SAPPI
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SAPPI
Sappi Turns New Page In
Vision2020 Strategy PRODUCTION: David Napier
Making big investments locally, strategically acquiring internationally, and delivering consistent quality like no one else, Sappi is a South African born brand that is putting the country on the map. Excelling financially and operationally, this is a company that is truly an example to follow. www.enterprise-africa.net / 3
INDUSTRY FOCUS: MANUFACTURING
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2018 marks the 80th year of paper production for Sappi in South Africa. Starting out as a single mill, the Enstra Mill, in Springs in 1936, the company had the ability to produce 14,000 tons per year (tpy) and started producing paper from a strawbased pulp in 1938. On founding, the company was known as South African Pulp and Paper Industries Ltd, and expansion was realised quickly with Sappi moving to open new mills and establishing tree plantations to feed its growth. In ’73, the company re-registered as Sappi Ltd, and a new growth phase was entered, driven by Sappi’s unique ozone bleaching technology. The sapoxal oxygen bleaching process was developed at the Enstra Mill and involves using chlorine or chlorine compounds alongside oxygen or hydrogen peroxide to bleach wood pulp, which has a brownish colour, making it white. This process was pioneered by Sappi and is
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now a standard for the industry around the world. In 1988, Sappi’s biggest expansion strategy was achieved as the company acquired Saiccor (South African Industrial Cellulose Corporation). This prompted Sappi’s entry to the dissolving wood pulp (DWP) market, and from the mill in KZN, Sappi became a leading industrial player in South Africa. The 1990s saw Sappi expand internationally, opening fine paper mills in Germany, UK, and the USA, and the 2000s saw Sappi acquiring new businesses while closing old, unprofitable mills. Now a major international player, with expertise across several related areas, Sappi was a true South African success story. Today, the company can produce dissolving wood pulp, paper pulp, printing papers, packaging and speciality papers, casting and release papers, and related biomaterials and bio-energy. Sappi’s more than 12,000
people work across seven main mills in Europe, three mills in the USA and four in South Africa. globally, the company can produce more than 5.4 million tons of paper each year, 2.3 million tons of paper pulp and 1.3 million tons of DWP. Sappi products are distributed across more than 150 countries. In 2018, the company is preparing to implement further growth strategies to boost its impressive financials. INVESTMENT & ACQUISITIONS Late last year, in December, Sappi confirmed it was underway with an expansion strategy that would see it increase its DWP production capabilities at its Saiccor DWP Mill by 2020. Adding an extra 250,000 tpy capacity will allow the company to stay up to date with global demand. Sappi is also underway with a debottlenecking programme at the Saiccor Mill and this includes increasing the chipping capacity and
SAPPI
// SAPPI’S STRATEGY OF SECURING ITS LEADERSHIP POSITION IN HIGH QUALITY PRINTING AND WRITING PAPERS WHILE EXPANDING ITS FOOTPRINT IN HIGHER GROWTH AND HIGHER MARGINS MARKET SEGMENTS HAS BEGUN TO DELIVER REAL VALUE AND THIS WILL ONLY INCREASE INTO THE FUTURE // modernising the Saiccor Mill wood yard with all-new equipment. When complete, the mill will have a capacity of more than one million tpy, this is why Sappi has started an EIA (environmental impact assessment) process to understand the effect of the investment on the local region and other impacts. Other expansions are underway at the Cloquet Mill and the Ngodwana Mill to increase capacity at both, aiding the drive to meet global demand. “At our Cloquet Mill, we are completing a study regarding the expansion of pulping capacity within
our existing permit limits, maintaining our ability to make either DWP or Kraft pulp. It is envisaged that such an expansion would have the capacity to increase DWP production by around 30,000tpa and could be brought on line by mid-2019,” the company says. “Sappi is also, as previously announced, in the process of expanding its dissolving wood pulp capacity at its Ngodwana Mill by 50,000tpa through debottlenecking projects. This work is scheduled for completion by August 2018,” Sappi added. In February, Sappi announced that it had gained all necessary agreements
for the acquisition of Cham Paper Group Holding AG (CPG) speciality paper business, a European operations across Switzerland and Italy. The two Italian mills and digital imaging business in Switzerland all now fall under the Sappi Europe banner, and all CPG speciality paper intellectual property is being incorporated into the group. “I am very pleased that we have been able to finalise this acquisition so quickly,” said Sappi Chief Executive, Steve Binnie. “We are now able to move with speed to combine Cham’s strong brands, employees and assets with
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INDUSTRY FOCUS: MANUFACTURING
// I AM VERY SATISFIED WITH OUR PERFORMANCE FOR THIS QUARTER AS REFLECTED BY INCREASED SALES, EBITDA AND NET PROFIT // Sappi’s global presence. Our existing as well as new customers will benefit from a broader range of products coupled with our well-established excellent customer service. This transaction strengthens Sappi’s specialities and
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packaging papers business both in Europe and globally, improves our profitability and is another significant milestone towards realising our Vision2020 goal.” Sappi’s Vision2020 involves
substantially increasing EBITDA by the end of the decade by achieving cost advantages, rationalising declining businesses, maintaining a healthy balance sheet and accelerating growth in high margin segments. “Our acquisitions, conversions and expansion projects are positioning us to take advantage of the move from plastics to natural fibre, biobased products and paper-based packaging alternatives. Sappi’s strategy of securing its leadership position in high quality printing and writing papers while expanding its footprint in higher growth and higher margins market segments has begun to deliver real value and this will only increase into the future,” said Binnie. In April, Swedish company ÅF (in partnership with engineering firm, Wood) announced that it had been given the contract by Sappi South Africa to undertake improvement and upgrade works at the Saiccor Mill. Set
SAPPI
for completion in 2020’s third quarter, the 320,000 man hour project is set to bring the mill in line with European environmental legislations and standards with reduced carbon dioxide emissions and substantially reduced chemical oxygen emissions. SEALING STRONG PERFORMANCE In February, it looked like the company was managing to perform successfully, despite the political upheaval in its home market of South Africa. The company stated that its expansion plans are set to provide significant returns later in the year and earnings were in line with expectations. EBITDA excluding special items sat at US$172 million, slightly down from the same period in the previous year. Profit for the period was US$63 million, which was down by US$27 million on the same period in 2017. The future outlook was positive, with global demand for DWP remaining strong. “Our performance for this quarter was in line with our expectations,” said Binnie. “We continue to work hard to mitigate increased input costs and the impact of a stronger Rand/Dollar exchange rate. We will begin to see the benefits of selling price increases during the rest of the financial year. “I am very excited about the prospects for dissolving pulp over the next few years. It is also clear that speciality and packaging paper demand continues to grow as the push to encourage the use of paper based packaging over plastic gathers momentum. “Over and above our debottlenecking projects, we are advancing plans for the possible expansion of Saiccor Mill by a further 110,000tpa.” Last month, the company announced its 2018 second quarter results, beating expectations across the board. Binnie was pleased. “I am very satisfied with our performance for this quarter
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as reflected by increased sales, EBITDA and net profit,” he said. “I’m particularly pleased that all regions were able to deliver higher sales volumes despite the shortterm impact of the expansion and conversion projects. We faced higher raw material costs, in particular pulp, for our paper businesses but were able to increase selling prices to offset most of this impact. The acquisition of the Cham speciality paper business was completed during the quarter and the integration into Sappi is moving ahead smoothly. “Our operating performance for the third quarter is expected to be in line with that of the prior year as the impact of the stronger Rand and the various capital projects underway will offset the improved paper markets,” he added. EBITDA excluding special items was
up to US$211 million and profit for the period hit US$102 million. From its Johannesburg headquarters, Sappi continues to make strides as one of the only companies emanating from South Africa and taking market share in major developed economies around the world. In the future, with improvements to its local mills, acquisitions of global expertise, and effectively driving international demand while always maintaining a quality focus, now is the time for Sappi to position itself atop the industry and write its name in the history of the paper and packaging sector.
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June 2018
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