SAPPI LIMITED

In fiscal 2010 operating profit was negatively impacted by restructuring charges of US$ 46 million,
which related to the closure of the Usutu mill in southern Africa and the Kangas mill in Europe. The fiscal
2009 operating profit was negatively impacted by restructuring charges of US$ 34 million which related
mostly to the closure of the Muskegon mill in the United States.
Alternative fuel mixture tax credits: The U.S. Internal Revenue Code allowed an excise tax credit
to taxpayers for the use of alternative fuel mixtures. In 2009 we began to use an alternative fuel mixture
containing diesel fuel and ‘‘black liquor’’, a by-product of pulp production, at our Somerset and Cloquet
mills. During the second calendar quarter of 2009, we were approved by the IRS as an alternative fuel
producer. The tax credit expired on December 31, 2009.
During fiscal 2010 and 2009, the Company filed claims for alternative fuel mixture credits covering
eligible periods subsequent to February 2009 totaling US$ 51 million and US$ 87 million, net of fees and
expenses, respectively and has reflected such amounts in the accompanying Group income statement
in ‘‘Other operating expenses (income)’’. Cash received, net of fees and expenses paid by the Company
during fiscal 2010 and 2009 totaled US$ 73 million and US$ 65 million, respectively. No receivables
related to alternative fuel mixture credits were outstanding at the end of fiscal 2010. The Company
considers the tax credits earned in fiscal 2010 and 2009 as fully taxable and treated them as such in the
calculation of its tax provision in the consolidated financial statements.
BEE charges: Charges related to a BEE transaction completed during fiscal 2010 amounted to
US$ 23 million. This transaction is explained in more detail in the section titled ‘‘South African Economic
and Political Environment’’ above and in Item 7 ‘‘—Major Shareholders and Related Party Transactions’’.
Fire, Flood and Storm Damage: During fiscal 2010 operating profit was negatively impacted by a
fire in our Stockstadt mill in Europe (US$ 21 million) and storm damage to various southern African
business units (US$ 5 million).
During fiscal 2009 the southern African business experienced devastating fires across a wide area
of afforested land and some flooding at the Saiccor mill. The cost of these damages was US$ 11 million
in fiscal 2009.
Group
Comparing fiscal 2010 with fiscal 2009
The Operating loss of US$ 73 million recorded in fiscal 2009 improved to an Operating profit of
US$ 341 million in fiscal 2010.
Operating profit in fiscal 2010 was negatively affected by net special items of US$ 2 million
compared to a positive impact of net special items in fiscal 2009 of US$ 106 million. Special items in
fiscal 2010 included a favorable plantation fair value price adjustment (US$ 31 million), asset impairment
reversals (US$ 120 million) and alternative fuel mixture tax credits earned in North America
(US$ 51 million). These positive special items were offset by restructuring charges (US$ 46 million), BEE
charges (US$ 23 million) and fire and flood damage (US$ 26 million).
Operating profit excluding special items increased in fiscal 2010 to US$ 339 million from
US$ 33 million in fiscal 2009. This significant improvement was mainly due to increased demand and
sales volumes in the Group’s major markets and increased average selling price for some of our major
products.
Comparing fiscal 2009 with fiscal 2008
Operating profit declined from US$ 314 million in fiscal 2008 to a loss of US$ 73 million for fiscal
2009.
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