Our performance in 2009 - Sappi

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Our performance against strategic objectives Achieve our ROCE target of greater than 12% and therefore exceed our cost of capital Strengthen our leadership position in our core businesses through organic growth and selective acquisitions Expand our low-cost plantation fibre base in Southern Africa as a resource to grow our pulp and chemical cellulose businesses Drive efficient manufacturing and logistics to remain a low-cost producer 2009 annual report Our goal is to be, on a sustainable basis, the most profitable company in paper, pulp and cellulose-based solutions. Our key measures are Return on Capital Employed (ROCE) and to beat our cost of capital, as a minimum. We also prioritise cash generation and improving our balance sheet structure. We aim to build on our leading position in the coated fine paper market and explore opportunities across the broad spectrum of coated paper, including growing our speciality business. We plan to grow our chemical cellulose business and are expanding our low-cost fibre base in Southern Africa. We are investing in energy reduction and self-sufficiency projects and extracting chemicals from renewable wood resources. Core to our business is our Southern African portfolio of packaging paper, newsprint, printing and writing paper, and tissue paper. Strategic objectives Progress in the financial year Drive growth through customer service, innovation and reliability Entrench our core values: Excellence Integrity Respect Black Economic Empowerment (BEE) in South Africa We fell well short of our target in all regions. We have acted to improve our performance, resulting in a turnaround in our fourth quarter, particularly in North America. We expect to see the results of these actions in the next year. The Saiccor Mill expansion reached full production by year-end, increasing chemical cellulose production capacity by 30%. The M-real acquisition strengthened our position in the European coated paper market. Performance in the combined business is expected to improve as further synergies are achieved and market conditions improve. We continued to expand our plantation investments in Southern Africa through tree breeding and selected acquisitions. Subsequent to year-end we agreed to acquire 14,000 hectares of developed softwood plantations close to Ngodwana Mill. Trial plantings of Eucalyptus in Mozambique have grown well and the project is making progress. We made significant progress in reducing variable costs with a focus on product design, procurement, waste reduction and operating efficiency. Actions to reduce fixed costs included the closure of Blackburn Mill, Muskegon Mill, Paper Machine No 5 at Maastricht Mill, and discussions with labour representatives about our intention to close Usutu Pulp Mill and possibly Kangas Mill. The number of people employed in each region was reduced through efficiency measures. Synergy benefits following the M-real acquisition for the nine months to September 2009 totalled r73 million, above our target of r60 million. Our market research has shown that our customers place customer service and reliability high on their list of requirements. We believe we have made good progress in meeting customer needs during the year and continue to work closely with customers on meeting their needs more profitably. A higher proportion of our sales came from newly designed products, particularly in North America. Our values were derived from internal dialogue and incorporated in our Code of Ethics, Strategy Statement and Sustainability Charter. The rollout of our values as part of the integration of M-real has helped to create a motivated single team in Europe. We improved our audited BEE score to 54 points from 41 points. We envisage undertaking a broad-based equity transaction within the next year. 5 our business
6 Our performance against financial targets* for the year ended 30 September 2009 Current target Operating profit excluding special items to capital employed (ROCE) Target ROCE is >12% as a minimum to beat our weighted average cost of capital. Performance All regions fell well short of the target. We took action to improve our performance, with a turnaround in quarter four, particularly in North America. We expect further improvement in the current year. Five-year highlights Current target Return on equity (ROE) (%) ROE of 11%; to provide shareholders with an after tax return that, on average, exceeds the weighted regional risk-free rate by at least five percentage points. Performance ROE declined sharply due to lower net profit, partly a result of negative non-cash plantation fair value adjustments made in accordance with IFRS. Current target Net debt to total capitalisation To operate in a range of 40% to 65%. This range was set after the adoption of IFRS in 2005. Performance The ratio improved slightly due to the rights offer undertaken as part of the acquisition. This benefit was offset by higher net debt and the impact on equity of the net loss, including the effect of asset impairments, unfavourable plantation fair value adjustments and the currency effect. *See definitions on page 199.
Page 1 and 2: SAPPI GROUP (Sappi Limited) ANNUAL
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Risk management Global economic con
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Risk philosophy The Sappi Limited b
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Fairness Social responsibility Lege
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2009 annual report 75 Induction and
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2009 annual report 77 employment of
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2009 annual report 79 board to esta
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As part of continuous improvement t
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Compensation report In 2009, the co
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Balance between fixed and variable
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Executive directors (1) Details of
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2009 annual report 89 R J Boëttger
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2009 annual report 91 Board Committ
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Auditor’s report Independent audi
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Audit committee report The legal re
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Directors’ report for the year en
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Litigation We become involved from
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Group balance sheet at September 20
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Group statement of changes in equit
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Group balance sheet in Rands conven
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Notes to the group annual financial
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• Financial assets and financial
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2.2.10 Non-current assets held for
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(iii) Dividends Dividends are recog
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2.4 Adoption of accounting standard
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Corporate and eliminations Group 20
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2009 annual report US$ million 2009
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6. Taxation (benefit) charge contin
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2009 annual report 9. Property, pla
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US$ million 2009 annual report 2009
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2009 annual report 17. Ordinary sha
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22. Provisions continued September
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2009 annual report 2009 2008 27. Po
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2009 annual report 33. Environmenta
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Company auditor’s report for the
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Condensed Sappi Limited company bal
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2009 annual report Notes to the con
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Glossary General definitions bleach
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not be comparable with similarly ti
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No issue and/or sale of these share
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Notes Confirmation of appointment o
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Proxy form for annual general meeti
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forward-looking statements Certain
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Our performance in 2009 - Sappi

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