Our performance in 2009 - Sappi

Risk management
Global economic conditions may
cause substantial fluctuations in
our results
The markets for pulp and paper
products are highly competitive
Continued volatility in equity markets
and declining yields in the bond
markets could adversely affect the
funded status and funding needs of
our post employment benefit funds
The cost of complying with
environmental, health and safety laws
may be significant to our business
New technologies or changes in
consumer preferences may affect our
ability to compete successfully
2009 annual report
This table provides the latest review of the significant exposures Sappi faces as it goes forward. The Sappi group risk profile is
reviewed at least twice annually to comply with the company’s Listings Requirements of the various exchanges and to give
management comprehensive risk management information to enable them to make informed risk-based decisions. The risks are
categorised as systemic or business risks and are ranked according to management’s assessment of the likelihood of occurrence
and severity. These risks are further discussed in Sappi’s annual report on Form 20-F filed with the US Securities Exchange which
is available on our website www.sappi.com or in hard copy on request.
Systemic risks
Overall
ranking
1
2
7
8
9
Risk Risk description and mitigation
Our pulp and paper products are significantly affected by cyclical changes in industry capacity
and output levels and by changes in the world economy. As a result of periodic supply and
demand imbalances in the pulp and paper industry, these markets historically have been
cyclical, with volatile pulp and paper prices. In addition, recent turmoil in the world economy
led to sharp reductions in volume and pressure on prices in many of our markets and we acted
rapidly to match our output to demand by curtailing production for extended periods and
ceasing operations at Muskegon Mill. We are working closely with our customers on all these
actions as we adapt our product lines to match market needs and economics. We took actions
to improve efficiencies and reduce costs in all aspects of our business under these difficult
conditions. We continue to maintain a high level of economic pulp integration on a group-wide
basis which reduces the impact of pulp price fluctuations on our results. We will consider taking
further downtime in fiscal 2010 to balance supply and demand
There has been a recent trend towards consolidation in the pulp and paper industry creating
larger, more focused companies. We have expanded Saiccor Mill to strengthen our leading
position in the chemical cellulose market, while the Acquisition enhanced our position in the
woodfree coated paper market. We also continue to drive good customer service, innovation
and efficient manufacturing and logistics
The general outlook for the forthcoming financial years is that bond and equity markets could
remain uncertain, which in turn could result in significant swings in yields on corporate bonds
and government bonds as well as continued volatility within the equity markets. The risk exists
that equity and bond markets will not recover to the level of past highs. As a result we continue
to monitor movements in the global equity and bond markets and pay additional contributions
to meet minimum funding targets where appropriate. We also note and react to existing and
potential changes in statutory funding requirements
We are subject to a wide range of environmental, health and safety laws and regulations in the
various jurisdictions in which we operate and we strive to comply with applicable laws and cooperate
across regions to apply best practices in a sustainable manner. ISO 14000, Forest
Stewardship Council and other recognised programmes are well entrenched across the group.
We have also made significant investments in operational and maintenance activities related
to reductions in air emissions, wastewater discharges and waste generation. We closely
monitor the potential for changes in pollution control laws and take actions with respect to
our operations accordingly. The health and safety of our own employees and contractors
remain a priority
We regularly assess changing consumer preferences and new technologies, which could
impact consumption of our products or their competitiveness. We expect a gradual decline in
demand for paper in developed markets as a result of new media. Nevertheless we expect
that print and coated paper will continue to play an important role in the communication,
advertising and promotional mix, particularly in developing markets where we expect to see
growth in demand. Moreover we design and implement new or improved products, enhanced
product features, or improvements in the level and quality of product servicing. For example,
our Forest Products business continues to work with customers to develop new product and
service solutions, including the design of high-performance packaging using our paper. Our
chemical cellulose business has good growth prospects in terms of existing uses and
innovative uses. In North America an increased proportion of our sales is derived from newly
designed products. Our European operations have successfully launched innovative products
like Tempo
67
governance