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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Letter to the stakeholders Chairman and Chief Executive Officer

Operating review

The lingering impact of the Covid-19 pandemic including ongoing lockdown measures and global economic volatility continued to dominate in FY2021. An unwavering focus on the implementation of our Thrive25 strategy and commitment to sustainable business operations facilitated a return to profitability during the year, and the group generated a profit for the period of US$13 million, which was a substantial improvement compared to the loss of US$135 million for the 2020 financial year.


Steve Binnie
CEO


Sir Nigel Rudd
Chairman


Throughout this unprecedented time, the health and safety of our employees remained paramount. Execution of a comprehensive Covid-19 action plan enabled us to operate in a safe and uninterrupted manner where demand permitted. Working closely with our customers and suppliers we systematically increased activity and output in response to improved market demand. Our support for local communities helped mitigate the impact of the pandemic and the ensuing socio-economic consequences on them. We are very pleased to report there were no work-related fatalities during the year, but regrettably 17 employees succumbed to Covid-19. We recognise the pandemic has a tremendous impact on the mental health of our employees and their families, and our employee-wellbeing programmes and communication campaigns focused on providing emotional support and encouraging vaccination.

Our performance with respect to safety across the group was mixed. Sappi Southern Africa achieved an all-time low LTIFR in 2021, however, Sappi North America and Sappi Europe’s safety performance deteriorated relative to 2020. The pleasing progress in Sappi Southern Africa was a result of continuous focus on and integration of programmes such as the “Life Saving Rules”, “Visible Felt Leadership” and Sappi Forest’s “Stop. Think before you act”. In Sappi North America, four of the five sites recorded their best ever safety performance but several slip/trip/fall injuries in the first quarter of the year were responsible for the overall LTIFR deterioration in the region. The issues were successfully addressed through employee engagement and probing of cultural factors as part of the incident investigations and the safety performance in the remainder of the year was back in line with previous excellent standards. Sappi Europe’s safety performance was disappointing with the majority of the injuries occurring at three sites. A ‘Safety Instruction Handbook’ covering all aspects of safety from values, tools, management and behaviours was developed and rolled out together with a standardised audit system. The European leadership remain steadfastly committed to zero injuries and a communication campaign emphasising that “nothing is so important it cannot be done safely” is underway.

Market demand across Sappi’s major product segments improved steadily during the year as global economic activity resumed. Highlights for the year included the recovery of profitability in the pulp segment driven by buoyant demand and significantly better market prices, combined with an excellent performance of the North American region, which delivered its highest EBITDA ex SI in over a decade. The investments of recent years into packaging and speciality papers, including the Matane Pulp Mill investment, reaped rewards as the segment achieved record profitability and sales volumes increased by 21%. However, profitability of the European business was hindered by strict Covid-19 lockdowns, which suppressed economic recovery across the value chain and spiralling costs.

A rapid rebound in global trade following the resumption of economic activity after the first wave of the Covid-19 pandemic amplified existing logistics challenges around the world. Demand for shipping accelerated dramatically as organisations attempted to restock inventories, which led to widespread supply chain constraints including vessel and container shortages, severe port congestion and significant freight rate increases. The logistical disruptions described above severely constrained our export sales in all regions. Furthermore, the high demand for raw materials and commodities, coupled with long lead times, fuelled worldwide inflationary pressures. Consequently, escalating delivery and raw material costs, particularly purchased pulp, chemicals and energy, negatively impacted margins in all product segments. To mitigate the impact of the rising costs we implemented a series of price increases in our paper businesses.

DP market conditions rallied strongly from the first quarter on the back of improved apparel retail demand in the US and Asia, which favourably impacted demand for all textile fibres. Low DP and viscose staple fibre (VSF) inventory levels, high paper pulp prices and a weaker US$/Renminbi exchange rate were all factors that further contributed to the positive sentiment in the sector. The market price(1) for hardwood DP surged from a base of US$624 per ton in October 2020 to a peak of US$1,106 per ton in April and closed the year at US$1,000 per ton at the end of September 2021. Sappi customer demand was robust, and EBITDA ex SI for the segment of US$197 million was more than three times that of the prior year. However, the ongoing global supply chain challenges, exacerbated by the impact from the South African civil unrest and a cyber security breach at the Durban port, constrained sales and resulted in a backlog of approximately 100,000 tons at year end which reduced EBITDA ex SI by approximately US$30 million. In addition, once-off events at the South African mills including a labour strike, shortage of oxygen due to Covid-19, an extended annual shut at Saiccor Mill and the civil unrest, which forced Saiccor Mill to close temporarily, significantly reduced production volumes. The project to expand the Saiccor Mill capacity was impacted negatively by Covid-19 lockdowns and associated travel restrictions, which delayed the project schedule. Commissioning of the plant began during the fourth quarter and will be completed in the first quarter of FY2022.

The 21% growth in sales volumes for the packaging and speciality papers segment was primarily driven by the successful ramp up of sales volumes from Somerset Mill PM1 in North America. The line ran fully on packaging grades from the third quarter and the focus shifted subsequently to product mix and margin optimisation. Growth in the European packaging and speciality papers sales volumes was hampered by weaker demand for certain non-essential luxury product categories and prolonged speciality paper qualifications. Profitability in the European region was also impacted by higher purchased pulp, energy, chemicals and delivery costs. Containerboard demand in South Africa was robust on the back of strong fruit exports. EBITDA ex SI for the segment increased from US$179 million to US$214 million.

Global demand for graphic paper grades improved progressively through the course of the year. However, market recovery in Europe lagged that in North America due to stricter lockdowns in the European Union. Capacity closures in North America in combination with constrained imports into the region due to supply chain challenges contributed to a favourable shift in the supply and demand balance and enabled domestic producers to operate at full capacity. Conversely, the lagging European demand recovery necessitated 367,000 tons of graphic paper production curtailment in the European operations. Despite overall graphic papers segment sales volumes increasing 3% compared to the previous year, EBITDA ex SI deteriorated from US$131 million to US$120 million driven primarily by substantial cost inflation in purchased pulp, chemicals, energy and delivery costs.

(1) Market price for imported hardwood DP into China issued daily by the CCF Group.

Strategic review

Fiscal 2021 was the first year of our Thrive25 strategy. The five-year strategy leverages the power of OneSappi to drive real and sustained value creation. An integral component of the Thrive25 vision is recognition that society in general and our people, in particular, expect us to play a role beyond making and selling. Within this context, we have created a purpose statement as part of our new strategy that articulates our ambition to create a brighter future for the world and our business.

The Thrive25 purpose statement and strategy are fully aligned with our business strategy.

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

Our Thrive25 strategy encompasses the following four main objectives:

In 2020 the Covid-19 pandemic triggered the deepest global recession in decades as economic activity faltered when governments enforced strict restrictions on movement to curb the transmission of the virus. The subsequent implementation of health and safety protocols and vaccination programmes enabled economic activity to resume. However, the emergence of more transmissible variants of the virus resulted in a series of Covid-19 waves in 2021 which continued to fuel economic uncertainty and volatility as countries moved in and out of lockdown restrictions.

The impact of the pandemic on our results in the second half of FY2020 was catastrophic and necessitated a shift in strategic focus to the preservation of liquidity.

Significant production curtailments were necessary to manage inventories in response to dramatic reductions in sales across all product segments. During FY2021, market demand across Sappi’s major product segments improved progressively as global economic activity resumed, which prompted a shift in the strategic focus to returning the business to profitability and mitigation of supply-chain disruptions and cost inflation.

Within the context of ongoing economic uncertainties and the priority to restore the business to profitability, we re-evaluated the timelines of our Thrive25 strategy. While the four strategic pillars remain relevant for our five-year vision, our strategic imperative over the next two years is to deleverage the business and reduce absolute debt.

Phase 1 (2021-2022) – Deleveraging the business

The priority in the first phase is to strengthen the balance sheet by reducing debt and maximising cash generation. During this period, we will drive further margin improvement and ensure that all approved capital projects are completed on time and within budget. We will also begin investigating new growth opportunities for the next phase.

Phase 2 (2022+) – Invest for profit growth

During the second phase, we will begin the investment roll out into new growth opportunities, make decisions on larger expansions and conversions and execute our sustainability strategy.

Initiatives and actions undertaken in FY2021 to support our strategic objectives are outlined below.

Grow our business

In the first phase of our Thrive25 strategy, as we deleverage the business, there are no new major capital projects planned. The 2021 focus for growing the business was therefore on completion of the 110,000 ton Saiccor Mill expansion project and growing the packaging and speciality papers volumes from our recently converted assets in Europe and North America.

The Saiccor Mill expansion project was impacted negatively by the Covid-19 pandemic. The ongoing travel restrictions due to Covid-19 prevented original equipment vendors from travelling to South Africa and resulted in significant delays to the project schedule and commissioning timeline. The civil unrest in July 2021 necessitated a complete shutdown of the site and added to the delays. The hot commissioning of the plant began in the fourth quarter and will be completed during the first quarter of FY2022. We expect the ramp up to full operating rate will take a number of months and therefore full cost savings and environmental benefits of the project will likely only be realised from the second half of 2022. We anticipate demand for DP in 2022 will be strong and with pricing significantly above the long-term average, every effort will be made to expedite the ramp-up.

The strategic decision taken to reduce exposure to graphic papers through diversification into packaging and speciality papers continued to yield benefits through the year. Sales volumes grew by 21%, and EBITDA ex SI in this segment reached a new record high, contributing 40% of the group EBITDA ex SI (vs 18% in FY2019). The underlying demand for packaging and speciality paper grades remained resilient despite the negative impact of Covid-19 on the demand for non-essential luxury goods. The gratifying growth in sales volumes was primarily driven by the ramp up of the Somerset Mill PM1 conversion in North America, which achieved target run rate during the period. Strong demand for our packaging grades in the US allowed for product mix enhancement and optimisation at both a product and customer level, which facilitated growth in EBITDA ex SI margins in the region. In FY2022, we will continue to optimise margins by shifting into more high-end label and packaging markets while expanding on our base folding carton business. In Europe, packaging and speciality paper sales volumes grew by 10% despite a relatively slower economic recovery from Covid-19 and we expect further growth during FY2022 as retail and consumer activity increases. New product introductions such as our containerboard Fusion Nature range and Parade Label Pro will enable us to further expand our European portfolio of packaging and speciality papers. In South Africa, containerboard demand continues to grow, driven by robust fruit exports, and in FY2022 we will optimise our customer portfolio to focus on supporting the growth in the domestic market.

We are committed to reducing our exposure to the graphic paper market and will continue to explore opportunities to utilise our graphic paper assets to produce packaging and speciality paper grades without significant capital investment.

Sappi Biotech made pleasing progress in growing lignin and commercialising our Symbio fibre composite and Valida fibrillated cellulose product offerings. In FY2021, commercialisation of Symbio gained traction with uptake by a major automotive manufacturer in the US, while various other brand owners have the product in their pre-commercial qualification phase. Our Valida pilot plant is running at capacity with repeat orders in diverse application fields such as concrete, cosmetics, personal care, paint and coatings, where it is valued as a dispersant, suspension stabiliser and rheology modifier. Our lignin business continued with its expansion trajectory in FY2021 and for the third year in a row, growth exceeded 30%. We have made considerable progress in moving beyond traditional commodity markets such as dust suppression and concrete admixtures to higher value markets. As part of Sappi Biotech’s ongoing strategy to enter adjacent markets, the development of our lignin product for the animal feed industry culminated in the launch of our Sappi Pelletin product in this market with first sales reported in 2020.

Sustain our financial health

The strategic imperative to deleverage the business was a key focus in the current year. The net debt to EBITDA ex SI leverage ratio decreased from a peak of 6.5 in the second quarter to 3.7 as EBITDA ex SI recovered steadily quarter-on-quarter. The leverage ratio remains significantly above our target of two times, and therefore the imperative for FY2022 remains deleveraging the business and utilising the cash generated in the year to reduce our absolute debt.

In 2020 we proactively negotiated the suspension of the measurement of our revolving credit facility (RCF)-linked financial covenants through to September 2021 (with the first measurement due in December 2021) in order to see us through the worst of the Covid-19 impact on our business and financial metrics. In 2021, we negotiated new leverage covenants (net debt: EBITDA ex SI) with our banking group. The leverage covenant for December 2021 is 5.50 and will reduce quarterly to 4.50 in December 2022 and 4.25 in March 2023. The interest coverage covenant will be reinstated at its previous level of 2.50 times. With the leverage ratio of 3.7 at year end, we have sufficient headroom when the covenants are reinstated in December 2021.

In the first financial quarter of 2021, Sappi Southern Africa Limited issued five-year convertible bonds with a principal amount of ZAR1.8 billion. Shareholder approval to convert the bonds into ordinary shares of Sappi Limited was received at the AGM on 03 February 2021. The net proceeds from the bonds were used to fund the remaining capital expenditure required for the expansion of the Saiccor Mill.

During 2021 favourable market conditions provided the group with the opportunity to refinance the €350 million 2023 bonds at par. Strong investor demand provided the opportunity to upsize the replacement 2028 bond to €400 million at a coupon 3.625%. The additional proceeds were used to repay the partly drawn RCF in Europe. We have no significant maturities due before 2026 and we are comfortable with the maturity profile of our debt.

Capital expenditure in FY2022 is estimated to be US$395 million and includes approximately US$30 million for completion of the Saiccor Mill expansion, US$80 million for cost optimisation and quality improvement projects and US$75 million for sustainability projects.

Drive operational excellence

Reducing both variable and fixed costs throughout the business is integral both to maintaining or improving margins and to the sustainability of our operations. This is especially true in commodity businesses where we faced declining demand, such as graphic papers. In the past year, we set ourselves a target of a US$70 million reduction in third-party expenditure compared to 2020 through efficiency and raw material usage improvements as well as delivering savings through various procurement initiatives. We are pleased to report that savings of US$98 million were realised, which helped offset the significant increase in purchased pulp, chemicals and energy costs. In 2022 we are targeting a further US$42 million in variable cost savings.

The sustainability capital projects for FY2022 include the conversion of the calcium cooking line at Saiccor Mill to the more sustainable magnesium bisulphite technology as well as decarbonisation investments in Europe to convert boilers at Gratkorn and Kirkniemi Mills from coal to biomass and an electric boiler at Maastricht Mill. This Saiccor Mill calcium conversion will reduce the need for coal-based power generation at the mill, significantly reducing the carbon footprint, and will additionally facilitate considerable variable cost savings. One of the more significant cost and quality optimisation projects for FY2022 is an upgrade of the kraft liner board machine at Ngodwana Mill which will improve the quality of the product and allow the mill to remain competitive against imported grades. The South African containerboard market is growing at a rate of 5% per annum on the back of increasing fruit exports and this is seen as a strategic investment to retain our customer footprint in preparation for further potential expansions in this product segment. The cost and quality capital also includes an allocation for information technology projects which are critical for addressing both the risk and opportunities offered by Industry 4.0 and will support the various advanced analytics projects across all three regions which are focused on improving operating efficiencies.

Enhance trust

Under our Thrive25 strategy, one of our strategic fundamentals is to ‘enhance trust’. We aim to meet the challenges of a constantly changing business environment by building mutual trust and proactively partnering with employees, clients and communities to drive sustainability solutions and create shared value. Our Thrive25 people strategy focuses on leadership and creating a culture that enhances OneSappi; builds capability for current and future requirements; and strengthens employee engagement. In FY2021 we completed an employee engagement survey, identified areas for improvement and developed appropriate action plans. Values and ethics are critical for driving operational performance and developing stakeholder trust. We place a high premium on adherence to sustainable business practices and ethical behaviour as encapsulated in our Supplier Code of Conduct and in FY2021 we made good progress towards our supplier engagement target. Furthermore, we have partnered with EcoVadis and will utilise their technology platform and methodology to assess the sustainability performance of our suppliers.

In January 2021, our South African Forestry division was awarded the first ever Programme for the Endorsement of Forest Certification (PEFC) forest management certificate in South Africa. This achievement indicates that Sappi Southern Africa's forest management practices meet the requirements for sustainable forest management set out in the PEFC-endorsed standard for South Africa, the Sustainable African Forestry Assurance Scheme (SAFAS). The intense work in collaborating on the development of the SAFAS system will yield significant benefits outside of our own forest certification as there is now potential to make PEFC forest certification accessible to South Africa’s small landowners. This has great promise for ensuring certification not only delivers social and environmental value, but also supports socio-economic and development priorities.

Through heightening our focus and ambition on climate action, we seek to increase our contribution to building a resilient, thriving world and have aligned our decarbonisation pathway with climate science. In FY2021 we submitted our 2030 GHG emission reduction target to Science Based Target initiative (SBTi) for validation and also completed assessment of our mill operations and forestry assets following the TCFD recommendations on climate-related disclosure.

Sustainability

Sustainability forms the foundation of our Thrive25 strategy as we strive to be a trusted, transparent and innovative partner in building a biobased circular economy. The alignment of our Thrive25 sustainability targets with the United Nations Sustainable Development Goals (SDGs) demonstrates our commitment to ending poverty, protecting the planet and ensuring that all people enjoy peace and prosperity.

Sappi has always focused on the sustainable management of our operations, on increasing efficiency and maximising value from our sustainable natural resources but as we look to the future, it is clear we have an obligation to play a role beyond making and selling. Working with nature using renewable and sustainable wood to produce circular, biobased products can have a sustainable impact on society and the planet and is the basis of our ambition to build a thriving world by unlocking the power of renewable resources for the benefit of people, communities and the planet.

In the past year we made great strides in assessing our risk related to climate change utilising the recommendations of the TCFD, submitted our GHG emissions reduction target to SBTi for validation and placed increasing focus on managing risk in our supply chains via our Supplier Code of Conduct roll-out and partnership with EcoVadis.

Looking forward

Strong demand in the global textile and apparel sector coupled with low inventories throughout the value chain and elevated textile fibre prices (cotton, polyester and VSF) are all contributing to our positive outlook for DP in FY2022. Furthermore, growing consumer demand for nonwoven hygiene products and a global shift away from single use plastics creates an opportunity for viscose based cellulosic nonwoven products that drives further positive sentiment for our DP business. However, short-term DP demand in China is impacted by the recent implementation of energy savings regulations imposing curtailments for energy-intensive manufacturing operations, which includes the textile value chain. Consequently, the Chinese DP market price dropped to US$940 per ton in October 2021. However, lower VSF supply and a widening price differential to cotton fuelled a significant rise in VSF pricing, which should be positive for DP pricing. Sappi’s sales volumes are not expected to be impacted by the weaker Chinese market as demand in South-East Asia, Europe, North America and the near East remains strong.

The recovery of demand for graphic papers combined with industry capacity closures has tightened the market balance. In North America, ongoing restrictions on imports due to global supply chain disruptions have further contributed to a positive environment in this region. The underlying demand in the packaging and speciality papers segment remains robust in both the North American and South African regions and opportunities for further growth in sales volumes exist in Europe. The scheduled Somerset Mill annual maintenance shut, which includes an extended statutory cold outage, will have an estimated US$22 million impact on profitability in the first quarter.

Recent spikes in global energy prices for gas, power and coal are anticipated to have an adverse impact on our first quarter results, principally in Europe. To offset rising costs, we have announced selling price increases across all paper grades. In addition, energy specific surcharges have been implemented for all European shipments from 25 October 2021.

Global logistical challenges and vessel shortages are expected to continue through FY2022, which may have an ongoing negative impact on our export sales. It is unlikely that any significant improvement in supply chain reliability will be realised in the first quarter and hence the backlog of 100,000 tons of DP sales volumes will take time to resolve.

Capital expenditure in FY2022 is estimated to be US$395 million and includes approximately US$30 million of Saiccor Mill expansion capex, US$80 million for cost optimisation and quality improvement projects and US$75 million for sustainability projects.

The first quarter of FY2022 will comprise 14 weeks instead of the typical 13-week quarter. This is in order to adjust our reporting periods closer to the calendar periods and will result in increased sales compared to comparative quarters.

Current liquidity headroom in the group remains good, with cash deposits at the end of the financial year of US$366 million and committed revolving credit facilities of approximately US$732 million. The first measurement of our newly negotiated covenants will now take place at the end of December 2021.

We remain encouraged by the growing resilience of global economies as the Covid-19 pandemic evolves and the corresponding recovery in underlying demand in all of our product segments. However, the supply chain challenges and the extraordinary cost inflation may affect profitability. In addition, the maintenance shut at Somerset Mill is scheduled for the first quarter and will impact EBITDA ex SI. Taking these factors into account, we anticipate a further improvement in EBITDA ex SI for the first quarter of FY2022 relative to the fourth quarter of FY2021.

Appreciation

The Covid-19 pandemic continues to impact on our employees, communities, suppliers, customers, funders and shareholders. In these uncertain and difficult times, close relationships, transparency and trust remain the foundation of our collaborative approach to seeking solutions to problems and creating shared value for all of our stakeholders. We thank you for the faith you have shown in us during these challenging times.

We are grateful for the support of our customers in all of our different markets, with whom we continue to work together, providing relevant products and services which provide sustainable value. Our employees embraced our Thrive25 purpose and strategy and demonstrated incredible resilience and agility. We thank them for their unwavering dedication to our OneSappi vision and adaptation to a new way of working, which allowed us to continue operations under the most difficult circumstances and return the business to profitability.

Our gratitude goes to the board for their continued commitment to the group, their valuable insights and encouragement and for holding us to the highest ethical standards. Mrs Janice Stipp has indicated she will not be making herself available for re-election as an independent non-executive director in 2022. Mrs Stipp was appointed to the board in June 2019 and served on the Audit and Risk Committee. We would like to thank her for the contribution which she has made to the board since her appointment.

In conclusion, we value the support which our shareholders have provided as we work to enhance sustainable long-term shareholder returns. We look forward to their participation at the AGM on 09 February 2022.