Group overview

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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.

Creating value by responding strategically

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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.

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.

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

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?

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.

In doing so, we can not only create a more sustainable future, but also unlock significant long-term value for all our stakeholders.

Our performance review

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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.

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.

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.

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.

Governance and compensation

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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.

Appendices

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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.

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

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.

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.

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
  • Ongoing communication with employees regarding the latest developments
  • Some employees were furloughed but there were no large-scale Covid-related retrenchments

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
  

Support to society

  • Employees and Works Councils donated EUR100,000 to the Hardship Fund
  • Lanaken Mill donated 500 pairs of safety glasses to local care homes for the elderly, as well as to community nurses
  • 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 ℓ of hand sanitiser, 28,500 surgical masks, paper products and 130,000 kg of instant porridge
  • 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

See Sharing value with our communities in the principles tab for more information.

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.