The Sappi CFO and his team introduced a new strategy that steered the company through the Covid-19 crisis.
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In February 2020, Sappi introduced its Thrive 25 Strategy, unaware of how crucial it would become for the business during the rest of the year. When Covid-19 hit in March 2020, Sappi was still busy making the new strategic changes across its regions in North America, Europe and South Africa. Sappi CFO Glen Pearce and the rest of the executive team had to quickly jump into action to adjust the strategy that they were still busy rolling out.
“The strategy was sufficiently flexible that we could adjust it to focus on the four main objectives we had set initially, which were to grow the business, sustainable finance, driving operational excellence and enhancing trust,” Glen says. However, the long term strategy remained unchanged as they shifted the immediate focus to short and medium term objectives.
When Glen and his finance team started looking at the short to medium term challenges that were presenting itself because of the Covid-19 pandemic, their main concern was their liquidity as the demand for their products dropped substantially overnight. And, as a result of the dwindling demand, the supply chain started presenting challenges. “Being in a production environment, we have investments that we need to keep full. If we fail to do this, the fixed cost absorption of the company increases and our profitability decreases,” Glen says.
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To overcome these liquidity constraints, Glen and his team renegotiated the company’s covenants. They received a waiver of the covenants over 18 months, which comes to an end in September. Sappi was one of the first companies to negotiate its covenants based on the fact that its profitability will go down and put pressure on these covenants. In the process, Glen and his team have been able to raise funds and refinance some of the company’s loans, despite the difficult conditions.
Glen is particularly proud of how flexible the plan has been, especially during Covid-19. “As we grew to understand the impact and consequences of the pandemic, the strategy wasn’t forced to change, because the emphasis was on focusing on the balance sheet and sustaining our financial health and looking at operational excellence. We have the flexibility within the plan to accommodate massive changes in the business environment, and to withstand the massive pressure we faced last year.”
Out with the old systems, in with the new
Sappi’s finance team has also been focusing on driving operational excellence in order to mitigate the supply chain challenges by reviewing all Sappi’s processes that support production. “Our operations in our production mills operate a mill execution system, which has been around for quite some time,” Glen explains. He adds that these systems were internally developed years ago with code that requires updating.
Because of this, Sappi has launched a ten-year plan to update the mill execution systems across the group, which will have an impact on all the systems throughout the group that lead into that mill system, including supply chain.
Additionally, a multi-disciplinary team has consolidated the systems and processes across the group into a Global Business Services (GBS) Council. “The process and system development across the three different regions is now managed through the Council, enabling us to align the global company strategy for processes and business, and to benchmark across the different regions” Glen says.
The new strategy has also enabled Glen and his team to get information and make educated decisions based on that information. “We were able to pick up the liquidity and supply chain issues quite early and predict the challenges we were going to be facing, and act accordingly,” he says.
Bouncing back with a vengeance
Sappi has seen the demand for its products recover in the graphics markets it operates in, although it hasn’t returned to pre-Covid levels yet. In the dissolving pulp markets, however, the demand has recovered to a point where the company doesn’t have sufficient capacity. “We’re seeing wonderful opportunities in terms of getting new customers, servicing them and satisfying the pool of demand at the moment,” Glen says.
It all comes down to teamwork
Glen accredits the success of the strategy to his finance team. “As a CFO, you have to understand that you are part of a team and a ‘cog in the wheel’,” he says.
In his immediate team, Glen has three CFOs from the different regions, as well as the group treasurer. He explains that, when planning a group strategy and vision with different regions, you need to get the understanding and alignment between the different regions. “You need to have an understanding of what the group strategy is, what each region’s specific priorities and needs are, and compromise to get the best overall solution.”
With so many different priorities to consider, it can be difficult to get everyone aligned to the same vision. “When we have disagreements, we put the issues that we have on the table and sit down to discuss them as a team,” Glen says. “Our first focus is to align to the group strategy. Once we have an agreement on that and set down principals around it, we then start addressing the issues as a group and come to a conclusion.”
He concludes that, as a leader, it’s important to create an environment where everyone has an opinion and, collectively, you can come to solutions that work out in everyone’s best interest.
