4
8
(
)
3
0
2
(
)
7
(
n
o
i
t
i
s
u
q
c
A
i
)
9
1
(
e
g
r
a
h
c
i
n
o
s
n
e
P
8
2
6
3
3
i
d
a
p
l
r
e
y
o
p
m
E
s
n
o
i
t
u
b
i
r
t
n
o
c
1
s
e
s
s
o
l
l
a
i
r
a
u
t
c
A
)
4
1
(
t
c
e
ff
e
l
n
o
i
t
a
s
n
a
r
T
0
2
0
2
9
1
0
2
y
t
i
l
i
b
a
i
l
t
e
n
y
t
i
l
i
b
a
i
l
t
e
n
Sappi Limited post-retirement medical aid subsidy balance sheet movement (US$ million)
20
0
(20)
(40)
(60)
(80)
(100)
(120)
)
3
0
1
(
)
3
0
1
(
9
1
0
2
y
t
i
l
i
b
a
i
l
)
6
(
e
g
r
a
h
c
i
n
o
s
n
e
P
3
2
1
i
d
a
p
l
r
e
y
o
p
m
E
s
n
o
i
t
u
b
i
r
t
n
o
c
s
e
s
s
o
l
l
a
i
r
u
t
c
A
t
c
e
ff
e
l
n
o
i
t
a
s
n
a
r
T
0
2
0
2
y
t
i
l
i
b
a
i
l
t
e
n
112
t
e
n
OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT
Equity
Section 5 continued
Year-on-year, equity decreased by US$316 million to US$1,632 million as
summarised below:
Equity reconciliation
(US$ million)
Equity as at September 2019
Profit (loss) for the year
Dividend paid
Actuarial losses
Share-based movements and other
Movement in hedging reserves
Foreign currency movements
Equity as at September 2020
2020
1,948
(135)
–
(31)
9
3
(162)
1,632
The group incurred a loss for the year of US$135 million, actuarial losses of
US$31 million, adverse foreign currency movements of US$162 million offset
by share-based payments and movements in hedging reserves of US$12 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 Sappi’s international
holding company, issues debt in the international money and capital markets to fund
our non-South African businesses. SPH’s long-term debt is supported by a Sappi
Limited guarantee and the financial covenants on certain of its debt are based on
the ratios of the consolidated Sappi Limited group. The covenants applicable to the
debt of these two entities and their respective credit ratings are discussed on the
pages that follow.
113
OUR PERFORMANCE REVIEW Chief Financial Officer’s report continued
The diagram below depicts our debt funding structure.
Sappi Limited Guarantee*
Sappi Limited
Sappi
Southern
Africa
(SSA)
South African debt
Non-South African debt
Sappi
Trading
Sappi
Papier
Holding
(SPH)
Sappi
North
America
Sappi
Europe
* Sappi Limited provides guarantees for long-term non-South African debt.
Below we highlight the main financing activities that occurred during the year:
• In November 2019 the acquisition of Matane Mill in Canada 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.
• Sappi Southern Africa had two debt maturities in fiscal 2020, the SSA06 ZAR745 million bond maturing in April 2020 and
the ZAR400 million term loan with the Land Bank. These maturities were refinanced with a new bond, the 2023 SSA07
ZAR1,080 million bond, together with available cash resources.
Structure of net debt and liquidity
We consider the group liquidity position to be sufficient, with cash holdings of US$279 million at financial year end, and
US$582 million of unutilised committed RCFs.
The structure of our net debt at September 2020 and 2019 is summarised below:
(US$ million)
Long-term debt
Senior unsecured debt
Securitisation funding
IFRS16 Leases*
Less: Short-term portion
Net short-term debt/(cash)
Overdrafts, RCF and short-term loans
Short-term portion of long-term debt
Less: cash
Net debt
* IFRS 16 accounting standard adopted from fiscal 2020.
114
2020
1,942
1,649
256
105
(69)
15
225
69
(279)
1,957
2019
1,713
1,465
366
–
(118)
(212)
64
118
(393)
1,501
OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT Movement in net debt
The movement of our net debt from fiscal 2019 to fiscal 2020 is summarised in the table below:
Net debt at September 2019
First time adoption of IFRS 16 Leases, at year end
Cash impact of IFRS 16 Leases, during fiscal 2020
Net cash paid for Matane acquisition
Net cash utilised in 2020
Currency translation, fair value and other non-cash adjustments
Net debt at September 2020
Group debt profile
US$ million
1,501
105
23
160
97
71
1,957
We show the major components and maturities of our net debt at September 2020 below. These are split between our debt in
South Africa and our debt outside South Africa.
Amount
US$ million
Interest
rates (local
currencies)
Fixed/
variable
Variable
Fixed
Variable
Variable
Variable
Mixed
Fixed
Fixed
Fixed
Fixed
Variable
Variable
4.77%
9.25%
8.06%
1.50%
1.40%
Various
1.40%
2.30%
4.10%
1.50%
0.30%
1.80%
4.00%
Fixed
3.13%
7.50%
Fixed
Fixed
South Africa
Short-term notes
Private placement
2023 Bond
Gross debt
less cash
Net South African
debt
Non-South African
Securitisation (US$)
Securitisation (EUR)
IFRS 16 Leases
OeKB term loan 1
OeKB term loan 2
OeKB term loan 3
(CAD)
OeKB term loan 3 (EUR)
Other bank debt (EUR)
Revolving credit facility
2023 Public bonds
(EUR)
2026 Public bonds
(EUR)
2032 Bonds (US$)
IFRS adjustments
Gross debt
less cash
Net non-South
African debt
Net group debt
41
88
63
191
(59)
132
98
158
105
24
154
96
86
69
116
407
523
221
(14)
2,045
(220)
1,825
1,957
Maturity (Sappi fiscal years)
2021
2022
2023
2024 Thereafter
41
(59)
(19)
24
24
21
68
116
(220)
33
14
88
63
0
63
88
0
98
158
18
21
14
12
0.3
14
21
14
12
0.2
15
21
14
12
0.4
407
34
70
55
49
0
523
221
(14)
332
322
470
533
62
149
938
938
The majority of our non-South African long-term debt is guaranteed by Sappi Limited, the group holding company.
115
OUR PERFORMANCE REVIEW Chief Financial Officer’s report continued
Section 5 continued
A diagram of the debt maturity profile for Sappi fiscal years is shown below:
Debt maturity profile (US$ million)
5
7
4
0
5
5
9
7
2
6
5
2
6
1
1
1
4
5
4
5
6
7
4
3
6
6
9
8
8
6
2
2
5
1
2
2
100
80
60
40
20
0
0 – 1 year 1 – 2 years 2 – 3 years 3 – 4 years 4 – 5 years 5 – 6 years
6 – 7 years
7 – 8 years
>8 years
●
Cash
●
Short-term
●
Securitisation
●
RCF
●
SSA
●
SPH term debt
Excludes IFRS 16 leases with an average time to maturity of approximately four years.
Covenants
Non-South African covenants
Financial covenants apply to US$360 million of our non-South African bank debt,
the €525 million RCF and the non-South African securitisation facility.
However, in view of the uncertainty due to Covid-19 the banking group has agreed
to suspend the measurement of financial covenants until September 2021. This
suspension is subject to normal conditions for this kind of assistance, which only
apply during the suspension period, and include no dividend payments, maximum
capex spending limits, a minimum liquidity requirement and no M&A activity without
prior bank approval. Covenant measurement will commence again with effect from
the December 2021 quarter.
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 RCF 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 each year, 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%, and
• the ratio of EBITDA to net interest paid is not less than 2.5-to-1.
Below we show that for the year ended September 2020 the South African financial
covenants were comfortably met.
South African covenants
2020
Covenant
Net debt to equity
EBITDA to net interest
11.82%
7.61
<65%
>2.50
116
OUR PERFORMANCE REVIEWSappi 2020 ANNUAL INTEGRATED REPORT Credit ratings
Section 5 continued
Global Credit Ratings: South African national rating
Sappi Southern Africa Limited: AA (za)/A1+(za)/Stable Outlook (June 2020)
Moody’s
Sappi Corporate Family Rating: Ba2/NP/Stable Outlook (February 2020)
SPH Debt Rating:
• 2023/2026 Bonds and RCF: Ba2/Stable Outlook (February 2020)
• 2032 Bonds: B1
S&P Global Ratings
Corporate Credit Rating: BB- /B/Stable Outlook (September 2020)
SPH Debt Rating:
• 2023/2026/2032 Bonds and RCF: BB- Stable Outlook (September 2020)
Section 6
Share price performance
Sappi share price – September 2018 to September 2020.
Sappi share price – September 2017 to September 2020 (ZAR/share)
120
100
80
60
40
20
0
2017
t
p
e
S
c
e
D
r
a
M
2018
n
u
J
t
p
e
S
c
e
D
r
a
M
2019
n
u
J
t
p
e
S
c
e
D
2020
n
u
J
r
a
M
t
p
e
S
Conclusion
The consequences of the pandemic will have a prolonged impact on the
Sappi business and will change the timing of our long-term plans but not the
principles. In the short to medium term we will focus on sustainable financial health
and driving operational excellence. Strengthening the balance sheet by reducing
debt, growing EBITDA and cash generation and optimising processes globally will
receive the highest attention.
The medium- to long-term strategy will focus on new opportunities by expansions
or conversions with a view to commercialising new products at scale. Opportunities
in our growth segments of DP and packaging and speciality papers will be explored
in conjunction will growth in adjacent businesses. Underlying all the above initiatives
will be a drive towards finding sustainable solutions with our customers and
communities to meet the changing business and environmental needs.
Fiscal 2020 provided challenges few would have anticipated. We have weathered
the storm and vindicated earlier strategic decisions. The year ahead will be
challenging, but less so when compared to the year before.
GT Pearce
CFO
117
OUR PERFORMANCE REVIEW
118
Emerge
Collectively, the world is drawing a deep breath as we
slowly emerge from the coronavirus pandemic and
impact of Covid-19.
During the crisis, the safety of our people was our top
priority. After which, like many enterprises across the
world, our underlying goal was economic survival.
To achieve this, we focused on the preservation of
liquidity, lowering costs by deferring non-critical
capex projects and postponing some annual
maintenance shuts. We also took commercial
downtime across all segments as required, in order
to match supply to demand and prevent the build-up
of inventory.
The verb ‘emerge’ is derived from the classical Latin
ēmergere, meaning ‘to rise out or up’. We are proud
to say that we are rising from the impact of Covid-19
with strong growth in sales and profitability for the
packaging and speciality papers segment, quickly
recovering dissolving pulp market and steady month-
on-month improvement for graphic papers.
As OneSappi we are steely in our determination to
emerge from survival mode back onto a growth curve.
A curve based on our strategy of diversifying our
product portfolio into higher margin and growing
segments – a strategy fully justified during the events
of the past year.
Doing so is challenging, but we believe we can realise
our vision of a thriving world by collaborating with all
our stakeholders to create solutions for our collective
needs and emerge stronger than ever before.
119119
Our leadership
1
2
3
4
5
Sir Nigel Rudd (73)
(Independent Chairman)
*
Michael Anthony Fallon
(Mike) (62)
*
Nkateko Peter Mageza
(Peter) (65)
*
Qualifications: DL, Chartered Accountant
(Independent)
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.
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
(R&D), human resources, finance, plant
management, sales and marketing and supply
chain to general management, including
mergers and acquisitions.
(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.
Brian Richard Beamish
(Brian) (63)
(Independent)
James Michael Lopez
(Jim) (61)
(Independent)
Qualifications: B.Sc. (Mech Eng): HBS PMD
Qualifications: BA (Economics)
Nationality: British and 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.
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.
Average age 2020 (%)
Sappi board committee memberships:
Audit and Risk Committee
Human Resources and Compensation Committee
Nomination and Governance Committee
Social, Ethics, Transformation and Sustainability (SETS) Committee
* Committee Chairman
120
●
●
●
●
40s (14%)
50s (22%)
60s (50%)
70s (14%)
Sappi 2020 ANNUAL INTEGRATED REPORTGOVERNANCE AND COMPENSATION
6
7
8
9
10
Zola Nwabisa Malinga (42)
(Independent)
Qualifications: BCom, CA(SA)
Nationality: South African
Appointed: October 2018
Skills, expertise and experience:
Mrs Malinga has extensive 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.
Mohammed Valli Moosa
(Valli) (63)
*
(Independent)
Janice Elaine Stipp
(Janice) (61)
(Independent)
Qualifications: BSc (Mathematics and Physics)
Qualifications: BA (Accounting); MBA
Nationality: South African
Appointed: August 2010
Nationality: American
Appointed: June 2019
Skills, expertise and experience:
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.
Ms Stipp brings with her a wealth of
experience in leadership, finance and
treasury to the Sappi board.
Dr Bonakele Mehlomakulu
(Boni) (47)
(Independent)
Robertus Johannes
Antonius Maria Renders
(Rob Jan) (67)
Qualifications: PhD (Chemical Engineering)
(Independent)
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.
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.
Diversity 2020 (%)
Independence 2020 (%)
Tenure 2020 (%)
●
●
Diverse (43%)
Other (57%)
●
●
Indepenant non-executives (83%)
Executives (17%)
●
●
●
Zero to three years (50%)
Three to 10 years (42%)
Over 10 years (8%)
121
121
GOVERNANCE AND COMPENSATION
Our leadership continued
Executive directors
Executive management
1
2
3
4
5
T
R
O
P
E
R
D
E
T
A
R
G
E
T
N
I
L
A
U
N
N
A
0
2
0
2
i
p
p
a
S
Stephen Robert Binnie
(Steve) (53)
Chief Executive Officer (CEO)
Qualifications: BCom, BAcc, CA(SA), MBA
Nationality: British
Appointed: September 2012
Skills, expertise and experience
Mr Binnie was appointed CEO of Sappi
Limited in July 2014 and brings extensive
experience in financial management,
leadership, corporate activity and strategy
to the role.
Berend John Wiersum
(Berry) (64)
Alexander van Coller
Thiel (Alex) (59)
CEO of Sappi Europe
CEO of Sappi Southern Africa
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.
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.
Glen Thomas Pearce (57)
Chief Financial Officer (CFO)
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 CFO and Executive
Director of Sappi Limited in July 2014. Mr
Pearce has extensive financial management
experience, both locally and abroad.
Michael George Haws
(Mike) (57)
President and CEO 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
pulp and packaging and speciality papers
businesses.
122
GOVERNANCE AND COMPENSATION
6
7
8
9
Fergus Conan Salvador
Marupen (Fergus) (55)
Group Head Human Resources
Qualifications: BA (Hons)
(Psychology), BEd (Education
Management), MBA (Stellenbosch),
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.
Gary Roy Bowles (60)
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 (53)
Executive Vice President of Sappi
Dissolving 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 pulp,
international logistics and technical
application support.
Maarten van Hoven (47)
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.
123
GOVERNANCE AND COMPENSATION Corporate governance
Sappi is committed to the highest
standards of corporate governance,
which form the foundation for the
long-term sustainability of our
company and creation of value for
our stakeholders.
Good governance at Sappi contributes
to living our values through enhanced
accountability, a transparent and
ethical culture, strong risk
management, a focus on effective
control of the business, legitimacy and
good performance. Governance is one
of our key enablers to unlocking and
protecting value, as we optimise the
use of our capitals, address our key
risks whilst taking advantage of exciting
opportunities (refer to page
36 Risk
management), whilst minimising the
negative impacts of trade-offs that
have to be made, as set out in the
presentation of Our key material
issues on page
68. The group
endorses the recommendations
contained in the King IV Code on
Corporate Governance (King IV) and
applies the various principles in the
achievement of the following good
governance outcomes.
An application register of how Sappi
applies the 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.
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. Diversity
gives Sappi access to an increased
range of talent, which helps to provide
insight into the needs and motivations
of a broader stakeholder base.
99%
overall
committee
attendance
rate
Directors’ independence (%)
Directors’ age (%)
17
8
17
83
●
●
Independent non-executives
Executives
Average
59 years old
17
58
●
40s
●
50s
●
60s
●
70s
Diversity (%)
Directors’ tenure (as at year end) (%)
43
57
8
42
Average
6 years
50
●
●
Diverse (female or ethnically diverse)
Other
●
0 – 3 years
●
3 – 10 years
●
Over 10 years
Board experience (Sappi’s board members have experience across multiple
industries and leadership roles) (%)
Sustainability
Human resources and transformation
Global, multinational
M&A
Finance, accounting and banking
Forestry, pulp, paper and packaging
Manufacturing, industrial and mining
CFO roles
Chairman roles
50
50
50
67
58
42
42
33
33
CEO/executive director roles
100
0
20
40
60
80
100
124
For further information about the board
and the board charter please refer to
www.sappi.com.
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT
The composition of the board and attendance at board meetings and board committee meetings is set out in the table below for
the year ended September 2020:
Appointed
(Retiring)
from board
Name
Independent non-executives
BR Beamish
MA Fallon
JM Lopez
NP Mageza
ZN Malinga
JD McKenzie
(31 Dec 2019)
B Mehlomakulu
MV Moosa
KR Osar
(31 Dec 2019)
RJAM Renders
Sir Nigel Rudd
JE Stipp
Executives
SR Binnie (CEO)
GT Pearce (CFO)
Board
Board committees
Human
Resources
and
Compensation
Nomination
and
Governance
SETS
AGM
%
attendance
during
tenure
Audit and Risk
100
100
100
82
100
83
100
100
100
100
91
100
100
100
Lead director
Committee member (present)
Indicates appointed to committee 01 August 2020
Chairman
Ex officio
Absent
By invitation
Strategic focus areas
In addition to the standard items on the
board’s agenda, the 2020 focus areas
included:
• Consideration and approval of the
strategic plan
• External overviews of global and
regional economies and related
developments
Thrive25
• Consideration of Covid-19
pandemic impacts on the business,
safety, liquidity and the outlook
• Each serious safety incident was
reviewed in detail
• Sappi Biotech and R&D, including
commercialisation, barriers and
levers, technical readiness levels,
capex requirements and success
ranking
• Integration of the Matane Pulp Mill
in Canada
• Review of regional market
peculiarities
• Feedback on actions points from the
prior year 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
• Land reform in South Africa and fibre
supply in Europe
• Cost reduction targets and
strategies
All the top risks as well as emerging
risks have been focused on by the
board during 2020.
The following specific areas will be
added to the board’s agenda in 2021:
• Oversight of progress in achieving
Thrive25
the
strategic plan
• The revised approach for reviewing
the risks facing the group, including
risk appetite and tolerance will be
operationalised at board and
executive management levels
• Review of the supply and demand,
• Project management and oversight
and pricing levels, of DP and impact
on the group
• Review of the packaging and
speciality papers business
for large capital projects
• Promoting and enabling innovation
• Commercialisation of Sappi Biotech
• Consideration of additional cost
• A revised approach for reviewing the
improvement areas
risks facing the group
• Project management and oversight
• Carbon emissions and reduction of
for large capital projects
Sappi’s carbon footprint
• Human resource capacity building
and transformation for Sappi
Southern Africa
• Review of all major shuts and the
project management process
• A review of gender diversification
across regions and the group
• Review of risks and opportunities
related to climate change in line with
the Task Force on Climate-Related
Finance Disclosure (TCFD)
recommendations
• Review of risks and opportunities
related to climate change in line with
the TCFD recommendations
125
GOVERNANCE AND COMPENSATION
Corporate governance continued
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).
Refer to Our key relationships on page
44 for more information.
Sappi board and management committees
Board and management committees have been established and are discussed from pages
126 to 132.
Board of directors
• 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
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
• Financial and sustainability
• Board size, composition
systems and reporting
and diversity
• Risk management
• Compliance and ethics
• Combined assurance
• Internal and external audit
• Information technology
• Selection and recruitment
of directors
• Evaluation of board
performance
• Corporate governance
(IT) governance
developments
• Directors’ remuneration
• Succession planning
• Remuneration policy
• Incentive schemes
• Labour and industrial
relations management
• Group corporate
citizenship
• Ethics
• Environment
• Safety
• Broad-based black
economic empowerment
Executive
Committee
• Executive director
(CEO and CFO)
• Other senior executives
• Execute strategic
decisions approved
by the board
126
Disclosure
Committee
Control
and
Assurance
Committee
(CAC)
Accounting
Standards
Committee
Treasury
Committee
Taxation
Committee
Global
Business
Systems
Council
Group Risk
Management
Committee
IT Steering
Committee
Project
Steering
Committees
Sustainability
Councils
Global Brand
Council
Technical
Committees
Management committees
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT 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
Key roles and responsibilities
The Audit and Risk Committee consists of five independent, non-executive directors.
The committee assists the board in discharging its duties relating to:
• Safeguarding and efficient use of assets
• Oversight of the risk management function
• Oversight of IT 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
96%
overall
committee
attendance
rate
• 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.
• Oversight of the performance of the internal audit function, this included review of the results of the External
Quality Assurance Review performed during 2020
• 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 topics, including the following areas related to Sappi’s strategy:
• Global Business Systems projects tasked with harmonising diverse systems and processes, in order to achieve
streamlined, effective ways of working across the group and the associated cost advantages
Investment projects designed to rationalise declining businesses
•
• Management’s efforts to maintain a healthy balance sheet
• Projects to accelerate the group’s ability to take advantage of opportunities in higher margin growth segments,
such as in DP, 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 makes use of combined
assurance to focus on risks facing the group
• Regulatory compliance with global privacy legislation
• Oversight of a revised approach to providing an overview of risks, including a new method of determining risk
appetite and tolerance per risk
Areas of additional oversight for the committee in 2021 will be:
• Operationalising of the revised approach developed for the risk framework and oversight of risks
• The risk topics and related assurance from Sappi’s combined assurance approach
• The impact of Covid-19 on the business and feedback on business recovery, liquidity, credit risks and financial
reporting
• Emerging IT risks
• Capital, IT, and business projects governance.
For more information refer to the 2020 Audit and Risk Committee Report in our Annual Financial Statements
on www.sappi.com/annual-reports.
Stakeholders
Risks
The Audit and Risk Committee has helped to
create and protect value for the following
stakeholders: employees, customers,
shareholders and regulators.
Refer to Our key relationships on page
for further details.
44
The Audit and Risk Committee has focused on the following
top 10 risks:
1 Safety
2
Cyclical macro-economic context and competitive
industry
Evolving technologies and consumer preferences
3
4 Liquidity
5 Sustainability expectations
6 Project implementation and execution
7 Uncertain and evolving regulatory landscape
8 Employee relations
9 Climate change
10 Cyber security
For further details refer to Risk management on page
36.
127
NP Mageza
(Chairman)
Membership details at
September 2020:
• NP Mageza
• RJAM Renders
• ZN Malinga
• JE Stipp
• B Methlomakulu
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 2020
Mr NP Mageza is the Chairman
and designated financial
expert of the Audit and Risk
Committee. Although
Mr Mageza was not able to
present at the Annual General
Meeting (AGM) on 05 February
2020, all the other Audit and
Risk Committee members were
present. Dr B Methlomakulu,
joined the Audit and Risk
Committee with effect from
01 January 2020.
The committee is satisfied that
it has fulfilled its responsibilities
as set out in its terms of
reference.
GOVERNANCE AND COMPENSATION
Corporate governance continued
Nomination and Governance Committee
Sir Nigel Rudd
(Chairman)
Membership details at
September 2020:
• Sir Nigel Rudd
• MV Moosa
• MA Fallon
100%
overall
committee
attendance
rate
Key roles and responsibilities
The Nomination and Governance Committee consists of three independent directors. The
committee considers the leadership and governance requirements of the company including a
succession plan for the board. The committee identifies and nominates suitable candidates for
appointment to the board in line with Sappi’s policy on the promotion of gender and race diversity
at board level, for board and shareholders’ approval. The committee considers the independence of
candidates as well as directors. The committee makes recommendations on corporate governance
practices and disclosures, and reviews compliance with corporate governance requirements. The
committee has oversight of appraising the performance of the board and all the board committees.
The results of this process and recommended improvements are communicated to the chairman of
each committee and the board. The functioning and performance of Sappi’s board and board
committees were assessed externally in 2020 and established that the board and board
committees functioned well.
JD McKenzie retired from the board and the Nomination and Governance Committee with effect
from the 31 December 2019. MA Fallon was appointed to the Nomination and Governance
Committee with effect from 01 January 2020.
Strategic focus areas
The Nomination and Governance Committee helped to protect value by providing oversight and
guidance in 2020 over:
• 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’
• Reviewed the Sappi Limited directors’ shareholdings and dealings in securities
• Oversight of the appointment of replacements for direct reports to the CEO
A focus area for 2021 will be executive succession planning and board committee chairmanships
and memberships.
The committee is satisfied that it has fulfilled its responsibilities as set out in its terms of reference.
Stakeholders
Risks
The Nomination and Governance
Committee has helped to protect value
primarily for the following stakeholders:
shareholders and regulators.
Refer to Our key relationships on
page
44 for further details.
The Nomination and Governance Committee focused
on governance, independence, and composition of
the board, board committees and executive
management positions to effectively address all
material risks facing the company including all the top
ten risks.
For further details refer to Risk management on
page
36.
128
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT Human Resources and Compensation Committee
MA Fallon
(Chairman)
Membership details at
September 2020:
• MA Fallon
• NP Mageza
• JD McKenzie
• RJAM Renders
• BR Beamish
93%
overall
committee
attendance
rate
Key roles and responsibilities
The Human Resources and Compensation Committee consists of four independent directors.
The responsibilities of the Human Resources and Compensation Committee are, among others,
to provide oversight of the group’s human capital, determine the group’s human resource policy
and strategy, assist with the hiring, and setting of terms and conditions of employment of
executives, the approval of retirement policies, and succession planning for the CEO and
management. The committee ensures that the compensation philosophy and practices of the
group are aligned to its strategy and performance goals, including the objectives of the CEO. 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. The committee is updated on the industrial relations climate, training
initiatives and engagement survey results and action items.
JD McKenzie retired from the board and the Human Resources and Compensation Committee with
effect from 31 December 2019.
Strategic focus areas
Covid-19 impacts on safety, the business and work from home arrangements were considered.
A focus area in 2020 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 05 February
2020 and the requisite ordinary resolutions endorsing the remuneration policy (80% majority) and
the implementation reports (83% majority) were passed. This vote by our shareholders, although
lower than the prior year, is an endorsement for our ongoing commitment to good governance and
disclosure. A malus and clawback policy was developed, considered and approved in 2020. A
comparison to peer group pay levels was completed.
The strategic focus areas for the committee in 2021 will be:
• To maintain high standards of corporate governance in-line with King IV
• Feedback on the action points from the Employee Engagement Survey
• To review succession and retirement plans for key positions in Sappi
• To engage with key stakeholders to discuss areas of mutual concern, including feedback on the
remuneration policy and implementation report
The committee is satisfied that it has fulfilled its responsibilities as set out in its terms of reference.
Fore more information refer to the Remuneration Report on page
138.
Stakeholders
Risks
The Human Resources and
Compensation Committee has helped
to protect value primarily for the
following stakeholders: employees,
shareholders and regulators.
44 and to the Remuneration
Refer to Our key relationships on
page
Report on page
details.
138 for further
The Human Resources and Compensation Committee
has focused on the following of the top 10 risks:
1 Safety
2
Cyclical macro-economic context and
competitive industry
3 Evolving technologies and consumer preferences
5 Sustainability expectations
6 Project implementation and execution
7 Uncertain and evolving regulatory landscape
8 Employee relations
10 Cyber security
129
GOVERNANCE AND COMPENSATION
Corporate governance continued
Social, Ethics, Transformation and Sustainability Committee
MV Moosa
(Chairman)
Membership details at
September 2020:
• MV Moosa
• SR Binnie
• B Mehlomakulu
• BR Beamish
• JM Lopez
100%
overall
committee
attendance
rate
Key roles and responsibilities
The SETS Committee comprises four independent non-executive directors, and the CEO. A 100%
attendance record was achieved by board committee members for 2020. Other executive and
group management committee members attend SETS Committee meetings by invitation. It should
be noted that a number of other non-executive directors attend SETS committee meetings ex
offico. The Chairmen of the Audit and Risk Committee and SETS Committee attend each other’s
committee 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, with regards to the group’s South African subsidiaries, the
strategic business priority of transformation.
The SETS Committee is supported by the Global Sustainability Council as well as by Regional
Sustainability Committees in dealing with day-to-day sustainability issues and helping to develop
and entrench related initiatives in the business.
Strategic focus areas
In 2020 the committee:
• Reviewed feedback from 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 as well as reviews of serious safety incidents
• Oversight of progress on developing a group-wide approach for the TCFD
• Oversight of the development of science-based targets for the group
• Oversight of external assurance on lost-time injury frequency rate (LTIFR) and emissions data as
well as environmental impact analyses for major investment projects
• Considered trade-offs between:
–
–
Productivity and safety advantages of mechanisation and the social and human capital
implications
Financial and natural capitals relating to the use of coal versus other renewable energy fuels for
our heating requirements). This included further reductions in the group’s carbon footprint
• Sappi Southern Africa’s performance against the applicable BBBEE legislation
The committee is satisfied that it has fulfilled its responsibilities as set out in its terms of reference.
The strategic focus areas for the committee in 2021 will be:
• Oversight of the TCFD developments
• Oversight of the implementation of science-based targets and a climate change strategy
• Development of new biodiversity targets
• Consideration of feedback about the changes in the safety culture at operating units
•
Improved stakeholder engagement, making use of media developments and opportunities
Fore more information refer to the SETS Report on page
goals at www.sappi.com.
156 and to Our global sustainability
Stakeholders
Risks
Stakeholders: The SETS Committee has
a broad spread of stakeholders for
which it helps to protect (or create)
value: suppliers, customers, employees,
regulators, shareholders and society.
The SETS Committee has focused on the following of
the top 10 risks:
1 Safety
2
Cyclical macro-economic context and competitive
industry
Refer to Our key relationships on
page
44 for further details.
3 Evolving technologies and consumer preferences
5 Sustainability expectations
6 Project implementation and execution
7 Uncertain and evolving regulatory landscape
8 Employee Relations
9 Climate change
For further details refer to Risk management on
page
36.
130
For more information on sustainability at Sappi refer to the SETS Committee Report on page
sustainability initiatives at www.sappi.com.
156 and for a summary of the group’s
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT
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
137 for additional details of Sappi’s approach to risk, controls and assurance.
Executive Committee
Disclosure Committee
Treasury 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 DP business.
The CEO has assigned responsibility to the executive committee for a number of functional
areas relating to the management of the group, including the development of policies and
alignment of initiatives regarding strategic, operational, financial, governance, sustainability,
social and risk processes. The executive committee meets at least five times per annum.
The Disclosure Committee comprises members of the executive committee and senior
management from various disciplines. Its objective is to review and discuss financial and
other information prepared for public release. It is the ultimate decision-making body, apart
from the board, with regards to disclosure.
The Treasury Committee meets monthly to assess financial risks on treasury-related matters.
Specific focus areas in 2020 related to increased liquidity risks resulting from the impact of
Covid-19. This is expected to remain a key area for 2021.
Taxation Committee
The Taxation Committee meets monthly to discuss and address global taxation matters.
Project Steering
Committee
For key strategic projects, steering committees are established to oversee successful
execution of the project.
Technical Committees
The Technical Committees focus on global technical alignment, performance and efficiency
measurement as well as new product development.
Group Risk Management
Committee
The committee is known as the Group Risk Management Team (GRMT) and is mandated by
the board to establish, coordinate and drive the risk management process throughout Sappi.
It has established a risk management system to identify and manage significant risks. The
GRMT reports regularly on risks to the Audit and Risk Committee and the board. Risk
management software is used to support the risk management process. During 2020 key
initiatives included further development of the group’s risk appetite and tolerance framework,
and introduction of a dashboard summarising group risks and trends as precursor for
dynamic risk assessment.
Control and Assurance
Committee
The CAC is supported by the Internal Control function and multi-disciplinary Combined
Assurance Workgroups 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 the GRMT and the Audit and Risk Committee.
131
GOVERNANCE AND COMPENSATION
Corporate governance continued
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 the use of risk
management software. The committee has helped to create value for shareholders in 2020
by its oversight of:
• Establishment of a digital IT domain comprising ebusiness, data science (advanced
analytics) and robotics process automation components
• Coordination with Group Internal Audit of reviews of the IT security arrangements for
specific service providers who experienced or may have been at risk of cyber security
attacks
• Key IT vendor evaluations were completed
• A third party global IT spend review was conducted
• Development of a global operational technology (OT) security methodology
• Established a dedicated global security function
• Refinement of the IT risk and combined assurance assessment process
Oversight by the committee will continue in 2021 for these IT initiatives, as well as:
• Integration of the Matane Pulp Mill’s IT system into Sappi’s SAP system
• Oversight of the preparation for major IT projects including S4 HANA, Synergy (MES) and
Pelati (Sales and Operations harmonisation)
• Testing of a global (OT) security methodology at further sites across the group
• O365 email security will be enhanced
• An ISO 27001 maturity assessment will be undertaken
• Development of a Group Information Security Charter (for use by Sappi’s stakeholders)
• Expanding the group security function, making use of a cyber skills incubator
• The continuation 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, OneSappi harmonisation initiatives; 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.
132
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT
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.
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.
The programme is designed to increase awareness of, and
enhance compliance with, applicable legislation is in place.
The group compliance officer reports twice per annum to the
Audit and Risk Committee.
All new employees receive training on the Code of Ethics
and related topics, such as anti-bribery and corruption and
anti-competitive practices, as part of onboarding. Refresher
training was provided to all employees on the Code of Ethics
in 2020.
A Group Supplier Code of Conduct 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.
Sappi’s legal compliance programme has been boosted by:
• The implementation of legal compliance software including
Exclaim for Sappi Southern Africa, GEORG Compliance
Management for the German mills, and Policy Passport for
Group policies and procedures
• The provision of online training to employees across the
group on relevant core legal compliance topics
The use of software tools and the related training and online
learning is helping to create and protect value primarily for
employees, customers, shareholders and regulators.
Actions are taken against employees and suppliers
who do not abide by the spirit and provisions of
our code. This includes termination of
contractual arrangements, and criminal
actions.
Refer to www.sappi.com for the Code
of Ethics.
Code of
ethics
Legal
compliance
programme
Insider
trading
The company has a Code of Conduct
for dealing in company securities and
follows the JSE Limited listings
requirements in this regard.
For further information refer to the Insider
trading section of the Code of Ethics which can
be found at www.sappi.com.
Conflict of
interests
The group has a policy that obliges all
employees to disclose any interest in
contracts or business dealings with
Sappi to assess any possible conflict of
interest. The policy also dictates that
directors and senior officers of the group
must disclose any interest in contracts as well as
other appointments to assess any conflict of interest
that may affect their fiduciary duties.
During the year under review, apart from 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.
For more information on how Sappi addresses conflict of
interest please refer to the preventing fraud and corruption
section of the Code of Ethics at www.sappi.com.
Reporting on compliance and ethics concerns
Sappi employees and stakeholders can report any potential illegal or non-compliant behaviour they observe directly to senior
management, internal audit or legal counsel, or alternatively, report anonymously, via telephone or an online form. Whistle-blower
‘hotlines’ have been implemented in all the regions in which the group operates. The hotline service, operated by independent
service providers, enables all stakeholders to anonymously report environmental, safety, ethics, accounting, auditing, control
issues or other concerns. Retaliation against whistle-blowers is not tolerated. The follow up on all reported matters is
coordinated either by legal counsel or internal audit and reported to the Audit and Risk Committee. The majority of calls and
ethics reports received related to the Southern African region. Please refer to the whistle-blower hotline and ethics report graphs
for information on the number of hotline calls per 1,000 employees, the categories of hotline calls and ethics reports, and the
outcome of the investigations. The hotline report rates, categories of reports and outcomes of cases broadly align with
international whistle-blower benchmark data. For more information, refer to the Reporting and whistle-blowing section of the
Code of Ethics, at www.sappi.com
133
GOVERNANCE AND COMPENSATION
Corporate governance continued
Hotline report rate per 1,000 employees per annum
8
3
.
1
3
.
3
3
.
3
4
.
8
3
.
5
4
3
2
1
0
2016
2017
2018
2019
2020
●
Report rate per 1,000 employees
Hotline and ethics cases by category (%)
0
1
6
5
4
3
3
1
9
3
8
4
4
1
2
4
3
4
6
1
5
4
9
3
100
80
60
40
20
0
●
5
5
5
1
4
2016
Corruption, fraud and theft
Employment-related matters
2017
●
2018
2019
2020
●
Environment, health and safety
7
5
4
9
4
5
3
4
2
5
Hotline and ethics case outcomes (%)
6
2
3
5
5
6
3
6
4
4
8
4
100
80
60
40
20
0
2
7
1
6
0
3
2016
2017
2018
2019
2020
●
●
Cleared, no action or unresolved
●
Criminal charges
Termination
●
Disciplined, counselled or other management action
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 (IFRS) issued by the International Accounting Standards Board.
The group’s results are reviewed prior to submission to the board, as follows:
• All quarterly results – by the Disclosure Committee as well as the Audit and Risk
Committee, and
• Interim and final results – by external audit.
134
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 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 on How
we create value (page
20-21) and
Our business model (page
22-25),
as well as Our global sustainability
goals at www.sappi.com.
.
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
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT
management, internal assurance providers and external assurance providers, on the risk areas affecting the group. Combined
assurance is overseen by the CAC.
The committee and its Combined Assurance Workgroups (CAWs) provide holistic feedback to the GRMT and Audit and Risk
Committee on the state of controls and the quality and coverage of assurance from the various assurance providers across
Sappi’s three lines of assurance. The workgroups focused on cyber security risks, retirement fund risks, credit risks, treasury
risks, safety, and environmental risks in 2020. In FY2021 the CAWs will assist the CAC to create and protect value by undertaking
reviews of combined assurance, risks and controls relating to maintenance, human resources, cyber security, projects and
taxation.
First line of
assurance
Second line of
assurance
Third line of
assurance
Oversight by
the board
Risk areas and value
drivers, capitals
Governance, risk, and
controls – general (core
business cycles)
Strategy and vision,
competition and markets,
socio-political
Financial, tax and treasury
Legal and compliance
IT
Planet, environment,
natural capital
Ethics
People, human resource
and transformation
R&D, intellectual property
Manufacturing, supply chain
management, quality,
forestry
Stakeholders,
communication, reputation,
society
Safety
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, Global Business Council,
Control and Assurance Committee,
management self-assessments
Internal audit
Board and
sub-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 compliance programme,
Group Compliance Manager
Legal compliance audits,
internal audit
Day-to-day risk management
activity
Established risk and control
environment
Executive, corporate and
regional lead teams
Corporate and regional
business functions, e.g. sales,
finance, IT, HR, purchasing
Business units, e.g. forestry,
mills, sales offices
Business unit operations,
e.g. production, engineering,
controlling, materials
management
IT Steering Committee, group IT
governance functions, management
self-assessments
KPMG, ISA 3402s,
penetration testing, internal
audit
Sustainability councils,
Environmental and Energy (E4)
Global Cluster, GRMT
Group Compliance Manager,
ethics surveys, management
self-assessments
Global Human Resource Committee,
regional labour forums, employee
engagement surveys, management
self-assessments
ISO 14001, FSC, PEFC,
EMAS, KPMG, Ecovadis
Government reviews
emissions effluent etc,
internal audit
Internal audit
BBBEE audits, internal audit
Audit and Risk,
SETS, HR and
Compensation
Committees
Audit and Risk
Committee
SETS Committee
SETS Committee,
Audit and Risk
Committee
Audit and Risk,
SETS, HR and
Compensation
Committees
Group technical cluster,
management self-assessments
ISO 17025, internal audit
SETS Committee
Technical clusters and platforms,
regional safety, health, environment
and quality (SHEQ) audits, supplier
audits, management self-
assessments
Group corporate affairs,
sustainability and investor relations
functions
ISO 9001, ISO 50001, FSC
PEFC, SFI®, Matrix, internal
audit
SETS Committee
Internal audit
SETS Committee
Group and regional risk
management teams, safety audits
OHSAS 18000, ISO 22000
regulatory inspections,
internal audit
SETS Committee
135
GOVERNANCE AND COMPENSATION Corporate governance continued
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 Group Annual Financial
Statements, on risk management and the effectiveness of internal controls and
assurance within Sappi.
As part of combined assurance in respect of reported information, Sappi has
obtained assurance on the data in the integrated report from the following sources:
• Financial data is independently audited by KPMG
• External sustainability assurance was obtained from KPMG in 2020 for Scope 1
and 2 emissions information as well as specific safety information
• Specific planet-related (environment) 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
Internal audit
The group has an effective, suitably
resourced, risk-based internal audit
department. The department operates
in terms of 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, and the Audit and Risk
Committee.
The head of internal audit reports to
the Audit and Risk Committee, meets
with board members, has direct access
to executive management and is
invited to attend certain management
meetings. The role of internal audit at
Sappi is set out in the following
diagram.
Internal audit value proposition
Capitals
Stakeholders
Thrive25
strategic
objective
• Board, Audit and Risk Committee
• Management
• Employees
• Other (e.g. communities, business partners)
Governance, risk and opportunity management, controls:
• Strategic • Operational • Compliance • Reporting
Support
Internal audit activities
Support
Governance, risk, controls consulting
Advisory and assistance
• Forensic, hotline and ethics management
• Projects, new business processes
•
• King IV, governance disclosures
• Ad hoc management requests, secondments
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, GCC, security, operations
•
• Ethics, risk, legal compliance
•
Sustainability data
• Combined assurance
• Annual opinion
Sustainability
OneSappi
Collaborate
and
innovate
Digital and
Analytics
Strategy
Refine
Operating
Model
Core
principles
136
Integrity
Competence
and due
professional
care
Objective and
independent
Aligned with
strategies,
risks and
objectives
Appropriately
positioned and
resourced
Commercialise
New Products
Quality and
continuous
improvement
Effective
communication
Risk-based
assurance
Insightful,
future-focused
and proactive
Promotes
improvement
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT
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
(i.e. 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, No 71 of 2008, as
amended. 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.
Internal audit maintains an internal
quality assurance programme. In 2020,
an external quality assurance review
was conducted by the Institute of
Internal Auditors (IIA). A Generally
Conforms rating was received, which
is the highest of the three levels of
conformance to the IIA’s standards.
The 2020 internal quality assurance
review highlighted a need for more
attention to the documentation of
effectiveness testing. This will be
addressed in 2021.
Board assessment of
the company’s risk
management, compliance
function and effectiveness
of internal controls and
combined assurance
The board is responsible for the
group’s systems of internal financial
and operational control. As part of an
ongoing comprehensive evaluation
process, control self-assessments,
independent reviews by internal audit,
external audit and other assurance
providers, were undertaken across the
group to test the effectiveness of
various elements of the group’s
financial, disclosure and other internal
controls as well as procedures and
systems. Identified areas of
improvement are being addressed to
strengthen the group’s controls further.
The board has assessed the combined
assurance provided in 2020. The
results of the reviews did not indicate
any material breakdown in the
functioning of these controls,
procedures and systems during the
year. The internal controls in place,
including the financial controls and
financial control environment, are
considered to be effective and provide
a sound basis for the preparation of
the financial statements, annual
integrated report and other reports
used internally for management
decision making.
During 2020, apart from the ongoing
focus on financial controls, internal
audit helped to create and protect
value for Sappi and our stakeholders
by completing reviews in support of
the following strategic objectives:
• Achieve cost advantages:
procurement audits, advisory
services to the global business
systems projects (Requisition to Pay,
Sales Order to Cash, Shared Service
Centre optimisation)
• Rationalising declining businesses:
Undertaken project management
reviews for business optimisation
projects
• Accelerate growth in high margin
products: Integration and control
onboarding reviews of the operating
units in Italy. Assurance reviews
of Projects Vulindlela in South Africa
and Project Horse for the Packaging
and Specialities business in Europe
The coverage plan for 2020 was
substantially achieved despite the
challenges presented by the Covid-19
pandemic and associated travel bans
and lockdowns. We refocused our audit
plan to address possible Covid-19
impacts: including raw materials supply
chain, treasury (e.g. cash flow and
liquidity), credit risks, financial
reporting, cyber risk, and business
continuity planning.
Thrive25
In 2021 internal audit will support the
achievement of Sappi’s
strategic objectives by completing
advisory and assurance projects in
the following areas:
• Sustain our financial health
sales, procurement, treasury, and
working capital processes
• Drive operational excellence
sales and operations, production
planning, maintenance, energy,
strategic business and IT projects
including digital innovation initiatives
(RPA and data science projects)
• Grow our business
R&D, packaging and speciality
papers, capital projects (Projects
Vulindlela in South Africa and Taurus
in Europe), and new businesses e.g.
biomaterials, integration and control
onboarding reviews of the Matane
Pulp Mill in Canada
• Enhance trust
ethics, governance, sustainability,
and cyber security reviews
137
GOVERNANCE AND COMPENSATION
Remuneration Report
Dear shareholder, it is with pleasure
that I present the committee’s report
on directors’ remuneration. This
reporting period has been impacted by
the Covid-19 pandemic which we have
covered in a great level of detail in
other parts of the Annual Integrated
Report. This report details the
company’s compensation policy and
implementation thereof for executive
directors, executive committee
members and non-executive directors.
The information provided in the report
has been approved by the board as per
the recommendation by the Human
Resources and Compensation
Committee.
The report is split into three sections:
Section A details previous voting
outcomes, focus and compliance
statement of the committee, Section B
gives an overview of our remuneration
policy and Section C addresses the
implementation of the remuneration
policy in 2020.
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 King IV as part of our commitment to
good corporate governance.
The previous report was supported
at the Sappi Limited’s AGM on
05 February 2020, with a vote of 80%
endorsing the remuneration policy and
a vote of 83% for the implementation
report.
Review of directors’
remuneration policy and
shareholder consultation
We have reviewed our remuneration
philosophy and implementation report
following feedback that we received
from shareholders when preparing the
2020 report. We also aim to ensure that our policy will continue to support Sappi’s
Thrive 2025 objectives. The key changes that have been made are:
• Implementation of well-defined malus and clawback provisions in relation to both
long- and short-term incentive plans
• Disclosure of the Deferred Shares Bonus Plan
• Disclosure of EBITDA and working capital targets and achievements
• Provision of details in terms of performance objectives for the executive team
• To introduce a requirement in 2021 for all prescribed officers to hold shares.
We value the input of our shareholders and will continue to seek their input to ensure
good disclosure.
Succession planning
One of the key oversight responsibilities for the committee is to ensure strong
succession plans and develop suitable internal candidates for all senior
management and executive role appointments. This includes oversight of the
group’s training and development processes. As we announced in October 2019,
Mark Gardner retired as CEO of our North American operations and was succeeded
by Mike Haws. The smooth transition process bears testimony of our robust
succession planning process to manage the retirement risks. Wayne Rau, CEO of
our Sappi Trading Business, will retire at the end of December 2020 and will be
succeeded by Richard Wells, currently our Vice President (VP) for Sales and
Marketing of the South African business, with Graeme Wild moving to that position.
Duane Roothman, General Manager Forestry KwaZulu-Natal, has succeeded Terry
Stanger as the VP Forestry Sappi Southern Africa. All of these new appointments
are aligned to our talent development approach of 80% from within Sappi and 20%
to be recruited externally.
Remuneration
The remuneration policy and its implementation aim, 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.
As described in the Chairman’s and CEO’s Report, Sappi’s financial performance
was severely impacted by the Covid-19 pandemic. Consequently, the CEO and his
leadership team agreed not to take a base pay increase for 2021. We believe this is
consistent with the tough economic conditions experienced. All non-executive
directors have also agreed to no increase in directors’ fees for the next financial year.
This is done on the back of a 10% reduction in salary for management and fees for
directors for three months announced in April 2020.
Incentive schemes
An EBITDA of US$389 million was achieved, lower than the target EBITDA of
US$679 million. EBITDA as a financial measure, had a weighting of 50 points
towards the annual Management Incentive Scheme (MIS). The EBITDA threshold
target has not been achieved. Against the backdrop of a very challenging operating
environment, the working capital target was also not achieved. Although the safety
LTIFR target (own employees) of 0.47 was achieved (actual 0.44), zero points were
allocated as a result of a contractor fatality in the forestry operations in South Africa.
No MIS will be payable for 2020.
138
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT MIS – short term
EBITDA
+ WC
+
Safety
=
Final score
0
0
0
0
Performance Share Plan (PSP) – long term
Only the cash flow return on net assets (CFRONA) on the 2016 plan will vest,
resulting in a net vesting of 50%.
TSR
+ CFRONA
=
Final score
0%
100%
50%
Executive objectives
For 2021, the focus of the Sappi leadership team will be to:
• Drive the safety-first programme
• Ensuring that Sappi has sufficient liquidity and capital resources to sustain the
business
• Complete the Saiccor Mill Vulindlela project
• Continue leading the Sappi values (of doing business safely, with integrity and
courage, making smart decisions that we execute with speed)
Thrive25
strategy
• Lead the roll out of the Sappi
• Grow the packaging and speciality papers business with optimal volumes
• Manage the graphic papers business capacity
• Drive operational excellence across all plants
• Drive Sappi’s sustainability footprint
• Work to ensure the short-term incentive plan is mindful of the challenging trading
conditions and to gain optimum performance in the FY21 results
• Talent management and succession – managing key retirements over the next
12 months and near-term succession
Conclusion
Our remuneration policy is benchmarked continuously against the relevant industry
peers to ensure that it motivates our senior team to achieve the group’s objectives
and deliver sustainable returns and value creation for our stakeholders. The
committee believes that the remuneration of executives during 2020 reflected our
challenges and successes to date in the delivery of our strategy. Thank you for your
support and advice that you have given for our 2020 remuneration report. The
improved disclosures on our policy and the implementation report reflect this
feedback. I’m looking forward to continuing engaging with you in the future.
Mike Fallon
Chairman of the Human Resources and Compensation Committee
139
GOVERNANCE AND COMPENSATION
Remuneration Report continued
Section A: Voting, focus and compliance statement
Statement of voting at AGM
The AGM of Sappi Limited was held on 05 February 2020 and the requisite
resolutions endorsing the remuneration policy and the implementation report were
passed as follows:
Ordinary resolution number 7: Non-binding endorsement of remuneration
policy
For
Against
Shares voted
Abstain
382,840,772
94,397,852
477,238,624
80.22%
19.78%
100.00%
1,113,018
Ordinary resolution number 8: Non-binding endorsement of
implementation report
For
Against
Shares voted
Abstain
396,648,844
80,595,780
477,244,624
83.11%
16.89%
100.00%
1,107,018
At the February 2019 AGM, the results for the requisite ordinary resolutions
endorsing the remuneration policy and the implementation report were 95.94% and
93.43% respectively.
Human Resources and Compensation Committee
The purpose of the committee is to oversee remuneration matters for all controlled
subsidiaries of Sappi Limited. Its key objectives are to:
• Make recommendations on remuneration policies and practices, including Sappi’s
employee share schemes
• Ensure effective executive succession planning
• Review compliance with all statutory and best practice requirements on labour
and industrial relations management
The committee consisted of four independent non-executive directors:
• Mr MA Fallon – Chairman
• Mr B Beamish
• Mr NP Mageza
• Mr RJ Renders
The Chairman of the company, Sir Nigel Rudd, attends committee meetings
ex-officio while the Group CEO, Mr SR Binnie together with Group Head Human
Resources, Mr Fergus Marupen attend meetings by invitation.
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
125.
None of the committee members has any significant personal financial interest, or
conflict of interest, or any form of cross directorship, or day-to-day involvement in
the running of the business.
Executive directors and managers are not present during committee discussions
relating to their own compensation.
140
The Human Resources and
Compensation Committee ensures
that the compensation practices and
structures within the group support
the group’s strategy and performance
goals. The policy also enables the
attraction, retention and motivation
of executives and all employees.
The key activities of the committee
during 2020 are summarised as
follows:
Recommended and approved
• The malus and clawback provisions
to be included in the long- and
short-term incentive for prescribed
officers
• The allocation of 2020 performance
share awards to executive directors
and all other eligible participants
• Salary increases and bonus
payments for executive directors and
other key senior managers for 2020
• Fee levels for non-executive
directors of the Sappi Limited board
for consideration and
recommendation to shareholders for
approval
• The allocation model and the
comparator peer group for the 2020
performance share plan
• The 2021 Management Incentive
Scheme rules
• Recommendation to shareholders
for the re-set of the number of
shares under the PSP, which the
shareholders approved in
February 2020
Reviewed
• The Remuneration Report, including
the content of the company
compensation policy and practices,
which was put to shareholders for a
non-binding vote at the Annual
General Meeting in February 2020
• Development of the 2020
Remuneration Report for
shareholder approval in
February 2021
• The succession, retirement and
development plans for key
management positions
• The group’s Industrial Relations
Policy and implementation.
• The group’s Training and
Development Policy and
implementation
• The HR2025 plan
• The investor feedback on the 2019
Remuneration Report
• Sappi’s Covid-19 response and the
impact on employees
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT 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
substantial 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 deferred shares bonus
plan, provide for a voluntary deferral
of 40% of the Chief Executive
Officer’s annual bonus, and 30% of
the executive managers’ annual
bonuses (to purchase Sappi shares),
to ensure a long-term focus on the
company’s performance by the
individual concerned and establish
a personal stake in the company
• Are designed to pay at the market
median for all components of pay,
except for short-term incentives,
which are targeted at the 75th
percentile.
Independent advice
Management engaged the services
from the following organisations to
assist in compensation work during
the course of the year:
• Mercer Kepler, United Kingdom
• Korn Ferry, South Africa
• KPMG Inc, South Africa
• Bowmans, South Africa
• PricewaterhouseCoopers Tax
Services, South Africa
• Herbert Smith Freehills South Africa
LLP
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 Report on
Corporate Governance for South Africa
2016 (King IV). Our remuneration
approach and disclosures fully comply
with regulatory and statutory
provisions relating to reward
governance in all the countries in which
we operate. The committee ensures
compliance with legal and regulatory
requirements as they pertain to
compensation.
The Human Resources and
Compensation Committee is of the
view that the objectives stated in the
Remuneration Policy have been
achieved for the period under review.
The committee is satisfied that it has
fulfilled its responsibilities in
accordance with its terms of reference
and with the status of remuneration
and incentives in the group.
Areas of focus for 2021
Key activities for the committee in
2021 will be, inter alia, the approval of
the remuneration and bonuses for
executive directors and senior
management.
In addition to the annual work plan
as approved by the committee, the
chairman of the committee and senior
executives from Sappi will, if required,
also be visiting key shareholders to
discuss issues of mutual concern.
141
GOVERNANCE AND COMPENSATION
Remuneration Report continued
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
Structure
Opportunity
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
Fixed
• 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
• None
These are:
• Appropriate in terms of level of seniority
• Market related
• Death benefit is a multiple of base salary
• Non-pensionable
Component – Pension
• To provide market related benefits
• Facilitate the accumulation of
• Comprises defined benefit and defined
contribution plans
savings for post-retirement years
• 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
142
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT Purpose
Structure
Opportunity
• 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
Component – Annual cash incentive
• Focus participants on targets
• All measures and objectives are reviewed and
Variable
relevant to the group’s strategic
goals
• Drive performance
• Motivate executives to achieve
specific and stretching short-term
goals
• Reward individuals for their
personal contribution and
performance
• Deferred share proportion of the
annual bonus aligns interests with
shareholders
set at the beginning of the financial year
• Payments are reviewed and approved at year
end by the committee based on performance
against the targets
• Threshold is required to be met for any bonus
payment to occur
• Target level of bonuses varies from 65-85% of
base salary
•
• Weightings for 2020 were: EBITDA – 50%;
working capital – 20% and safety – 10%;
individual – 20%
If the agreed target for EBITDA is achieved,
a bonus award percentage of 100% will be
paid for that component. A bonus award
percentage of up to 150% can be earned if
110% or more of the agreed target is
achieved. If less than 85% of the target is
achieved, no bonus award will be paid
If the agreed target % for working capital is
achieved, a bonus award percentage of 100%
will be paid for that component. A bonus
award percentage of up to 150% can be
earned if 90% or less than the target is
achieved. If the working capital target is
exceeded by more than 10% then no bonus
award will be paid for working capital
•
• Bonuses are paid in cash. The group CEO and
executive committee members have
volunteered to purchase shares with 40% and
30% of their after-tax cash bonus respectively.
The right to sell the shares is deferred for up to
three years, subject to individual members not
being terminated for cause
• Non-pensionable
• Malus and clawback may be applied in the
following circumstances:
(i)
Financial results of the group or a
company/business unit in the Sappi group
have been materially misstated
A participant has ceased to be a director
or employee by reason of gross
misconduct and has resulted in significant
losses to the business
There has been material breach of Code of
Ethics/Law
(ii)
(iii)
(iv) There has been an erroneous assessment
of the extent to which any performance
conditions has been satisfied resulting in a
higher vesting outcome
143
GOVERNANCE AND COMPENSATION Remuneration Report continued
Purpose
Structure
Opportunity
Component – Long-term share incentive plans
Variable
• Align the interests of the executive
• Conditional grants awarded annually to
• None.
members with those of the
shareholder
• Reward the execution of the
strategy and long-term
outperformance of our
competitors
• Encourage long-term commitment
•
to the company
Is a wealth creation mechanism
for executive members if the
company outperforms the peer
group
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 between the CEO and each of the
executive committee members
• Measures for 2020 awards were relative total
shareholder return (TSR) – 50% and relative
CFRONA – 50%
• Malus and clawback may be applied in the
following circumstances:
(i)
financial results of the group or a
company/business unit in the Sappi group
have been materially misstated
a participant has ceased to be a director
or employee by reason of gross
misconduct and has resulted in significant
losses to the business
there has been material breach of Code of
Ethics/Law
(ii)
(iii)
(iv) there has been an erroneous assessment
of the extent to which any performance
conditions has been satisfied resulting in a
higher vesting outcome
Component – Service contracts
• Provide an appropriate level of
• Executive committee members have notice
•
protection to both the executive
and to Sappi
periods by the company of 12 months or less
• Separation agreements, when appropriate, are
negotiated with the individual concerned with
prior approval being obtained in terms of our
governance structures
In circumstances where there is
a significant likelihood of a
transaction involving the Sappi
group or a business unit, limited
change in control protections may
be agreed and implemented if
deemed necessary for retention
purposes
Service contracts
Mr Binnie and Mr 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 years. The retirement age of executive committee
members is generally between the ages of 63 years and 65 years and differs by region.
144
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT Choice of performance measures and approach to target setting
Short-term incentive: MIS
The table below shows the metrics and why they were chosen and how targets are set.
Metric
EBITDA
50
Percentage (%)
Relevance
How do we set the targets?
Working capital
20
Safety
10
Individual
performance
20
Targets and ranges are set each year by
the board taking account of required
progress towards strategic goals, and
the prevailing market conditions.
Targets and ranges are set each year by
the board taking account of the required
progress towards strategic goals, and
the prevailing market conditions.
A key indicator of the underlying profit
performance of the group, reflecting
both revenues and costs. Aligns closely
with our strategic goals of achieving cost
advantages and growth. More efficient
water, energy and raw material usage is
also encouraged.
A key indicator of accounts payable,
accounts receivable, 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.
A core value of the company and 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. Measure will be
LTIFR
An indicator of the contribution of
each executive director, individual
performance for relevant managers.
Includes several key non-financial
targets in relation to sustainability, living
the Sappi values, major capital projects
and 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. These
are reviewed as part of an annual review
with the Chairman.
The bonus payment opportunity available to executive directors and executive committee members is as follows:
Executive director
Regional CEO
Other prescribed officers
(i.e. executive committee members)
On-target bonus
Stretch target
85% of base salary
70% of base salary
116% of base salary
95% of base salary
65% of base salary
88.5% of base salary
145
GOVERNANCE AND COMPENSATION Remuneration Report continued
Performance Share Plan (PSP)
The Sappi PSP 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 CFRONA.
The table below shows the metrics and why they were chosen and how targets are set.
Metric
Relevance
How do we set the targets?
Total shareholder return (TSR)
TSR measures the total returns to Sappi’s
shareholders, providing close alignment
with shareholder interests.
Cash flow return on net assets
A key indicator of the effective use of capital
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.
This measure is calculated using a simple
annual average over the previous four-year
period.
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. No vesting occurs in positions
10 – 17 of the peer group. Vesting
increases from 25% at position 9 to 100%
for positions 1 – 5.
The peer group for the PSP award consisted of the following 16 industry-related companies:
Stora Enso
Lenzing
Domtar
UPM-Kymmene
Rayonier Advance Materials
Borrogaard
Sun Paper
Metsá Board
Ahlstrom-Munksjo
Holmen
Mondi PLC
International Paper
West Rock
Verso
Suzano
Resolute Forest Products
Vesting schedule
The vesting schedule for 2016 allocation for both TSR and CFRONA is as follows:
Position
Vesting
1-5
6
7
8
9
10-17
100%
80%
65%
45%
25%
0%
146
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT Approach to remuneration
benchmarks
Executive compensation is
benchmarked on data provided in
national executive compensation
surveys, for countries in which
executives are domiciled, as well as
information disclosed in the annual
reports of listed companies of the
Johannesburg Stock Exchange. Sappi
participates in global remuneration
surveys and uses data from global
remuneration survey, i.e. 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.
The remuneration package for a newly
appointed executive director is 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 is determined in the
same way as for existing executive
directors. For internal and external
appointments, the group may meet
certain relocation expenses, as
appropriate.
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 the
committee additionally receives a
report on the approach management
proposes to adopt for general staff
increases. Both these reports are taken
into account in the committee’s
decisions regarding 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.
Malus and clawback
Awards made to the CEO, CFO and
prescribed officers under Sappi’s MIS
and PSP are subject to both malus and
clawback provisions which may be
applied during the period of two years
after the date of vesting or granting.
Clawback refers to the recovery of paid
or vested amounts and malus refers to
the reduction, including to nil, of
unvested or unpaid amounts. Malus
and clawback may be applied in the
following circumstances:
• Financial results of the group or a
company/business unit in the Sappi
group have been materially
misstated
• A participant has ceased to be a
director or employee by reason of
gross misconduct and has resulted
in significant losses to the business
• There has been material breach of
Code of Ethics/Law
• There has been an erroneous
assessment of the extent to which
any performance conditions has
been satisfied resulting in a higher
vesting outcome
Remuneration scenarios at
different performance levels
The charts below illustrate the total
potential remuneration (base pay and
short-term incentives) for executive
director at different performance
levels.
Remuneration levels (CEO and CFO)
(percentage of base pay)
140
120
100
80
60
40
20
0
6
1
1
6
4
4
8
4
0
0
1
5
8
0
0
1
3
5
5
6
3
Target
Stretch
●
●
Base pay
Short-term incentive (MIS)
147
GOVERNANCE AND COMPENSATION Remuneration Report continued
Remuneration policy for non-executive directors (fees)
Element
Purpose
How it works?
Fees
• The Chairman receives an
• The Chairman’s fees are
all-inclusive fee
• 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
Non-executive
Chairman (fees)
Other non-
executive
directors (fees)
• To attract and retain high-
• The non-executives are paid a
calibre non-executives, with
the necessary experience
and skills
• To provide fees which take
account of the time
commitment and
responsibilities of the role
basic fee
• Attendance fees are also paid
to reflect the requirement for
non-executive directors to
attend meetings in various
international locations
• The chairmen of the main
board committees and the
lead independent director are
paid additional fees to reflect
their extra responsibilities
reviewed periodically by the
committee
• Fees are set by reference
to market median data for
companies of similar size and
complexity to Sappi
• Non-executive directors’ fees
are reviewed periodically by
the Chairman and Human
Resources and Compensation
Committee
• Fees are set by reference to
market median data for
companies of similar size
and complexity to Sappi
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 as detailed
in this Remuneration Report, need to
be tabled for separate non-binding
advisory votes by shareholders at the
upcoming AGM. In the event that either
the remuneration policy or the
implementation report, or both, are
voted against by 25% or more of the
voting rights entitled to be exercised by
shareholders at such AGM, then the
committee will ensure that the
following measures are taken in good
faith and with best reasonable efforts:
• an engagement process to ascertain
the reasons for the dissenting votes,
and
• appropriately addressing legitimate
and reasonable objections and
concerns raised which may
include amending the Remuneration
Policy or clarifying or adjusting
remuneration governance and/or
processes.
You can also view the full
Remuneration Policy on
www.sappi.com.
148
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT Section C : Remuneration implementation report
Compensation structure
Total compensation comprises fixed pay (i.e. 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.
The long-term incentive awards are based on the face value of the performance
plan shares issued on 18 November 2020 (share price at date of allocation:
ZAR27.55). Details of the executive directors’ remuneration can be found on
153.
Executive directors (number of employees
at 30 September 2020 = 2)
Executive committee (number of
employees at 30 September 2020 = 7)
US$ million
2,877,296
1,954,349
1,664,061
US$ million
7,121,202
5,700,066
4,422,769
9
2
5
3
7
3
3.0
2.5
2.0
1.5
1.0
0.5
0
8
4
2
5
3
4
7
5
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0
6
2
7
2
7
4
5
5
3
9
5
0
3
0
7
2018
2019
2020
2018
2019
2020
●
●
●
Guaranteed package
Performance shares issued
Short-term incentives
●
●
●
Guaranteed package
Performance shares issued
Short-term incentives
Our compensation policy aims to have a balance between base salary, short- and
long-term incentives.
Base salary
The Human Resources and Compensation Committee approved the level of base
salary for each executive director, executive committee member and other key
senior managers.
The 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.
In January 2020, Mr Binnie and
Mr Pearce received a salary increase
of 4.6% on the South African portion of
their salaries and 1.0% on the offshore
portion of their salaries. Their salaries
were US$504,410 per annum and
US$291,478 per annum, respectively.
As a result of the Covid-19 pandemic,
both Mr Binnie and Mr Pearce voluntary
took a salary reduction of 10% for
a three-month period (April to
June 2020).
The same salary increase percentages
were applied in determining the salary
increases for executive committee
members’ and general staff, dependent
on location.
Retirement benefits
Retirement benefits are largely in the
form of defined contribution schemes.
In some instances, legacy defined
benefit schemes exist. Almost all the
defined benefit schemes are closed to
new hires.
Mr Binnie and Mr Pearce are both
members of defined contribution funds
and the total employee and company
contribution is ZAR350,000 each.
No additional payments were made to
any retirement fund on behalf of the
executive directors.
Short-term incentive
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.
149
GOVERNANCE AND COMPENSATION Remuneration Report continued
2020 Management Incentive Scheme outcomes for executive directors
EBITDA
Threshold
Target
Maximum
Actual
US Dollar (million)
Points
577
679
50
747
75
389
0
Working capital
Threshold
Target
Maximum
Actual
Percentage
Points
13.0%
11.8%
20
11.2%
30
13.2%
0
Safety*
LTIFR
Points
Target
Actual
0.47
0.44
0
* The group and regional safety performance improved, zero was allocated to the executive
committee and applicable regions due to the tragic fatality.
Personal objectives of executives for 2020 MIS
Performance objectives
Measures
Tasks and targets
Drive the safety-first programme
LTIFR (own employees)
LTIFR 0.47
Zero fatalities
Ensure communication and training
around values, including the
OneSappi approach
Communication and training
at all levels
All new employees trained on values, strategy and Code
of Ethics in first 30 days
Values embedded in Leadership Development
programmes
100% signoff on all ethical and compliance related
training
CEO living the values
Lead the roll-out of the Sappi
Thrive25
strategy
Deadline date
Strategy designed and approved by the board
Strategy communicated across Sappi
Global IT, Global Technology, GBS,
Sappi Biotech and Brand Council
% progress of implementing
global functions 100%
Implementation of new operating models of in-scope
functions
Governance oversight over Project
Vulindlela
Project deadlines, cost and
deliverables
Project on stream (post Covid-19)
Project Vulindlela success rating using post-project
evaluation
Grow packaging volumes in SSA
and SNA in line with increase in
local demand
Volume growth
Grow packaging tons to 1,358,000
Packaging EBITDA margin target 12.8%
Reduce graphics capacity in line
with market demands
EBITDA margin
Reduce graphics by 210,000 tons
EBITDA margin for graphics 8%
150
Govern implementation of
operational excellence programmes
to drive an excellence culture
OME numbers
Key efficiency metrics
OME target at group level: 80.74
Project Ranulph cost savings USD64 million
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT
Performance objectives
Measures
Tasks and targets
Training completed as per regional
targets
Successors identified for all key
retirees for next 12 months
% of targets
80% ready now successors for all key retirements
100% development plans in place for key talent
Meet Sappi’s annual sustainability
targets
% of group sustainability
targets
All 2020 group targets met as per the sustainability report
New product designs taken into
commercial operation
Number of products
Two new material products moved into commercial
operation
Commenced with first sales of Symbio and Valida
products from available pilot capacity
Approve scale-up of the furfural project
The Chairman conducted a formal review with the CEO and scored him out of 20 points on the achievement of the stated
objectives, namely objective achieved two points, partially achieved one point and non-achievement 0 points. Covid-19 brought
several challenges to the business that impacted profitability. However, despite these challenges, both Mr Binnie and Mr Pearce
performed outstandingly on their personal objectives as stated below.
2020 MIS outcomes for executive directors
Points
Steve Binnie
Glen Pearce
EBITDA
Working
capital
Safety
Personal
Total
50
0
0
20
0
0
10
0
0
20
18
18
100
18
18
An EBITDA of US$378 million was achieved, lower than the target EBITDA of US$679 million. EBITDA as a financial measure, had
a weighting of 50 points towards the annual MIS. As the EBITDA threshold target has not been achieved, no MIS will be payable
for 2020.
Performance Share Plan outcomes for 2020
For the four-year period ending September 2020, Sappi’s performance relative to the peer group measured on TSR was ranked
14th, resulted in a 0% vesting on the TSR component. The determination of the vesting of the shares was provided by Mercer
Kepler, an independent third party.
For the four-year period ending September 2020, Sappi’s performance relative to the peer group measured on CFRONA was
ranked 5th, resulted in 100% vesting on the CFRONA component. This result was verified by KPMG, our external auditors.
In aggregate, therefore 50% of the total 2016 awards vested.
151
GOVERNANCE AND COMPENSATION Remuneration Report continued
2016 TSR vesting schedule (%)
g
n
i
t
s
e
v
s
d
r
a
w
a
f
o
%
100
75
50
25
0
0
0
1
0
0
1
0
0
1
0
0
1
0
0
1
0
8
5
6
5
4
5
2
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
Sappi’s TSR ranking versus comparators
First
2016 CFRONA vesting schedule (%)
g
n
i
t
s
e
v
s
d
r
a
w
a
f
o
%
100
75
50
25
0
0
0
1
0
0
1
0
0
1
0
0
1
0
0
1
0
8
5
6
5
4
5
2
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
Sappi’s CFRONA ranking versus comparators
In December 2016, Mr Binnie was granted 162,000 conditional performance plan
shares, of which 50% of the allocation will vest in December 2020.
In December 2016, Mr Pearce was granted 75,000 conditional performance plan
shares, of which 50% of the allocation will vest in December 2020.
Both Mr Binnie and Mr Pearce have however volunteered that their vesting of 50%
should be reduced by 10%, in line with the salary reduction they took in April 2020.
Thus, for the 2016 performance shares only 40% will vest. In the case of Mr Binnie,
64,800 performance shares will vest and for Mr Pearce, 30,000 performance shares
will vest.
The historical vesting of Performance Share Plan awards:
Share awards
TSR
CFRONA
Aggregate
2017
100%
100%
100%
2018
100%
100%
100%
2019
80%
100%
90%
2020
0%
100%
50%
Vesting since 2017 which had been at 100% on both performance criteria, reduced
to 90% for 2019. However, with the challenging market conditions, overall vesting
will be at 50%.
Performance Share Plan allocations for 2020
Each year, Mercer Kepler provides management with a recommendation for an
appropriate pool size. For the 2020 allocation, it was approved to grant the number
of shares implied by the same ZAR value of the previous year PSP awards, where
value is based on trailing long-run average share price at grant (e.g. 12 months).
This approach has been applied for the last four years and is consistent with
recommendations by our shareholders, to disclose the allocation method.
152
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT
Mr Binnie was awarded 250,000 conditional performance plan shares in November 2020 that will vest in November 2024.
Mr Pearce was awarded 115,000 conditional performance plan shares in November 2020 that will vest in November 2024.
Dilution
If all outstanding plan shares were to vest as at September 2020, the resulting dilution effect would be 2.12% (2019: 2.3%,
2018: 2.4%) 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 vesting of awards.
Share ownership
Chief Executive Officer, Mr Binnie, has volunteered to hold a target number of shares equal to 2 x his annual base 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.
Remuneration disclosure of executive directors and prescribed officers
Executive directors’ emoluments for 2020 (US Dollar)
Base
salary
Performance-
related
remuneration
504,410
291,478
–
–
Sums paid
by way of
expense
allowance
15,531
8,827
Contributions
paid under
pension and
medical aid
schemes
Long-term
share-based
payment
benefit
Total
74,296
56,126
488,441
224,951
1,082,678
581,382
SR Binnie(1)
GT Pearce(2)
(1) SR Binnie received a 4.6% increase on the South African portion (70% of total salary), and a 1.0% increase on the off-shore portion of his salary
(30% of total salary).
Overall salary expressed in reporting currency was 6.5% lower than in 2019.
(2) GT Pearce received a 4.6% increase on the South African portion (70% of total salary), and a 1.0% increase on the off-shore portion of his salary
(30% of total salary).
Overall salary expressed in reporting currency was 6.6% lower than in 2019.
• Local earnings are translated into the reporting currency (US Dollar) using the average exchange rate over the financial year.
The average rate for ZAR depreciated by 13% and appreciated for the Swiss Franc by 4%
• Due to the earnings currencies (ZAR) depreciating against the reporting currency (US Dollar) over the year, this had the effect
of showing earnings in US$ terms to be lower than last year
• Base salary – the actual salary earned during 2020, including the three month 10% salary reduction
• Performance-related remuneration – the actual bonus earned in 2020 based on the rules of the Management Incentive
Scheme
• Sums paid by way of expense allowance – expenses allowances
• Contributions paid under pension and medical aid schemes – 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
• Long-term share based payment benefit – conditional performance plan shares awarded in 2020 financial year which will vest
in 2024 if the TSR and CFRONA targets are met
Executive directors’ emoluments for 2019 (US Dollar)
Base
salary
539,629
312,014
Performance-
related
remuneration
–
–
Sums paid
by way of
expense
allowance
14,819
8,422
Contributions
paid under
pension and
medical aid
schemes
Long-term
share-based
payment
benefit
Total
82,317
60,185
635,321
301,641
1,272,086
682,263
SR Binnie
GT Pearce
153
GOVERNANCE AND COMPENSATION Remuneration Report continued
Prescribed officers/executive committee members (US Dollar)
Prescribed officers are members of the group executive committee.
The table below sets out the remuneration for prescribed officers for 2020:
Bonuses and
performance-
related
payments
–
–
–
–
–
–
–
Salary
750,723
401,458
304,729
157,111
237,651
173,079
294,155
Sums paid
by way of
expense
allowance
2,799
–
9,830
5,203
8,243
5,469
142,860
Contributions
paid under
pension and
medical aid
schemes
268,369
43,891
54,040
42,245
65,910
43,656
86,582
Share-based
payment
benefit
271,074
96,212
271,074
210,798
224,951
181,546
69,111
B Wiersum
M Haws
A Thiel
M van Hoven
G Bowles
F Marupen
M Mansoor
The table below sets out the remuneration for prescribed officers for 2019:
Bonuses and
performance-
related
payments
–
–
189,876
–
–
–
106,828
Salary
756,218
564,133
325,447
167,871
253,087
182,354
276,886
Sums paid
by way of
expense
allowance
2,820
–
9,379
4,964
7,865
5,219
157,904
Contributions
paid under
pension and
medical aid
schemes
258,045
57,222
57,939
43,939
106,199
47,238
105,498
Share-based
payment
benefit
360,596
360,596
360,596
282,976
301,641
235,658
111,072
B Wiersum
M Gardner(1)
A Thiel
M van Hoven
G Bowles
F Marupen
M Mansoor
Total
1,292,965
541,561
639,673
415,357
536,755
403,750
592,708
Total
1,377,679
981,951
943,237
499,750
668,792
470,469
758,188
(1) Retired September 2019.
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 the directors are based. The extreme volatility of currencies, in particular the ZAR/US
Dollar exchange rate in the past few 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 Human Resources and Compensation
Committee, recommended by the board and approved at the AGM by the shareholders.
154
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT The non-executive directors’ fees for 2020 financial year was approved by shareholders. The table below sets out the
remuneration for non-executive directors for 2020:
Total
Board fees
Committee
fees
Travel
allowance
US$
KR Osar(1)
JD McKenzie(2)
ANR Rudd
NP Mageza
MV Moosa
MA Fallon
RJAM Renders
B Mehlomakulu
Z Malinga
BR Beamish
JM Lopez
JE Stipp
Total
(1) Retired from the board in December 2019.
(2) Retired from the board in December 2019.
US$
KR Osar
JD McKenzie
ANR Rudd
NP Mageza
MV Moosa
MA Fallon
RJAM Renders
B Mehlomakulu
Z Malinga(1)
BR Beamish(2)
JM Lopez(2)
JE Stipp(3)
Total
8,920
4,513
–
36,923
25,708
60,818
63,436
19,256
14,062
49,036
24,863
34,788
7,600
–
11,400
–
7,600
11,400
11,400
–
–
11,400
11,400
11,400
342,323
83,600
1,283,796
17,635
10,391
397,582
27,084
37,079
57,996
67,988
27,084
27,084
57,996
68,777
68,777
865,473
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
2019
Board fees
Committee
fees
Travel
allowance
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
34,155
14,904
408,982
64,007
62,787
130,214
142,824
46,340
41,146
118,432
105,040
114,965
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
(1) Appointed to the board in October 2018.
(2) Appointed to the board in March 2019.
(3) Appointed to the board in June 2019.
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.
155
GOVERNANCE AND COMPENSATION Social, Ethics, Transformation and
Sustainability Committee Report
Introduction
The SETS Committee presents its
report for the financial year ended
September 2020. This committee is a
statutory committee with a majority
of independent non-executive
members, whose duties are delegated
to them by the board of directors. The
committee conducted its affairs in
compliance with a board approved
terms of reference and discharged all
its responsibilities contained therein.
The committee was established during
the 2012 financial year in response to
the requirements of section 72(4) of
the South African Companies Act No
71 of 2008, read with regulation 43 of
the Companies Regulations, 2011.
These regulations required the
establishment of a Social and Ethics
Committee, to which were added the
transformation and sustainability
oversight roles previously contained
in the Sustainability and Human
Resources and Transformation
Committees.
Multi-functional regional sustainability
councils provide strategic and
operational support to a group
sustainability council which in turn
provides support to the SETS
committee in dealing with key
sustainability issues.
During the financial year the committee
formally met three times at which
meetings it deliberated on all aspects
relating to its terms. A 100%
attendance record was achieved by
board committee members for 2020.
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 2020 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 CEOs, the Group Head
Strategy and Legal, the Group Head
Technology, the Group Head Human
Resources, the Group Head Corporate
Affairs, the Executive VP Dissolving
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
corporate social responsibility
(CSR) programmes and policy
• Reviewed the Corporate Social
Development programme
• Reviewed the United Nations (UN)
Sustainable Development Goals
(SDGs) most relevant to Sappi
• Reviewed Sappi’s standing in
terms of:
– The principles set out in the United
Global Compact Principles
– The OECD recommendations
regarding corruption
– The Employment Equity Act, 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 Organisation (ILO) protocol
on decent work and working
conditions
• Reviewed the group safety
programmes, safety performance
and actions being taken to improve
the safety performance of the group
• Reviewed the Group Unfair
Discrimination and Equality Policy
• Reviewed the Group Sustainability
Charter and Environmental Policy
• Reviewed the material indicators of
the group’s environmental
performance
• Reviewed regional sustainability
performance against goals for 2020
• 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 2020
• In-depth review of the TCFD
disclosure recommendations and
managements plans to report on
same
• Reviewed management’s actions in
response to Covid-19, in particular
donations and support given to
communities
• Received feedback on
management’s and industry stance
on genus exchange regulations in
South African plantations
• Reviewed the SETS Committee
report for the annual integrated
report as well as sustainability
information presented in the
integrated report
156
GOVERNANCE AND COMPENSATIONSappi 2020 ANNUAL INTEGRATED REPORT • Reviewed the external verification
update report on selected group
sustainability metrics
At certain meetings a topic is selected
for an in-depth review, typically matters
which in the view of the committee
represent key risks or opportunities for
the business. This year the focus area
was on the recommendations of the
TCFD and the work that the company
is doing in order to develop a view of
our climate related risks and
opportunities, the climate risk strategy
and the reporting of the same. Please
see Helping to mitigate climate
change on page
82 for more
information.
Conclusion
The committee confirms that the group
gives its social, ethics, transformation
and sustainability responsibilities the
necessary attention. Appropriate
policies and programmes are in place
to contribute to social and economic
development, ethical behaviour of staff
towards colleagues and other
stakeholders, fair labour practices,
environmental responsibility and good
customer relations. In fulfilling their
mandate, the committee has sought
to ensure the needs of a wide set of
stakeholders, including employees,
local communities, customers and
shareholders are considered and that
key sustainability risks are identified
and managed.
There were no substantive areas of
non-compliance with legislation and
regulation, nor non-adherence with
codes of best practice applicable to
the areas within the committee’s
mandate that were brought to the
committee’s attention. The committee
has no reason to believe that any such
non-compliance or non-adherence
has occurred.
MV Moosa
Chairman
Social, Ethics, Transformation and
Sustainability Committee
157
GOVERNANCE AND COMPENSATION
158
Momentum
Linear momentum is defined as the product of a
system’s mass multiplied by its velocity. The greater an
object’s mass or the greater its velocity, the greater its
momentum. In other words, momentum is about both
magnitude and direction.
customers and suppliers we systematically increased
activity and output in response to improved market
demand. Our support for local communities helped
mitigate the impact of the pandemic and the ensuing
socio-economic consequences on them.
It can be difficult to maintain momentum in times of
profound change or crisis, but it’s important to do so.
That’s because action creates movement which in turn
can create unanticipated opportunities.
Recognising this, at Sappi we responded to the
coronavirus pandemic and Covid-19 in order to keep
our forward momentum. We swiftly implemented
a comprehensive Covid-19 action plan that ensured
the health and safety of our employees and enabled
us to operate in a safe, uninterrupted manner
where demand permitted. Working closely with our
Looking ahead, we are confident that we can accelerate
our momentum to navigate forward: We have the
mass in the form of wide-ranging expertise, extensive
infrastructure, strong foundation of research and
development, together with our range of sustainable
solutions produced from renewable woodfibre. And
we have the velocity in the form of our ambitious but
achievable Thrive25 strategy, which allows us to take
advantage of the changing dynamics between the
environment, consumers and the products they require.
Above all, our passionate, committed people provide
the impetus to power us forward.
159
Five year review
for the year ended September 2020
US$ million
2020
2019
2018
2017
2016
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 (loss)
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 income 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)
4,609
2,838
1,673
41
57
95
(38)
88
(126)
9
(135)
378
5,455
3,891
1,564
1,123
1,632
1,957
2,236
(279)
3,589
323
65
(103)
6
(26)
–
260
(257)
138
351
126
225
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
1,163
1,094
1,161
1,181
1,123
1,120
17,131
1,128
15,156
1,190
14,147
1,106
13,556
1,111
13,714
16,226
14,346
13,052
13,381
14,788
(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.
160
Sappi 2020 ANNUAL INTEGRATED REPORTAPPENDICES US$ million
2020
2019
2018
2017
2016
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 (loss) to sales
Operating profit excluding special items
to sales
EBITDA excluding special items to sales
Operating profit excluding special items
to capital employed (ROCE)
Net debt to EBITDA excluding special items
Interest cover
Return on average equity (ROE)
Debt ratios (%)
Net debt to total capitalisation
Efficiency ratios
Asset turnover (times)
Inventory turnover ratio
Liquidity ratios
Current asset ratio
Trade accounts receivable days
outstanding (including receivables
securitised)
Cash interest cover (times)
Other non-financial information(2)
Sales volumes
Number of full-time equivalent employees
Lost time injury frequency rate
(including contract employees)
Energy
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 (tonne/adt)
Emissions
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)
546.1
545.5
542.8
542.0
539.3
538.1
535.0
533.9
530.6
529.4
(25)
(25)
(19)
(19)
(5)
299
(0.8)
1.2
8.2
1.6
5.2
4.7
(7.5)
54.5
0.8
6.3
1.4
44
3.7
39
39
42
42
44
359
6.7
7.0
12.0
11.0
2.2
9.3
10.0
43.5
1.0
7.0
1.5
46
7.6
60
59
59
58
60
361
8.4
8.3
13.1
14.6
2.1
11.0
17.5
44.6
1.0
6.7
1.6
45
9.3
63
62
64
63
64
327
9.9
9.9
14.8
18.0
1.7
9.1
21.6
43.1
1.0
7.0
1.8
45
8.1
60
59
58
57
57
260
10.6
9.5
14.4
17.5
1.9
7.3
26.7
50.5
1.0
7.0
1.4
44
5.6
6,788
12,805
7,622
12,821
7,591
12,645
7,410
12,158
7,253
12,051
0.35
23.71
54.44
36.82
34.53
0.061
0.54
22.16
53.49
34.33
32.19
0.066
0.43
22.61
52.14
34.24
32.30
0.064
0.44
22.77
53.70
33.95
32.10
0.079
0.46
22.90
53.77
34.90
32.23
0.069
0.71
4,083,122.97
0.66
4,426,125
0.69
4,452,593
0.68
4,326,977
0.69
4,230,404
0.21
1,196,188.99
0.23
1,539,904
0.24
1,545,314
0.25
1,583,416
0.28
1,692,230
Refer to share statistics section for other market and share-related information.
(1) Net of treasury shares (refer to note 19 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 on page
164.
161
APPENDICES Share statistics
as at September 2020
Shareholding
Ordinary shares in issue
1 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 – 1,000,000
Over 1,000,000
Number of
shareholders
Number of
shares(1)
% of shares
in issue
%
7,512
250
395
162
346
78
8,743
3,607,542
85.8
1,852,531
2.9
9,590,328
4.5
11,478,259
1.9
4.0
107,339,644
0.9 412,230,707
0.7
0.3
1.8
2.1
19.7
75.4
100.0 546,099,011
100.0
(1) The number of shares excludes 1,761,527 treasury shares held by the group.
Shareholder spread
Type of shareholder
Non-public
Sappi Limited directors and prescribed officers
Associates of group directors
Trustees of the company’s share and retirement funding schemes
Shareowners who, by virtue of any agreement, have the right to nominate board members
Share owners interested in 10% or more of the issued shares
Public (the number of public shareholders as at September 2020 was 8,732)
% of shares
in issue
0.5
0.5
–
–
–
–
99.5
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, No 71 of 2008, as amended 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 2020, the following
are beneficial holders of more than 5% of the issued share capital of Sappi Limited:
Beneficial holder
Public Investment Corporation
Allan Gray Balanced Fund
Alexander Forbes Investments
Shares
109,237,995
35,321,140
27,399,324
%
20.0
6.5
5.0
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 2020, the following fund managers were
responsible for managing 5% or more of the share capital of Sappi Limited:
Fund manager
Allan Gray Pty Limited
Public Investment Corporation
Prudential Investment Managers
Ninety One Plc
Shares
101,437,748
90,211,054
65,214,855
58,132,747
%
18.6
16.5
11.9
10.6
162
Sappi 2020 ANNUAL INTEGRATED REPORTAPPENDICES Share statistics
Ordinary shares in issue (millions)(1)
Net asset value per share (US cents)
Number of shares traded (millions)
JSE
New York
Value of shares traded
JSE (ZAR million)
New York (US$ million)
Percentage of issued shares traded
Market price per share
– year end
– highest
– lowest
JSE (South African cents)
New York (US cents)
JSE (South African cents)
New York (US cents)
JSE (South African cents)
New York (US cents)
Earnings yield (%)(2)
Price/earnings ratio (times)(2)
Total market capitalisation (US$ million)(2)
2020
546.1
299
736.3
2.0
24,509.3
4.0
135.2
2,377
151
4,799
345
1,720
107
negative
negative
758
2019
542.8
359
537.1
0.3
2018
539.3
361
557.4
0.4
2017
535.0
327
630.7
3.1
2016
530.6
260
544.7
0.9
33,141.3
1.5
99.0
49,837.1
2.9
103.4
54,760.0
20.3
118.5
35,428.6
4.2
102.8
3,629
251
9,059
640
3,542
241
16.29
6.14
1,300
8,875
639
10,579
749
7,180
613
9.56
10.46
3,383
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
(1) The number of shares excludes 1,761,527 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 on page
164.
163
APPENDICES
Glossary
General definitions
AGM – Annual General Meeting.
AF&PA – American Forest and Paper
Association.
air dry tons (ADT) – Meaning dry solids
content of 90% and moisture content
of 10%.
BCTMP – Bleached Chemi-Thermo
Mechanical Pulp.
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.
biomaterials – New developments in
wood processing supports the move
to a biobased economy that utilises
materials that are renewable and
biodegradable and in the case of wood
feedstocks 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, and other
extractives from the wood to free the
cellulose fibres. The resulting black
liquor is an aqueous solution of lignin
residues 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 higher
brightness 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 solid
textured surfaces.
164
CEPI – Confederation of European
Paper Industries.
Cham Paper Group Holding AG (CPG)
– Speciality paper business acquired by
Sappi, which included CPG’s
Carmignano and Condino Mills (Italy)
and its digital imaging business located
in Cham (Switzerland) as well as all
brands and know-how.
chemical oxygen demand (COD) – The
amount of oxygen required to break
down the organic compounds in
effluent.
chemical pulp – A generic term for pulp
made from woodfibre that has been
produced in a chemical process.
CHP – Combined heat and power.
coated mechanical paper (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 (DP) – Highly purified
chemical pulp derived primarily from
wood and in some instances 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.
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.
FSA – Forestry South Africa.
Forest Stewardship Council (FSC) –
A global, not-for-profit organisation
dedicated to the promotion of
responsible forest management
world-wide.
(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.
APPENDICESSappi 2020 ANNUAL INTEGRATED REPORT
graphic papers – A generic term for
a group of papers intended for
commercial printing use such as
coated woodfree, coated mechanical,
uncoated woodfree and newsprint.
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 mostly
from lignin.
ISO – The International Organization for
Standardization.
JSE Limited – The main securities
exchange in South Africa.
kraft paper – Packaging or other 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
GHG 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.
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 is derived from
further processing cellulose to a
smaller size fraction or nano scale.
These engineered celluloses open up
opportunities for advanced, planet-
friendly solutions in place of
environmentally harmful products.
natural/indigenous forest – Pristine
areas not used commercially.
NBHK – Northern Bleached Hardwood
Kraft pulp. One of the varieties of
market pulp, produced from hardwood
trees (ie birch or aspen) in Scandinavia,
Canada and northern 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.
papers, dye sublimation papers, inkjet
papers and tissue paper.
packaging paper – Paper used for
packaging purposes.
PAMSA – Paper Manufacturers’
Association of South Africa.
Programme for the Endorsement of
Forest Certification™ (PEFC™) –
An international non-profit, NGO
dedicated to promoting sustainable
forest management (SFM) through
independent third-party certification.
PEFCTM works by endorsing national
forest certification systems and is
represented in 49 countries through
national organisations such as SFI® in
North America.
(https://www.pefc.org)
plantation – Large scale planted
forests, intensively managed, highly
productive and grown primarily for
wood and fibre production.
PM – Paper machine.
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.
newsprint – Paper produced for the
printing of newspapers mainly from
mechanical pulp and/or recycled waste
paper.
release paper – Based paper used
in the production of making release
liners, the backing paper for self-
adhesive labels.
NGO – Non-governmental
organisation.
sackkraft – Kraft paper used to
produce multi-wall paper sacks.
NPO – Non-profit organisation.
OHSAS – An international health and
safety standard.
OTC – Over-the-counter trading of
shares.
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.
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 and
managed commercially.
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
Sappi Dissolving Pulp (DP) – The
business unit within Sappi which
oversees the production and marketing
of DP.
165
APPENDICES Glossary continued
Sappi North America (SNA) – The
business unit within Sappi which
oversees operations in the North
American region.
thermo-mechanical pulp – Pulp
produced by processing woodfibres
using heat and mechanical grinding or
refining wood or woodchips.
commissioning date – The date that an
item of property, plant and equipment,
whether acquired or constructed, is
brought into use.
Sappi Southern Africa (SSA) –
The business unit within Sappi which
oversees operations in the Southern
Africa region.
Scope 1 and 2 GHG emissions
– The Greenhouse Gas Protocol
defines Scope 1 (direct) and Scope 2
(indirect) emissions as follows:
• Direct GHG emissions are emissions
from sources that are owned or
controlled by the reporting entity,
and
• Indirect GHG emissions are
emissions from purchased
electricity, steam, heat or cooling.
SDGs – see UN SDGs.
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.
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
program. (https://www.forests.org)
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 anticorruption.
UN SDGs – United Nations Sustainable
Development Goals.
viscose staple fibre (VSF) – A natural
fibre made from purified cellulose,
primarily from DP that can be twisted
to form yarn.
woodfree paper – Paper made from
chemical pulp.
World Wide Fund for Nature (WWF) –
The world’s largest conservation
organisation, focused on supporting
biological diversity.
General financial
definitions
acquisition date – The date on
which control in respect of subsidiaries,
joint control in respect of joint
arrangements and significant influence
in associates commences.
associate – An entity over which the
investor has significant influence.
basic earnings per share – Net profit
for the year divided by the weighted
average number of shares in issue
during the year.
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.
166
APPENDICESSappi 2020 ANNUAL INTEGRATED REPORT 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.
Non-GAAP financial
definitions
The group believes that it is useful to
report certain non-GAAP measures for
the following reasons:
• These measures are used by the
group for internal performance
analysis
• The presentation by the group’s
reported business segments of
these measures facilitates
comparability with other companies
in our industry, although the group’s
measures may not be comparable
with similarly titled profit
measurements reported by other
companies, and
• It is useful in connection with
discussion with the investment
analyst community and debt
rating agencies.
These non-GAAP measures should not
be considered in isolation or construed
as a substitute for GAAP measures in
accordance with International Financial
Reporting Standards (IFRS).
asset turnover (times) – Sales divided
by total assets.
average – Averages are calculated as
the sum of the opening and closing
balances for the relevant period
divided by two.
black economic empowerment (BEE)
charge – Represents the IFRS 2
non-cash charge associated with the
BEE transaction implemented in 2010
in terms of BEE legislation in South
Africa.
capital employed – Shareholders’
equity plus net debt.
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 1/2019, issued by the
South African Institute of Chartered
Accountants in December 2019, 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.
cash interest cover – Cash generated
by operations divided by finance costs
less finance revenue.
net cash (utilised) generated – Cash
flows from operating activities less
cash flows from investing activities.
current asset ratio – Current assets
divided by current liabilities.
dividend yield – Dividends per share,
which were declared after year end,
in US cents divided by the financial
year-end closing prices on the
JSE Limited converted to US cents
using the closing financial year-end
exchange rate.
net debt – Current and non-current
interest-bearing borrowings and lease
liabilities, and bank overdraft (net of
cash, cash equivalents and short-term
deposits).
net debt to total capitalisation – Net
debt divided by capital employed.
167
APPENDICES Glossary continued
net operating assets – Total assets
(excluding deferred taxation and cash
and cash equivalents) less current
liabilities (excluding interest-bearing
borrowings, lease liabilities 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.
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.
168
APPENDICESSappi 2020 ANNUAL INTEGRATED REPORT Notice to shareholders
Notice of Annual General Meeting (AGM)
This document is important and requires your immediate attention.
If you are in any doubt as to what action you should take, please consult your stockbroker, banker, attorney, accountant or other
professional adviser immediately.
Sappi Limited
(Registration number: 1936/008963/06)
JSE share code: SAP
ISIN: ZAE000006284
(Sappi or the company)
Shareholders will be aware of the evolving Covid-19 pandemic and the measures taken by the South African government to
prevent its spread, including guidelines on physical distancing, and limits on public gatherings. These all impact the manner in
which traditional shareholder meetings are held. In line with these measures the board has, in accordance with Sappi’s MOI,
resolved to hold the Annual General Meeting electronically on Wednesday, 03 February 2021 at 14:00.
Record date
The record date on which shareholders must be recorded as such in the register maintained by the transfer secretaries for
the purposes of determining which shareholders are entitled to receive this Notice of Annual General Meeting is Friday,
4 December 2020 (notice record date). This Notice of Annual General Meeting will be posted to shareholders on Thursday,
17 December 2020 and this will be announced on the Stock Exchange News Service, the official news service of the JSE,
on the same date.
The last day to trade in order to be eligible to attend and vote electronically at the Annual General Meeting is Tuesday, 26 January 2021.
The record date to determine which shareholders are entitled to attend electronically and vote at the AGM is Friday, 29 January 2021.
1. Ordinary resolution number 1: Presentation of annual financial statements
Ordinary resolution number 1 is proposed to present the annual financial statements of the company for the year ended
September 2020, including the Directors’ Report, the report of the auditors and the report of the Audit and Risk Committee.
Abridged or summarised financial statements are contained in the Chief Financial Officer’s Report of the Annual Integrated
Report (see page
the Sappi website: www.sappi.com
98). The complete Group Annual Financial Statements for the year ended September 2020 are available on
“Resolved that the Group Annual Financial Statements for the year ended September 2020 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 resolutions numbers 2 .1 to 2.4: 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 1 in Notice to
shareholders on page
176.
It is intended that all the directors who retire by rotation will, if possible, attend the AGM by means of videoconferencing.
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:
169
APPENDICES Notice to shareholders continued
Ordinary resolution number 2.1
“Resolved that Ms Z Malinga is re-elected as a director of Sappi.”
Ordinary resolution number 2.2
“Resolved that Mr V Moosa is re-elected as a director of Sappi.”
Ordinary resolution number 2.3
“Resolved that Mr RJAM Renders is re-elected as a director of Sappi.”
Ordinary resolution number 2.4
“Resolved that Sir Nigel Rudd is re-elected as a director of Sappi.”
3. Ordinary resolution number 3: Election of Audit and Risk Committee members
Ordinary resolution number 3 is proposed to elect the members of the Audit and Risk Committee in terms of section 94(2)
of the South African Companies Act, 71 of 2008 (as amended) (the Companies Act) and the King IV Report on Corporate
Governance for South Africa 2016 (King IV).
Section 94 of the Companies Act requires that, at each AGM, shareholders of the company must elect an Audit and Risk
Committee comprising at least three members.
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
120).
“Resolved that an Audit and Risk Committee be and is hereby elected, by separate election to the committee of the
following independent directors:
3.1 Mr NP Mageza
3.2 Ms ZN Malinga
3.3 Dr B Mehlomakulu
3.4 Mr RJAM Renders
3.5 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 2.1 and 2.3, respectively.
4. Ordinary resolution number 4: Appointment of auditors
The board has evaluated the performance of KPMG Inc. and recommends their re-appointment as auditors of Sappi.
“Resolved that KPMG Inc. (with the designated registered auditor to be Mr Coenie Basson) be re-appointed as the auditors
of Sappi for the financial year ending September 2021 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.
170
Sappi 2020 ANNUAL INTEGRATED REPORTAPPENDICES 5. Ordinary resolution number 5: Specific authority to issue ordinary shares
“Resolved in accordance with paragraph 5.51(g) of the Listings Requirements, that:
the company, in accordance with the terms and conditions (the terms and conditions) of the ZAR1,800,000,000 convertible
bonds due 26 November 2025 issued by Sappi Southern Africa Limited on 25 November 2020 (convertible bonds), be and
is hereby authorised to issue ordinary shares in the company to those holders of the convertible bonds who have exercised
their rights to convert the convertible bonds into ordinary shares in the company and that the board be authorised to take
all the steps and actions that may be required to issue those ordinary shares to those holders in accordance with the terms
and conditions. The number of ordinary shares to be issued to a holder of a convertible bond who has exercised any right to
convert convertible bonds into ordinary shares will be determined in accordance with the terms and conditions; and
unless adjusted in terms of the terms and conditions, the principal amount of the convertible bonds will be convertible into
ordinary shares in the company at an initial conversion price of approximately ZAR33.1636 (thirty three Rand and sixteen
cents) per ordinary share, subject to the terms and conditions,
provided that the number of ordinary shares that may be issued in terms of this resolution is limited to a maximum of
66,000,000,000 (sixty six million) ordinary shares.”
Shareholders are referred to the circular to shareholders (the specific authority circular) posted on the same date as the
date of this Notice of Annual General Meeting setting out the relevant details in respect of this resolution, as required by the
Listings Requirements. A copy of the specific authority circular has been posted to shareholders on the same date as this
Notice of Annual General Meeting and can also be accessed on the company’s website on www.sappi.com.
Pursuant to the Listings Requirements, in order for this resolution to be adopted, the support of more than 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. Shareholders, including their associates as defined in the Listings
Requirements, who have participated in the convertible bond offering will not have their votes taken into account in
determining whether this resolution has been approved by the requisite majority.
6. Ordinary resolution number 6: 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
138), 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.
7. Ordinary resolution number 7: 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
138), be and is hereby endorsed by way of a non-binding advisory vote.”
This further non-binding advisory vote is being proposed in accordance with the recommendations of King IV.
In order for this resolution to be adopted, the support of more than 50% of the voting rights exercised on the resolution by
shareholders present or represented by proxy at the AGM and entitled to exercise voting rights on the resolution is required.
171
APPENDICES Notice to shareholders continued
8. Special resolution number 1: Non-executive directors’ fees
“Resolved that, with effect from 01 October 2020 and until otherwise determined by Sappi in general meeting, the
remuneration of the non-executive directors for their services shall be as follows:
Fee structure
1. Sappi board fees(1)
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 fees(1)
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
3. Human Resources and Compensation Committee, Nomination and Governance
Committee, Social, Ethics, Sustainability and Transformation Committee and
any other committee fees(1)
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
172
Fees
£319,940(2)
ZAR674,450
£70,070
US$105,820
€93,500
ZAR450,750
£46,670
US$70,540
€62,290
ZAR468,050
£47,390
US$73,060
€63,240
ZAR234,030
£23,830
US$35,680
€31,790
ZAR281,400
£28,160
US$41,750
€37,570
ZAR146,450
£19,730
US$25,500
€26,330
ZAR45,190
per meeting
£4,630
per meeting
US$7,050
per meeting
€6,170
per meeting
Sappi 2020 ANNUAL INTEGRATED REPORTAPPENDICES
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
Fees
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.
Sappi’s practice, as recorded previously, is to review directors’ fees annually. However, as a result of Covid-19-related issues,
the non-executive directors agreed not to increase the fees for the ensuing year. This is in line with no increases granted to
executive directors of the company.
Non-executive directors’ fees are paid quarterly (in March, June, September and December each year). 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.
9. Special resolution number 2: Financial assistance
“Resolved that, to the extent required by sections 44 and/or 45 of the Companies Act, the board may, subject to the
provisions of the Companies Act, the company’s Memorandum of Incorporation and the requirements of any recognised
stock exchange on which the shares of the company may from time to time be listed, authorise the company to provide
direct or indirect financial assistance to any related or inter-related (as defined in the Companies Act) company or
corporation of the company, on terms and conditions which the directors may determine, commencing on the date of
passing of this resolution and ending at the next meeting.”
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.
10. Ordinary resolution number 8: 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 03 February 2021 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.
11. 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
156).
173
APPENDICES
Notice to shareholders continued
Proxies
Shareholders who are recorded as such in the register maintained by the transfer secretaries on the record date (“qualifying
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 qualifying shareholders who hold Sappi shares in certificated form or
have dematerialised their shares (i.e. have replaced the paper share certificates with electronic records of ownership under
JSE’s electronic settlement system (Strate Limited) and are recorded in the sub-register in own name dematerialised form
(i.e. shareholders who have specifically instructed their Central Securities Depositary Participant (CSDP) or broker to hold their
shares in their own name on Sappi’s sub-register).
Qualifying shareholders who have dematerialised their Sappi shares and who are not registered as own name dematerialised
shareholders and who wish to:
• attend the AGM (electronically) 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 qualifying 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 03 February 2021 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
As a result of the continuing uncertainty around restrictions placed on public gatherings, and the social distancing requirements
relating to the Covid-19 pandemic, which may continue to be in force as at the date of the Annual General Meeting, the Annual
General Meeting will be conducted entirely by way of electronic communication and electronic facilities.
The company will offer qualifying shareholders (or their representatives or proxies) reasonable access through electronic facilities
and a virtual meeting platform to participate in the Annual General Meeting.
A qualifying shareholder (or its representative or proxy) will, if (and only if) the qualifying shareholder requests that access be
granted to it (or its representative or proxy) to do so, be able to:
• participate in the Annual General Meeting through electronic facilities; and
• vote during the Annual General Meeting through a virtual meeting platform.
Qualifying shareholders are invited to request such access by sending an email (a participation request) to be received by no later
than 14:00 (South African Standard Time) on Monday, 01 February 2021 to the transfer secretaries at proxy@computershare.co.za
or by registering at www.smartagm.co.za. Following receipt of a participation request, the transfer secretaries will email the relevant
contact link and logon details to the qualifying shareholder concerned to enable it (or its representative or proxy) to participate and/
or vote in the Annual General Meeting (a connection details notice).
The participation request must specify:
• the name of the qualifying shareholder (and, if applicable, of the representative or proxy); and
• an email address at which the qualifying shareholder (and, if applicable, the representative or proxy), can be contacted.
Reasonably satisfactory identification, (and a letter of representation or a duly completed form of proxy, if applicable) must be
attached to a participation request.
It is requested, for administrative reasons, that, a participation request, complying with the above requirements, be emailed to
the transfer secretaries, to be received by no later than 14:00 (South African Standard Time) on Monday, 01 February 2021.
If a qualifying shareholder does not email a participation request complying with the above requirement to reach the transfer
secretaries by that time, that qualifying shareholder will nevertheless be entitled to email a participation request complying with
the above requirements to the transfer secretaries, to be received prior to the commencement of the Annual General Meeting.
Qualifying shareholders should nevertheless be aware that if they send a participation request near to the time of
commencement of the Annual General Meeting, there is a risk, and they accept the risk, that: (i) the participation request will not
reach the transfer secretaries prior to the commencement of the Annual General Meeting; (ii) the transfer secretaries will not have
sufficient time to send the connection details notice; or (iii) the connection details notice will not reach the qualifying shareholder
prior to the commencement of the Annual General Meeting.
174
Sappi 2020 ANNUAL INTEGRATED REPORTAPPENDICES In relation to a participation request received by the transfer secretaries from a qualifying shareholder:
• by 14:00 (South African Standard Time) on Monday, 01 February 2021, the transfer secretaries will use reasonable
endeavours, to email the connection details notice by no later than 14:00 (South African Standard Time) on Tuesday,
02 February 2021; or
• after 14:00 (South African Standard Time) on Monday, 01 February 2021 but prior to the commencement of the Annual
General Meeting, the transfer secretaries will use reasonable endeavours to email the connection details notice as soon as
reasonably practicable after receipt of the participation request.
For information purposes only, a guide for electronic shareholders meetings will be available on the company’s website
(www.sappi.com) and can also be obtained from the transfer secretaries. Should you have any further questions, please
send an email to proxy@computershare.co.za.
Management and the board will be available during the Annual General Meeting, through the electronic facilities, to address any
matters which are raised relating to the resolutions to be tabled in the Annual General Meeting.
Sappi will make the platform and electronic facilities available at no cost to the user. However, any third-party costs relating to
the use of, or access to, the platform will be for the user’s account.
Sappi does not accept responsibility, and will not be held liable, under any applicable law or otherwise, for:
• any action of, or omission by, the transfer secretaries; or
• any loss arising in any way from the use of the platform or electronic facilities including, without limitation, any
malfunctioning or other failure of the platform or facilities, or any failure of any email to reach, or delay in any email
reaching, its intended destination, in the case of all of the aforementioned whether or not as a result of any act or
omission on the part of the company, the transfer secretaries or anyone else.
Questions
The board encourages shareholders to participate 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, 29 January 2021 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
17 December 2020
175
APPENDICES Notice to shareholders continued
Notes
1. Directors retiring by rotation who are seeking re-election
Zola Nwabisa Malinga (42)
(Independent)
Qualifications: BCom, CA(SA)
Nationality: South African
Appointed: October 2018
Sappi board committee membership
• Audit and Risk Committee
Other board and organisation memberships
• Grindrod Bank Limited
• Grindrod Financial Holdings Limited
Skills, expertise and experience
Mrs Malinga, a Chartered Accountant, has extensive experience in investment banking and corporate finance. She is the
founder and Executive Director of Jade Capital Partners, a women-owned investment holding company which invests in
the property and industrial sectors. She was previously a director in the Real Estate Finance Division of Standard Bank
where she was also a member of the Executive and Deal Approval Committees. Prior to this, she was an Investment Banker
at Standard Bank and a Corporate Finance Consultant at Investec Bank Limited. Mrs Malinga previously served as a
non-executive director on Sasol Inzalo Limited, Hospitality Property Fund Limited and Grindrod Limited.
Mohammed Valli Moosa (Valli) (63)
(Independent)
Qualifications: BSc (Mathematics and Physics)
Nationality: South African
Appointed: August 2010
Sappi board committee memberships
• Social, Ethics, Transformation and Sustainability Committee (Chairman)
• Nomination and Governance Committee
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. He has extensive leadership
experience in the public and private sector. He is also an international expert on sustainable development and climate
change.
Mr Moosa previously served as Chairman of the world’s biggest platinum producer, Anglo Platinum Limited and as Chairman
of Sun International Limited. He served on the boards of the financial services group, Sanlam Limited, which has operations
in South Africa, India, the United Kingdom and in a number of African countries. He served on the board of transport and
logistics company, Imperial Holdings. Imperial operates in Sub-Saharan Africa, Brazil, The Netherlands, Germany and the
United Kingdom. He participated in establishing two Johannesburg-based private equity funds and the investment house,
Lereko Investments.
He was South African Minister of Constitutional Development; the President of the International Union for the Conservation
of Nature; Chairman of the UN Commission for Sustainable Development; Chairman of WWF(SA) and he served as a
member of the National Executive Committee of the African National Congress until 2009 and currently serves on the
steering committee of the Tokyo-based Innovation for a Cool Earth Forum.
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Sappi 2020 ANNUAL INTEGRATED REPORTAPPENDICES
Robertus Johannes Antonius Maria Renders (Rob Jan) (67)
(Independent)
Qualifications: MSc (Mechanical Engineering), MDP
Nationality: Dutch
Appointed: October 2015
Sappi board committee memberships
• Human Resources and Compensation Committee
• Audit and Risk Committee
Other board and organisation memberships
Walki Group Oy (Chairman)
Skills, expertise and experience:
Currently a business consultant, Mr Renders was a member of the board of Duropack GmbH from 2012 until the end of
May 2015, as well as Chief Executive Officer of Duropack from May 2013 until May 2015. From 2006 to 2010, he served
as Chairman of OTOR Société Anonyme, a leading packaging provider in France. Between 1989 and 2006 he held various
positions at Svenska Cellulosa Aktiebolaget (SCA), a leading global producer of hygiene products and packaging solutions,
including Mill Manager at SCA Packaging De Hoop, Managing Director of SCA Packaging De Hoop, President of SCA
Packaging Containerboard, President of SCA Packaging Europe and Senior Vice President Special Project Global Packaging
for SCA Group. He has various consulting positions and is also the Chairman of the Supervisory Board of Walki Group Oy
based in Espoo (Finland), a company specialised in sustainable packaging and engineered material solutions.
Sir Nigel Rudd (73)
(Independent Chairman)
Qualifications: DL, Chartered Accountant
Nationality: British
Appointed: April 2006
Sappi board committee memberships
• Nomination and Governance Committee (Chairman)
• Attends Audit and Risk Committee, Human Resources and Compensation Committee and Social, Ethics, Transformation
and Sustainability Committee meetings ex officio
Other board and organisation memberships
• Signature Aviation plc (Chairman)
• Meggitt plc (Chairman)
Skills, expertise and experience
Sir Nigel Rudd has held various senior management and board positions in a career spanning more than 35 years. He
founded Williams plc in 1982 and the company went on to become one of the largest industrial holding companies in the
United Kingdom. He was knighted by the queen for services to the manufacturing industry in the UK in 1996 and holds
honorary doctorates from Loughborough and Derby Universities.
177
APPENDICES 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
03 February 2021
February 2021
May 2021
August 2021
September 2021
November 2021
December 2021
178
Sappi 2020 ANNUAL INTEGRATED REPORTAPPENDICES Proxy form
for the Annual General Meeting
Sappi Limited
(Registration number: 1936/008963/06)
(Incorporated in the Republic of South Africa)
(Sappi or the company)
Issuer code: SAP
JSE code: SAP
ISIN code: ZAE000006284
For use by shareholders who:
• hold shares in certificated form; or
• hold dematerialised shares (ie where the paper share certificates representing the shares have been replaced with electronic records of
ownership under the electronic settlement and depositary system (Strate Limited of the JSE Limited) and are recorded in Sappi’s sub-register
with own name registration (ie shareholders who have specifically instructed their Central Securities Depository Participant (CSDP) to record the
holding of their shares in their own name in Sappi’s sub-register).
If you are unable to attend the eighty-fourth Annual General Meeting of the members to be held at 14:00 on Wednesday, 03 February 2021 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, 01 February 2021, 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 Private Bag X9000, Saxonwold,
2132, 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, 03 February 2021 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 2020 Group Annual Financial Statements, including
Directors’ Report, Auditors’ Report and Audit and Risk Committee Report
Ordinary resolution number 2 – Re election of directors retiring by rotation in terms of Sappi’s Memorandum
of Incorporation(1)
Ordinary resolution number 2.1 – Re-election of Ms ZN Malinga as a director of Sappi
Ordinary resolution number 2.2 – Re-election of Mr V Moosa as a director of Sappi
Ordinary resolution number 2.3 – Re-election of Mr RJAM Renders as a director of Sappi
Ordinary resolution number 2.4 – Re-election of Sir Nigel Rudd as a director of Sappi
Ordinary resolution number 3 – Election of Audit and Risk Committee members
Ordinary resolution number 3.1 – Election of Mr NP Mageza as member and Chairman of the Audit and Risk
Committee
Ordinary resolution number 3.2 – Election of Ms ZN Malinga as a member of the Audit and Risk Committee(2)
Ordinary resolution number 3.3 – Election of Dr B Mehlomakulu as a member of the Audit and Risk Committee
Ordinary resolution number 3.4 – Election of Mr RJAM Renders as a member of the Audit and Risk Committee(2)
Ordinary resolution number 3.5 – Election of Ms JE Stipp as a member of the Audit and Risk Committee
Ordinary resolution number 4 – Re-appointment 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 5 – Specific authority to issue ordinary shares
Ordinary resolution number 6 – Non-binding endorsement of remuneration policy
Ordinary resolution number 7 – Non-binding endorsement of remuneration implementation report
Special resolution number 1 – 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 8 – 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
(2) Subject to his/her re-election as a director pursuant to ordinary resolution 2.1 and 2.3 above.
176.
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
179
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.
APPENDICES Notes to the proxy
The form of proxy must only be used by certificated shareholders or shareholders who hold dematerialised shares with own
name registration. Other shareholders are reminded that the onus is on them to communicate with their CSDP or broker.
Instructions on signing and lodging the Annual General Meeting proxy form
1.
A deletion of any printed matter (only where a shareholder is allowed to choose between more than one alternative option)
and the completion of any blank spaces need not be signed or initialled. Any alteration must be signed, not initialled.
2. The chairman shall be entitled to decline to accept the authority of the signatory:
2.1 under a power of attorney, or
2.2 on behalf of a company,
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 Private Bag X9000, Saxonwold, 2132, 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 electronically 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 Private Bag X9000, Saxonwold, 2132, Republic of South Africa (for postal delivery), to be received by not later than
14:00 on Monday, 01 February 2021 or handed to the chairman of the Annual General Meeting before the appointed proxy
exercises any of the relevant shareholder’s rights.
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.
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.
180
Sappi 2020 ANNUAL INTEGRATED REPORTAPPENDICES
Administration
Sappi Limited
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE 000006284
Group Company Secretary
Ami Mahendranath
Secretaries
Sappi Southern Africa Limited
108 Oxford Road
Houghton Estate
Johannesburg, 2198
South Africa
PO Box 52264
Saxonwold, 2132
South Africa
Tel +27 (0)11 407 8464
Ami.Mahendranath@sappi.com
www.sappi.com
Transfer secretaries
Computershare Investor Services
Proprietary Limited
Rosebank Towers
15 Biermann Avenue
Rosebank, 2196
South Africa
Private Bag X9000
Saxonwold, 2132
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
Jörg Pässler
Group Treasurer
Tel +32 2 6769 621
Jorg.Passler@sappi.com
JSE Sponsor
UBS South Africa Proprietary Limited
64 Wierda Road East
Sandton, 2196
South Africa
PO Box 652863
Benmore, 2010
South Africa
Tel +27 (0)11 322 7000
Fax +27 (0)11 784 8280
United States ADR depositary
BNY Mellon Shareowner Services
PO Box 505000
Louisville, KY 40233-5000
United States of America
462 South 4th Street
Suite 1600
Louisville, KY 40202
United States of America
shrrelations@cpushareownerservices.com
www.mybnymdr.com
181
APPENDICES Forward-looking statements
Certain statements in this release that are neither reported financial results nor other historical information are forward-looking
statements, including but not limited to statements that are predictions of or indicate future earnings, savings, synergies, events,
trends, plans or objectives. The words “believe”, “anticipate”, “expect”, “intend”, “estimate”, “plan”, “assume”, “positioned”, “will”,
“may”, “should”, “risk” and other similar expressions, which are predictions of or indicate future events and future trends and which
do not relate to historical matters, may be used to identify forward-looking statements. You should not rely on forward-looking
statements because they involve known and unknown risks, uncertainties and other factors which are in some cases beyond our
control and may cause our actual results, performance or achievements to differ materially from anticipated future results,
performance or achievements expressed or implied by such forward-looking statements (and from past results, performance or
achievements). Certain factors that may cause such differences include but are not limited to:
• the highly cyclical nature of the pulp and paper industry (and the factors that contribute to such cyclicality, such as levels of
demand, production capacity, production, input costs including raw material, energy and employee costs, and pricing)
• the Covid-19 pandemic
• 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.
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Sappi 2020 ANNUAL INTEGRATED REPORTAPPENDICES www.
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