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.

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.

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.

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.

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.

Our business model

                   
  Prosperity  
Financial, intellectual and manufactured capitals
  • 18 production facilities across the globe
  • Debt: US$1,957 million
  • Equity and liabilities: US$4,55 million
  • Investment: US$39 million
  • Investment in growth: US$298 million
       
                   
             
  People  
Human, and social and relationship capitals
  • 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
     
             
                   
  Planet  
Natural capital

• Natural capital:

  • Plantations:
        • 394,000 owned and leased, of which 259,000 is planted
        • The remainder is managed toconserve 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%
       
                   
           
       
           
       
           
       
           
  • 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 US$54 million paid to governments through taxation
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
6% reduction in cash fixed costs y-o-y US$100 million paid to lenders as interest
Loss of US$135 million 0 dividends
Net debt: up by 30.38%    
       
                       
                       
   
US$434 average training spend per employee
   
One fatality
Global average of 46 training hours per employee
Productivity: 4.3 hours worked/adt saleable production
  Level 2 BBBEE contributor
       
                     
                     
       
High levels of forest certification = competitive advantage
 
  • 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 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
  • Continued investment in embedding a safety culture across the group
  • 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
  • Committed to science-based targets
  • Developed a 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)
       

 

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.

  Risk: 4 Liquidity

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

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.

  Risk 5: Sustainability expectations

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.

      Liquidity
  Risk 5:   Sustainability expectations
      Climate change