SA Investor Day June 2015 · 5 Roadbook June 2015 Sappi Limited: Overview #2 Global Producer of...

Roadbook June 20151

SA Investor DayJune 2015

Roadbook June 20152

Forward-looking statements

Certain non-GAAP financial information is contained in this presentation that management believe September 2014 be useful in comparing thecompany’s operating results from period to period. Reconciliation's of certain of the non-GAAP measures to the corresponding GAAP measures canbe found in the quarterly results booklet for the relevant period. These booklets are located in the ‘Investor Info’ section of www.sappi.com.

Regulation G disclosure

Certain statements in this release that are neither reported financial results nor other historical information, are forward-looking statements, includingbut not limited to statements that are predictions of or indicate future earnings, savings, synergies, events, trends, plans or objectives. The words“believe”, “anticipate”, “expect”, “intend”, “estimate”, “plan”, “assume”, “positioned”, “will”, “September 2014”, “should”, “risk” and other similarexpressions, which are predictions of or indicate future events and future trends and, which do not relate to historical matters, and September 2014be used to identify forward-looking statements. You should not rely on forward-looking statements because they involve known and unknown risks,uncertainties and other factors which are in some cases beyond our control and September 2014 cause our actual results, performance orachievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-lookingstatements (and from past results, performance or achievements). Certain factors that September 2014 cause such differences include but are notlimited to:

• the highly cyclical nature of the pulp and paper industry (and the factors that contribute to such cyclicality, such as levels of demand, productioncapacity, production, input costs including raw material, energy and employee costs, and pricing);

• the impact on our business of the global economic downturn;• unanticipated production disruptions (including as a result of planned or unexpected power outages);• changes in environmental, tax and other laws and regulations;• adverse changes in the markets for our products;• the emergence of new technologies and changes in consumer trends including increased preferences for digital media;• consequences of our leverage, including as a result of adverse changes in credit markets that affect our ability to raise capital when needed;• adverse changes in the political situation and economy in the countries in which we operate or the effect of governmental efforts to address

present or future economic or social problems;• the impact of restructurings, investments, acquisitions, dispositions and other strategic initiatives (including related financing), any delays,

unexpected costs or other problems experienced in connection with dispositions or with integrating acquisitions or implementing restructuring orstrategic initiatives (including our announced dissolving wood pulp conversion projects), and achieving expected savings and synergies; and

• currency fluctuations.

We undertake no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information or future eventsor circumstances or otherwise.

Roadbook June 20153

Agenda

Overview

Strategy

South Africa

Roadbook June 20154

Agenda

Overview

Strategy

South Africa

Roadbook June 20155

Sappi Limited: Overview

#2 Global Producer of Coated Woodfree Paper - @ 60% of sales

Forecast - capacity and demand down 1.5% through 2019*

#1 Global Producer of Dissolving Wood Pulp - @ 15% of sales

Forecast – demand up 6%, capacity up 3.3% through 2016 **

*EMGE March 2015 **RISI April 2015

Roadbook June 20156

Sappi at a GlanceSappi Ltd

2014 sales = $6B with 13,064 employees

Sappi EU51% 2014 sales

Graphic Paper

Speciality Paper

Sappi NA25% 2014 sales

Graphic Paper

Specialised Cellulose

Release Paper

Sappi SA23% 2014 Sales

Paper and Paper Packaging

Specialised Cellulose

Forests

Sappi Trading

Roadbook June 20157

Sales Analysis

North America

Europe

Southern Africa

Asia & other

Sales By Destination1 (US$)Sales By Source1 (US$)

Sales By Product1 (US$)

Note 1 – Data reflects results from fiscal year 2014

60%

6%

9%

6%

17%

1% 1%

Coated PaperUncoated PaperSpeciality PaperCommodity PaperDissolving Wood PulpPaper PulpOther

Roadbook June 20158

Agenda

Overview

Strategy

South Africa

Roadbook June 20159

Strategic Focus

Achieve cost advantages

Rationalise declining businesses

Grow through moderate

investments

Accelerate growth in adjacent businesses from a

strong base

Generate cash to strengthen balance sheet

• Continuously improving operational performance

• Optimising energy usage in mills

• Maximising global procurement efficiencies

• Continuously balance graphic paper supply and demand in all regions

• Convert paper machines where possible to higher margin paper business

• Growing paper packaging grades

• Growing specialised cellulose product portfolio

• Extracting value from waste

• Restructuring debt• Optimising working capital• Selling non-core assets

• Evaluating opportunities in specialised cellulose, packaging and complementary industrial products

Roadbook June 201510

Agenda

Overview

Strategy

South Africa


South Africa – Sappi’s Profit Centre

Sales Revenues Operating Profit ex-items


South Africa – Sappi’s Profit Centre

Regional Margins: EBITDA ex-items to sales

24.8%

9.1%

7.6%


Summary: South Africa

• Invested in Specialized Cellulose• Low cost producer• Fast growing market• Excellent customer relationships

• Optimising our forestry assets

• Improving paper business• Better use of timber• Improving cost position• Product optimisation

Packaging

• Profitable with growth opportunities


Thank You

FORESTS

Our Role

Provide aLow Cost,

Sustainable or Increasingsupply of

Fit for Purpose fibre to our mills

National Forestry Land Ownership

Sappi (owned and managed), 27%

Mondi, 15%

Komatiland, 9%HM Group, 5%York, 5%

Cape Pine (MTO), 4%

Small private growers, 23%

Small company, 8%

DAFF & Municipalities, 5%

National Forestry Land Ownership 2014

Sappi Forests

• 390 000 ha own plantations in South Africa

• 110 000 ha supply agreements with out-growers

• 50% hardwoods, 50% softwoods• FSC certified

• Supply 6 million tons pulpwood annually (70% self sufficient)

SaiccorChemical Cellulose

Ngodwana millKraft productsNewsprintChemical Cellulose

Tugela MillKraft products

Usutu – sold 2014Twello package, being negotiated

Mills

R & DSeedlings Planting

Harvesting

ExtractionDelivery

11 million km/annum

40 million seedlings

20 million trees/annum

4.0 million tons/annum

Maintenance18 000 ha/annum

Land Holding252 000 plantable138 000 natural390 000 Total Owned

Forestry value chain

Shaw Research Centre

Sappi Forests Current Research Focus Areas– Generation of improved germplasm

Growth, wood properties, pest and disease resistance, tolerate weather extremes.

– Multiplication and propagation of the improved germplasm

Seed technology, vegetative propagation, tissue culture.

– Generation of best operating practices for the deployment of improved germplasm

Site species matching, land preparation, spacing, fertilisation, planting practice, weeding practice

– Applied operations research

Development of tools which will increase the efficiency of forestry operations

– Enabling technologies which support and underpin focus areas 1 to 4 above

Site classification and modelling, biotechnology, wood property characterization, supply chain optimisation

Delivering genetically improved planting stock

NgodwanaSeedlingnursery

Escarpmentcuttingnursery

Clancuttingnursery

RichmondSeedlingnursery

Sappi Nurseries

Sappi Forests Sustainable Cut

• Sustainable Cut: The “sustainable cut” is an indication of the amount of wood that grows in one year on land owned and leased by Sappi in South Africa and therefore also the amount of wood that is available to harvest each year without reducing the overall quantity of wood standing on the land. The sustainable cut should remain constant or increase.

• Calculation: Weighted MAI x Growing Area• Source: Standing Tons calculation at financial year end

• MAI: Mean Annual Increment (wwt.ha-1.yr-1)• Growing Area: Area with trees growing on it (excludes area

awaiting re-establishment)

Measures of Sustainability• 4 Measures

– Do not fell more than is growing• Sustainable annual cut (area currently under trees x

weighbridge MAI)

– Do not fell before MAI has culminated• Minimum fell age (genus, SQ and product dependant)

– Weighted mean age of crop• Should not be less than half the minimum felling age

– Age-class distribution

The amount available for harvest in the future is a function of what we do in the present.

The amount available for harvest in the present is a function of what was done in the past

Fire Management

•Awareness – FPA’s, Communities, schools etc•Fuel loads – Reduction and EML strategies•Detection – Cameras (3 min cycle) and towers•Planning – X-drives, Google Earth, Control Centre•Readiness – People and equipment•Capacity – Aerial, ground attack•Reaction time – Initial attack (under 10 minutes)

Fire fighting resources

Sappi Forests fire history

2008 2009 2010 2011 2012 2013 2014Area Burned 9311 900 1295 450 1032 2708 3567Plantation Area Lost 8510 283 292 219 274 2099 2571No. of Fires 519 703 603 446 652 553 768

0

100

200

300

400

500

600

700

800

900

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Num

ber o

f Fire

s

Hectares

Axis Title

Sappi Forest Fire History

Area Burned Plantation Area Lost No. of Fires

Management of unplanted areas (112 500 ha)

Sappi Forests has committed itself to:

•promoting habitat for indigenous wildlife by providing corridors of natural vegetation

•managing natural areas for water, soil conservation and biological diversity.

•Restoration of riverine areas and wetlands

Stewardship sitesClairmont Mountain Nature Reserve

945ha site on Clairmont Plantation in Bulwer District of KZN• Consolidates Ingelabantwan Forest Reserve and Marwaqa Nature Reserve into large

protected area• Conserves high value (irreplaceable) species and habitats• At least 10 red data species occur in reserve• 811 ha of Drakensberg Foothill Moist Grassland in good condition• Contains Bushman paintings

Project Grow – salient facts

• Tree farming for subsistence farmers

• Focused at individual growers

• Started in 1983 with 3 growers on 8 hectares

• Currently 4 138 growers managing 14 015

• Technical advice and extension services

• Sappi sponsored seedlings

• Guaranteed market

• Annual advances for work done

• Interest-free loan

• Assist growers with appointing suitable contractors

Total : 2 108 994 tons

Total : R811 922 150

Project Grow’s impact life-to-date

Sappi in the Eastern Cape

• Strategic goal is to support the establishment and management of 30 000 ha of commercial tree plantations by 2020

• Project ownership - community on whose land it is established

• Sappi is the “Implementation Partner” - providing technical, managerial and administrative support and access to markets

• Sappi provides loan finance, but supports grant funding for community-owned projects

Sappi focus areas in E-Cape

Land ClaimsBackground

• Sappi’s approach:

- the validity of the claim is researched, the nature of the right lost and the extent of the arearepresenting the right lost determined;

- only the extent representing the right lost should be restituted.

• The following settlement models were agreed with the Minister of Land Reform and Rural Development:

- 1: Phased settlement model - 2: Joint venture model- 3: Full settlement model

• Common to all:- Supported by a bankable business plan- Operational funding through grant funding/retained income or other.- Supply agreement with Sappi- Sappi provides management support and facilitates technical and business training- Opportunities to develop local contracting businesses

Thank You

37

SA Paper and Paper Packaging Investor Presentation

June 2015

38

Agenda

• Actions taken

• The Business today

• Why have we done this?

• Have the actions worked?

• Next Steps

• Ultraflute Development

Actions Taken

Paper and Paper Packaging – Actions Taken

• Closed Usutu Pulp mill

• Closed Adamas Mill

• Closed Tugela KCD, PM 1, PM 3 and PM 4

• Closed coater at Stanger

• Closed Enstra pulp mill and PM 3 at Enstra

• Commissioned Project Go-Cell at Ngodwana

Paper and Paper Packaging – Actions Taken

• Rationalised the paper portfolio and exited non profitable grades

• Rationalised the containerboard portfolio and exited grades(WTL, Stackraft, Hi Yield and Superflute)

• The Kraft and Fine Paper businesses have been merged to reduce management staff and administration costs

• Restructured support services (HR, Procurement, Finance, IT), to reduce duplication, increase efficiencies and reduce costs to the business

• Tested the possibility of making our current products on different machines to reduce cost and improve market service and profitability

• Cut out all costs not absolutely required for the products that the market will buy e.g Kraft Papers

• Searched for new products for a sustainable future e.g Ultraflute

[Sappi Southern Africa/ Paper & Paper Packaging ]42

Packaging Projects – Carousel Schematic

2015 Carousel

Export fluting Tugela Liner

Recycled Grades

Local 100 gsm recycled*Filled with office in the short term

TypekOffice

Coated Grades

Equipment made redundant:Stanger CoaterEnstra Pm 3, perhaps Pm 2

Tugela (SC flute)

Enstra (Waste Based)

Stanger (Tissue and Uncoated)

Ngodwana (Virgin liner)

SFPE (Coated)

The business today

Paper and Paper Packaging Presentation April 201244

Cape Kraft 60,000 tons recycled containerboard

230,000 tons Kraft linerboard (Virgin)210,000 tons UBSW pulp

Ngodwana

190,000 tons virgin / recycled containerboard 130,000 tons pulp

Tugela

Containerboard

Packaging

Containerboard 550,000Kraft Papers 12,000

Enstra Mill70,000 tons recycled containerboard12,000 tons Kraft papers


Enstra Mill60,000 tonsuncoated fine paper, specialities and securities

Stanger Mill70,000 tonsuncoated fine paper, kraft papers, specialities30,000 tons tissue50,000 tons Bagasse pulp

Total paper and tissue capacity in SA: 270,000tons/year

Paper Bag

Ngodwana Mil110,000 tons newsprint80,000 tons pulp


Product Mix 2015


• Ngodwana Mill– Kraft Liner board used as inner and outer

layers in corrugated applications Kraftpride Tobacco Liner

– Newsprint Presspride

– Pulp for Enstra– Specialised Cellulose

• Tugela Mill– Fluting Ultraflute

– Linerboard Testliner

Mill products


Mill products• Cape Kraft Mill (100% recycled)

– Cape Fluting– Cape Liner– Plasterboard– Coated products


Mill products• Stanger Mill

– Tissue Wadding– Scholastics– Typek– Kraft Papers - Primepak bleached

• Enstra Mill

Printers Boards – Tokai, Milano, Custodian Business Forms – Laser Security grades – Sentinel, Uvidul Envelopes – Ecomail, Valet Scholastics – Prefect Wove Stationery – El Toro, Camelot Cartridge

• Kraft Papers - Beehive• Containerboard – Recycled liner and fluting (lightweight)

50 [Sappi Southern Africa/ Paper & Paper Packaging]

Why have we done this?

51

Paper and paperboard demand

51

52

Long-term demand growth for containerboards

52


RISI – Global Containerboard Capacities Growth by Fibre

54

World Wide Capacity Trends‐Risi

5% Growth all in Recycled volume

‘000 tons


Local corrugated Market

Have the actions worked?

[Sappi Southern Africa/ Paper & Paper Packaging ]57

EBITDA excl. Special Items SA Paper Division

-

,2

,4

,6

,8

,10

,12

2013 2014 2015E

Ebitda % SA Paper

Next Steps

Ultraflute development: A success story

Average weight of corrugated board

60

Corrugated board and fluting

Recycled fluting

• Produced predominantly using OCC as fibre source

• Used in industrial packaging applications

• Cape Flute; Enstra Flute

• Produced predominantly using OCC as fibre source

• Used in industrial packaging applications

• Cape Flute; Enstra Flute

Semi-chemical fluting

• Produced using semi-chemical fibre (eg NSSC)

• Predominantly used for high-humidity applications (Citrus)

• Ultraflute

• Produced using semi-chemical fibre (eg NSSC)

• Predominantly used for high-humidity applications (Citrus)

• Ultraflute

Flute direction –width of sheet

Top liner – Outside of material

Bottom liner – Inside of material

Chop – Length of the sheet

61

Drivers of Ultraflute development

Why Ultraflute

?

Simplify product

mixIncrease NSSC usage

Free up waste

Light-weighting

Importthreat

Local comp

Export market opps

Collaborative development – Mill, marketing, customer, STC

28

How we stack up against the market leaders

63

Product testing and market acceptance

64

CRI Trials

Converter trials

65

Reduced basis weights

Case 1 Grape cartons Reduced fluting from 175 Superflute

to 125 Ultraflute (28%) Other components kept constant BCT improvement of 10% observed

on cartons at HH

Case 2 Open display cartons Reduced fluting from 175 Superflute

to 165 Ultraflute (5.7%) Further reduced outer and mid-liner

from 250 to 200gsm Visy Liner (20%) Maintained BCT at HH

66

Summary of Ultraflute product benefits

Strength Competes with leading fluting

grades in the global marketLightweighting Allows customers to lightweight

materials providing yield benefitsHigh humidity performance Excellent cold-chain performanceConvertibility Reduced propensity for cracking

and excellent profiles has seen corrugators increase line speeds by up to 20%

Conclusion

68

What makes us a successful business?

• Strategy must be revised regularly

• Make the brave decisions to adapt

• Listen to customers

• Invest in Growing markets

• Match machines to markets

• Don’t underestimate simplification!

• Lowest cost quartile

• First to market with product development

• Goal alignment

• Bigger may not be better

| [Sappi Q2 staff results presentation] | [Sappi Limited] | 69

Onward and Upward!

Thank you

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