AGI
    LITYEXPAND

Group overview

Hummingbirds are the trapeze artists of the avian world. They can fly forwards, backwards, even upside down and are also the only vertebrae capable of hovering in place. In addition to being agile, hummingbirds are extraordinarily fast. They have been observed at speeds of nearly 48 kilometres per hour (km/h) in direct flight and over 72 km/h during courtship dives.

Adaptability is another hummingbird characteristic. These tiny birds have fewer feathers than other birds, because they need to have an efficient body that is as lightweight as possible in order for the flight aerobics they perform. As the insulation that they get from their feathers is insufficient, at night they go into torpor, a hibernation-like state that allows them to conserve energy by slowing down their metabolism, heartbeat and respiration rate. Furthermore, hummingbirds remember migration routes and every flower they’ve ever visited. They can also figure out how long to wait between visits so the flowers have time to generate more nectar.

Inherent in our approach is being agile to stay ahead of market changes, preferences, customer needs and expectations.

ON
    WARDSEXPAND

Creating value by responding strategically

When presented with a dandelion, few people can resist the urge to hold the flower and blow at it to see how far the seeds will travel. It’s the same when presented with a beautiful coffee table book or an impactful piece of print – there is an almost irresistible urge to pick it up, examine it and touch it. Studies have shown that even the simple act of touching objects, like premium packages, brochures and direct mail, can subconsciously increase the perceived value of a brand and its products in the eyes of customers.

Touch can make a stronger impact than sight or sound alone. That’s because touch has the power to shift the brain into a deeper level of engagement, one more conducive to building lasting knowledge. In fact, a number of studies have found that communication through physical media, particularly paper, is more likely to lead to knowledge than communication via digital media.

The haptics of paper and board, together with our need to touch and feel, have created high-growth, cash-generative niche opportunities for Sappi.

We continue to move onwards in terms of paper and paper packaging: Our paperboard packaging product lines are some of the most renowned and valued brands with high-finish premium solutions for cosmetics and perfume, health and beauty care, consumer electronics, confectionery, luxury drinks, food packaging and more. Our packaging brands constitute a great portion of the food packing and labels on shop shelves today. And our graphic papers are used to grab the attention of consumers all over the world.

BLO
    SSOMEXPAND

Our performance review

In mythology, the beautiful, delicate dragonfly symbolises change, transformation and adaptability. This change is said to be about understanding the deeper meaning of life, with the dragonfly’s scurrying flight across water representing an act of going beyond what’s on the surface to look into the deeper implications of life.

Looking beyond – and deeper – is reflected in our Thrive25 sustainability strategy which incorporates our belief that to continue thriving as a global business, we must create long-term value for all stakeholders by supporting a low-carbon circular economy through relevant products from sustainable woodfibre.

Our strategy also recognises that we must understand the forces that heavily impact our lives and work.

Dragonflies have huge compound eyes with thousands of lenses and photoreceptors sensitive to different wavelengths of light, each bringing in information about the insect's surroundings. In other words, they have near-360- degree vision. Which is why they’re able to go after their prey – butterflies, moths, bees and flies – with such accuracy.

At Sappi, we understand that by widening our scope to the broader ecosystem and a wide range of stakeholders, we can identify uncertainty and opportunity beyond our periphery of vision. We leverage insights into our operating context and patterns from our data, stay ahead of nascent technologies and draw on the acumen of our people, to embrace change and create innovative solutions that are relevant to all our stakeholders.

VELO
    CITYEXPAND

Governance and compensation

The cheetah’s light, streamlined body makes it well-suited to short, explosive bursts of speed, rapid acceleration and executing extreme changes in direction while moving at high speed. Contrary to the common belief that cheetahs – known to be the fastest land animal – hunt by simply chasing their prey at high speeds, they are in fact extremely strategic. They don’t randomly sprint towards anything, but wait until the timing is right, varying their speed during the chase. Speed and smartness are attributes that resonate with us at Sappi, given that ‘making smart decisions which we execute with speed’ are among our core values.

Under our Thrive25 strategy, we foster a safety-first culture, using collaboration and the power of partnerships to respond to changes in our environment, moving Sappi forward and deliver value to our customers.

AMP
    LIFYEXPAND

Governance and compensation

In a continuous flow of energy and life, water always finds the lowest level in an incredibly efficient manner. It penetrates any crevice or path that will facilitate its downward flow, steadily meandering and descending in search of lower planes.

In a similar fashion, our focus is on amplifying value creation for all our stakeholders. The landscape around us is changing rapidly. Stakeholders’ needs and expectations have shifted, in particular as regards the environment and social equity.

We are responding to natural resource constraints by seeking responsible alternatives to non-renewables and solutions that are truly sustainable from seed to final product. We strictly monitor and control our use of energy, water and other raw materials and are investing in reducing our reliance on fossil fuels.

We work to amplify value creation through innovation and R&D. Innovation is the way we operate that provides competitive advantages and ensures we grow, flourish and progress. R&D is focused on realising our ambitious but achievable strategy of extracting more value from each tree. Our strategy is supported by technology centres in each region which cover every section of the value chain. We deliver value by optimising our production processes, maximising existing capacity and work to constantly improve our best overall machine efficiency levels.

In the communities where we operate, we prioritise projects that support education, entrepreneurship and environment, as well as health and welfare, while working to break the cycle of poverty through stable, safe employment.

By amplifying value creation in this way, we accelerate and advance meaningful change.

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Our strategy and performance

Our strategy

Through collaboration and innovation, we will grow profitably, using our strength as a sustainable and diversified global woodfibre group, focused on dissolving pulp (DP), graphic, packaging and speciality papers, and biomaterials.

Drive operational excellence

What this means

  • Strengthen our safety first culture
  • Continuously improve our cost position
  • Continue to maximise the benefits of our global footprint
  • Best-in-class production efficiencies

How we performed in 2021

  • Group efficiency, procurement and continuous improvement savings > US$98 million
  • Volumes improved 8% year-on-year resulting in an improvement in cost per ton
  • Maximised the benefits of OneSappi (internal alignment) to achieve cost advantages

Enhance trust

What this means

  • Improving our understanding of and proactively partnering with all stakeholders
  • Driving sustainability solutions
  • Meeting the changing needs of every Sappi employee

How we performed in 2021

  • Committed to set science-based decarbonisation targets
  • Following Task Force on Climate-related Financial Disclosures (TCFD) recommendations
  • Expanded Supplier Code of Conduct compliance and initiated EcoVadis partnership
  • Executed Group Engagement Survey
  • Sappi Southern Africa Forestry was awarded first ever PEFC certification in South Africa
  • Achieved Level 1 BBBEE in South Africa

Sustain our financial health

What this means

  • Target net debt: EBITDA*(1) ex SI at 2x
  • Reduce absolute debt level and improve EBITDA ex SI
  • Optimise capital management
  • Continue to monitor bond market for opportunities

How we performed in 2021

  • Net debt: EBITDA ex SI at 3.7x
  • Focused capex on essential projects so as to effectively manage liquidity and cash flow
  • Negotiated covenant suspension period until September 2021 – first measurement December 2021
  • Successfully issued convertible bonds during November 2020 to improve liquidity
  • Strong cash generation and much improved liquidity
  • Successfully refinanced our €350 million bonds due 2023 with €400 million bonds due 2028 at a coupon of 3.625%

Grow our business

What this means

  • Grow DP capacity, matching market demand
  • Continue to expand and grow packaging and speciality papers in all regions. Commence commercialisation of biotech opportunities
  • Reduce exposure to declining graphics business

How we performed in 2021

  • Packaging and speciality contributes 40% of group EBITDA ex SI
  • Packaging and speciality volumes constituted 25% of 2021 sales volumes
  • Increased packaging and speciality volumes y-o-y up 21% vs 2020
  • Saiccor expansion finalised towards the close of Q4 FY2021. Commissioning and ramp up commenced during Q1 FY2022
  • Strong growth in lignin sales and favourable advancement of other Biotech opportunities

* Earnings before interest, tax, depreciation and amortisation.

(1) EBITDA excluding special items (EBITDA ex SI).

Measuring our progress

Guided by our strategy, we measure our progress holistically against our mission, collaborating and partnering with stakeholders as we strive to be a trusted and sustainable organisation with an exciting future in woodfibre.

Return on average capital employed (ROCE)

Return on average capital employed (ROCE)

Our strategic performance indicators

Self-assessment of 2021 performance

Link to Thrive25 strategic objectives

Link to 3Ps

Why is this important?

ROCE is an important measure that assesses long-term profitability by comparing how effectively assets are performing with how these assets are financed

® Linked to executive remuneration

2022 objectives

Ramp up the additional Saiccor Mill volumes and reduce logistics constraints. Further optimise packaging and speciality papers volumes in all regions. Restore and improve the graphic papers margins in all regions

EBITDA ex SI (US$ million)

EBITDA ex SI (US$ million)

Our strategic performance indicators

Self-assessment of 2021 performance

Link to Thrive25 strategic objectives

Link to 3Ps

Why is this important?

EBITDA ex SI measures how we performed operationally as a company

® Linked to executive remuneration

2022 objectives

Focus on maximising cash generation through efficient capex and working capital management

EBITDA ex SI margin (%)

EBITDA ex SI margin (%)

Our strategic performance indicators

Self-assessment of 2021 performance

Link to Thrive25 strategic objectives

Link to 3Ps

Why is this important?

EBITDA ex SI margin is an important and comparable measure of our profitability (excluding the impact of financing, accounting treatments or tax implications) against our revenue

2022 objectives

Focus on reducing fixed and variable costs and maximise pricing

Sales (US$ million)

Sales (US$ million)

Our strategic performance indicators

Self-assessment of 2021 performance

Link to Thrive25 strategic objectives

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

2022 objectives

Continue to grow and optimise packaging and speciality papers to achieve full operations of our paper machine assets. Maximise DP volumes to capacity with increased volumes from Saiccor Mill

Net debt (US$ million)

Net debt (US$ million)

Our strategic performance indicators

Self-assessment of 2021 performance

Link to Thrive25 strategic objectives

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)

2022 objectives

During 2022 we are targeting to further reduce net debt

Covenant leverage ratio

Covenant leverage ratio

Our strategic performance indicators

Self-assessment of 2021 performance

Link to Thrive25 strategic objectives

Link to 3Ps

Why is this important?

The net debt to EBITDA ex SI (as defined by our bank covenants) ratio measures our ability to pay off our debt should net debt and EBITDA ex SI remain consistent. EBITDA ex SI 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

2022 objectives

With growth in EBITDA ex SI and reduced debt targeting to further reduce the debt ratio to approximately 2x through the cycle through EBITDA ex SI growth and reduced debt

Lost-time injury frequency rate (LTIFR)

Lost-time injury frequency rate (LTIFR)

Our strategic performance indicators

Self-assessment of 2021 performance

Link to Thrive25 strategic objectives

Link to 3Ps

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 goal(1)

2022 objectives

Achieve zero fatalities and LTIFR

(1) For this indicator, we have clear targets for 2025 that we are working towards. See our Group Sustainability Report for more information.

Sustainable engagement (%)

Sustainable engagement (%)

Our strategic performance indicators

Self-assessment of 2021 performance

Link to Thrive25 strategic objectives

Link to 3Ps

Why is this important?

We rely on a productive and engaged workforce. Employee engagement has been linked to higher safety performance, lower staff turnover, improve productivity and efficiency. Aim to maintain or improve engagement to be above 75%

△ Identified sustainability goal(1)

2022 objectives

Sustain and/or improve engagement

Energy intensity GJ/adt

Energy intensity GJ/adt

Our strategic performance indicators

Self-assessment of 2021 performance

Link to Thrive25 strategic objectives

Link to 3Ps

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 goal(1)

2022 objectives

21.6 GJ/adt

(1) For this indicator, we have clear targets for 2025 that we are working towards. See our Group Sustainability Report for more information.

Certified fibre (%)

Certified fibre (%)

Our strategic performance indicators

Self-assessment of 2021 performance

Link to Thrive25 strategic objectives

Link to 3Ps

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 wellbeing

△ Identified sustainability goal(1)

2022 objectives

Maintain or improve percentage certified fibre >75%

(1) For this indicator, we have clear targets for 2025 that we are working towards. See our Group Sustainability Report for more information.