SAPPI LIMITED

Working capital
The movement in components of net working capital is as shown in the table below.
Working capital movement 2010 2009
(US$ million)
2008
Inventories ................................. 836 792 725
% sales ................................... 12.7% 14.8% 12.4%
Receivables ................................ 888 858 698
% sales ................................... 13.5% 16.0% 11.9%
Payables .................................. (1,271) (1,116) (1,001)
% Cost of goods sold ......................... 22.0% 22.2% 20.0%
Net working capital .......................... 453 534 422
Ratio of net working capital to sales ............... 6.9% 9.9% 7.2%
Optimizing the levels of our working capital remained a key management focus area during fiscal
2010. We regularly compare our ratio of working capital to annual sales to those of our peers, and we
believe that our working capital management compares favorably in that regard, although we have
identified opportunities to improve this further. Managing the average monthly level of net working
capital is a large element of the management incentive scheme for all our businesses.
We ended fiscal 2010 with net working capital expressed as a percentage of sales lower than at the
end of fiscal 2009. We believe that a better indication of working capital management is to compare the
average working capital balance over the fiscal year to the change in sales. On this basis and excluding
currency impacts, the Group net average working capital was 6% lower than in fiscal 2009, while sales
increased by 18%.
As part of the Acquisition in fiscal 2009, we acquired e 232 million (US$ 326 million) of additional
working capital, which was included in the purchase price. In the three quarters following the acquisition,
great efforts were made by our European division to reduce net working capital to be more in line with
the lower levels of business following the global economic crises. The US$ 152 million of cash released
from working capital in fiscal 2009 relates mainly to working capital reduction in the European business
following the Acquisition. Nevertheless, net working capital as a percentage of sales at the end of fiscal
2009 was higher, at 9.9%, than the 7.2% achieved in fiscal 2008.
Capital expenditure
Cash utilized in investing activities for the period from fiscal 2008 to fiscal 2010 is as set out in the
table below:
Investing Activities 2010 2009 2008
(US$ million)
Capital expenditure ............................... 211 176 505
Proceeds on disposals of non-current assets ............ (21) (2) (7)
Decrease in other non-current assets .................. (2) (2) (4)
Acquisition of businesses (1) ......................... — 590 —
Total ......................................... 188 762 494
(1) The Acquisition by the Group of M-real Corporation on December 31, 2008.
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