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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Risk management

We have an established culture of managing key risks to our business. We believe effective risk management will safeguard the continuity of our operations and contribute to the achievement of our strategic objectives. Therefore, we ensure that our risk management processes are aligned and compatible with our strategy.

Over the years, we have implemented several processes, resources and structures to ensure our risks are managed adequately and efficiently. Among these, we have entrenched safety programmes, internal audit reviews, insurance, information technology (IT) security, compliance and governance processes throughout the group, along with quality management and a range of line management interventions. We are also working to implement the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).


Group board of directors

    Assumes overall responsibility for risk governance

Group Audit and Risk Committee

    Mandated to assist the board in carrying out its risk management responsibilities at group level

Line management in each region, business unit and operation

    Responsible for implementing regional risk management processes

Group Internal Audit

    Provides independent assurance on the risk management process

Risk appetite and tolerance

We have a board-approved framework for risk appetite and tolerance. Risk appetite is the total quantum that Sappi wishes to be exposed to on the basis of risk/return trade-offs for one or more desired and expected outcomes. This is the quantum of risk that the board believes will provide an adequate margin of safety within the group’s risk capacity while enabling the achievement of strategic objectives. Risk tolerance is the amount of uncertainty Sappi is prepared to accept. This is the maximum level of loss or reduced earnings that can be absorbed without compromising key objectives, e.g. return on investment.


Strength of current mitigations

Top 10 risks

Residual risk ranking
Safety
Evolving technologies and consumer preferences
Supply chain disruption
Sustainability expectations
Climate change
Cyber security
Cyclical macro-economic factors
Uncertain and evolving regulatory landscape
Liquidity
Employee relations

For an analysis of the principal financial risks we are exposed to, refer to note 32 to the Group Annual Financial Statements on www.sappi.com/annual-reports

Our 2021 Risk Management Report provides a detailed discussion of the group’s risk factors, and can be accessed on www.sappi.com/annual-reports

 

Safety

(2020: 1)

Root cause

Due to the nature of our manufacturing facilities and forestry operations, our employees and contractors operate in an inherently dangerous environment. We continue to prioritise their health and safety to ensure the continuity of our business.

Mitigating actions

  • Conduct root cause analyses of all major incidents and fatalities
  • Drive continuous improvement in safety performance
  • Ensure compliance with behaviour-based safety (BBS) principles
  • Host regular training sessions
  • Approach all transgressions of our safety policies with discipline
  • Encourage reporting of near-miss incidents
  • External safety reviews

Related material issues

  • Ensuring the safety of our employees and contractors
  • Engaging more closely with our employees
  • Supporting sound labour relations
  • Thrive25 strategy objectives impacted

  • 3Ps impacted

  • Capitals impacted


Evolving technologies and consumer preferences

(2020: 3)

Root cause

The advent of new technologies has an unavoidable impact on the way we operate. Similarly, changes in consumer preferences driven by emerging trends in advertising, electronic data transmission and storage, the internet and mobile devices, as well as digital alternatives to traditional paper applications, could materially affect the sustainability of our business.

Mitigating actions

  • Improve profitability by implementing restructuring and other cost-saving projects
  • Enhance productivity
  • Drive growth in our higher-margin packaging and speciality paper business
  • Leverage our position in the market to capture growth in the dissolving pulp (DP) market

Related material issues

  • Procuring responsibly
  • Reinforcing Verve (our dissloving pulp brand) as the Fibre of Choice
  • Increasing the sustainability of our products by exploring opportunities in adjacent markets
  • Developing and commercialising innovations in addition to adjacent businesses
  • Sourcing sustainable woodfibre
  • Prioritising renewable and clean energy
  • Responding to climate change
  • Demonstrating agility
  • Thrive25 strategy objectives impacted

  • 3Ps impacted

  • Capitals impacted


Supply chain disruption

(2020: not ranked)

Root cause

We depend on a reliable and efficient supply chain to deliver products to our customers within a time frame that meets their expectations. A number of factors, many of which are beyond our control, could disrupt the operation of our supply chain and jeopardise our ability to fulfil our customers’ orders. These factors include inclement weather, natural disasters, transportation interruptions or inefficiencies, port or traffic congestion, labour shortages or disruptions and oil price increases, as well as unrest and pandemics (such as Covid-19). These could impair our ability to supply our customers or maintain an appropriate logistics chain and levels of production and inventory, all of which could adversely affect our reputation, business, results of operations and financial condition.

Mitigating actions

  • Documented business continuity and Covid-19 plans
  • Ability to operate via multiple transportation modes
  • Operational plans to utilise multiple ports for shipments
  • Ongoing communication with key stakeholders, including government
  • Alternate modes of shipping
  • Fine-tuning internal processes to enhance coordination between departments
  • Negotiating longer lead times

Related material issues

  • Demonstrating agility
  • Responding to climate change
  • Procuring responsibly
  • Thrive25 strategy objectives impacted

  • 3Ps impacted

  • Capitals impacted


Sustainability expectations

(2020: 5)

Root cause

The requirements from stakeholders are changing rapidly, challenging Sappi’s ability to keep up to date, exceed or even lead with regard to regulatory, social, product and environmental demands. Our operational impact and environmental footprint need to support and demonstrate our sustainability commitments and actions.

Mitigating actions

  • Utilise product certifications
  • Enhanced health and safety specifications
  • Promote recyclability
  • Drive product innovation (including R&D)
  • Move fast to secure benefit from the high-value niche opportunities created
    by the ‘paper-for-plastics’ movement
  • Build on our strong position and commitment to fibre certification
  • Communicate our social and environmental credentials through all
    media channels

Related material issues

  • Procuring responsibly
  • Increasing the sustainability of our products through circular design and adjacent markets
  • Developing and commercialising innovations in addition to adjacent businesses
  • Sourcing sustainable woodfibre
  • Prioritising renewable and clean energy
  • Responding to climate change
  • Focusing on water stewardship
  • Accelerating circular business models
  • Safeguarding and restoring biodiversity
  • Thrive25 strategy objectives impacted

  • 3Ps impacted

  • Capitals impacted


Climate change

(2020:9)

Root cause

Climate change will have an unavoidable effect on our business in the form of transitional, reputational and physical impacts. The latter include the frequency and intensity of forest disturbances such as wildfires and extreme storms. This, in turn, could reduce forest productivity and change the distribution of tree species. The impact of climate change on our supply chain, including the availability of raw materials and the wood supply we need for our operations, may adversely impact our business.

Regarding transitional risk, governments around the world are focusing on carbon trading and taxes as a response to climate change and such taxes could impact profitability to an increasing extent in future.

Mitigating actions

  • Source pulp and woodfibre from a variety of sources and regions
  • Invest in fire, pests and disease prevention protocols in South Africa, as well as site species matching to withstand abnormal weather events and reduce our water footprint in this region
  • Formulate a climate change strategy under the auspices of our Task Force on Climate-related Financial Disclosure (TCFD) work
  • Sappi Southern Africa has engaged National Treasury via Paper Manufacturers’ Association of South Africa (PAMSA) to motivate taking into account carbon sequestration by companies that own their own forests when calculating carbon tax
  • Group-wide decarbonisation initiatives are in place

Related material issues

  • Increasing the sustainability of our products through circular design and adjacent markets
  • Developing and commercialising innovations in addition to adjacent businesses
  • Sourcing sustainable woodfibre
  • Prioritising renewable and clean energy
  • Responding to climate change
  • Focusing on water stewardship
  • Accelerating circular business models
  • Safeguarding and restoring biodiversity
  • Thrive25 strategy objectives impacted

  • 3Ps impacted

  • Capitals impacted


Cyber security

(2020:10)

Root cause

During the normal course of our business, we make use of our digital platforms to access and transact on confidential customer, employee, financial and commercial information, through our transactional and production systems. We also store, access and share our trade and proprietary information in our databases. These could be vulnerable/susceptible to cyber-attacks.

Mitigating actions

  • Mitigate against cyber-attacks and information security breaches through our multi-layered information technology security programme
  • Adhere to relevant data protection laws in the jurisdictions where we operate
  • Provide relevant cyber security training to all our employees
  • Identify the employees susceptible to social engineering and phishing attacks

Related material issues

  • Maintaining ethical behaviour and compliance
  • Thrive25 strategy objectives impacted

  • 3Ps impacted

  • Capitals impacted


Cyclical macro-economic factors

(2020: 2)

Root cause

Our business is impacted by cyclical changes in global economic conditions, including fluctuations in exchange rates, periodic supply and demand imbalances, industry capacity and output levels. Global economic turmoil (including that caused by the Covid-19 pandemic) can lead to significant decreases in sales volumes, as well as pressure on our prices in the markets where we operate. We continue to operate in a highly competitive environment. Consolidation in the pulp and paper industry – leading to larger, more focused companies – has become more prevalent.

Mitigating actions

  • Monitor the balance between supply and demand
  • Monitor potential impairment of operating assets
  • Implement capacity closures as required
  • Improve efficiencies and reduce costs across the business
  • Enhance customer service, innovation, and efficient manufacturing and logistics processes
  • Drive performance to set our businesses apart from competitors
  • Increase pulp integration

Related material issues

  • Demonstrating agility
  • Enhancing efficiency through machine learning and digitisation
  • Developing and commercialising innovations in addition to adjacent businesses
  • Thrive25 strategy objectives impacted

  • 3Ps impacted

  • Capitals impacted


Uncertain and evolving regulatory landscape

(2020: 7)

Root cause

Our business is subject to various regulatory requirements across the regions where we operate, including requirements relating to environmental stewardship, health and safety. Significant changes to applicable laws and regulations – along with instabilities in political, financial and social spheres – could impact our competitiveness and profitability.

Mitigating actions

  • Remain up to date on changes to applicable legislation
  • Ensure compliance with all relevant laws and legislation
  • Report regularly on compliance to the Group Audit and Risk Committee
  • Reduce the impact of our operations on the environment, as guided by relevant and recognised programmes
  • Invest in initiatives aimed at reducing our air emissions, wastewater discharges
    and waste generation
  • Monitor potential changes in pollution control laws, including greenhouse gas (GHG) emission requirements, and take action accordingly
  • Cooperate across regions to apply best practices in sustainability

Related material issues

  • Maintaining ethical behaviour and compliance
  • Thrive25 strategy objectives impacted

  • 3Ps impacted

  • Capitals impacted


Liquidity

(2020: 4)

Root cause

Our principal sources of liquidity are cash generated from operations and available under our credit facilities, and other debt arrangements. Our ability to generate cash depends mainly on general economic, financial, competitive, market and regulatory factors. Our cash flow from operations may be adversely impacted by a downturn in worldwide economic conditions (including as a result of the effects of the Covid-19 pandemic), which could result in a decline in global demand for our products.

Mitigating actions

  • Cost saving initiatives
  • Re-prioritising various strategic initiatives
  • Commercial downtime taken to match supply to demand
  • Deferral of non-critical capex projects
  • Postponement of scheduled annual maintenance shuts

Related material issues

  • Demonstrating agility
  • Enhancing efficiency through machine learning and digitisation
  • Developing and commercialising innovations in addition to adjacent businesses
  • Thrive25 strategy objectives impacted

  • 3Ps impacted

  • Capitals impacted


Employee relations

(2020: 8)

Root cause

The majority of our employees are represented by labour unions and are subject to collective bargaining agreements. These agreements are negotiated and renewed periodically, and any corresponding wage increases or work stoppages could impact our business. The risk of workforce reductions, closures or restructuring remains a reality given the current economic climate.

Mitigating actions

  • Interact and engage with union representatives and organised labour regularly
  • Build constructive work relationships

Related material issues

  • Ensuring the safety of our employees and contractors
  • Engaging more closely with our employees
  • Supporting sound labour relations
  • Attracting, developing and retaining key skills
  • Thrive25 strategy objectives impacted

  • 3Ps impacted

  • Capitals impacted