Our performance in 2009 - Sappi

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Risk philosophy The Sappi Limited board recognises that risk management success can only be achieved if all three elements of risk, namely threat, uncertainty and opportunity, are recognised and managed in an integrated fashion. The board is also fully committed to: complying with the risk management requirements and mandates of the Code of Conduct of the Second Report of the King committee on Corporate Governance (King II); complying with the risk management requirements of the Sarbanes-Oxley Act; evaluating its risk management processes in terms of the COSO framework (adjusted to Sappi’s own needs) to enhance the overall risk management framework; and ensuring an integrated risk management system is implemented throughout its operations. The group risk management team was mandated by the Sappi Limited board to establish, coordinate and drive the risk management process throughout Sappi. It has established a comprehensive risk management system to identify and manage significant risks. Complete risk assessments are conducted at least annually in our divisions (including Sappi Trading) and for the group, and are updated every six months. The process uses our strategy as the base against which to assess risk scenarios. The scope of the risk assessment includes risks that may lead to a significant loss, or loss of opportunity, or may affect the current strategic plan. These risks are identified and analysed, and risk responses to each individual risk are designed, planned, implemented and monitored. Risks identified as ‘uncontrollable’, or those risks where the root causes are outside of the control of Sappi, are identified. The responses to the risks are classified under the headings of Transfer, Treat, Tolerate, Terminate, Exploit and Avoid. The risk assessments are reviewed by the Sappi group risk management team during facilitated workshops where the risks are evaluated and ranked. The resultant risk profiles are reviewed by our group executive and are reported to the audit committee at least once every six months and are reported to the board at least annually. In addition to the above mentioned risks, the risks and opportunities that may only manifest over the longer term (three- to five-year horizon), are identified and reported to the audit committee at least once every six months and are reported to the board at least annually. This methodology ensures that risk assessments are undertaken at least annually; are reviewed every six months; that identified risks are prioritised according to the potential impact on the company; and cost-effective responses are designed and implemented to counter the effects of identified losses. 2009 annual report 69 Insurance Sappi follows a practice of insuring its assets against unavoidable loss arising from catastrophic events. These events include fire, flood, explosion, earthquake and machinery breakdown. External risk engineers conduct both underwriting surveys as well as risk control surveys of all the Sappi facilities. The risk control survey reports rate and rank the identified risks and make recommendations to address the probability and/or severity of these risks. This process is focused primarily on the risk exposures associated with insurable risks. Insurance also covers business interruption events which may result from these events. Specific environmental risks are also insured. In line with previous years, the board decided not to take separate cover for losses from acts of terrorism, which is consistent with current practice in the paper manufacturing industry. Sappi places the insurance for its plantations on a stand-alone basis into international insurance markets. The impact of widespread fires on our plantations this year was substantially less than in 2007 and 2008. Sappi has a global insurance structure and the bulk of its insurance is placed with its own captive insurance company in Stockholm, Sweden; Sappisure Försäkrings AB, which in turn reinsures those risks outside the company’s self-insurance capabilities in the global reinsurance markets. Sappi has negotiated the renewal of its 2010 insurance cover at rates similar to those of 2009. Self-insured retention for any one property damage occurrence has remained at US$25 million, with an unchanged annual aggregate of US$40 million. For property damage and business interruption insurance, costeffective cover to full value is not readily available. However, the directors believe that the loss limit cover of US$1 billion should be adequate for what they have determined as the reasonable foreseeable loss for any single claim. Insurance cover for credit risks currently applies on a regional basis to Sappi’s Northern American, European and South African domestic trade receivables. governance
70 Corporate governance We are committed to the highest standards of corporate governance and continue to seek areas of improvement by measuring ourselves against international best practice. The group endorses the Code of Corporate Practices and Conduct as contained in the South African King II Report issued in 2002, and continues to apply the principles incorporated therein. The King III Report issued on 01 September 2009 for implementation by March 2010, is currently being studied within Sappi and preparations are in progress for adoption of incremental new principles contained therein, to the extent not already adopted. The group maintains its primary listing on the JSE Limited as well as a listing on the New York Stock Exchange. The group delisted from the London Stock Exchange, effective 02 November 2009. The group complies in all material aspects with the regulations and codes of these exchanges as they apply to Sappi. Summary The following table provides a summary of how we have implemented corporate governance. Discussed are the seven characteristics of good governance (King II Report) and certain selected international best practices (from the King II Report, the recently issued King III Report and other sources). Full disclosure is provided on the areas where the board has applied these standards differently. The board believes that in certain circumstances this is justified when this is in the best interest of the group while the principles of good governance are maintained. Transparency Discipline Element/best practice Sappi application/comments King III report implications Clear and comprehensive board charter approved by the board The board should meet at least once per quarter Changes to the governance structure and compliance thereto subject to discussion at annual general meeting Clear disclosure of strategies, objectives and corporate governance Fees for non-executive directors should be submitted to the shareholders in general meeting for approval Full disclosure of directors’ remuneration and additional information concerning incentive schemes for senior management The charter sets out powers, responsibilities, functions, delegation of authority, and the areas of authority expressly reserved for the board. The current charter was reviewed in May 2009 as part of our continuous improvement efforts. A copy is available on the company website (www.sappi.com) The board met five times during the year √ The financial statements, including our report on corporate governance, as well as the appointment of directors, their remuneration and resolutions related to issuance of and re-purchase of shares are submitted to the annual general meeting of shareholders for approval. Refer to page 202 for the notice to shareholders A summary of the Sappi Limited strategy and how we measure our progress is available in the annual report and on the company website www.sappi.com. Both the progress against these objectives as well as our corporate governance are fully disclosed in this annual report. A disclosure committee comprising management from various fields of expertise is responsible for reviewing financial reporting disclosures Refer to page 202 for the notice to shareholders which sets out the proposed fees for 2009/2010 Refer to the compensation report for full disclosure in the directors’ remuneration and incentive schemes for senior management Stakeholder communication The investor relations department as well as the corporate communications department maintain regular contact with relevant stakeholders and utilise the company website (www.sappi.com) as a means of distributing relevant information. Stakeholders can also contact Sappi directly via a contact form on the company website. Refer to the sustainability report summary on pages 8 to 13 for further description of our communication efforts Will be revised to reflect incremental new requirements, for example, by adding IT governance to the board agenda Changes will be communicated via the report on corporate governance Changes relating to corporate governance will be set out in the annual report √ Improved disclosure included in annual report Improved focus on sustainability through the sustainability executive committee and sustainability reporting via the integrated annual report
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SAPPI GROUP (Sappi Limited) ANNUAL
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• the impact of future investment
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Our reporting strategy As a leading
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1 2 North America 2 4 1 San Francis
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4 Our performance in 2009 Financial
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6 Our performance against financial
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8 Our performance against sustainab
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10 Our performance against sustaina
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12 Our performance against sustaina
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14 Our sustainable business cycle T
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16 Our products 1 2 3 Coated paper
Page 23 and 24: Our objectives for 2010 Improve pro
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Page 29 and 30: 24 Interview with Ralph Boëttger,
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Page 35 and 36: 30 Review of operations Sappi Fine
Page 37 and 38: 32 Review of operations | Sappi Fin
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Page 41 and 42: 36 Review of operations Sappi Fores
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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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7. Earnings per share and headline
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2009 annual report 9. Property, pla
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US$ million 2009 annual report 2009
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13. Joint ventures and associates*
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16. Trade and other receivables con
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2009 annual report 17. Ordinary sha
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20. Interest-bearing borrowings con
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2009 annual report 20. Interest-bea
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22. Provisions continued September
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27. Post-employment benefits - pens
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27. Post-employment benefits - pens
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2009 annual report 2009 2008 27. Po
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2009 annual report 28. Post-employm
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29. Share-based payments continued
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2009 annual report 29. Share-based
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2009 annual report 29. Share-based
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30. Financial instruments continued
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2009 annual report 31. Related-part
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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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