investor presentation - sappi · | investor presentation | 9 february 2012 forward looking...

Investor Presentation

9 February 2012

| Investor Presentation | 9 February 2012

Forward looking statements

Certain non-GAAP financial information is contained in this presentation that management believe may be useful in comparing the company’soperating results from period to period. Reconciliation's of certain of the non-GAAP measures to the corresponding GAAP measures can befound in the quarterly results booklet for the relevant period. These booklets are located in the ‘Investor Info’ section of www.sappi.com.

Regulation G disclosure

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 orobjectives.

The words “believe”, “anticipate”, “expect”, “intend”, “estimate”, “plan”, “assume”, “positioned”, “will”, “may”, “should”, “risk” and other similarexpressions, which are predictions of or indicate future events and future trends, which do not relate to historical matters, identify forward-looking statements. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties andother factors which are in some cases beyond our control and may cause our actual results, performance or achievements to differ materiallyfrom anticipated future results, performance or achievements expressed or implied by such forward-looking statements (and from past results,performance or achievements). Certain factors that may cause such differences include but are not limited to: the highly cyclical nature of the pulp and paper industry (and the factors that contribute to such cyclicality, such as levels of demand,

production capacity, production, input costs including raw material, energy and employee costs, and pricing); the impact on our business of the global economic downturn; 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; 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, cost-reduction programmes, investments, acquisitions and dispositions (including related financing), any

delays, unexpected costs or other problems experienced in connection with dispositions or with integrating acquisitions and achievingexpected savings and synergies; and

currency fluctuations.We undertake no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information or futureevents or circumstances or otherwise.


• Group Overview & Results

• Divisional Overviews• Chemical Cellulose• North America• Europe• South Africa

• Conclusion


Sappi at a glance

Sappi Southern Africa(25% ’11 sales)

Sappi Fine Paper(75% ’11 sales)

Sappi Trading

Jiangxi Chenming(China JV)Sappi Fine Paper

Europe

Sappi Fine Paper North America

Forests

Saiccor(Chemical Cellulose)

Paper & Paper Packaging

2011 sales - $7.3bn

14,900 Employees

62%

8%

7%

15%

7%

1%

Coated fine paper

Uncoated fine paper

Coated specialties

Pulp

Commodity paper

Other


21%

54% 25%

Geographic diversification

3 Paper Mills

5 Paper Mills 1 Chemical Cellulose Mill 567,000ha Forests

8 Paper Mills

1 Fine Paper Mill (JV)

Source: Company information¹ For the period ending September 2011

21%

46%

13%

19%

Sales By Destination1 (US$)Sales By Source1 (US$)

North America

Europe

Southern Africa

Asia & other

Global presence enables Sappi to take advantage of opportunities where markets are strong

13 Sales offices on 6 continents


Strategy

| Investor Presentation| 9 February 2012

The Past Year• Good start to 2011 – weaker in the 2nd half

• European uncertainty and CWF export declines• Excellent SA Chemical Cellulose performance• Continued underperformance of SA paper operations incl.strikes

• North America performed well• Successful refinance

• A year of major intervention in tough markets• Closures of Biberist and Adamas• Restructure of Southern African operations• Restructuring and impairment charges affect profit and EPS

• Reasonable Q1 2012 • traction with implementation of strategy


Strategic Overview

• Refined strategy with emphasis on value creation

• Focus• Increasing importance of growth - Not at the expense ofthe balance sheet

• Internal actions to improve EU and SA

• Benefits in Europe have started

• Benefits in South Africa to start in 2H 2012


StrategyFour key elements• Improving Europe and South Africa, starting to see results• Maintain performance in NA and Chemical Cellulose, focus on volumes• Invest in high growth & margin businesses with leading positions

• Chemical cellulose – focus on contracting volumes• Release – pattern development • Forests – self sufficiency and cost

• Reduce Debt

Day-to-day focus on maximisation of profitability and cash

generation


1st Quarter 2012 Results


Q1 2012 Summary

• Profit for the period US$45m; Q1 2011 US$37m

• Clean results with few special items

• EPS 9 US cents; Q1 2011 7 US cents

• Sales down, margins up sequentially

• Operating profit excluding special items US$100m; Q1 2011 US$137m

• Net debt US$2,175m, up US$75 million on seasonal working capital increase – remains within targeted range

11


Q1 2012 Summary

• European business performance benefits from

restructuring and cost reduction actions – US$100m per

annum cost reductions on track

• South African chemical cellulose business performed

strongly – achieved highest quarterly profit margin in 3

years

• North America negatively affected by pulp prices and

technical issues at Somerset

12


Operating Profit excluding special items*

25

-17 -13

38

81

5475

129 137127

6080

100

-250

255075

100125150

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q** 2Q 3Q 4Q 1Q

*Refer to the supplementary information in this presentation for a reconciliation to reported operating profit and page 16 in our Q1 2012 results booklet for a definition of special items.**Q1 2011 included an extra week

2009: $33m 2010: $339m 2011: $404m


EBITDA* Trend

106 82 93150

193156 176

227 246 228164 183 194

0

50

100

150

200

250Q

1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1*

*

Q2

Q3

Q4

Q1

*EBITDA as shown above excludes special items. Refer to page 16 in our Q1 2012 results announcement booklet for a definition of special items.

**Q1 2011 included extra week

2011: $821m2009: $431m 2010: $752m


-10%

-5%

0%

5%

10%

15%

20%

25%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Divisional Operating Margins*

*The divisional operating margins exclude special items. Refer to page 15 in our Q1 2012 results announcement booklet for a definition of special items.

Q1 2012

Margins:

Europe 3.5%North America

2.8%

Southern Africa 15.8%

2009 2010 2011

European actions driving recovery


1,000

1,500

2,000

2,500

3,000Q1

09*

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Rights Offer to finance European Acquisition

European Acquisition completed

Major Refinancing completed

Net Debt Development

* Cash proceeds of US$536m for European Acquisition from rights offer not offset against debt

US$ mRepaid $140m

South African debt

Debt reduction remains a focus


Debt maturity profile

Note: Based on Sappi quarter end reported exchange rates of US$/€ $1:€1.2948 and US$/ZAR $1:ZAR 8.0862

As at December 2012

(September fiscal year end)

Strong liquidity and maturity profileCash on hand: US$401 millionRCF US$324 million – undrawn

401 376

703*

21

326 350221

129

324

70183

26 620

100200300400500600700800900

1 000

2012 2013 2014 2015 2016 2018 2021 2032

Cash Securitisation Overdraft SPH Term Debt RCF SSA

USD millionUSD millionUSD millionUSD million

2021 $350m Bond

Includes 2018 €250m BondRCF Headroom;

Unutilised

Includes 2014 $300m and €350m Bonds

* Net of $50m unamortised IFRS adjustments relating mainly to upfront costs and discounts on the 2014 bonds




• Conclusion


What is chemical cellulose?


Chemical Cellulose

• Cellulose is a natural organic polymer chain found in all plant materials

• The plant material (wood from certified forests or plantations) is processed and purified by applying specialised chemistry to extract the cellulose chains within the wood

• The purified natural wood cellulose fibres are further dissolved by our customers and re-generated or reformed for a host of applications

Wood


Chemical Cellulose vs. market pulp


Chemical Cellulose specialisation

Market Pulp Industry

Total : 55 Million Tons

Chemical Cellulose Industry

Total : 5 Million Tons

Market Pulp

Chemical Cellulose

Fluff

Increasing specialisation

VSF

Lyocell

Acetate

MCC

Ethers

Others

1M Cotton Linters


Specialised knowledge and customised quality

Chemical cellulose performance is determined by both the wood and the manufacturing process

Furnish

End UsesFinal Pulp

VSF

Cellophane

Lyocell

MCC

Ethers

Acetate

BleachingCooking


Process & Product Complexity• Many factors have an influence on the performance & application of CC

• Wood source (softwood/hardwood/ species; age, season, soil, climate)• Process (cooking / digesting and bleaching)• Sheet structure

• Every CC pulp will have unique performance characteristics based on the manufacturing ‘history’ – some are and will be a lot better quality than others !

• We have 50 years of experience and state of the art mills

Saiccor – 800kt Cloquet – 330kt Ngodwana – 210kt


Eat & Drink

Filter

Wash & Wipe

Heal & Hygiene

Wear

Communicate

Mend

Wrap

R & R

Beautify

hemical ellulose

What is Chemical Cellulose used for ?


Demand Drivers


Global Chemical Cellulose Demand – 2011

Others14%

VSF58%

Lyocell3%

MCC2%

Acetate13%

Cellophane1%

Ethers/CMC9%

Total = 5m tons

Sappi = 0.8 m tons = 15%Source: Sappi/Various


Viscose stable fibre segmentUsed for making clothes, home‐furnishings, non‐wovens (wipes, feminine hygiene products )


2010 Textile Fibres Consumption Split

Source: PCI Fibres/Sappi/Gherzi

Total Market Demand = 74m tons

Synthetics – 62 % of Blen

Cellulosic 2,9m tons **4%

Polypropylene 4.4m tons6%

Wool 1.1m tons1%

Cotton 24.7m tons33%

Acrylic 1.9m tons3%

Nylon 3.7m tons5%

Polyester 35.4m tons 48%

** Excludes Acetate, cupro, triacetate

Synthetics = 61%

± 74m tons


Key demand drivers for textiles

Source : USDA / ICAC / GHERZ I /Lenzing / Asian Development Bank

• Population growth‐ Global population from a current 6.9 billion to 8.3 billion by 2030 and per capita consumption

• Increasing need for clothes and food • Increasing need for more comfortable

clothing• Rising urbanization and standard of living

in the Greater Asian Region

– Asian middle class population is likely to grow to 2.7 billion by 2030 from the current 1.9 billion people

– Asian consumers are likely to spend $32 trillion per year by 2030, accounting for 43% of total global consumption

Forecast


Growth drivers – cotton

Source : PCI Fibres / Johnson / USDA / ICAC

• Total arable land loss

> 10 m ha p.a.

• Last 60 yrs. cotton

crop area down 29m

to 36m ha

• Forecast to drop to

28m hectares by

2030

• Better crop management,

GMO’s - improving crop

yields

• Current yield ± 800kg / ha

• Forecast to increase to

± 925kg / ha.

• Net effect of land acreage loss vs.. increase in cotton yield is that globalproduction is estimated to grow from ± 25 m tons in 2010 to only 30m tons by 2030


Textile growth and cellulose gap

• Production of cotton is forecast to remain stagnant or shrink

• Growth in total fibre consumption will be covered by man‐made fibres

• However certain moisture management properties of cellulose fibres cannot be substituted by oil based synthetic fibres, enhancing opportunity for cellulosics

• VSF is Biodegradable and a natural man made fibre

Source : Gherzi / Lenzing

Cellulosic Gap


Capacity and Growth


Chemical Cellulose market leadership

No. 1 Global Market Share in Chemical Cellulose

0 5 10 15 20

Sappi

Birla

RGE

Rayonier

Tembec

Others

Global Top 5 Chemical Cellulose Producers

2011 (Est.) % Capacity

47% of Global Capacity

Global capacity (Est.) 5.8m tons ** Excluding 1m tons of CLP - Linters Shortage

Weyco2%Bahia

8%Neucell

3%Buckeye

4%

Others21%

Saiccor14%

PT Toba2%

Rayonier8%

CLP China16%

Borregaard3%

Tembec incl. Tartas5%

Domsjo4%

Birla & Lenzing intergrated excl. Domsjo

10%


Capacity Directed at China 2013

Toba

Bahia less Own

CloquetChina Bamboo,

Stora Enocell

Sun Paper

Chenming Jilin

Chenming Hubei

Hunan

Fujian Qingshan

Fujian Nanping

Paper Excellence

Thurso

Lee and ManJilin

Cosmo

Sodra Morrum

+‐ 3 Million tons of Capacity Announcements for 2012/4

Capacity additions


World Cotton Price (A-Grade) and CC grade Viscose Pulp Price : Delivered to China (US$/Ton)

200

600

1000

1400

1800

2200

2600

3000

3400

3800

4200

00 02 04 06 08 10 12 14 16

Viscose Cotton

Source :RISI/Own

Competitive Investment Decisions by high cost producers?

Current

Capacity drivers


Competitor cash costsWorld Competitor CC Cash Costs into VSF

includes 80% of supply volumes

Above Average Cost45%

Below Average CostSappi = 27% Others = 28%

AverageCash Cost

+ 25%

‐ 30%

Source: RISI/sappi


Conclusion

• Real CC demand growth forecast

• Strong and mature customer relationships

• Technical knowledge, market leadership and expertise in VSF

• Competitive cost position




• Conclusion


Leading North American producer of coated paper, pulp and specialties F2011 Net Sales: $1,520M

F2011 EBITDA: $203M

Two integrated coated freesheet mills, specialty paper mill and dedicated sheeting center 1.2M metric tons of paper production capacity 1.0M metric tons of pulp production capacity

US coated freesheet capacity share of approximately 29%US Coated Freesheet Shares

Coated$1,264M

Specialty$153M

Pulp$219M

Net Sales by Business (F2011)

NewPage, 42%

Verso, 13%

SFPNA, 29%

Other, 16%


Key advantages

• Well invested, premier asset portfolio with fully integrated facilities

• Established brands with strong market position

• Exposure to most attractive end‐market segments

• Unmatched reputation for product innovation and customer service

• A low cost producer with strong free cash flow profile

• Results driven management team with proven track record ofexecution

• Defined and focused opportunities for driving further profitable growth


Premier asset portfolio

Cloquet MillMinnesota330,000 tons

coated fine paper455,000 tons pulp

Somerset Mill Maine795,000 tons

coated fine paper525,000 tons pulp

Allentown Sheeting Facility

Pennsylvania100,000 tons sheeting

capacity

Shared Services Facility Maine

SFPNA Headquarters Massachusetts

SFPNA coated mills are low cost and advantaged

Westbrook MillMaine

35,000 tons coatedspecialty paper

Capacities in metric tons


Consistent operational performance and continuous improvement

• Track record of year over year productivity improvement in both pulp and paper

• Successful product redesign – commercialization of Flo sheets and web

• Significant reduction in energy cost through capital investment and fuel management

• Successful material substitutions

• Maintained flat manufacturing overhead


Operating Income

Rebuild SPM1

Significant product redesign, performance pay

tied to key financial metrics

Right sized fixed costs

2007 2008 2009 2010 2011

SFPNA has driven improvements through selected investment and strategic actions

Somerset Pulp Mill Upgrade

$129M

Shut Muskegon

Achieved 14% RONOA

Emerged from recession 4 quarters

ahead of competitors

Approved Chemical Cellulose and Somerset PM3

rebuild

Implemented Lean Six Sigma

2006

$(30)M

Grade change optimization

Product and brand alignment with customer

segments


Financial performance

‐4%

‐2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

(40)

(20)

‐

20

40

60

80

100

120

140

FY06 FY07 FY08 FY09 FY10 FY11

RONOA

$Million

Operating Income RONOA


SFPNA strategy for growth

Coated• Grow operating profit through improved product and customer mix• Implement e‐Business solutions to take time and cost out of the value

chain• Invest in our paper machines to keep them modern and globally

competitive

Pulp• Invest $170M in Cloquet pulp mill to convert to chemical cellulose• Optimize Somerset pulp profitability through customer mix management

Release• Gain share in existing business• Leverage Ultracast technology to enter new business


Business Overview - Coated


Our market segment – coated free sheet

Coated Free Sheet

Coated Groundwood

Super-Calendered

Susceptibility to Online Substitution

Image quality, heft/feel, opacity and

price


Improvement in both coated EBITDA margin and market share

• EBITDA margin improvement driven by improved customer and product mix, more focused brand positioning and cost management

• Market share remains strong, sold out since mid 2009

15%

17%

19%

21%

23%

25%

27%

0%

2%

4%

6%

8%

10%

12%

F06 F07 F08 F09 F10 F11EBITDA Margin Market Share


Outlook for NA CFS demand• While consumption will slowly decline with widespread adoption of e‐

devices, CFS less impacted than other grades due to flight to quality• CFS will remain a vibrant part of the media mix due to its unique value in

establishing brand recall and trust• SFPNA further advantaged by world class assets and strong brands

supported by loyalty of customer base, sustainability position and e‐business platform

• Source: RISI 10/11

88

89

90

91

92

93

94

95

2010 2011 2012 2013 2014 2015

NA CFS Operating Rate


Agenda

• Overview of SFPNA

• Business Overviews and Strategic Considerations– Coated– Pulp– Release

Business Overview ‐ Pulp


Pulp business – competitive advantages

• Sappi NA pulp mills are top tier and among the newest pulp mills in North America– Somerset 1976 525K MT– Cloquet 1999 455K MT

• Located near:– Quality wood baskets– Customers

• Flexible production– Softwood and differentiatedco‐pulp at Somerset

– Aspen and maple at Cloquet


Chemical Cellulose conversion overview

• Convert Cloquet pulp production to 330K metric tons per year of chemical cellulose (CC) from kraft paper pulp (455K tons)

• $170M of capital with strong returns

• Target segment will be viscose staple fiber (VSF) – demand projected to grow by 8% per year– Potential to enter even higher value specialty/acetate markets in future

• Swing production capability

• Estimated low quartile cost position – large scale Chemical Cellulose mill with state‐of‐the‐art technology, low cost wood and low cost energy


Competitor cash costsWorld Competitor CC Cash Costs into VSF

includes 80% of supply volumes



AverageCash Cost

+ 25%

‐ 30%


Business Overview ‐ ReleaseWe make texture…..texture makes the difference


RELEASE

TECHNOLOGYEXTENSIONS

TRANSPORTATION ENGINEERINGFILMS

COATED FABRICS

• Brown Shoes• Hand Bags • Luggage• Garments• Upholstery• Leather Goods• Sports Shoes

• Insulation• Foams•Medical Films• Decal• Sound Foams• Aircraft Decor• Camouflage

• Automotive• Trucks•Marine•Motor Homes• Snowmobiles• ATV’s

CASTING LAMINATING

DECORATIVELAMINATES

• Laminate floors• Furniture•Wall panels• Vinyl flooring• Cabinets• Doors•Archt.Glass

IN‐PRODUCTAPPLICATIONS

Release market overview

•Flexible Displays •Printed Electronics• Photo‐Voltaics•Biomimicry•3D viewing films


The global release market – casting and laminates end-uses

Ultracast 9,600 T

Polypropylene

11,900 T

Competitor Classics Grades 22,900 T

Sappi Classics 14,400 T

F11 Market Size = 58,800 short tonsF11 Market Share = 41%

99%Share

39% Share

Ultracast Pattern Fidelity

100%

Polypropylene Pattern Fidelity 75%

– 90%

Classics Pattern Fidelity

50%‐ 60%

Classics Price $1,750 ‐ $3,000

per ton

Ultracast Price $7,000 ‐ $12,500 per

ton

Polypropylene Price$4,500 ‐ $10,000

per ton


Competitive advantages - release

• Ultracast – Provides100% replication of any pattern

• Superior to the competition (Classics at 50%, Polypropylene at 90%)

– Maintains pattern fidelity over multiple reuses (10 – 20 passes)• Superior to competition which begins to degrade in 4 – 5 passes (polypropylene)

• Manufacturing– Superior service, faster order fulfillment than key competitors (AWA, Favini)– Capacity to grow and increase market share without major capital investment

• Distribution and Sales Coverage– Leading, well established distributor network in China market– Strong sales agents in other Asian markets– Experienced, knowledgeable direct sales force in the Americas and Europe


SFPNA key advantages

• Well invested, premier asset portfolio with fully integrated facilities

• Established brands with strong market position

• Exposure to most attractive end‐market segments

• Unmatched reputation for product innovation and customer service

• A low cost producer with strong free cash flow profile

• Results driven management team with proven track record of execution

• Defined and focused opportunities for driving further profitable growth




• Conclusion


Sappi Fine Paper Europe

• # 1 in Coated Woodfree paper with 25.8% capacity share

• # 2 in Mechanical Coated Paper with 13.5% capacity share

• # 1 in high quality Flexpack• Total paper capacity of 3.7m Tons• 2011 Sales: $3,965m • 2011 EBITDA: $300m


Strategy for healthy profit and cash generationRightsizing capacity• ‐> Closure of Kangas 2010 (200KT MCR)• ‐> Closure of Biberist 2011 (435KT WFC)• ‐> M‐real closure of Äänekoski 2012 (180kt WFC, sold by Sappi)• ‐> We are full!

Substantial cost reduction• ‐> Runrate for $100m cost reduction achieved in Q1• ‐> FTE reduction of 12%, no strikes, no disturbance to service• ‐> More to come …• ‐> Biberist products carouselled with no loss of market share

Grow Specialities• ‐> Successful launch of Fusion White Top Liner• ‐> Digital inkjet product Jaz.in exclusive arrangement with HP• ‐> Specialities grew by 4.5% in 2011


Key strengths

• Well invested assets at the heart of the European market

• Best service provider• Consistent strong cash generation• Decisive Management team with strong

execution track record.• Becoming a low cost producer• Opportunities in highly profitable

specialities market• Ability to cope with further market

shrinkage


Living with digital media …..• …. HAS NOT MEANT THE END OF PAPER !


Internet continues to catch up with print adspend

CINEMA0%INTERNET

21%

MAGAZINE8%

NEWSPAPER17%

OUTDOOR7%

RADIO7%

TELEVISION40%

Print29%

• Global ad expenditure up 3.5% from 2010 levels

• Europe to grow only 2% vs. 2011 and expected to keep growing (2.8% ‘13 & 3.3% ’14)

• Share of print still declining due to lack of growth to follow trend overall

• Internet is the fastest growing medium at an average of 15.9% (11.7% in Europe) Ad display and video streaming ads the fastest growing sectors

• Internet also the biggest contributor to new ad dollars globally.

0

20 000

40 000

60 000

80 000

100 000

120 000

140 000

160 000

2008

2009

2010

2011

2012

2013

2014

Total Advertising Expenditure

MEDIA MIX

PRINT

Source: Zenith Optimedia / Jan 2012


But … People still perceive printed material a more trustworthy and enjoyable

medium:‐ Reading magazines and books as leisure‐ Print is effective‐ Print is personal Print regarded as reliable and influential

advertising mediumPrint will satisfy niche marketsThere are things you can only do with

printed materials

Symbiosis between digital media and paper does exist Source: Market Intelligence


Transfer of knowledgeTransfer of knowledge

PracticalPractical

RationalRational

Paper speaks to the mind and the senses


Breakthrough and other projects successes so far …

• … now we ARE easy to do business with ….• Brand and Product Simplification

Woodfree Coated Sheets 12 brands 4 brands

Woodfree Uncoated 2 brands 1 brand

Mechanical Coated Reels 3 Galerie brands for Publishing3 Royal brands for Commercial Print


Sappi Sappi

Competitor

8,17

7,97

Result Oct. 2011

0 4 7 512

25

57

142 139

81

2 5 3 19

21

79

165

123

38

0

20

40

60

80

100

120

140

160

180

1 2 3 4 5 6 7 8 9 10

Num

ber o

f occ

urre

nces

Performance CS

Sappi

Competitor

472# respondents

8.2

Overall rating of Customer Service


Market development

• Differing ViewS – CWF Western Europe

10.7%

7.9%

10.4%

2.8%

-6.7%

1.0%1.1%

8.1%

2.0%

1.1% 0.8%

-2.4%

-17.1%

1.3%

-4.5%-2.7%

-0.8% -1.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%Growth Rates Western Europe CWF

EMGE RISI SAPPI PPPC


Market development• Differing Views – MC Western Europe


Input costs and paper prices

60.00

70.00

80.00

90.00

100.00

110.00

120.00

130.00

140.00

150.00

160.00

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep

-09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep

-10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep

-11

Nov

-11

Input Costs vs.. Paper Prices

Softwood

Hardwood

Latex

CWF-S Germany (100g)

LWC Offset France (60g)

Percentages comparing yearly effect: Jan '09 vs.. Dec '11

22%

5,7%

22,7%

-4,9 %

-0,35%

Source: RISI and internal data


China Supply and Demand• EMGE September 2011

‐

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2010 2011 2012 2013 2014 2015

Local demand Export Capacity


Country Specific Imports CWF from China

02 0004 0006 0008 000

10 00012 00014 00016 00018 00020 000

09-Jan

Apr July Oct 10-Jan

Apr Jul Oct 11-Jan

Apr Jul Oct

UK Italy Spain France Greece

tonsJan-December 2011

2,725 (-98% vs.10)

Jan-December 09

159,098 (+72% vs.08)

Jan-December 10

109,627 (-31% vs.09)


Country Specific Imports CWF from South Korea

0

2 000

4 000

6 000

8 000

10 000

12 000

09-Jan

Apr July Oct 10-Jan

Apr Jul Oct 11-Jan

Apr Jul Oct

UK Italy Spain France Greece

tonsJan-December 2011

80,180 (+ 101% vs.10)

Jan-December 09

49,301

Jan-December 10

39,905 (-19% vs.09)


SFPE cost/ton

• Index Variable Cost / ton: October 2010 = 100%• Index Quarterly Cash Fixed Cost: Q1‐2011 = 100%

• Sustainable improvement of $100million• Manpower reduction of 764 FTEs• Capacity reduction (Biberist +Äänekoski): 700Ktons


Summary Cost reduction leads to

sustainable improvement

Sappi is competitive in service, quality and cost in Europe

Capacity is right sized

Cash generative and profitable

Management with strong executive track record

Highly attractive and growingspecialities business




• Conclusion


Sappi Southern Africa

• # 1 in Chemical Cellulose with 14% capacity share

• Wide range of paper, tissue & packaging;

• 567,000ha of forests in Southern Africa

• Total paper capacity of 1.08m tons

• Total pulp capacity of 2.02m tons

• 2011 Sales: $1,801m

• 2011 Op. Income: $199m


Strategy for Southern AfricaGrow Chemical Cellulose• Saiccor expansion by 215k ton (Sep 2008)• Ngodwana expansion by 210k ton (Apr 2013)• Lowest quartile cost base• Market growth of >6% per annum

Forestry resources / renewable energy• Low cost wood resources in SA and elsewhere• Renewable energy projects at our operations

Match our assets to our resources and the market• Closure of Adamas Jul 2011 (40k ton)• Planned closure of fibre lines Mar 2012 (300k ton)• Planned reduction of paper capacity Mar 2012 (100k ton)• Address future environmental issues• Substantial cost reduction


• Only 2 known lower cost producers• Timber• Logistics

• Why are our costs so low• Cost of growing fibre• Proximity of forests to Ngodwana• Good logistics to main markets

• Project time line• All major contracts concluded• Equipment delivery completed: Nov‐2012• Tie into existing plant: Mar‐2013• Chemical cellulose production: Apr‐2013

Ngodwana Chemical Cellulose Project


18 18 20

40

010203040

South Africa Brazil Southern US SouthernEurope

Scandinavia

Year

s

n/a

Source: Forestry South Africa

Hardwood Pulp ‐ Avg. Tree Age at Harvesting

12

40

60

8 100102030405060

Brazil South Africa SouthernEurope

Southern US Scandinavia

Year

s

Softwood Pulp ‐ Avg. Tree Age at Harvesting

South Africa a source of low-cost pulp


International Hardwood Markets

$/ODMT

R7.16/$

ODMT’m

108

0

50

100

150

200

250

0

5

10

15

20

25

JAP-IMP GERM SPAIN AUS ESCA BRA FRA SA INDO CHILE US

Size Price

W. avg. global price

$120.70

(QTR 3 - 2011)

Source: Wood Resources International

South African wood costs are competitiveOwn growing costs far more so… 70% self sufficient


Competitor Cash Costs

Source RISI and Sappi

World Competitor CC Cash Costs into VSF based on 80% of supply volumes



AverageCash Cost

+ 25%

‐ 30%


Low cost wood resources – Eastern Cape project• 30 000 ha of tree plantations by 2020;

• Supply ± 450k ton/annum;

• Ownership with communities;

• Sappi as Implementation Partner;

• 12 600 ha in Project Pipeline;

• 690 ha planted to date;

• 500 direct and 1500 indirect jobs /10 000 ha;

• Grant funding. Supplemented by Sappi and IDC;


Renewable energy and energy levy

• Selling electricity to Eskom from:

• Ngodwana

• Saiccor

• Access to biomass resources to

improve energy self sufficiency

• Energy levy of 2.5c/kW on generated electricity;

• Exeption for co‐generation & renewable energy

• Gazetted 15 Dec 2011


Restructuring update

• Adamas• Fixed cost reduction of R77m

• Profitable products carouselled

• Site cleaned and being offered for sale

• SG&A functions• Marketing, Sales & Supply Chain completed

• Procurement, HR, Communications, Finance shared services

• Other opportunities being investigated

• Cost savings of R39m


• Aligning capacity with demand

• Closing highest cost lines

• Address future environmental costs

• Reduces cost by R250 million p.a.

• Lowest cost producer

Improving our operations and products

• Simplified product range

• Value for money products

• Excellent, efficient service

• Niche market opportunities


Summary

• Investing in Chemical Cellulose• Low cost producer• Fast growing market• Excellent customer relationships

• Growing forestry assets

• Improving paper business• Better use of timber• Improving cost position

• Profitable with growth opportunities




• Conclusion


Strategic Overview• Growth plans progressing well – realistic expectations and confidence in

our track record. No other major projects in the next few years

• Fixing our EU and SA businesses an on-going process, minimise cash

expenditure and take out costs

• Optimisation of NA and Chemical Cellulose businesses on-going – signs

of pulp price turning

• Debt remains important focus – refinancing has lowered cost, maturities

still good but intend to bring levels down to below $2bn post CC projects

and reduce gearing (e.g. Net debt:EBITDA) to a different order of

magnitude


Conclusion

• We have a sound strategy

• We believe in what we are doing

• Traction on actions to date

• World is uncertain

• Totally committed to achieving more

wins and accelerating value creation for

shareholders through improved profit,

strategic positioning and debt reduction


Inspired by life

investor presentation - sappi · | investor presentation | 9 february 2012 forward looking...

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