Sappi Limited

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Sappi Limited

Sappi House
48 Ameshoff Street
Braamfontein
2017 Johannesburg
South Africa
Telephone: (+27) 11 407-8111
Fax: (+27) 11 403-1493/8236
Web site: http://www.sappi.com

Public Company
Incorporated: 1936 as South African Pulp and Paper Industries
Employees: 18,231
Sales: R 33.29 billion ($4.18 billion) (2001)
Stock Exchanges: Johannesburg Frankfurt New York London
Ticker Symbols: SAP; SPP (New York)
NAIC: 322121 Paper (Except Newsprint) Mills; 322110 Pulp Mills

South Africa’s Sappi Limited went on a shopping spree in the 1990s and transformed itself into the world’s leading manufacturer of coated fine papers. The company operates 18 pulp and paper mills in southern Africa, North America, and Europe—the company is market leader in each of these regions, holding 20 percent of the European market, 22 percent of the North American market, and 60 percent of the African market. In addition, the company’s dissolving pulp production, used for the manufacture of cellulose-derived paper products, has captured the leading position in the global market, with a 15 percent share. Together, the company’s operations combined to generate sales of more than R 33 billion ($4.18 billion) in 2001. Sappi—the name derives from its earlier moniker, South African Pulp and Paper Industries—has divided its operations into two primary divisions, London-based Sappi Fine Papers, and Johannesburg’s Sappi Forest Products, which includes the company’s forestry division, as well as its pulp, particleboard, and cardboard production. Sappi ships its products, which include wood-free coated papers, to more than 100 countries. More than 80 percent of the company’s sales and more than three-quarters of the company’s assets are located outside of South Africa. Sappi is targeting the southern Asia region for growth at the beginning of the 21st century, most likely through the establishment of greenfield sites in conjunction with local partners. The company claims that it is unlikely to pursue further megadeals—such as its $1.6 billion purchase of SD Warren in the United States and its nearly $800 million purchase of former Buhrmann subsidiary KNP Leykam in 1997—in the near future. Sappi’s transformation has long been led by Chairman and CEO Eugene Van As. The company is listed on the Johannesburg, Frankfurt, and New York stock exchanges.

Afrikaans Pulp and Paper Producer in the 1930s

Sappi started out as South African Pulp and Paper Industries, registered in 1936 in Johannesburg, South Africa. The following year, the company began construction of a pulp and paper mill, located near Springs. Because the mill used straw as its chief raw material, it was given the name Enstra, for “Enterprise Straw.” That same flair for fantasy was to enable the company to weather the war years and eye further growth by the end of the 1940s.

South African Pulp and Paper Industries acquired two farms, near the Tugela River in what was known as Zululand. The site was targeted for construction of a second paper mill. In the meantime, the company began its own plantation operations to ensure its raw materials supply. The decision to go ahead with construction of the Tugela Mill was made in 1950. Completed in 1954, the Tugela Mill was devoted to kraft packaging production, while the original Enstra location turned its specialty to the manufacture of fine papers.

By the end of that decade, South African Pulp and Paper Industries sought further growth through acquisition, buying up a controlling share of Union Corrugated Cases in 1959, then taking over Cellulose Products, which made tissue wadding products, the following year. South African Pulp and Paper Industries pursued organic growth as well; among the company’s capital investments was the installation of a second machine at the Tugela Mill in 1963. The new machine was dedicated to the production of kraft linerboard products. By then, South African Pulp and Paper Industries had celebrated its one millionth ton of paper produced since the company’s inception.

South African Pulp and Paper Industries continued to seek organic growth during the decade, buying up farmland in the Elands River Valley. The company began construction of a new mill, completed in 1966, and called Ngodwana. This mill was dedicated to the production of unbleached kraft pulp. The site also gave the company expanded acreage for its raw materials plantation activities. By the end of that year, South African Pulp and Paper Industries celebrated a new production milestone, reaching the two million ton production mark. The company established a new dedicated timber division in 1968.

That same year, South African Pulp and Paper Industries applied for a patent for a new bleaching process using oxygen instead of chlorine. The process, dubbed Sapoxyl, was put into production in 1970. The steady increases in production made by the company in the late 1960s could be seen with the passage of a new production milestone, that of South African Pulp and Paper Industries’ three millionth ton of paper since its founding.

Domestic Expansion in the 1980s

South African Pulp and Paper Industries changed its name to Sappi Limited in 1973. With the growth of its three core operation areas, the company moved to reorganize its operations in 1977, placing its activities into three new operating subsidiaries: Sappi Fine Papers, Sappi Kraft, and Sappi Forests. Each subsidiary operated with its own board of directors. Sappi itself came under control of Gencor, a conglomerate which itself was controlled by finance group Sanlam. This ownership gave Sappi the financial backing to pursue further expansion.

In 1979, Sappi acquired local market rival Stanger Pulp and Paper. The following year, the company branched out into the operation of sawmills, forming a new subsidiary, Sappi Timber Products. That subsidiary acquired a new saw mill in Elandshoek, located near its parent company’s Ngodwana mill. This mill was slated to undergo a vast expansion program, representing the company’s largest capital investment program to date, to increase its capacity and add newsprint, linerboard, unbleached pulp, and bleached pulp production by 1985. In the meantime, Sappi launched a new kraft linerboard mill in Cape Town. Called Cape Kraft, the new mill’s production was based entirely on recycled raw material. Another new product line joined the group in 1982, when Sappi acquired Novobord, adding that company’s production of particleboard. The following year, the company acquired another particleboard manufacturer, Timberboard, which was merged into Novobord.

Sappi remained an entirely South African company; nonetheless, exports represented an increasing percentage of the company’s production, reaching 50 percent by the end of the 1980s. To encourage this development the company founded Sappi International, a subsidiary dedicated to international marketing of the company’s products, in 1986. A year later, the company expanded its Sappi Novobord operation, adding particleboard manufacturing capacity. Then in 1988, Sappi acquired Usutu Pulp Company, based in Swaziland, giving it a world-leading producer of unbleached kraft pulp. The following year, Sappi made a new acquisition, this time of Saiccor, the world leader in dissolving pulp production. With all of its production going to the export market, the Saiccor acquisition helped Sappi’s own exports top half of the company’s total production.

These acquisitions helped Sappi gain a strong position in the industry as South Africa at last abandoned apartheid and rejoined the world community. Sappi was quick to expand beyond South Africa and the coming decade was to see the company transform itself from a company with 100 percent of its assets in South Africa to a truly globally operating company, with more than 75 of its assets located away from its home base.

Post-Apartheid Global Market Leader

Among the company’s first post-apartheid acquisitions were those of five paper mills in the United Kingdom. Sappi followed up these purchases with the establishment of a new European headquarters, Sappi Europe. That office was soon joined by a new overseas subsidiary, Sappi Trading, which took over Sappi’s international trading operations. Founded in 1991, Sappi Trading was formed around another key acquisition, that of Specialty Pulp Services, based in Hong Kong.

Yet, as Sappi moved into the 1990s, it was setting its sights on still higher growth. Led by Eugene Van As, who had joined the company in the late 1970s and took over as CEO and chairman in the 1990s, Sappi began making a small number of large-scale acquisitions. The first of these came in 1992, when Sappi acquired Hannover Papier, the leading manufacturer of coated wood-free paper in Germany. That purchase gave Sappi a position as one of the top three coated wood-free paper makers in the European market. Capitalizing on its new scale, Sappi launched its stock on the London, Frankfurt, and Paris stock exchanges, while maintaining its chief listing on the Johannesburg exchange. A year later, Sappi reorganized its European holdings under a new subsidiary, Sappi Europe SA. At that time, Sappi became an independent operation as Gencor, as well as ultimate parent Sanlam, underwent drastic unbundling operations in an effort to streamline their businesses for the new post-apartheid era.

Sappi turned its sights toward the North American market. In 1994, the company paid $1.6 billion to acquire a 75 percent share of SD Warren, the United States’ leading coated wood-free paper producer. That acquisition placed Sappi in the worldwide leadership spot for that paper category. Although Van As was criticized for having paid a premium price for SD Warren, the Sappi CEO was betting on a growing importance for wood-free paper products as the paper and publishing industries increasingly adopted high-technology applications.

Company Perspectives

Sappi’s achievements are driven by: concentrated focus on our core business; a successful pulp integration strategy; a culture of innovation in products and technology; the development of strong, globally competitive brands. We strive constantly to deliver value to our shareholders, our customers and the communities in which we operate.

Sappi completed its acquisition of SD Warren in 1996. In the meantime, it turned its attention toward renewing its industrial park. In 1995, the company began a R 800 million expansion of its Saiccor subsidiary. The following year, the company completed a modernization of all of its African pulp and paper mills.

Sappi returned to its external growth drive in the second half of the decade. In 1997, Sappi agreed to acquire KNP Leykam, the coated wood-free paper division of Burhmann, paying nearly $800 million. Again criticized for paying a premium price, Sappi with the Leykam acquisition had not only gained the European leader in the wood-free paper category, it had secured for itself the global leadership for that product segment. It also had pushed its debt levels to the limit, resulting in a deep drop in its share price.

Following the Leykam acquisition, Sappi reorganized, splitting its operations into two principal subsidiaries. Sappi Fine Papers took London as its headquarters, grouping all of the company’s paper production. Sappi Forest Products, which remained at the parent company’s headquarters in Johannesburg, took over the company’s pulp, particleboard, and cardboard production, as well as its forestry operations. This move was followed up a year later when the company rebranded its entire organization under the single Sappi name. In that year, Sappi’s stock began trading on the New York Stock Exchange as well as the London, Frankfurt, and Johannesburg exchanges.

Sappi came under pressure at the turn of the millennium. On the one hand, the company remained burdened by a heavy debt load generated through its acquisition drive of the 1990s. On the other hand, Sappi was hard hit by a drop in world paper prices, and by the faltering of a number of markets, including Asia and Latin America, and then the weakening economic climate in the United States. As a result, Sappi’s share price continued to be pelted, and the company was seen as a potential takeover target.

In 2000, the company began a sell-off of some of its assets, primarily from its Sappi Forest Products subsidiary. That company sold off Sappi Novobord in 2000, exiting the particleboard and mid-density fiberboard market. The following year, the company sold off its Sappi Mining Timber division. The company also announced its intention to close a number of its U.S. paper mills in 2001 and 2002. The company’s debt remained relatively high—more than $1.1 billion, equal to some 35 percent of its market value. Yet Sappi’s share price was once again on the rise, while takeover rumors lulled.

As Sappi entered 2002, it suggested that its days of large-scale acquisitions were behind it, at least temporarily. Instead, the company intended to continue growth through the acquisition of individual mills. Sappi also was setting its sights on increasing its position in the southern Asia market. However, Sappi suggested that it would pursue growth through a series of greenfield initiatives, linking up with local partners. After transforming itself into a truly global company in just one decade, Sappi looked to continue its successful expansion drive into the Asian market as well.

Principal Subsidiaries

Sappi Manufacturing (Pty) Ltd; Usutu Pulp Company Ltd; Pulp Holdings (Pty) Ltd; Sappi Management Services (Pty) Ltd; Sappi Share Facilitation Co.(Pty) Ltd; SDW Holdings Corporation (U.S.A.); European Paper Holdings SA (France); Sappi Alfeld AG (Switzerland); Sappi Belgium BV; Sappi Ehingen AG (Austria); Sappi Europe SA (France); Sappi Fine Paper plc (U.K.); Sappi Gratkorn GmbH (Germany); Sappi Holding AG (Germany); Sappi International SA (France); Sappi Maastricht BV (Netherlands); Sappi Nijmegen BV (Netherlands); Sappi Papier Holding AG (Netherlands); Sappi Lanaken Presspaper NV (Netherlands); Sappi U.K. Ltd.

Principal Competitors

Arjo Wiggins Appleton Limited; Asia Pulp & Paper Company Ltd.; Domtar Inc.; Georgia-Pacific Corporation; Holmen AB; Hokuetsu Paper Mills, Ltd.; International Paper Company; Stora Enso Oyj; Svenska Cellulosa Aktiebolaget SCA; Unipapel, S.A; UPM-Kymmene Corporation; Votorantim Celulose e Papel S.A.

Key Dates

1936:: Company registers as South African Pulp and Paper Industries Limited.
1937:: Company builds the first paper mill at Springs, called Enstra Mill, for Enterprise Straw, after its chief raw material.
1950:: Company begins construction of a second paper mill, Tugela, in Zululand.
1959:: Company acquires a controlling stake in Union Corrugated Cases.
1960:: Cellulose Products is acquired.
1966:: Production begins at a new mill at Ngodwana.
1973:: Company changes its name to Sappi Limited.
1982:: Company acquires Novobord, entering production of particleboard.
1985:: Company completes expansion of the Ngodwana site, adding production facilities for newsprint, lin-erboard, unbleached pulp, and bleached pulp.
1988:: Company acquires Usutu Pulp Company, in Swaziland, gaining the world’s largest producer of softwood kraft pulp.
1989:: Company acquires Saiccor, world leader in dissolving pulp production.
1990:: Company acquires five paper mills in the United Kingdom and establishes Sappi Europe subsidiary.
1992:: Company acquires Hannover Papier, of Germany, becoming the European market leader in coated wood-free paper.
1994:: Sappi acquires 75 percent of SD Warren (full control in 1996), giving it the leading position in the coated wood-free paper market in the United States.
1997:: Company acquires KNP Leykam, European leader in wood-free paper production, making Sappi the world leader in the product segment.
1998:: All Sappi operations are rebranded under a single Sappi name.
2000:: Company sells Sappi Novobord.
2001:: Company sells Sappi Mining Timber and announces its intention to close a number of U.S. paper mills.