Ensure sustainable consumption and production patterns.
Build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation.
Ongoing investment and cost containment
BackgroundOngoing investment and cost containment are strategic pillars of competitive advantage.
We continued to make significant investments in line with our 2020Vision, the aims of which include diversifying group EBITDA by remaining an industry leader in printing and writing papers manufacturing, expanding specialities and packaging papers and growing dissolving wood pulp (DWP) capacity.
- We completed a capital investment at Cloquet Mill to replace the headbox on PM12. This investment enabled the mill to maintain capacity by adding a state-of-the-art, dilution profiled headbox―the part of the paper machine responsible for spreading the pulp fibres evenly to form the sheet―that produces excellent basis weight profiles.
- In September 2018, we announced the completion of a year-long rebuild of PM1 at Somerset Mill to increase the mill’s annual production capacity to almost one million tons per year. The rebuild has enabled the launch of new paperboard grades (see Key material issues – New products). which provide luxury packaging and folding carton applications and complement our existing specialties and packaging papers range. We also completed the modernisation of the Somerset Mill’s woodyard.
- We advanced our work on increasing chipping capacity and modernising the Saiccor Mill woodyard. The new equipment for the woodyard is scheduled to be delivered and installed at the end of 2018, with start-up planned in 2019. The woodyard investments will result in cost, quality, environmental and efficiency benefits to the Saiccor Mill and are also a major step towards preparing the mill to expand further.
- We also completed the rebuild of the PM6 at Maastricht Mill. This involved the installation of a new three-layer headbox and metal belt calender. This has facilitated improved board surface quality and reduced costs.
Going forward, investment plans include:
- A €30 million upgrade of PM9 at Gratkorn Mill. The upgrade at this mill, due for completion in 2019, will optimise raw materials to reduce production costs and will also result in reduced energy demand.
- At Lanaken Mill, the PM8 will be rebuilt to support our coated woodfree paper business.
- An investment at Alfeld Mill will add speciality paper capacity of up to 10,000 tons.
- A debottlenecking project at Cloquet Mill, due for completion in 2019, will increase DWP production by around 30,000 tons.
- Significant investment plans in South Africa (see Prosperity – Our progress in 2018).
We work to lower fixed and variable costs, increase cost efficiencies and invest for cost advantages. Building on the global procurement and efficiency savings drive launched in 2016 whereby we achieved US$57 million more in savings than target three years ahead of schedule, in 2018 we achieved an additional US$81 million in group efficiency and procurement initiatives.
We achieved upgrades at Maastricht and Ehingen Mills on time and within budget. However, capital costs and timing overran at Somerset Mill, negatively impacting production volumes. We also experienced delayed start-up at both Ngodwana and Saiccor Mills post machine upgrades.
We have analysed the reasons behind the costs and timing overruns and implemented a strategy to ensure that these issues will not be repeated.
Growth in the specialities and packaging papers sector
BackgroundGrowing concerns about the negative impacts of fossil fuel based packaging, in particular its impact on the world’s oceans, have resulted in bans on single-use plastics in many countries around the world. At the 2018 World Economic Annual Forum in Davos, 11 industry leaders committed to 100% recyclable packaging by 2025. This is driving demand for paper based packaging, which is set to intensify going forward.
We significantly expanded our speciality and packaging paper capacity in 2018, as set out below:
Cham Paper Group
We concluded the acquisition of the speciality paper business of Cham Paper Group Holding AG (CPG). The transaction includes the acquisition of CPG’s Carmignano and Condino Mills (Italy) and its digital imaging business located in Cham (Switzerland), as well as all brands and know-how. Significantly, the acquisition has added 160,000 tons of speciality paper to our capacity, supporting our diversification strategy and 2020Vision to grow in higher margin growth segments. In terms of financial impact, the acquisition will add €183 million of sales and approximately €20 million of EBITDA before taking synergies into account.
Sappi Digital Solutions, formed by the acquisition of CPG, was established at the beginning of 2018. The business unit’s broad portfolio of dye sublimation papers supports many industries in their quest to meet demand for individualisation and speed to market.
The CPG acquisition has enabled us to:
- Increase our relevance in speciality papers, opening up new customers and markets to Sappi’s existing products and generating economies of scale and synergies
- Gain greater share-of-wallet with valued brand owners; thereby accelerating innovation and new product development
- Improve near-term profitability and serve as platform for organic growth and further acquisitions
- Build on the investments currently underway to increase speciality paper capacity at our Somerset, Maastricht and Alfeld Mills, and
- Unlock the growth potential of the CPG speciality paper business.
The value add of the CPG acquisition to our business was highlighted when we presented solutions in the fields of dye sublimation papers, inkjet papers, silicone base papers and containerboard at FESPA Berlin. FESPA is a global federation of 37 national associations for the screen-, digital- and textile printing industries.
Here, in addition to our packaging and speciality papers, we showed Transjet dye sublimation transfer papers for textiles previously marketed by CPG, along with a line of wide format inkjet papers. We also showed tear-resistant Scrolljet wide format inkjet paper at the show. This 100% recyclable speciality paper is suitable for use with solvent, UV-curable and latex inks. Its special surface treatment ensures brilliant colour results that provide exceptional luminosity for frontand back-lit applications.
- Following the rebuild of the PM1 at Somerset Mill, we introduced the new packaging grades Spectro C1S and Proto Litho C1S. Spectro is a single-ply paperboard with enhanced optics, making it ideal for premium applications. End-use markets include luxury beverages, cosmetics and perfumes, health and beauty care, covers (books/ magazines), greeting cards/folders/lottery, calendars, shopping bags, point of sale (POS) material, menus, direct mail, pharmaceutical, confectionery, fashion and lifestyle, as well as consumer electronics. Proto is a lightweight paperboard suitable for displays, mailing envelopes, fashion and lifestyle, consumer electronics, beverage, food packaging, POS material and shelf-ready packaging.
In 2016, Sappi was the first manufacturer to launch a packaging paper with integrated sealing functionality. This generated considerable market interest and has gradually been developed further, culminating in the launch of Seal. Designed to replace hot Seal laminates made from plastic with materials containing a high proportion of renewable raw materials, Seal is single side coated. A dispersion coating on the reverse side makes it ideal for use as flexible standard packaging in the food and non-food sectors, where hot sealing properties are required. The market includes both primary packaging―sachets, and secondary packaging―flow-wraps for sweets, toys or doit- yourself (DIY) goods.
- Based on the paper concept for our successful Fusion Topliner, we launched Fusion Uncoated. With a natural, uncoated surface, the product is an alternative to brown liner papers. Applications include inner packaging such as white corrugated board inserts for high-end perfume boxes as well as food packaging.
- We added to our shopping bag portfolio with Fashion White and Fashion White OF. Both these uncoated, machine finished grades feature high whiteness and offer good printability in a wide range of virgin fibre grades and grammages between 70 g/m2 – 130 g/m2. They are both ISEGA-certified for direct food contact and DIN EN 71-certified for toy safety.
- Atelier, a premium folding boxboard) available in weights from 220 g/m2 – 350 g/m2. With a brightness level of 100% on the top side, Atelier exceeds the current industry top value of around 92%. On the reverse side, Atelier offers a brightness factor of 98.5% to accommodate the increasing demand for printing on both sides of the board for added impact.
Growing demand for cellulosic-based fibres
BackgroundWhile cellulosic based fibres are globally popular, Asia is the primary market for DWP. Rising urbanisation and higher standards of living in the greater Asian region are driving increasing demand for more comfortable clothing. This trend is set to continue, with the Asian middle-class population and attendant consumer consumption growing rapidly―accounting, by some estimates, for 43% of total global consumption by 2030. Research by Hawkins Wright1 shows the five-year outlook for DWP expanding at an average annual growth rate of 4.9%.
Demand for DWP could also increase in the short term, given China’s imposition of increased tariffs on cotton imported from the United States of America.
Textiles are the primary market for our DWP, now branded as Verve, which is sold globally for use in viscose staple fibre (rayon) and solvent spun fibres (lyocell). We also supply smaller quantities into other DWP market segments.
Given tight supply in the DWP and the limited new capacity in the medium term, we completed debottlenecking projects at Ngodwana and Saiccor Mills which have added 50,000 and 10,000 tons respectively. A further debottlenecking project at Cloquet Mill, due for completion in 2019, will increase DWP production by around 30,000 tons.
Looking ahead, we have started preparatory work under a project known as Vulindlela for the potential expansion of Saiccor Mill to add 110,000 tons of DWP capacity.
Material issue See risk 7
Extracting maximum value from woodfibre in adjacent markets
BackgroundThe world has moved away from a linear model of value creation that begins with extraction and concludes with end-of-life disposal to a more circular economy. One of the key focus areas of this approach is optimising resource yields.
In keeping with the approach outlined above, our aim is to extract more value from each tree and in doing so, move into adjacent markets in order to strengthen our overall core business model. The Sappi Biotech business unit, established in 2016, continued successfully to drive innovation and commercialisation in terms of biomaterials and biochemicals.
In 2017, in partnership with Valmet, we commissioned a hemicellulose sugar extraction demonstration plant at Ngodwana Mill. After operating for 12 months to demonstrate the extraction of C5 sugars from DWP production, the plant exceeded all efficiency targets for cost, cycle time and yield.
We are now further progressing the development of our biorefinery capacity with the construction of a demonstration plant to further scale up our novel Xylex technology―acquired in 2017―for the clean-up of the extracted sugars stream, to allow production of xylose, xylitol and furfural. A low-calorie sweetener, xylitol has positive dental properties and produces no insulin response, so is suitable for diabetics. Furfural is a versatile green industrial chemical derived from C5 sugars with a diverse range of derivatives.
The Xylex demonstration plant will be located adjacent to the existing sugars extraction plant at Ngodwana Mill, and will be commissioned in 2019. Pending successful results, we may construct commercial xylose, xylitol and furfural plants adjacent to our mills in in SNA and SSA.
The combination of Sappi’s operational excellence and the proposed co-location of the commercial plants at existing mill sites delivers strong integration synergies. In addition, the cost advantages offered by Sappi’s scale and the Xylex technology give us a globally competitive cost base for C5 sugar extraction and beneficiation to xylose, xylitol and furfural.
Going forward, our strategic intent is to enter the xylitol value chain with a world-scale production plant. Furan markets are showing strong market pull for new investments due to growth as well as the phasing out of older and smaller unviable assets. Against this backdrop, sugars extraction from our DWP assets combined with our Xylex capabilities will allow us to pursue various partnerships in either the xylitol or furan chemistry value chains.
Sappi Biotech offers Hansa and Collex, two lignin-based dispersants used extensively in the concrete industry as plasticisers, produced from our lignin sources in SEU and SSA and sold to global markets.
Our Lignex product was initially launched at Tugela Mill in 2012. Lignex is used as an effective wetting and binding agent to suppress dust and bind unpaved road surfaces, with many health, safety and cost benefits. It has been used extensively in the mining industry for several years where the benefits of Lignex are now attracting a lot of interest in the agriculture and forestry sectors.
The focus of interest for the forestry industry is the use of Lignex to improve high traffic, unpaved plantation roads, timber depots and woodyards. Mixed into the road materials and/or sprayed onto the road surface it acts as a surfactant which gives excellent dust suppressant properties. The binding power of lignin also aids in binding the aggregate material together and sealing the road. This result in safer, more durable and longer lasting roads with reduced maintenance costs. There is strong interest in using the product in the citrus industry where dust contaminates the fruit, both in the orchards and around the packhouses.
Our Zewilex product is aimed at end-use applications in the resin industry, an area where research into lignin modification is an ongoing effort to meet performance and sustainability requirements of customers.
Currently, our research in the lignin area involves assessing the extraction of high value aromatic compounds from lignin using advanced chemical and technical processes for various end-use applications where the common theme is to offer brand owners renewable and sustainable alternatives.
Valida is a lightweight, solid substance which is comprised of nano-sized fibrils―the high strength building blocks of cellulose fibres. At our pilot-scale Valida plant at the Brightlands Chemelot Campus in the Netherlands, we use woodpulp obtained from various accredited sources as feedstock.
Work progressed at the plant with the development of technology to produce dry redispersible nanocellulose. This high-quality product, which has been branded as Valida, is easily dispersed into a variety of matrices. Valida technology uses an environmentally friendly production process which is also compatible with the requirements of the targeted applications. While naturally hydrophilic, Valida can also be subjected to surface modification to suit hydrophobic applications. Valida is suitable for many applications, including:
- Biobased composites: Improves the mechanical properties of plastics, rubber, latex, thermosetting resins, soya protein and starch-based matrices
- Food: Used for thickening, stabilising and enhancing the texture of food
- Cosmetics: Acts as a powerful, natural rheology modifier in personal and home care products
- Paper: Improves paper strength
- Packaging: Enhances barrier properties on packaging materials to prolong food shelf life
- Medicine: Performs as an advanced excipient in medicines, thereby facilitating drug delivery and active ingredient release, and
- Paint and adhesives: Used for thickening and stabilising.
We are conducting third party market development work with prominent global brand owners and technology institutions.
Over many years, Sappi has developed advanced technologies to combine cellulose fibres with other polymers and materials with emphasis on both function and aesthetics. Symbio, developed in 2016, is a good example of where we have leveraged our fibre expertise to launch an innovative product.
Symbio is a cellulose fibre plastics composite combining up to 55% high quality cellulose from woodfibre and a polypropylene plastic material. Delivered as granules, it can be injection moulded and therefore deployed in various industrial sectors, including automotive, furniture, appliances and consumer electronics.
We are currently developing Symbio Vivid, an exciting new look and feel for uniquely coloured decorative plastic composites.
We are in discussions with automotive original equipment manufacturers (OEMs) regarding the use of Symbio in vehicle applications. The key benefits of Symbio lie in positive touch and feel (haptics), durability and lighter weight. The latter is particularly important in the drive to reduce carbon emissions.
Biomass energy project
In 2018, SSA reached financial close with the Department of Energy to build a renewable energy plant at Ngodwana Mill in Mpumalanga province. The project, whereby Sappi and consortium partners KC Africa and African Rainbow Energy and Power will establish a 25 MW biomass energy unit at the mill, falls under the South African government’s Renewable Energy Independent Power Producer Programme (REIPPP).
Sappi will have a 30% stake in the facility, which is expected to contribute to the national grid from July 2020.
The project will use biomass recovered from surrounding plantations and screened waste material from the mill production process. The power plant will burn up to 35 tons per hour of biomass in a boiler to generate steam and drive a turbine to generate electricity which will be fed into the national grid.
Sappi already contributes to the national grid by selling surplus energy from Ngodwana Mill to the state power utility, Eskom.
With this project, Sappi has become one of only a few companies in South Africa to embark on a biomass energy project.
Some 150 years of intensive coal mining in South Africa have produced about a billion tons of discarded thermal-grade coal fines.
To utilise this energy source, we constructed and tested a small fuel rod manufacturing plant at Ngodwana Mill. The fuel rods comprise a mixture of coal slurry, biomass and lignosulphonate, which can be used as a coal replacement.
Initial fuel rod test results are positive and could lead to reduced greenhouse gas emissions when compared to low-grade coal.
Sappi has entered into a joint venture agreement with the Industrial Development Corporation (IDC) as a strategic equity and debt partner to provide the balance of the capital required for the demonstration plant.
The fuel rods will be tested in one of Sappi’s boilers at Tugela Mill for a twelve-month period. The demonstration facility will be upgraded if the test results are positive.
Material issue See risks 2, 4 and 7
Investing in innovation
BackgroundThe challenge for the pulp and paper industry is how to transform in order to meet the challenges of inclusive growth, industrial transformation and the circular economy.
Through our focus on innovation, we are developing ways of becoming much more effective tomorrow than we are today, both in our journey towards durable sustainability and to the need for economic vitality and employment for future generations. We live in an age of hyper-innovation and we take responsibility for making it work positively in a number of different ways:
Cambridge Institute for Sustainability Leadership
In 2018, we announced a founding partnership with The Prince of Wales Global Sustainability Fellowship Programme at the Cambridge Institute for Sustainability Leadership (CISL). Together with other partners, we are funding research on artificial intelligence and bringing carbon emissions to net zero in the paper and pulp industry.
The three to five-year fellowships of which there are currently eight, will involve academics from around the world in identifying breakthrough solutions to meet the United Nations Sustainable Development Goals (SDGs).
The Sappi-supported fellowship will focus on SDG9 – Reshaping the future of industry. It aims to build on Sappi’s current engagement with the CISL by investigating how trends of innovation and sustainability will come together to reshape the future of industry―looking at the paper and pulp industry as an initial example and examining drivers including the rise of artificial intelligence and the need to bring carbon emissions to net zero.
The CISL continues to support our work with the European industry in issues related to the Green Growth Platform. These include the development of a new low carbon pulp technology (deep eutectic solvents), exploring financing options to support industry’s transformation and investigating block chain technology for timber certification. The latter would support risk assessment and Chain of Custody woodfibre audits from forest/plantation to retail shelf. Sappi is representing the paper industry in this project.
Technology is a core pillar of competitive advantage in our industry and represents a risk if we do not make ongoing technology investments. With a strong focus on innovation and R&D, Sappi is committed to developing new processes and biomaterials which extract more value from each tree and support our business strategy to move into new and adjacent markets.
Our R&D initiatives focus on consolidating and growing our position in our targeted market segments, driving cost competitiveness and cost reduction, as well as optimising our equipment and forestry assets.
Total R&D spend in 2018 increased significantly from US$29.5 million in 2017 to US$41.6 million. This includes spend of approximately US$11.5 million on our Exciter programme (2017: US$9.8 million) which focuses on core business (Exciter 1) and new and adjacent business (Exciter II).
Cumulative global value generated versus expenditure (Investment/value delivered – US$ million)
Core business support (Exciter I) included:
- Cost reduction through novel innovations for the paper industry, latex replacement in particular
- Processing in our pulp and paper mills, particularly the continuous optimisation of the cooking and bleaching processes to achieve cost reduction and increased fibre yields
- Support for packaging grades like Seal
- Transferring Rockwell Solutions’ coating concepts to paper substrates
- The evaluation of alternative hardwood species for one of our SSA mills
- Viscose application testing at Saiccor Mill, and
- The ongoing evaluation of new, disruptive technologies.
Work in terms of Exciter II was focused primarily on new technologies in adjacent areas to the current business, including Symbio, Valida development and applications, as well as work related to biorefinery―notably the scaled-up sugar demonstration plant at Ngodwana Mill.