Sappi CEO, Jonathan Leslie, Resigns
March 6, 2006 (Press Release) - The following announcement will be made by the Group's Chairman, Eugene van As, on behalf of the Board of Sappi at today's Annual General Meeting:
Resignation of CEO:
The Sappi Limited Board has announced today that Jonathan Leslie, Chief Executive Officer of Sappi Limited, has tendered his resignation from the company with immediate effect. Mr. Leslie joined Sappi in April 2003 and has been Chief Executive of the business for 3 years. The Board would like to thank Mr. Leslie for the contribution he has made during his tenure and wishes him well for the future.
The Board has asked the Chairman to assume executive responsibility for the Group until a new appointment is made. In accordance with the principles of good corporate governance, the Board has appointed David Brink as the Senior Independent Non-Executive Director.
We have been positive about the demand outlook for our major products for some time and shareholders must be wondering why, when international commodity markets are booming and the demand for our product is positive, our results continue to disappoint.
The main elements affecting our performance have been the supply / demand balance and the extraordinary rise in input costs. However, our own internal performance has also been a factor.
The global supply / demand balance for coated fine paper is reasonably positive. Significant new capacity had been commissioned in the early 2000s at a time when we entered one of the sharpest recorded declines in advertising. This had a major impact on the industry; however, conditions have changed. There is no major capacity now under construction. The demand outlook continues to be good and we foresee an improvement in the supply / demand balance for at least the next two years. It is already in excess of 90%, a level at which most industries ought to be very profitable.
Most of the major producers have announced price increases for coated fine papers in Europe and the United States. We believe we are in a much better position to achieve these increases than when we failed in Europe last year. The new prices are unlikely to have a material impact on our second quarter's performance although we should see significant benefit towards the end of the quarter and a positive impact in the third quarter.
Input costs continue to rise. While wood costs have largely levelled off in North America, they continue to rise in Europe and prices of energy in various forms and their spin off effects remain high. The average cost of Brent crude in this quarter to date was US$62 compared to US$48 per barrel a year ago. For Sappi, every dollar per barrel of oil cost represents an earnings impact of between one and two cents per share per annum after tax. There is a clear need for price rises to enable the industry to restore margins, ensuring it is viable and thus able to supply its customers over the long term.
We have placed a significant focus on trying to reduce costs across the Group. In November 2005, we announced a target cost saving of US$100 million run rate by the end of this fiscal year and we still aim to achieve that.
While the performance of all our business units has room to improve, the key focus will be in turning our North American business around. This business has under performed for some considerable time. We have advanced on the restructuring of the Muskegon Mill but the benefits have been slower to materialise than anticipated. We have also had some significant production cost variances at our other North American mills.
Our business objective remains to earn our cost of capital through the cycle and, while not meeting it in every quarter or every year, to meet it on average. There are many projects aimed at achieving this objective and we will report more fully on them next quarter. In the meantime, the short-term outlook is still not very positive notwithstanding the good demand. We expect to see some deterioration in the underlying earnings of our business in the second quarter. If price increases can be realised and the cost reduction programmes are efficiently executed, shareholders should begin to see a return to profitability in the latter half of the year. The management team is absolutely focused on attaining that objective.
SOURCE: Sappi Limited