Investor Day - Cloquet Mill Visit
Ralph Boëttger
12 June 2012
Investor Day - Cloquet Mill Visit
| 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.
| Investor Day - Cloquet Mill Visit | 12 June 2012
• Group Overview
• Strategy
•Q2 2012 Results
•Conclusions
| Investor Day - Cloquet Mill Visit | 12 June 2012
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
| Investor Day - Cloquet Mill Visit | 12 June 2012
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
| Investor Day - Cloquet Mill Visit| 12 June 2012
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
| Investor Day - Cloquet Mill Visit| 12 June 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
| Investor Day - Cloquet Mill Visit | 12 June 2012
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
| Investor Day - Cloquet Mill Visit | 12 June 2012
Conclusions
| Investor Day - Cloquet Mill Visit | 12 June 2012
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.
| Investor Day - Cloquet Mill Visit | 12 June 2012
Conclusion
• We have a sound strategy
• We believe in what we are doing
• Traction on actions to date
• World is uncertain
• Totally committed to achieving more
wins and accelerating value creation for
shareholders through improved profit,
strategic positioning and debt reduction
| Investor Day - Cloquet Mill Visit | 12 June 2012
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
44 Analyst Presentation | 05 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
45 Analyst Presentation | 05 June 2012
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
46 Analyst Presentation | 05 June 2012
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
47 Analyst Presentation | 05 June 2012
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
48 Analyst Presentation | 05 June 2012
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 !
49 Analyst Presentation | 05 June 2012
Eat & Drink
Filter
Wash & Wipe
Heal & Hygiene
Wear
Communicate
Mend
Wrap
R & R
Beautify
hemical ellulose
What is Chemical Cellulose used for ?
50 Analyst Presentation | 05 June 2012
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
51 Analyst Presentation | 05 June 2012
VSF MCC Lyocell Acetate Others
CMC/ethers
Cellophane
Filament
Tyre cord
Nitrocellulose
Plastics
Sponges
What do our Customers Make ?
52 Analyst Presentation | 05 June 2012
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
53 Analyst Presentation | 05 June 2012
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
54 Analyst Presentation | 05 June 2012
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
58 Analyst Presentation | 05 June 2012
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”
59 Analyst Presentation | 05 June 2012
Chemical Cellulose Market Leadership
No. 1 Global Market Share in Chemical Cellulose
0 5
10
15
20
Sappi
Birla
RGE
Rayonier
Tembec
Others
Global Top 5 Chemical Cellulose Producers
2011 (Est.) % Capacity
47% of Global Capacity
Global capacity (Est.) 5.8m tons *
* Excluding 1m tons of CLP - Linters Shortage
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
61 Analyst Presentation | 05 June 2012
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)
62 Analyst Presentation | 05 June 2012
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%
63 Analyst Presentation | 05 June 2012
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
64 Analyst Presentation | 05 June 2012
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
65 Analyst Presentation | 05 June 2012
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
66 Analyst Presentation | 05 June 2012
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)
67 Analyst Presentation | 05 June 2012
Analytical Services Process Support
Product support
Technical Support for Global CC business
Digester and membrane plant
Bleach reactor
68 Analyst Presentation | 05 June 2012
• 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
69 Analyst Presentation | 05 June 2012
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
70 Analyst Presentation | 05 June 2012
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
| Investor Day - Cloquet Mill Visit | | 12 June 2012 72
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
Print‟s share
Total Media Budget
| Investor Day - Cloquet Mill Visit | | 12 June 2012 73
“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
| Investor Day - Cloquet Mill Visit | | 12 June 2012 74
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”
| Investor Day - Cloquet Mill Visit | | 12 June 2012 75
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
| Investor Day - Cloquet Mill Visit | | 12 June 2012 76
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
| Investor Day - Cloquet Mill Visit | | 12 June 2012 77
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
| Investor Day - Cloquet Mill Visit | | 12 June 2012 78
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
What is the Value of Print?
***Source: American Express Publishing & Harrison Group, The American Express Publishing Luxury Summit 2012
| Investor Day - Cloquet Mill Visit | | 12 June 2012 79
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
| Investor Day - Cloquet Mill Visit | | 12 June 2012 80
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
| Investor Day - Cloquet Mill Visit | | 12 June 2012 81
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
| Investor Day - Cloquet Mill Visit | | 12 June 2012 82
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
What is the Value of Print?
| Investor Day - Cloquet Mill Visit | | 12 June 2012 83
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%)
| Investor Day - Cloquet Mill Visit | | 12 June 2012 84
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
| Investor Day - Cloquet Mill Visit | | 12 June 2012 85
Offset Printing
Variable Data Printing
Websites Mobile Media
Tablets
Social Media
| Investor Day - Cloquet Mill Visit | | 12 June 2012 86
Content is King…
Courtesy of Condé Nast
But it is Not FREE
| Investor Day - Cloquet Mill Visit | | 12 June 2012 87
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.
| Investor Day - Cloquet Mill Visit | | 12 June 2012 88
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
What is the Value of Print?
| Investor Day - Cloquet Mill Visit | | 12 June 2012 89
…or use the Purl
QR Codes in Direct Mail
| Investor Day - Cloquet Mill Visit | | 12 June 2012 90
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McCoy Silk, Text 100#
McCoy Silk, Cover 80#
Tipped-in lenticular effect Page 7
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McCoy Silk, Cover 80# Sappi Standard #5
| Investor Day - Cloquet Mill Visit | | 12 June 2012 97
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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%
| Investor Day - Cloquet Mill Visit | | 12 June 2012 101
“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
| Investor Day - Cloquet Mill Visit | | 12 June 2012 102
What is the Value of Print?
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
| Investor Day - Cloquet Mill Visit | | 12 June 2012 103
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
| Investor Day - Cloquet Mill Visit | | 12 June 2012 104
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
| Investor Day - Cloquet Mill Visit | | 12 June 2012 105
“Print engages all the
senses of a reader and its
tactile quality provides an
added advantage which
other media do not have”
Jaques Lange
| Investor Day - Cloquet Mill Visit | | 12 June 2012 106
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 !
| Investor Day - Cloquet Mill Visit | | 12 June 2012 107
www.sappi.com/LifeWithPrint
| Investor Day - Cloquet Mill Visit | | 12 June 2012 108
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
Investor Tour | June 13, 2012 111
Safety
Investor Tour | June 13, 2012 112
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
Investor Tour | June 13, 2012 113
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
Investor Tour | June 13, 2012 114
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
Investor Tour | June 13, 2012 115
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
Investor Tour | June 13, 2012 116
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
Investor Tour | June 13, 2012 117
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
Investor Tour | June 13, 2012 118
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
Investor Tour | June 13, 2012 119
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
Investor Tour | June 13, 2012 120
Paper
Machines
Bleach
Plant
Pulp Dryer
Recovery
Boiler Woodyard Pulp Mill
St. Louis
River
Cloquet Site
Investor Tour | June 13, 2012 122
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
Investor Day - Cloquet Mill Visit
Deece Hannigan
125 | Investor Day - Cloquet Mill Visit | 13 June 2012
extractives5%
lignin20%
hemicellulose30%
cellulose45%
Project Athena
• Conversion – Spring 2013
• 330K ADMT of Chemical Cellulose for the viscose market,
from 450K ADMT of hardwood kraft
126 | Investor Day - Cloquet Mill Visit | 13 June 2012
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
127 | Investor Day - Cloquet Mill Visit | 13 June 2012
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
129 | Investor Day - Cloquet Mill Visit | 13 June 2012
• 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
130 | Investor Day - Cloquet Mill Visit | 13 June 2012
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%
131 | Investor Day - Cloquet Mill Visit | 13 June 2012
• 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
132 | Investor Day - Cloquet Mill Visit | 13 June 2012
• 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
133 | Investor Day - Cloquet Mill Visit | 13 June 2012
• 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
134 | Investor Day - Cloquet Mill Visit | 13 June 2012
Thank you