SAPPI LIMITED

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis together with our Group Annual Financial
Statements, including the notes, included elsewhere in this Annual Report. Certain information contained
in the discussion and analysis set forth below and elsewhere in this Annual Report includes forwardlooking
statements that involve risk and uncertainties. See ‘‘Forward-Looking Statements’’, ‘‘Item 3—Key
Information—Selected Financial Data’’, ‘‘Item 3—Key Information—Risk Factors’’, ‘‘Item 4—Information
on the Company’’, ‘‘Item 10—Additional Information—Exchange Controls’’ and the notes to our Group
Annual Financial Statements included elsewhere in this Annual Report for a discussion of important
factors that could cause actual results to differ materially from the results described in or implied by the
forward-looking statements contained in this Annual Report.
The Group Annual Financial Statements including the applicable notes thereto, contained herein
have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued
by the International Accounting Standards Board (IASB).
Our fiscal years operate on a 52 accounting week cycle, except every 6th fiscal year which includes
an additional accounting week. Fiscal 2010, 2009, and 2008 operated on a 52 accounting week cycle.
Company and Business Overview
We are a global company which through acquisitions in the 1990s has been transformed into one of
the global market leaders in coated woodfree paper. Two acquisitions were pivotal in establishing us as a
global company, namely the acquisition in 1994 of S.D. Warren Company, now known as Sappi Fine
Paper North America, and the acquisition in 1997 of KNP Leykam, now integrated into Sappi Fine Paper
Europe. On December 31, 2008 we acquired the coated paper business of M-real Corporation now
integrated in Sappi Fine Paper Europe. Further opportunities to grow within our core businesses will
continue to be evaluated.
The Group has three reportable segments, namely Sappi Fine Paper North America, Sappi Fine
Paper Europe, and Sappi Southern Africa. Sappi Fine Paper comprises the reporting segments Sappi
Fine Paper North America and Sappi Fine Paper Europe. We also operate a trading network, called
Sappi Trading, for the international marketing and distribution of chemical cellulose and market pulp
throughout the world and for our other products in areas outside our core operating segments of Sappi
Fine Paper North America, Sappi Fine Paper Europe and Sappi Southern Africa. All sales and costs
associated with Sappi Trading are allocated to the three reportable segments.
Sales by source and destination for fiscal 2010, fiscal 2009 and fiscal 2008 were as follows:
Sales by Source Sales by destination
2010 2009 2008 2010 2009 2008
%
North America .............................. 21 24 28 22 24 29
Europe ................................... 55 54 46 48 48 40
Southern Africa ............................. 24 22 26 13 13 15
Far East and others .......................... — — — 17 15 16
Total ..................................... 100 100 100 100 100 100
Sappi Fine Paper has a total paper production capacity of approximately 6 million tonnes per
annum. Our Group is one of the global market leaders in the coated paper business with a capacity of
approximately 5.5 million tonnes of coated woodfree paper and coated mechanical paper per annum.
Our Group is approximately 95% integrated on a net pulp basis. This means that while some
facilities are market buyers of pulp and others are market sellers, in the aggregate we produce less pulp
50