Investor Presentation 9 February 2012
Investor Presentation
9 February 2012
| Investor Presentation | 9 February 2012
Forward looking statements
Certain non-GAAP financial information is contained in this presentation that management believe may be useful in comparing the company’soperating results from period to period. Reconciliation's of certain of the non-GAAP measures to the corresponding GAAP measures can befound 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,including but not limited to statements that are predictions of or indicate future earnings, savings, synergies, events, trends, plans orobjectives.
The words “believe”, “anticipate”, “expect”, “intend”, “estimate”, “plan”, “assume”, “positioned”, “will”, “may”, “should”, “risk” and other similarexpressions, which are predictions of or indicate future events and future trends, which do not relate to historical matters, identify forward-looking statements. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties andother factors which are in some cases beyond our control and may cause our actual results, performance or achievements to differ materiallyfrom anticipated future results, performance or achievements expressed or implied by such forward-looking statements (and from past results,performance or achievements). Certain factors that may cause such differences include but are not limited to: the highly cyclical nature of the pulp and paper industry (and the factors that contribute to such cyclicality, such as levels of demand,
production capacity, 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; 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, cost-reduction programmes, investments, acquisitions and dispositions (including related financing), any
delays, unexpected costs or other problems experienced in connection with dispositions or with integrating acquisitions and achievingexpected 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 futureevents or circumstances or otherwise.
| Investor Presentation | 9 February 2012
• Group Overview & Results
• Divisional Overviews• Chemical Cellulose• North America• Europe• South Africa
• Conclusion
| Investor Presentation | 9 February 2012
Sappi at a glance
Sappi Southern Africa(25% ’11 sales)
Sappi Fine Paper(75% ’11 sales)
Sappi Trading
Jiangxi Chenming(China JV)Sappi Fine Paper
Europe
Sappi Fine Paper North America
Forests
Saiccor(Chemical Cellulose)
Paper & Paper Packaging
2011 sales - $7.3bn
14,900 Employees
62%
8%
7%
15%
7%
1%
Coated fine paper
Uncoated fine paper
Coated specialties
Pulp
Commodity paper
Other
| Investor Presentation | 9 February 2012
21%
54% 25%
Geographic diversification
3 Paper Mills
5 Paper Mills 1 Chemical Cellulose Mill 567,000ha Forests
8 Paper Mills
1 Fine Paper Mill (JV)
Source: Company information¹ For the period ending September 2011
21%
46%
13%
19%
Sales By Destination1 (US$)Sales By Source1 (US$)
North America
Europe
Southern Africa
Asia & other
Global presence enables Sappi to take advantage of opportunities where markets are strong
13 Sales offices on 6 continents
| Investor Presentation | 9 February 2012
Strategy
| Investor Presentation| 9 February 2012
The Past Year• Good start to 2011 – weaker in the 2nd half
• European uncertainty and CWF export declines• Excellent SA Chemical Cellulose performance• Continued underperformance of SA paper operations incl.strikes
• North America performed well• Successful refinance
• A year of major intervention in tough markets• Closures of Biberist and Adamas• Restructure of Southern African operations• Restructuring and impairment charges affect profit and EPS
• Reasonable Q1 2012 • traction with implementation of strategy
| Investor Presentation| 9 February 2012
Strategic Overview
• Refined strategy with emphasis on value creation
• Focus• Increasing importance of growth - Not at the expense ofthe balance sheet
• Internal actions to improve EU and SA
• Benefits in Europe have started
• Benefits in South Africa to start in 2H 2012
| Investor Presentation| 9 February 2012
StrategyFour key elements• Improving Europe and South Africa, starting to see results• Maintain performance in NA and Chemical Cellulose, focus on volumes• Invest in high growth & margin businesses with leading positions
• Chemical cellulose – focus on contracting volumes• Release – pattern development • Forests – self sufficiency and cost
• Reduce Debt
Day-to-day focus on maximisation of profitability and cash
generation
| Investor Presentation | 9 February 2012
1st Quarter 2012 Results
| Investor Presentation | 9 February 2012
Q1 2012 Summary
• Profit for the period US$45m; Q1 2011 US$37m
• Clean results with few special items
• EPS 9 US cents; Q1 2011 7 US cents
• Sales down, margins up sequentially
• Operating profit excluding special items US$100m; Q1 2011 US$137m
• Net debt US$2,175m, up US$75 million on seasonal working capital increase – remains within targeted range
11
| Investor Presentation | 9 February 2012
Q1 2012 Summary
• European business performance benefits from
restructuring and cost reduction actions – US$100m per
annum cost reductions on track
• South African chemical cellulose business performed
strongly – achieved highest quarterly profit margin in 3
years
• North America negatively affected by pulp prices and
technical issues at Somerset
12
| Investor Presentation | 9 February 2012
Operating Profit excluding special items*
25
-17 -13
38
81
5475
129 137127
6080
100
-250
255075
100125150
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q** 2Q 3Q 4Q 1Q
*Refer to the supplementary information in this presentation for a reconciliation to reported operating profit and page 16 in our Q1 2012 results booklet for a definition of special items.**Q1 2011 included an extra week
2009: $33m 2010: $339m 2011: $404m
| Investor Presentation | 9 February 2012
EBITDA* Trend
106 82 93150
193156 176
227 246 228164 183 194
0
50
100
150
200
250Q
1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1*
*
Q2
Q3
Q4
Q1
*EBITDA as shown above excludes special items. Refer to page 16 in our Q1 2012 results announcement booklet for a definition of special items.
**Q1 2011 included extra week
2011: $821m2009: $431m 2010: $752m
| Investor Presentation | 9 February 2012
-10%
-5%
0%
5%
10%
15%
20%
25%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Divisional Operating Margins*
*The divisional operating margins exclude special items. Refer to page 15 in our Q1 2012 results announcement booklet for a definition of special items.
Q1 2012
Margins:
Europe 3.5%North America
2.8%
Southern Africa 15.8%
2009 2010 2011
European actions driving recovery
| Investor Presentation | 9 February 2012
1,000
1,500
2,000
2,500
3,000Q1
09*
Q209
Q309
Q409
Q110
Q210
Q310
Q410
Q111
Q211
Q311
Q411
Q112
Rights Offer to finance European Acquisition
European Acquisition completed
Major Refinancing completed
Net Debt Development
* Cash proceeds of US$536m for European Acquisition from rights offer not offset against debt
US$ mRepaid $140m
South African debt
Debt reduction remains a focus
| Investor Presentation | 9 February 2012
Debt maturity profile
Note: Based on Sappi quarter end reported exchange rates of US$/€ $1:€1.2948 and US$/ZAR $1:ZAR 8.0862
As at December 2012
(September fiscal year end)
Strong liquidity and maturity profileCash on hand: US$401 millionRCF US$324 million – undrawn
401 376
703*
21
326 350221
129
324
70183
26 620
100200300400500600700800900
1 000
2012 2013 2014 2015 2016 2018 2021 2032
Cash Securitisation Overdraft SPH Term Debt RCF SSA
USD millionUSD millionUSD millionUSD million
2021 $350m Bond
Includes 2018 €250m BondRCF Headroom;
Unutilised
Includes 2014 $300m and €350m Bonds
* Net of $50m unamortised IFRS adjustments relating mainly to upfront costs and discounts on the 2014 bonds
| Investor Presentation | 9 February 2012
• Group Overview & Results
• Divisional Overviews• Chemical Cellulose• North America• Europe• South Africa
• Conclusion
| Investor Presentation | 9 February 2012
What is chemical cellulose?
| Investor Presentation | 9 February 2012
Chemical Cellulose
• Cellulose is a natural organic polymer chain found in all plant materials
• The plant material (wood from certified forests or plantations) is processed and purified by applying specialised chemistry to extract the cellulose chains within the wood
• The purified natural wood cellulose fibres are further dissolved by our customers and re-generated or reformed for a host of applications
Wood
| Investor Presentation | 9 February 2012
Chemical Cellulose vs. market pulp
| Investor Presentation | 9 February 2012
Chemical Cellulose specialisation
Market Pulp Industry
Total : 55 Million Tons
Chemical Cellulose Industry
Total : 5 Million Tons
Market Pulp
Chemical Cellulose
Fluff
Increasing specialisation
VSF
Lyocell
Acetate
MCC
Ethers
Others
1M Cotton Linters
| Investor Presentation | 9 February 2012
Specialised knowledge and customised quality
Chemical cellulose performance is determined by both the wood and the manufacturing process
Furnish
End UsesFinal Pulp
VSF
Cellophane
Lyocell
MCC
Ethers
Acetate
BleachingCooking
| Investor Presentation | 9 February 2012
Process & Product Complexity• Many factors have an influence on the performance & application of CC
• Wood source (softwood/hardwood/ species; age, season, soil, climate)• Process (cooking / digesting and bleaching)• Sheet structure
• Every CC pulp will have unique performance characteristics based on the manufacturing ‘history’ – some are and will be a lot better quality than others !
• We have 50 years of experience and state of the art mills
Saiccor – 800kt Cloquet – 330kt Ngodwana – 210kt
| Investor Presentation | 9 February 2012
Eat & Drink
Filter
Wash & Wipe
Heal & Hygiene
Wear
Communicate
Mend
Wrap
R & R
Beautify
hemical ellulose
What is Chemical Cellulose used for ?
| Investor Presentation | 9 February 2012
Demand Drivers
| Investor Presentation | 9 February 2012
Global Chemical Cellulose Demand – 2011
Others14%
VSF58%
Lyocell3%
MCC2%
Acetate13%
Cellophane1%
Ethers/CMC9%
Total = 5m tons
Sappi = 0.8 m tons = 15%Source: Sappi/Various
| Investor Presentation | 9 February 2012
Viscose stable fibre segmentUsed for making clothes, home‐furnishings, non‐wovens (wipes, feminine hygiene products )
| Investor Presentation | 9 February 2012
2010 Textile Fibres Consumption Split
Source: PCI Fibres/Sappi/Gherzi
Total Market Demand = 74m tons
Synthetics – 62 % of Blen
Cellulosic 2,9m tons **4%
Polypropylene 4.4m tons6%
Wool 1.1m tons1%
Cotton 24.7m tons33%
Acrylic 1.9m tons3%
Nylon 3.7m tons5%
Polyester 35.4m tons 48%
** Excludes Acetate, cupro, triacetate
Synthetics = 61%
± 74m tons
| Investor Presentation | 9 February 2012
Key demand drivers for textiles
Source : USDA / ICAC / GHERZ I /Lenzing / Asian Development Bank
• Population growth‐ Global population from a current 6.9 billion to 8.3 billion by 2030 and per capita consumption
• Increasing need for clothes and food • Increasing need for more comfortable
clothing• Rising urbanization and standard of living
in the Greater Asian Region
– Asian middle class population is likely to grow to 2.7 billion by 2030 from the current 1.9 billion people
– Asian consumers are likely to spend $32 trillion per year by 2030, accounting for 43% of total global consumption
Forecast
| Investor Presentation | 9 February 2012
Growth drivers – cotton
Source : PCI Fibres / Johnson / USDA / ICAC
• Total arable land loss
> 10 m ha p.a.
• Last 60 yrs. cotton
crop area down 29m
to 36m ha
• Forecast to drop to
28m hectares by
2030
• Better crop management,
GMO’s - improving crop
yields
• Current yield ± 800kg / ha
• Forecast to increase to
± 925kg / ha.
• Net effect of land acreage loss vs.. increase in cotton yield is that globalproduction is estimated to grow from ± 25 m tons in 2010 to only 30m tons by 2030
| Investor Presentation | 9 February 2012
Textile growth and cellulose gap
• Production of cotton is forecast to remain stagnant or shrink
• Growth in total fibre consumption will be covered by man‐made fibres
• However certain moisture management properties of cellulose fibres cannot be substituted by oil based synthetic fibres, enhancing opportunity for cellulosics
• VSF is Biodegradable and a natural man made fibre
Source : Gherzi / Lenzing
Cellulosic Gap
| Investor Presentation | 9 February 2012
Capacity and Growth
| Investor Presentation | 9 February 2012
Chemical Cellulose market leadership
No. 1 Global Market Share in Chemical Cellulose
0 5 10 15 20
Sappi
Birla
RGE
Rayonier
Tembec
Others
Global Top 5 Chemical Cellulose Producers
2011 (Est.) % Capacity
47% of Global Capacity
Global capacity (Est.) 5.8m tons ** Excluding 1m tons of CLP - Linters Shortage
Weyco2%Bahia
8%Neucell
3%Buckeye
4%
Others21%
Saiccor14%
PT Toba2%
Rayonier8%
CLP China16%
Borregaard3%
Tembec incl. Tartas5%
Domsjo4%
Birla & Lenzing intergrated excl. Domsjo
10%
| Investor Presentation | 9 February 2012
Capacity Directed at China 2013
Toba
Bahia less Own
CloquetChina Bamboo,
Stora Enocell
Sun Paper
Chenming Jilin
Chenming Hubei
Hunan
Fujian Qingshan
Fujian Nanping
Paper Excellence
Thurso
Lee and ManJilin
Cosmo
Sodra Morrum
+‐ 3 Million tons of Capacity Announcements for 2012/4
Capacity additions
| Investor Presentation | 9 February 2012
World Cotton Price (A-Grade) and CC grade Viscose Pulp Price : Delivered to China (US$/Ton)
200
600
1000
1400
1800
2200
2600
3000
3400
3800
4200
00 02 04 06 08 10 12 14 16
Viscose Cotton
Source :RISI/Own
Competitive Investment Decisions by high cost producers?
Current
Capacity drivers
| Investor Presentation | 9 February 2012
Competitor cash costsWorld Competitor CC Cash Costs into VSF
includes 80% of supply volumes
Above Average Cost45%
Below Average CostSappi = 27% Others = 28%
AverageCash Cost
+ 25%
‐ 30%
Source: RISI/sappi
| Investor Presentation | 9 February 2012
Conclusion
• Real CC demand growth forecast
• Strong and mature customer relationships
• Technical knowledge, market leadership and expertise in VSF
• Competitive cost position
| Investor Presentation | 9 February 2012
• Group Overview & Results
• Divisional Overviews• Chemical Cellulose• North America• Europe• South Africa
• Conclusion
| Investor Presentation | 9 February 2012
Leading North American producer of coated paper, pulp and specialties F2011 Net Sales: $1,520M
F2011 EBITDA: $203M
Two integrated coated freesheet mills, specialty paper mill and dedicated sheeting center 1.2M metric tons of paper production capacity 1.0M metric tons of pulp production capacity
US coated freesheet capacity share of approximately 29%US Coated Freesheet Shares
Coated$1,264M
Specialty$153M
Pulp$219M
Net Sales by Business (F2011)
NewPage, 42%
Verso, 13%
SFPNA, 29%
Other, 16%
| Investor Presentation | 9 February 2012
Key advantages
• Well invested, premier asset portfolio with fully integrated facilities
• Established brands with strong market position
• Exposure to most attractive end‐market segments
• Unmatched reputation for product innovation and customer service
• A low cost producer with strong free cash flow profile
• Results driven management team with proven track record ofexecution
• Defined and focused opportunities for driving further profitable growth
| Investor Presentation | 9 February 2012
Premier asset portfolio
Cloquet MillMinnesota330,000 tons
coated fine paper455,000 tons pulp
Somerset Mill Maine795,000 tons
coated fine paper525,000 tons pulp
Allentown Sheeting Facility
Pennsylvania100,000 tons sheeting
capacity
Shared Services Facility Maine
SFPNA Headquarters Massachusetts
SFPNA coated mills are low cost and advantaged
Westbrook MillMaine
35,000 tons coatedspecialty paper
Capacities in metric tons
| Investor Presentation | 9 February 2012
Consistent operational performance and continuous improvement
• Track record of year over year productivity improvement in both pulp and paper
• Successful product redesign – commercialization of Flo sheets and web
• Significant reduction in energy cost through capital investment and fuel management
• Successful material substitutions
• Maintained flat manufacturing overhead
| Investor Presentation | 9 February 2012
Operating Income
Rebuild SPM1
Significant product redesign, performance pay
tied to key financial metrics
Right sized fixed costs
2007 2008 2009 2010 2011
SFPNA has driven improvements through selected investment and strategic actions
Somerset Pulp Mill Upgrade
$129M
Shut Muskegon
Achieved 14% RONOA
Emerged from recession 4 quarters
ahead of competitors
Approved Chemical Cellulose and Somerset PM3
rebuild
Implemented Lean Six Sigma
2006
$(30)M
Grade change optimization
Product and brand alignment with customer
segments
| Investor Presentation | 9 February 2012
Financial performance
‐4%
‐2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
(40)
(20)
‐
20
40
60
80
100
120
140
FY06 FY07 FY08 FY09 FY10 FY11
RONOA
$Million
Operating Income RONOA
| Investor Presentation | 9 February 2012
SFPNA strategy for growth
Coated• Grow operating profit through improved product and customer mix• Implement e‐Business solutions to take time and cost out of the value
chain• Invest in our paper machines to keep them modern and globally
competitive
Pulp• Invest $170M in Cloquet pulp mill to convert to chemical cellulose• Optimize Somerset pulp profitability through customer mix management
Release• Gain share in existing business• Leverage Ultracast technology to enter new business
| Investor Presentation | 9 February 2012
Business Overview - Coated
| Investor Presentation | 9 February 2012
Our market segment – coated free sheet
Coated Free Sheet
Coated Groundwood
Super-Calendered
Susceptibility to Online Substitution
Image quality, heft/feel, opacity and
price
| Investor Presentation | 9 February 2012
Improvement in both coated EBITDA margin and market share
• EBITDA margin improvement driven by improved customer and product mix, more focused brand positioning and cost management
• Market share remains strong, sold out since mid 2009
15%
17%
19%
21%
23%
25%
27%
0%
2%
4%
6%
8%
10%
12%
F06 F07 F08 F09 F10 F11EBITDA Margin Market Share
| Investor Presentation | 9 February 2012
Outlook for NA CFS demand• While consumption will slowly decline with widespread adoption of e‐
devices, CFS less impacted than other grades due to flight to quality• CFS will remain a vibrant part of the media mix due to its unique value in
establishing brand recall and trust• SFPNA further advantaged by world class assets and strong brands
supported by loyalty of customer base, sustainability position and e‐business platform
• Source: RISI 10/11
88
89
90
91
92
93
94
95
2010 2011 2012 2013 2014 2015
NA CFS Operating Rate
| Investor Presentation | 9 February 2012
Agenda
• Overview of SFPNA
• Business Overviews and Strategic Considerations– Coated– Pulp– Release
Business Overview ‐ Pulp
| Investor Presentation | 9 February 2012
Pulp business – competitive advantages
• Sappi NA pulp mills are top tier and among the newest pulp mills in North America– Somerset 1976 525K MT– Cloquet 1999 455K MT
• Located near:– Quality wood baskets– Customers
• Flexible production– Softwood and differentiatedco‐pulp at Somerset
– Aspen and maple at Cloquet
| Investor Presentation | 9 February 2012
Chemical Cellulose conversion overview
• Convert Cloquet pulp production to 330K metric tons per year of chemical cellulose (CC) from kraft paper pulp (455K tons)
• $170M of capital with strong returns
• Target segment will be viscose staple fiber (VSF) – demand projected to grow by 8% per year– Potential to enter even higher value specialty/acetate markets in future
• Swing production capability
• Estimated low quartile cost position – large scale Chemical Cellulose mill with state‐of‐the‐art technology, low cost wood and low cost energy
| Investor Presentation | 9 February 2012
Competitor cash costsWorld Competitor CC Cash Costs into VSF
includes 80% of supply volumes
Above Average Cost45%
Below Average CostSappi = 27% Others = 28%
AverageCash Cost
+ 25%
‐ 30%
| Investor Presentation | 9 February 2012
Business Overview ‐ ReleaseWe make texture…..texture makes the difference
| Investor Presentation | 9 February 2012
RELEASE
TECHNOLOGYEXTENSIONS
TRANSPORTATION ENGINEERINGFILMS
COATED FABRICS
• Brown Shoes• Hand Bags • Luggage• Garments• Upholstery• Leather Goods• Sports Shoes
• Insulation• Foams•Medical Films• Decal• Sound Foams• Aircraft Decor• Camouflage
• Automotive• Trucks•Marine•Motor Homes• Snowmobiles• ATV’s
CASTING LAMINATING
DECORATIVELAMINATES
• Laminate floors• Furniture•Wall panels• Vinyl flooring• Cabinets• Doors•Archt.Glass
IN‐PRODUCTAPPLICATIONS
Release market overview
•Flexible Displays •Printed Electronics• Photo‐Voltaics•Biomimicry•3D viewing films
| Investor Presentation | 9 February 2012
The global release market – casting and laminates end-uses
Ultracast 9,600 T
Polypropylene
11,900 T
Competitor Classics Grades 22,900 T
Sappi Classics 14,400 T
F11 Market Size = 58,800 short tonsF11 Market Share = 41%
99%Share
39% Share
Ultracast Pattern Fidelity
100%
Polypropylene Pattern Fidelity 75%
– 90%
Classics Pattern Fidelity
50%‐ 60%
Classics Price $1,750 ‐ $3,000
per ton
Ultracast Price $7,000 ‐ $12,500 per
ton
Polypropylene Price$4,500 ‐ $10,000
per ton
| Investor Presentation | 9 February 2012
Competitive advantages - release
• Ultracast – Provides100% replication of any pattern
• Superior to the competition (Classics at 50%, Polypropylene at 90%)
– Maintains pattern fidelity over multiple reuses (10 – 20 passes)• Superior to competition which begins to degrade in 4 – 5 passes (polypropylene)
• Manufacturing– Superior service, faster order fulfillment than key competitors (AWA, Favini)– Capacity to grow and increase market share without major capital investment
• Distribution and Sales Coverage– Leading, well established distributor network in China market– Strong sales agents in other Asian markets– Experienced, knowledgeable direct sales force in the Americas and Europe
| Investor Presentation | 9 February 2012
SFPNA key advantages
• Well invested, premier asset portfolio with fully integrated facilities
• Established brands with strong market position
• Exposure to most attractive end‐market segments
• Unmatched reputation for product innovation and customer service
• A low cost producer with strong free cash flow profile
• Results driven management team with proven track record of execution
• Defined and focused opportunities for driving further profitable growth
| Investor Presentation | 9 February 2012
• Group Overview & Results
• Divisional Overviews• Chemical Cellulose• North America• Europe• South Africa
• Conclusion
| Investor Presentation | 9 February 2012
Sappi Fine Paper Europe
• # 1 in Coated Woodfree paper with 25.8% capacity share
• # 2 in Mechanical Coated Paper with 13.5% capacity share
• # 1 in high quality Flexpack• Total paper capacity of 3.7m Tons• 2011 Sales: $3,965m • 2011 EBITDA: $300m
| Investor Presentation | 9 February 2012
Strategy for healthy profit and cash generationRightsizing capacity• ‐> Closure of Kangas 2010 (200KT MCR)• ‐> Closure of Biberist 2011 (435KT WFC)• ‐> M‐real closure of Äänekoski 2012 (180kt WFC, sold by Sappi)• ‐> We are full!
Substantial cost reduction• ‐> Runrate for $100m cost reduction achieved in Q1• ‐> FTE reduction of 12%, no strikes, no disturbance to service• ‐> More to come …• ‐> Biberist products carouselled with no loss of market share
Grow Specialities• ‐> Successful launch of Fusion White Top Liner• ‐> Digital inkjet product Jaz.in exclusive arrangement with HP• ‐> Specialities grew by 4.5% in 2011
| Investor Presentation | 9 February 2012
Key strengths
• Well invested assets at the heart of the European market
• Best service provider• Consistent strong cash generation• Decisive Management team with strong
execution track record.• Becoming a low cost producer• Opportunities in highly profitable
specialities market• Ability to cope with further market
shrinkage
| Investor Presentation | 9 February 2012
Living with digital media …..• …. HAS NOT MEANT THE END OF PAPER !
| Investor Presentation | 9 February 2012
Internet continues to catch up with print adspend
CINEMA0%INTERNET
21%
MAGAZINE8%
NEWSPAPER17%
OUTDOOR7%
RADIO7%
TELEVISION40%
Print29%
• Global ad expenditure up 3.5% from 2010 levels
• Europe to grow only 2% vs. 2011 and expected to keep growing (2.8% ‘13 & 3.3% ’14)
• Share of print still declining due to lack of growth to follow trend overall
• Internet is the fastest growing medium at an average of 15.9% (11.7% in Europe) Ad display and video streaming ads the fastest growing sectors
• Internet also the biggest contributor to new ad dollars globally.
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
160 000
2008
2009
2010
2011
2012
2013
2014
Total Advertising Expenditure
MEDIA MIX
Source: Zenith Optimedia / Jan 2012
| Investor Presentation | 9 February 2012
But … People still perceive printed material a more trustworthy and enjoyable
medium:‐ Reading magazines and books as leisure‐ Print is effective‐ Print is personal Print regarded as reliable and influential
advertising mediumPrint will satisfy niche marketsThere are things you can only do with
printed materials
Symbiosis between digital media and paper does exist Source: Market Intelligence
| Investor Presentation | 9 February 2012
Transfer of knowledgeTransfer of knowledge
PracticalPractical
RationalRational
Paper speaks to the mind and the senses
| Investor Presentation | 9 February 2012
Breakthrough and other projects successes so far …
• … now we ARE easy to do business with ….• Brand and Product Simplification
Woodfree Coated Sheets 12 brands 4 brands
Woodfree Uncoated 2 brands 1 brand
Mechanical Coated Reels 3 Galerie brands for Publishing3 Royal brands for Commercial Print
| Investor Presentation | 9 February 2012
Sappi Sappi
Competitor
8,17
7,97
Result Oct. 2011
0 4 7 512
25
57
142 139
81
2 5 3 19
21
79
165
123
38
0
20
40
60
80
100
120
140
160
180
1 2 3 4 5 6 7 8 9 10
Num
ber o
f occ
urre
nces
Performance CS
Sappi
Competitor
472# respondents
8.2
Overall rating of Customer Service
| Investor Presentation | 9 February 2012
Market development
• Differing ViewS – CWF Western Europe
10.7%
7.9%
10.4%
2.8%
-6.7%
1.0%1.1%
8.1%
2.0%
1.1% 0.8%
-2.4%
-17.1%
1.3%
-4.5%-2.7%
-0.8% -1.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%Growth Rates Western Europe CWF
EMGE RISI SAPPI PPPC
| Investor Presentation | 9 February 2012
Market development• Differing Views – MC Western Europe
| Investor Presentation | 9 February 2012
Input costs and paper prices
60.00
70.00
80.00
90.00
100.00
110.00
120.00
130.00
140.00
150.00
160.00
Jan-
09
Mar
-09
May
-09
Jul-0
9
Sep
-09
Nov
-09
Jan-
10
Mar
-10
May
-10
Jul-1
0
Sep
-10
Nov
-10
Jan-
11
Mar
-11
May
-11
Jul-1
1
Sep
-11
Nov
-11
Input Costs vs.. Paper Prices
Softwood
Hardwood
Latex
CWF-S Germany (100g)
LWC Offset France (60g)
Percentages comparing yearly effect: Jan '09 vs.. Dec '11
22%
5,7%
22,7%
-4,9 %
-0,35%
Source: RISI and internal data
| Investor Presentation | 9 February 2012
China Supply and Demand• EMGE September 2011
‐
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2010 2011 2012 2013 2014 2015
Local demand Export Capacity
| Investor Presentation | 9 February 2012
Country Specific Imports CWF from China
02 0004 0006 0008 000
10 00012 00014 00016 00018 00020 000
09-Jan
Apr July Oct 10-Jan
Apr Jul Oct 11-Jan
Apr Jul Oct
UK Italy Spain France Greece
tonsJan-December 2011
2,725 (-98% vs.10)
Jan-December 09
159,098 (+72% vs.08)
Jan-December 10
109,627 (-31% vs.09)
| Investor Presentation | 9 February 2012
Country Specific Imports CWF from South Korea
0
2 000
4 000
6 000
8 000
10 000
12 000
09-Jan
Apr July Oct 10-Jan
Apr Jul Oct 11-Jan
Apr Jul Oct
UK Italy Spain France Greece
tonsJan-December 2011
80,180 (+ 101% vs.10)
Jan-December 09
49,301
Jan-December 10
39,905 (-19% vs.09)
| Investor Presentation | 9 February 2012
SFPE cost/ton
• Index Variable Cost / ton: October 2010 = 100%• Index Quarterly Cash Fixed Cost: Q1‐2011 = 100%
• Sustainable improvement of $100million• Manpower reduction of 764 FTEs• Capacity reduction (Biberist +Äänekoski): 700Ktons
| Investor Presentation | 9 February 2012
Summary Cost reduction leads to
sustainable improvement
Sappi is competitive in service, quality and cost in Europe
Capacity is right sized
Cash generative and profitable
Management with strong executive track record
Highly attractive and growingspecialities business
| Investor Presentation | 9 February 2012
• Group Overview & Results
• Divisional Overviews• Chemical Cellulose• North America• Europe• South Africa
• Conclusion
| Investor Presentation | 9 February 2012
Sappi Southern Africa
• # 1 in Chemical Cellulose with 14% capacity share
• Wide range of paper, tissue & packaging;
• 567,000ha of forests in Southern Africa
• Total paper capacity of 1.08m tons
• Total pulp capacity of 2.02m tons
• 2011 Sales: $1,801m
• 2011 Op. Income: $199m
| Investor Presentation | 9 February 2012
Strategy for Southern AfricaGrow Chemical Cellulose• Saiccor expansion by 215k ton (Sep 2008)• Ngodwana expansion by 210k ton (Apr 2013)• Lowest quartile cost base• Market growth of >6% per annum
Forestry resources / renewable energy• Low cost wood resources in SA and elsewhere• Renewable energy projects at our operations
Match our assets to our resources and the market• Closure of Adamas Jul 2011 (40k ton)• Planned closure of fibre lines Mar 2012 (300k ton)• Planned reduction of paper capacity Mar 2012 (100k ton)• Address future environmental issues• Substantial cost reduction
| Investor Presentation | 9 February 2012
• Only 2 known lower cost producers• Timber• Logistics
• Why are our costs so low• Cost of growing fibre• Proximity of forests to Ngodwana• Good logistics to main markets
• Project time line• All major contracts concluded• Equipment delivery completed: Nov‐2012• Tie into existing plant: Mar‐2013• Chemical cellulose production: Apr‐2013
Ngodwana Chemical Cellulose Project
| Investor Presentation | 9 February 2012
18 18 20
40
010203040
South Africa Brazil Southern US SouthernEurope
Scandinavia
Year
s
n/a
Source: Forestry South Africa
Hardwood Pulp ‐ Avg. Tree Age at Harvesting
12
40
60
8 100102030405060
Brazil South Africa SouthernEurope
Southern US Scandinavia
Year
s
Softwood Pulp ‐ Avg. Tree Age at Harvesting
South Africa a source of low-cost pulp
| Investor Presentation | 9 February 2012
International Hardwood Markets
$/ODMT
R7.16/$
ODMT’m
108
0
50
100
150
200
250
0
5
10
15
20
25
JAP-IMP GERM SPAIN AUS ESCA BRA FRA SA INDO CHILE US
Size Price
W. avg. global price
$120.70
(QTR 3 - 2011)
Source: Wood Resources International
South African wood costs are competitiveOwn growing costs far more so… 70% self sufficient
| Investor Presentation | 9 February 2012
Competitor Cash Costs
Source RISI and Sappi
World Competitor CC Cash Costs into VSF based on 80% of supply volumes
Above Average Cost45%
Below Average CostSappi = 27% Others = 28%
AverageCash Cost
+ 25%
‐ 30%
| Investor Presentation | 9 February 201286
Low cost wood resources – Eastern Cape project• 30 000 ha of tree plantations by 2020;
• Supply ± 450k ton/annum;
• Ownership with communities;
• Sappi as Implementation Partner;
• 12 600 ha in Project Pipeline;
• 690 ha planted to date;
• 500 direct and 1500 indirect jobs /10 000 ha;
• Grant funding. Supplemented by Sappi and IDC;
| Investor Presentation | 9 February 201287
Renewable energy and energy levy
• Selling electricity to Eskom from:
• Ngodwana
• Saiccor
• Access to biomass resources to
improve energy self sufficiency
• Energy levy of 2.5c/kW on generated electricity;
• Exeption for co‐generation & renewable energy
• Gazetted 15 Dec 2011
| Investor Presentation | 9 February 2012
Restructuring update
• Adamas• Fixed cost reduction of R77m
• Profitable products carouselled
• Site cleaned and being offered for sale
• SG&A functions• Marketing, Sales & Supply Chain completed
• Procurement, HR, Communications, Finance shared services
• Other opportunities being investigated
• Cost savings of R39m
| Investor Presentation | 9 February 2012
• Aligning capacity with demand
• Closing highest cost lines
• Address future environmental costs
• Reduces cost by R250 million p.a.
• Lowest cost producer
Improving our operations and products
• Simplified product range
• Value for money products
• Excellent, efficient service
• Niche market opportunities
| Investor Presentation | 9 February 2012
Summary
• Investing in Chemical Cellulose• Low cost producer• Fast growing market• Excellent customer relationships
• Growing forestry assets
• Improving paper business• Better use of timber• Improving cost position
• Profitable with growth opportunities
| Investor Presentation | 9 February 2012
• Group Overview & Results
• Divisional Overviews• Chemical Cellulose• North America• Europe• South Africa
• Conclusion
| Investor Presentation | 9 February 2012
Strategic Overview• Growth plans progressing well – realistic expectations and confidence in
our track record. No other major projects in the next few years
• Fixing our EU and SA businesses an on-going process, minimise cash
expenditure and take out costs
• Optimisation of NA and Chemical Cellulose businesses on-going – signs
of pulp price turning
• Debt remains important focus – refinancing has lowered cost, maturities
still good but intend to bring levels down to below $2bn post CC projects
and reduce gearing (e.g. Net debt:EBITDA) to a different order of
magnitude
| Investor Presentation | 9 February 2012
Conclusion
• We have a sound strategy
• We believe in what we are doing
• Traction on actions to date
• World is uncertain
• Totally committed to achieving more
wins and accelerating value creation for
shareholders through improved profit,
strategic positioning and debt reduction
| Investor Presentation | 9 February 2012
Inspired by life