SAPPI LIMITED

areas where our South African business has operations. The value of the BEE transaction
(approximately ZAR 814 million, US$ 115 million) corresponds to an effective 30% interest in Sappi
Southern Africa, which meets the requirements of Forest Sector Charter and BEE legislation in general.
For further information on the BEE transaction, see ‘‘Item 7—Major Shareholders and Related Party
Transactions’’ and ‘‘—South African Economic and Political Environment’’, and note 28 of our Group
Annual Financial Statements contained elsewhere in this Annual Report.
Usutu mill impairment and closure. The Usutu mill was closed on January 31, 2010 in response to
adverse market conditions, as well as the cumulative severe impact of fire damage over the past few
years. In particular, fires in August 2008 destroyed 40% of the Usutu timber crop. As a result, Usutu mill
was no longer sustainable.
Kangas mill closure. On October 22, 2009 we announced it would enter into a consultation
process with our Kangas mill employee representatives in response to the reduction in European
consumption of coated magazine paper arising from the global recession. The mill had experienced a
substantial amount of commercial downtime since the beginning of 2009 in response to this reduction in
demand. As a result of this process, we closed the mill in January 2010. On July 7, 2010, we sold the
Kangas mill land and buildings to M-real for e 13 million.
Muskegon mill impairment and closure. In light of significantly lower global demand for coated
woodfree paper products, operations at Muskegon mill were temporarily suspended on April 1, 2009.
We announced the permanent closure of the Muskegon mill on August 26, 2009.
Acquisition of coated paper business of M-real Corporation. On December 31, 2008, we acquired
four paper mills from M-real Corporation: the Kirkniemi mill and the Kangas mill in Finland, the
Stockstadt mill in Germany and the Biberist mill in Switzerland and other specified assets, as well as all of
the know-how, brands, order books, customer lists, intellectual property and goodwill of the coated
woodfree and coated mechanical paper business of M-real Corporation. The four acquired mills have
now become part of Sappi Fine Paper Europe.
As part of the Acquisition, we entered into long term supply agreements under which M-real
Corporation and its parent company will supply wood and pulp to us. In addition, we entered into
marketing agreements under which M-real Corporation will produce products at certain paper machines
at the Husum mill (Sweden) and the Äänekoski mill (Finland) and we will market and distribute those
products.
Sappi acquired M-real’s coated graphic paper business for an enterprise value of e 750 million
(approximately US$ 1.1 billion). The final purchase consideration was reduced by assumed debt and
other adjustments (including working capital) amounting to e 102 million (US$ 189 million) in total. This
transaction has been accounted for by the purchase method of accounting.
The Acquisition was mainly financed through a combination of the issuance to M-real Corporation of
e 32 million (US$ 45 million) Sappi Limited shares, vendor loan notes of e 220 million (US$ 307 million),
which has been fully repaid, and a cash consideration of e 401 million (US$ 565 million) obtained mainly
from a ZAR 5.8 billion (US$ 575 million) rights offering of Sappi Limited shares.
The Acquired Business contributed sales of US$ 890 million, net operating profit of US$ 33 million
and net profit of US$ 38 million (including US$ 41 million discount on the early repayment of the M-real
vendor loan notes) to the Group results for the period from Acquisition to end of fiscal 2009.
Blackburn mill closure and cessation of production from PM 5 at Maastricht mill. In August 2008,
we announced that we had undertaken a review of our European production activities in response to
overcapacity and significant input cost pressure.
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