Containing costs and ensuring appropriate capital allocation
Why it's material
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, unless we grow profitably.
How this issue links to other aspects of our business
Our global priority SDGs
Our top ten risks
- 2 Cyclical macro-economic context
- 4 Liquidity
- 6 Project implementation and execution
Our strategic fundamentals
- Grow our business
- Sustain our financial health
- Drive operational excellence
The global forces shaping our Thrive25 strategy
- Changing consumer and employee profiles
- Growing populations with increasing rates of urbanisation
|OUR 2025 TARGET|
RETURN ON CAPITAL EMPLOYED (ROCE)
As a responsible business operating in many locations around the world, this broad goal aligns with our focus on being a responsible corporate citizen and providing a safe working environment in which our employees can reach their full potential.
Cost containment is a strategic pillar of competitive advantage, as is agility, which is central to the way we operate. We have a history of being agile to difficult trading conditions and we build on this to respond to unexpected developments like Covid-19.
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 in order 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 (PM) 7 at our Lanaken Mill and applying measures to optimise working capital. Where possible, we deferred non-essential capital expenditure. Due to government lockdown regulations that stopped all construction projects, we declared, we declared force majeure at Saiccor Mill (discussed in further here). We shifted annual maintenance shutdowns at Ngodwana, Saiccor 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.
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 paper making assets in the region and continuing to provide an integrated solution to our global release paper customer base. The restructuring has allowed us to compete more effectively and enabled Westbrook Mill to focus on its core competencies of speciality 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.