SAPPI LIMITED

Kangas. As a direct result of the global economic recession and apparent overcapacity in the
European paper industry, demand for coated magazine paper reduced significantly during the latter half
of fiscal 2008 and fiscal 2009. To counter the effects of the economic downturn, we decided to cease
production at the Kangas mill in January 2010 after successful negotiations with labor representatives.
The mill had a production capacity of 210,000 tonnes of coated mechanical paper per annum. The
closure removed this capacity from the European market. The volumes produced at the mill were
transferred to Sappi Lanaken and Sappi Kirkniemi; the Galerie Silk range is supplied to customers from
the Sappi Lanaken mill in Belgium and a complementary grade, Galerie Fine Silk, was introduced from
the Sappi Kirkniemi mill, thereby widening Sappi’s coated magazine paper range.
Kirkniemi. As part of the Acquisition, we acquired the assets comprising the Kirkniemi mill, located
70 kilometers west of Helsinki, Finland. The mill was built in 1966 and has an annual production capacity
of approximately 730,000 tonnes of paper and 330,000 tonnes of mechanical pulp. The products of the
Kirkniemi mill are Galerie Lite (coated ultra-lightweight paper with high bulk and opacity), Galerie Brite
(coated lightweight paper with high bulk, soft gloss and improved brightness) and Galerie Fine (coated
mechanical paper with high brightness, smoothness and improved opacity).
Biberist. As part of the Acquisition we acquired the shares of M-real Biberist GmbH, which holds
Biberist mill, located in Biberist, Switzerland. The mill was established in 1862 and has an annual
production capacity of approximately 500,000 tonnes. The mill produces coated woodfree paper for the
graphic arts and offset printing industry, as well as woodfree uncoated pre-printed paper for office,
pre-printed and offset applications. The products of the Biberist mill are Cento (uncoated woodfree
multi-purpose printing paper), Allegro (coated woodfree paper) and Furioso (coated woodfree paper).
Marketing and Distribution
Overview
The further integration of our international marketing and distribution efforts is one of our main
strategic objectives. In order to attain this objective, we have adopted a system whereby the marketing
and distribution of our woodfree and mechanical paper products is performed by our operating business
in the respective region, supplemented by a trading network outside these core regions.
Our trading network, Sappi Trading, coordinates the international marketing and distribution of our
woodfree and mechanical paper products outside our core regions. Sappi Trading operates in Hong
Kong (China), Sydney (Australia), Sao Paulo (Brazil), Shanghai (China), Konstanz (Germany), Nairobi
(Kenya), Mexico City (Mexico), Singapore, Johannesburg and Durban (South Africa), Zurich
(Switzerland), Taipei (Taiwan) and New York (United States). It manages a network of agents around the
world, handling exports to over 70 countries. Sappi Trading also manages the export logistics of the
southern African operations.
We sell the vast majority of our coated and uncoated woodfree and mechanical paper products
through merchants. We also sell paper directly to converters. We generally deliver products sold to
converters from the mill or via a distribution warehouse. Electronic business-to-business interaction has
become more important to us, and we will continue to focus on increasing service and efficiency through
business-to-business interaction. Systems and structures have been put in place to actively continue
these efforts.
Merchants are authorized to distribute Sappi Fine Paper’s products by geographic area and to carry
competitors’ product lines to cover all segments of the market. Merchants perform numerous functions,
including holding inventory, sales promotion and marketing, taking credit risk on sales and delivery, and
distribution of the products. Merchants buy paper from Sappi Fine Paper and resell it, after placing a
mark-up on their purchase price. A merchant may either deliver to the customer from its own warehouse
or arrange for delivery directly from the mill or one of the Sappi Fine Paper distribution warehouses.
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