Investor Day - Cloquet Mill Visit Ralph Boëttger...2012/06/12 · Cloquet Mill Minnesota 330,000 tons coated fine paper 455,000 tons pulp Somerset Mill Maine 795,000 tons coated

Investor Day - Cloquet Mill Visit

Ralph Boëttger

12 June 2012


| Investor Day - Cloquet Mill Visit | 12 June 2012

Forward looking statements

Certain non-GAAP financial information is contained in this presentation that management believe may be useful in comparing the company‟s

operating results from period to period. Reconciliation's of certain of the non-GAAP measures to the corresponding GAAP measures can be

found in the quarterly results booklet for the relevant period. These booklets are located in the „Investor Info‟ section of www.sappi.com.

Regulation G disclosure

Certain statements in this release that are neither reported financial results nor other historical information, are forward-looking statements,

including but not limited to statements that are predictions of or indicate future earnings, savings, synergies, events, trends, plans or

objectives.

The words “believe”, “anticipate”, “expect”, “intend”, “estimate”, “plan”, “assume”, “positioned”, “will”, “may”, “should”, “risk” and other similar

expressions, 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 and

other factors which are in some cases beyond our control and may cause our actual results, performance or achievements to differ materially

from 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 achieving

expected savings and synergies; and

currency fluctuations.

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

events or circumstances or otherwise.


• Group Overview

• Strategy

•Q2 2012 Results

•Conclusions


21%

54% 25%

Who We Are

3 Paper Mills

5 Paper Mills

1 Chemical Cellulose Mill

567,000ha Forests

8 Paper Mills

1 Fine Paper Mill (JV)

Source: Company information

¹ For the period ending September 2011

21%

46%

13%

19%

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

Global presence enables Sappi to take advantage of opportunities where markets are strong

13 Sales offices on 6

continents

62%

8%

7%

15%

7%

1%

Coated fine paper Uncoated fine paper

Coated specialties

Pulp

Commodity paper

Other


Strategy

| Investor Day - Cloquet Mill Visit| 12 June 2012

2012 summary to date

• Good start to 2012

• European performance commendable in tough environment

• Excellent SA Chemical Cellulose performance

• Continued underperformance of SA paper operations –

restructuring benefits 2H 2012

• North America recovering from operational issues and lower

pulp price

• Chemical cellulose conversions on track and on budget


Strategic Overview

• Refined strategy with emphasis on value creation for shareholders – results dropping through to bottom line

• Focus

• Debt reduction and cost of debt – shareholder value • Increasing importance of growth • Internal actions to improve EU and SA

• Benefits in Europe are clear • Benefits in South Africa to start in 2H 2012


Strategy

Four key elements

• Improving Europe and South Africa, starting to see results

• Maintain performance in NA and Chemical Cellulose, focus on

production

• Invest in high growth & margin businesses with leading

positions

• Chemical cellulose – focus on contracting volumes and

spread of customers

• Forests – self sufficiency and cost

• Reduce Debt

Day-to-day focus on maximisation of profitability and cash

generation


2nd Quarter 2012 Results

10

• Profit for the period US$58 million (Q2 2011 loss US$74 million)

• EPS 11 US cents (Q2 2011 loss per share 14 US cents)

• Net cash generated US$91 million (Q2 2011 US$100 million)

• Net debt US$2,133 million, down US$42 million from Q1 2012

• Cost savings led to improved performance in European business

• Southern African chemical cellulose business continues strong

performance

Q2 2012 Summary

11

Operating Profit excluding special items*

*Refer to the supplementary information in this presentation for a reconciliation to reported operating profit and page 17 in our Q2 2012

results booklet for a definition of special items.

**Q1 2011 included an extra week

2009: $33m 2010: $339m 2011: $404m

12

EBITDA* trend

*Refer to the supplementary information in this presentation for a reconciliation to reported operating profit and page 17 in our Q2 2012

results booklet for a definition of special items.

**Q1 2011 included an extra week

2011: $821m 2009: $431m 2010: $752m

13

EBITDA* trend

*The divisional operating margins exclude special items. Refer to page 17 in our Q2 2012 results announcement booklet for a definition

of special items.

Q2 ‘12 Margins:

Europe 5.5%

N-America 6.8%

S-Africa 13.9%

14

Net Debt Development

1,000

1,500

2,000

2,500

3,000Q

109*

Q20

9

Q30

9

Q40

9

Q11

0

Q21

0

Q31

0

Q41

0

Q11

1

Q21

1

Q31

1

Q41

1

Q11

2

Q21

2

Rights Offer to finance European Acquisition

European Acquisition completed

Major Refinancing completed

US$ m

Repaid $140m South African debt

* Cash proceeds of US$536m for European Acquisition from rights offer not offset against debt

15

Debt Maturity Profile

* Cash proceeds of US$536m for European Acquisition from rights offer not offset against debt


Conclusions


Strategic Overview

• Absolutely focused on shareholder wealth creation

• 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 – pulp

price turning for now

• 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. Refinance of 2014‟ s when conditions allow and it makes

economic sense.


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


Inspired by life

20

SFPNA Overview

Presented by Mark Gardner

21

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%

22

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

23

Premier Asset Portfolio

Cloquet Mill

Minnesota

330,000 tons

coated fine paper

455,000 tons pulp

Somerset Mill

Maine

795,000 tons

coated fine paper

525,000 tons pulp

Allentown

Sheeting Facility

Pennsylvania

100,000 tons sheeting capacity

Shared Services Facility

Maine

SFPNA Headquarters

Massachusetts

SFPNA coated mills are low cost and advantaged

Westbrook Mill

Maine

35,000 tons coated specialty paper

Capacities in metric tons

24

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

25

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

Operating Income

2006

$(30)M

Grade change

optimization

Product and

brand

alignment with

customer

segments

26

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

RO

NO

A

$M

illio

n

Operating Income RONOA

27

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

28

Business Overview - Coated

29

Our Market Segment – Coated Freesheet

Coated

Free Sheet

Coated

Groundwood

Super-Calendered

Susceptibility to

Online Substitution

Image

quality,

heft/feel,

opacity and

price

Investor Day - Cloquet Mill

Visit

30 Source: RISI 02/12

Improvement in Both Coated EBITDA Margin and

Market Share

15%

17%

19%

21%

23%

25%

27%

0%

2%

4%

6%

8%

10%

12%

F06 F07 F08 F09 F10 F11

EBITDA Margin 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

31

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 02/12

86%

87%

88%

89%

90%

91%

92%

93%

94%

95%

2010 2011 2012 2013 2014 2015

US CFS Operating Rate

32

Agenda

• Overview of SFPNA

• Business Overviews and Strategic Considerations

– Coated

– Pulp

– Release

Business Overview - Pulp

33

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 differentiated

co-pulp at Somerset

– Aspen and maple at Cloquet

34

Chemical Cellulose Conversion Overview

• Convert Cloquet pulp production to 330K metric tons per year of chemical

cellulose 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

35

Chemical Cellulose Global Supply Cost Curve

• While significant capacity expansion announcements have been made, all three of Sappi‟s

mills will be at the low end of the cost curve

World Chemical Cellulose Cash Cost Curve

AverageCash Cost

36

Business Overview - Release

We make texture…..texture makes the difference

37

Insert picture of the peel sample (which

will be handed out)

38

RELEASE

TECHNOLOGY

EXTENSIONS

TRANSPORTATION ENGINEERING

FILMS 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

DECORATIVE

LAMINATES

• Laminate floors

• Furniture

• Wall panels

• Vinyl flooring

• Cabinets

• Doors

•Archt.Glass

IN-PRODUCT

APPLICATIONS

Release Market Overview

•Flexible Displays

•Printed Electronics

• Photo-Voltaics

•Biomimicry

•3D viewing films

39

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 tons

F11 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 Day - Cloquet Mill

Visit

40

Competitive Advantage - 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

41

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

42

Thank you

43 Analyst Presentation | 05 June 2012

Sappi Chemical Cellulose

Gary Bowles June 2012


Sappi and Chemical Cellulose

Sappi is the Global leader in chemical cellulose

High Growth and high margin business

Success (both past and future) based on 3 key elements

• Low cost manufacturing and distribution

• Long term contractual commitments

• Specialised knowledge and customer support


What is 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

extractives

5% lignin

20%

hemicellulose

30%

cellulose

45%

Wood


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

Chemical Cellulose Specialisation


Chemical cellulose performance is determined by both the wood

and the manufacturing process

Fu

rnis

h

En

d U

ses

Final Pulp

VSF

Cellophane

Lyocell

MCC

Ethers

Acetate

Bleaching Cooking

Specialised knowledge and customised Quality


Saiccor- 800K Cloquet-330K Ngodwana-215K

Process & Product Complexity

• Many factors have an influence on the performance & application of CC

– Wood source (softwood/hardwood/ species; age, season, soil, climate)

– Process type (cooking / digesting and bleaching)

– Sheet structure (physical and chemical impacts)

• Every CC pulp will have unique performance characteristics based on the

manufacturing „history‟ – some are and will be a lot better quality than others !


Eat & Drink

Filter

Wash & Wipe

Heal & Hygiene

Wear

Communicate

Mend

Wrap

R & R

Beautify

hemical ellulose

What is Chemical Cellulose used for ?


Dissolving Wood Pulp Cotton Linter Pulp

4.8 m tons 1 m tons

Supply 5.8m tons

2011

Including Sappi

Chemical Cellulose Mostly China

Chemical Cellulose Supply Inputs


VSF MCC Lyocell Acetate Others

CMC/ethers

Cellophane

Filament

Tyre cord

Nitrocellulose

Plastics

Sponges

What do our Customers Make ?


End-use Products

Wood

Pulp

• Beech

• Eucalyptus

• Wattle

• Spruce

• Aspen

• Maple

Parties Involved

• Forestry

• Dissolving

Woodpulp

Producers

Parties Involved

• Pulp Producers

Cellulosic Fibers

• Viscose

• Lyocell

• Modal

Parties Involved

• MMC fiber

Manufacturers

Fabrics

• Woven

• Knitted

• Tufted

Parties Involved

• Spinners

• Yarn Makers

• Weavers

Textiles

Nonwovens

End-use Products

• Apparel

• Home Textiles

• Carpets

• Industrial

Products (eg

flame retardant)

• clothing

• manufacturers

• Converter

• Etc.

Retail

Retail

• Wholesaler

• Retailers

• Brands

Fibre Value Chain


Global Chemical Cellulose Demand – 2011

Others

14%

VSF

58%

Lyocell

3%

MCC

2%

Acetate

13%

Cellophane

1%

Ethers/CMC

9%

Total = 5m tons

Sappi = 0.8 m tons = 15%

Source: Sappi/Various


Used for making clothes, home-furnishings, non-wovens (wipes, feminine hygiene products )

Viscose Staple Fibre Segment

55 Analyst Presentation | 05 June 2012 Source: PCI Fibres/Sappi/Gherzi

Total Market Demand = 74m tons ± 79.1m tons

Estimated 2011 Textile Fibres Consumption Split

56 Analyst Presentation | 05 June 2012 Source : USDA / ICAC / GHERZI 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

65.872.5

86.8

100.7

113.3123.5

2005 2010 2015 2020 2025 2030

Million Metric Tons

Textile Fibres Consumption

Key Demand Drivers for Textiles

57 Analyst Presentation | 05 June 2012 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 global

production is estimated

to grow from ± 25 m

tons in 2010 to only

30m tons by 2030

Demand Growth Drivers - Cotton


Share of Historical & Future Fibre Production

0

20

40

60

80

100

120

140

1900 1920 1940 1960 1980 2000 2005 2010 2015 2020 2025 2030

Million Metric Tons

Fibre Production

Wool

Cotton

Man-made Cellulosic Fibres

• 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

Forecast

Source : Lenzing

“Cellulose Gap”


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

Weyco

2%Bahia

8%Neucell

3%

Buckeye

4%

Others

21%

Saiccor

14%

PT Toba

2%Rayonier

8%

CLP China

16%

Borregaard

3%

Tembec incl. Tartas

5%

Domsjo

4%

Birla & Lenzing

intergrated excl.

Domsjo

10%

60 Analyst Presentation | 05 June 2012 Source :RISI/Own

• +- 1m ton of new capacity per annum until 2014 is expected

– A number of paper grade conversions

– Almost all directed at China

– Some speciality conversions/expansions – Rayonier, Buckeye, Bahia

• Sappi‟s competitive response is premised on three pillars

– Secure long term supply contracts with major players

– A competitive cost base

– A proven record of technical competence

New Capacity and Sappi‟s Position

Capacity Directed at China 2013

Altri

Baikalsk

Chenming Yanbian

Georgia Pacific

Halein

WeycoMondiVida

Continental

Toba

Bahia

less Own

Cloquet

China Bamboo,

Stora Enocell

Sun PaperChenming

Jilin Chenming

Hubei

Hunan

Fujian

Qingshan

Fujian

Nanping

Paper

Excellence

Thurso

Lee and Man

Jilin

Cosmo

Sodra Morrum


200

600

1000

1400

1800

2200

2600

3000

3400

3800

4200

00 02 04 06 08 10 12 14 16

Viscose Cotton

Competitive Investments

Decisions by high cost producers?

World Cotton Price (A-Grade) and CC grade Viscose

Pulp Price : Delivered to China (US$/Tonne)


Competitor Cost Comparison

World Competitor CC Cash Costs into VSF based on 80% of supply volumes

Above Average Cost

45%

Below Average Cost

Sappi = 27%

Others = 28%

Average

Cash Cost

+ 25%

- 30%


To embed the 3Ps of Prosperity, People, and Planet into our business processes, to

add value to all stakeholders, and to help achieve the goal to be, on a sustainable

basis, the most profitable company in paper, pulp and cellulose-based solutions.

Timber sourcing for all CC operations will have FSC, SFI and/or PEFC certification

Sustainability


Saiccor Chemical Cellulose Mill

• CC capacity of 800,000 tpa – largest single site globally

• Falls within the bottom quartile of the competitor cost curve

– Cost of growing fibre / growth rates

– Proximity of forests to Saiccor

– Good logistics to main markets

– Multi line operational flexibility

– Ligno plant and future Biomass options

• Integrated Management Systems

– ISO 9001, ISO 14001, ISO 17025 and

– OHSAS 18001

– FSC (Forest Stewardship Council) Chain of Custody


Ngodwana Chemical Cellulose Project

• Planned CC capacity of 215,000 tpa from 2013

• Falls within the bottom quartile of the competitor cost curve

– Cost of growing fibre / growth

– 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: May 2012 / Mar-2013

– Chemical cellulose production: Apr-2013

• FSC (Forest Stewardship Council) Chain of Custody Certified

• Integrated ISO Management Systems


Cloquet Chemical Cellulose Project

• Cloquet is NA‟s newest and most modern pulp mill – 1999

• Produces 450,000 tons per year of paper pulp

• Estimated VSF CC capacity of 330ktpa, start up 01 June 2013

• Only super batch system in NA

• Excellent Safety and Quality performance

• Certification

• OHSAS 18000 certified in 2010

• FSC(Forest Stewardship Council)

• SFI (Sustainable Forestry Initiative)

• PEFC (Programme for the Endorsement of Forest Certification)


Analytical Services Process Support

Product support

Technical Support for Global CC business

Digester and membrane plant

Bleach reactor


• Strong Technical Partnerships with our customers

• Customer-driven R&D

• World Class Know-how on cellulose applications

• Supplier to Viscose Sector for over 50 years

• Specialised pulp testing methods and equipment

• End –use process & product testing

• Pilot plant product manufacture in all segments

Innovative Solutions inspired by the Chemistry of Trees


Conclusion

• Real CC demand growth is forecast

• Sappi‟s CC strengths are:

• Secure and sustainable wood baskets

• Very competitive cost positions

• Business model anchored on long term contracts with leading

customers and minimal spot business

• Strong and mature customer relationships

• Supply Flexibility

• Technical knowledge in all our target segments

• Market leadership position in VSF

• Exciting, profitable and growth business


Inspired by life

Thank You

| Investor Day - Cloquet Mill Visit | | 12 June 2012 71

Print in the New Media Mix

Daniel Dejan

SFPNA ETC Print & Creative Manager


Where once Print was

One of the Big Three

now we split the share

Internet: www

Social Networking

Mobile Media

eInk, ePaper & Tablets

Satellite Radio/PodCasting

Viral Marketing

Email

Print‟s share

Total Media Budget


“Disruptive Technology”

• Desk-top Publishing

– Redefines graphic design, print production & implementation,

archiving and content distribution

• World Wide Web 2.0

– Uploading music, videos, opinions

• Digitalization of Communications

– iTunes redefines Music distribution model

– Variable Digital Printing

• Democratization of Communications

– Evolution of Public Relations > Social Networking

– Advertising/Merchandizing/Marketing at the „local‟ level

– Tablets redefines Publishing distribution model


Print Offers Good Measurement

• Especially for coupons, codes, specific offers and unique links*

• Print has a high response rate*

Consumers Like Print

• 70% of Americans, including 69% of 18 to 24 year olds,

state they prefer to read print and paper communications,

rather than reading off a screen

Consumers Link Print to Quality

• Print is associated with quality products and can contribute significantly

to establishing the clout and legitimacy of a brand*

Physical, tangible media leaves a „deeper footprint‟ in the brain**

What is the Value of Print?

*Source: ORC International Study: Alternative Media Research and Print Channel Trends

**Source: Millard Brown, “Using Neuroscience to Understand the Role of Direct Mail”


Make Media Buyers Aware

Print is less intrusive than broadcast

Print motivates consumers to quicker responses and actions

Print translates into more brand awareness and brand loyalty

-

Yankelovich


Reinforce to Media Buyers

Print is not the lowest-cost provider

Print has the most favorable ROI/ROC

Print continues to be the most efficacious media for

Branding

Mnemonic retention

Sales, merchandising and marketing ROI

Highest trust quotient


Print a key component of media spend

Direct mail projected to

grow 2.6% per year 2011-

2014

Internet will grow 17%

per year 2011-2014 off of

smaller base

Magazines will shrink

(2.5)% per year, as

informational and weekly

publications suffer

Source: Zenith Optimedia December 2011

50 44 33 30 27 25 23 21

26 24

19 19 19 18 18 17

59 58

53 57 59 62 64 66

21 19

16 16 16 17 17 18

7 7

7 7 7 8 8 8

15 18

20 23 26 30 35 42

48 49

47 48 49 50

51 53

225 219

195 199 204 211

217 226

0

50

100

150

200

250

2007 2008 2009 2010 2011 2012 2013 2014

$ B

illio

n

Newspapers Magazines Television Radio

Cinema Outdoor Internet Direct Mail


Direct Mail surprisingly transcends the age demographic** Younger consumers (the 18- to 34-year-old demographic)

prefer to learn about marketing offers via postal mail

rather than online sources

Conveying trust

Consumers say the most trustworthy channels are

newspapers (21%), company websites (21%)

and direct mail (16%)**

Print is particularly effective at reaching certain niche demographics,*

including Wealthy consumers ($244B / 3% increase) ***

*Source: ORC International Study: Alternative Media Research and Print Channel Trends

**Source: Epsilon Targeting, Consumer Survey Results Reveal Direct Mail is Most Preferred Channel for Receipt of Brand

Communications, December 1, 2011 – As reported in Print in the Mix, April 2012


***Source: American Express Publishing & Harrison Group, The American Express Publishing Luxury Summit 2012


Increasing Response Rates

Plus Personalization

44%

Plus Colour

45%

Personalization

Plus Colour

135%

Source: Romano & Broudy

3 4

1 2

5

Plus Variable Content

500%

Static,

B&W

.46%

Web-to-Print


Key Influences in Determining Media Choice

Direct mail continues to be consumers‟ preferred means

of receiving marketing messages from brands*

Across all key verticals -

from financial and insurance to retail and personal care –

direct mail is preferred over email*

The propensity for direct mail also extends

to the 18-34 year old demographic*

*Source: Epsilon Targeting, Consumer Survey Results Reveal Direct Mail is Most Preferred Channel

for Receipt of Brand Communications, December 1, 2011 – As reported in Print in the Mix, April 2012

How the customer wants to receive messaging


How Does Print Play with Other Media?

Adding direct mail to a marketing campaign

increases return on investment by 20%.*

– Outdoor was 44% more successful with print

– Online components, 62% more successful with print

Social media pairs well with print as a message amplifier and

a link between demographic groups.**

Print innovations provide excellent support and linkage

to digital and social media channels.**

When properly sequenced, one channel will perform better

when combined with another channel

especially in the case of traditional direct marketing channels

in conjunction with digital media***

*Source: Meta Analysis of Direct Mil, conducted by marketing analysis firm Brand Science, as reported, Print in the Mix, June 2011

**Source: ORC International Study: Alternative Media Research and Print Channel Trends

***Source: http://www.dmnews.com/digital-and-traditional-channels-must-meet/article/222162/?DCMP=EMC-DMN_EmailMktingWkly


Source: Target Marketing, Media Usage Forecast 2012, February 29, 2012

For customer contact and retention,

direct mail (37%) delivered the best ROI, followed by email (31%)

For customer acquisition, direct mail (34%) topped email (25%)

Direct Mail Delivers Strongest ROI for B2C


http://www.targetmarketingmag.com/article/target-marketings-sixth-annual-media-usage-forecast-2012/1


Key Influences in Determining Media Choice

How the customer wants to receive messaging

Source: Nielsen, The Evolution of Circulars: From Print to Digital, Q4 2011, as reported in Print in the Mix, April 2012

Print advertising most influences consumer store and shopping choices

The media sources shoppers rely on most for sales and product info

Direct mail (67%)

Email (67%)

Social media (45%)

Store‟s website (37%)

Store choice for 15-32 year olds is most heavily influenced by print vehicles

Direct mail (92%)

Websites (84%)

Retailers‟ emails (78%)

Social media (55%)


Source: The Hollywood Reporter, 3/27/2012 by George Szalai

Spent approx $213 million

on ads in traditional

U.S. media last year

One of the largest

direct mailers globally

Uses direct mail to attract

new clients and generate revenue

Source: thedirectmailman.com, April 12, 2012

How Does Print Play with Other Media?

Google's spending on traditional ads

jumps four-fold

Google Uses Direct Mail to Sell On Line Advertising


Offset Printing

Variable Data Printing

Websites Mobile Media

Tablets

Social Media


Content is King…

Courtesy of Condé Nast

But it is Not FREE


Mediamark Research Inc. (MRI) found

magazine readers spend an average of 45

minutes examining each issue.

They also found that the top 25 magazines

reach more adults than the top 25

television programs.


Source: magazinemediafactbook.org; “THE CONVERSATION” conducted on behalf of Hearst by Russell Research, 2010

Source: according to national survey research from ICOM - Lisa Formica, president of FMI, a direct mail marketing and advertising firm.

Magazines rank #1 in driving purchase intent*

• Magazines increased purchase intent five times as much

as television or the internet

• Whether alone or in combination with other media, magazines were

the only medium to be ranked as most efficient at each stage

of the purchase funnel

Magazine advertising gets readers to act*

• 77% of respondents purchased a product after seeing

or reading something in a magazine

Advertising recall (in magazines) has grown 11% over the last five years* •Over half (53%) of those recalling ads took action as a result of

seeing that specific ad



…or use the Purl

QR Codes in Direct Mail



McCoy Silk, Text 100#

McCoy Silk, Cover 80#

Tipped-in lenticular effect Page 7






McCoy Silk, Cover 80# Sappi Standard #5





Americans who shop from

catalogs spend an average

$151 per order.

Percentage of sales from… Paper Catalog – 46% eCatalog/Website – 36% Retail – 14% Other – 4%


“As long as Amazon.com feels

compelled to send out printed

catalogues for its website, the

catalogue business is not going

to go away”

Stefan Sagmeister



Voice of the Customer – Interview Comments*

*Source: End Use Clients face to face interviews conducted in January – March 2012

Print is our number one advertising vehicle – the catalog is our brand

Customers want to see product in magazine titles that they associate

with their own lifestyle and that are prestigious

Customer bases that are in the 45 - 60 year old range are more responsive

and prefer print over other platforms

There is a big push with email at our organization,

but print is seen as important as well

Paper is chosen to reflect the personality of a brand

When a „special‟ event or product is promoted,

Print is the medium chosen


Why Print Remains Relevant

In Today’s Media Market

Print is competitive in price/cost per view and return on investment,

particularly as it is compared with mobile, social and television

Print‟s biggest competitor in terms of cost and ROI is internet

(excluding social) marketing

Print spend is declining, but the value of print to marketers

continues to be high as it provides measurable ROI and is a

preferred and strong component of brand strategy

Print is seen as the medium to be included in a campaign that is

marketing high end, high value products or services

– it appeals to a demographic that is willing to spend money


Why Print Remains Relevant

In Today’s Media Market

Marketers do not see print „going away‟, but being used

in a more targeted and specialized way

Successful campaigns use multiple mediums

-and data points to print as a component that should be included

to maximize success

As budget allocated to print media shrinks,

print channel applications will only become more targeted

and experience-focused – and there is a general opinion that

this will lead to a “Flight to Quality” for high-end print channels


“Print engages all the

senses of a reader and its

tactile quality provides an

added advantage which

other media do not have”

Jaques Lange


HOW CAN SOMETHING THAT

DOES NOT MOVE BE SO MOVING?

HOW CAN SOMETHING THAT

MAKES NO SOUND SAY SO MUCH?

THAT‟S THE POWER OF PRINT !


www.sappi.com/LifeWithPrint

[email protected]

http://www.sappi.com/LifeWithPrint


Thank you

Welcome to Cloquet

Rick Dwyer

June 2012

Investor Tour | June 13, 2012 110

Mill History

1898 Built as Groundwood Mill

1964 Merged with Potlatch

1989 PM12 and New Coater

1993 PM4 Rebuild

1999 New Pulp Mill

2002 Cloquet mill, and the coated business,

purchased by Sappi

2004 PM12 Rebuild

2013 Begin Chemical Cellulose Production


Safety


Minimizing solid waste to landfill

121,0

00

125,0

00

126,0

00

95,0

00

51,1

11

45,7

49

43,7

33

29,0

34

26,3

64

25,7

14

115,000

72,500

40,000 35,000

30,000 25,000

22,500

7.0 8.2

14.3 14.9 14.6

18.8 19.7

20.8

0

5

10

15

20

25

0

20000

40000

60000

80000

100000

120000

140000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Lan

dfi

ll L

ife (

yrs

)

yd

3 (

or

ton

s)/

year

Fiscal Year (Oct to Sep)

Cloquet Landfill Quantities

Volumes - Actual Volumes - Target Life - Achieved


Reduction in Greenhouse Gas Emissions

0.74

0.65

0.55

0.460.43

0.39

0.24 0.250.21

0.260.22 0.21

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011

ton

CO

2e

/ad

t


Cloquet: An Award-Winning Mill

2007 National Pollution Prevention

Roundtable

Most Valuable Project Award

2006

Lake Superior

Bi-National

Program

Environmental

Stewardship

Award For Outstanding

Contribution to

Protect and Restore

the Lake Superior Basin

2006 & 2009

Minnesota Governor’s Award for

Pollution Prevention

http://www.p2.org/


Cloquet Pulp Mill Overview

• Pulp Mill constructed through the „90s

• 8 displacement batch digesters

• O2 delignification

• ECF bleach plant

• 1100 short tons per day pulp dryer

• Liquor recovery cycle

• Products: Maple, Aspen, Birch

•Slush to the paper machines

•Dried bales to the market


400

420

440

460

480

500

520

540

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Bleached Pulp

Sappi - CloquetAnnual Pulp Production Tons Trend

2003 - 2012

Note: 2012 is FC2 projection; 2005 & 2011 were adjusted to a 52-week year

K

Short

tons


Cloquet Paper Mill Overview

• 2 CFS paper machines and 1 off machine coater offering premium

quality, low cost and flexibility

• PM4 produces 110# text through to heavy weight cover

• PM12 produces 60# text up to 146# (light end of cover range)

• Ability to shift covers between PM4 and PM12, and text weights

between PM12 and Somerset to meet market demand

• Brands produced: McCoy, Opus, Opus PS, Flo, Somerset and

Galerie

• Sheets and web


100

150

200

250

300

350

400

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sheets NSP

Sappi - Cloquet Annual Paper Production Tons Trend

2003 - 2012

K

Short

tons


752 748

728 735

740

753 748

735 728

707 711

650

700

750

800

850

FY '01 FY '02 FY '03 FY '04 FY '05 FY '06 FY '07 FY '08 FY '09 FY '10 FY '11 May-12

Cloquet Headcount FY '02 to May 2012 1,052


Paper

Machines

Bleach

Plant

Pulp Dryer

Recovery

Boiler Woodyard Pulp Mill

St. Louis

River

Cloquet Site


Cloquet – Key Strengths

• High quality, low cost paper assets

• Newest pulp mill in NA

• Skilled workforce with culture of continuous improvement

• Sound environmental record

• Current site advantages translate to CC market

Thank you

124 | Investor Day - Cloquet Mill Visit | 13 June 2012


Deece Hannigan


extractives5%

lignin20%

hemicellulose30%

cellulose45%

Project Athena

• Conversion – Spring 2013

• 330K ADMT of Chemical Cellulose for the viscose market,

from 450K ADMT of hardwood kraft


Project Athena

• $170M strategic investment

• New debarking unit

• 2 additional digesters

• Pulp Mill Modifications

− Bleach plant

− Evaporators

− Market pulp machine

• Modify paper machines to run dry fiber


Project Athena

• Mill Pulp Integration – SFPNA will go from approximately

120% to 106% due to lower CC volumes versus kraft pulp

• Cloquet pulp mill will retain kraft pulp production capability

to provide maximum flexibility to market dynamics

• We will still have low cost energy advantage

Pulp Mill Paper Mill

Products: Paper and Market Kraft Pulp

pulp

Kraft pulp

paper

Steam and electricity

Pulp Mill Paper Mill

Products: More paper and Dissolving Pulp = more profit

market pulp

Dissolving pulp

paper

Steam and electricity

Why Cloquet – low cost, renewable energy


• Newest pulp mill in NA – commissioned in 1999

• Relative ease to convert

–Displacement batch cooking technology

–Oxygen delignification followed by ECF bleaching

–Well-matched capacities throughout pulp mill

• Excess utilities capacity for steam, electricity, water and

effluent treatment

• World class environmental performance – global industry

leading low GHG emissions

–Renewable energy

Why Cloquet – Assets


Why Cloquet – Costs

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%


• Five hardwood kraft conversions to Chemical Cellulose

Why Cloquet – Costs

Mill Door Cash Cost RISI – June 2012

Cloquet Comp 1 Comp 2 Comp 3 Comp 4


• Well trained and motivated workforce

• Mill history of continuous improvement in all measures of

a well managed mill

– Safety, environmental, productivity and cost control

– Allows us to be competitive even with disadvantaged

freight costs

• Mill history of successfully delivering large capital

projects

• Virtually the same project team that built the pulp mill

through the 90‟s

Why Cloquet – People


• Sappi is established in the Chemical Cellulose business

–Global leader – 800K over 1.3M ADMT of capacity

–Low quartile cost

• Sappi experience

–Decades of experience manufacturing CC and

understanding its performance in downstream markets

–Centre of Excellence

• Sappi reputation with our customers

–Technical capability

–Reliable, predictable quality

Sappi Strength


Thank you

Documents

Investor Day - Cloquet Mill Visit Ralph Boëttger...2012/06/12 · Cloquet Mill Minnesota 330,000 tons coated fine paper 455,000 tons pulp Somerset Mill Maine 795,000 tons coated