2008 Annual report - Sappi

annual report 

2008

Our reporting strategy 

As a leading global business, Sappi subscribes to best international 

practice in its reporting to stakeholders. We aim to provide a 

comprehensible, balanced, complete and comparable view of 

our business through various structured reporting mechanisms, 

to assist stakeholders to take informed decisions about their 

interactions with the group. 

For a complete view of Sappi’s business strategy, performance in the year ending September 2008 and 

longer term prospects, stakeholders are directed to the following sources of company information: 

• Quarterly results announcements and analyst presentations 

• Annual Report and accounts, which are prepared in accordance with International Financial 

Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) 

• Form 20-F, prepared in accordance with the US Securities and Exchange Commission (SEC) regulations 

• Sustainable Development Report, which will be published on the group website (www.sappi.com) 

at the same time as the Annual Report is released, with a printed version to be available thereafter 

(on request from the Group Head Corporate Affairs – contact details on page 195) 

• Group website – www.sappi.com 

Sappi Limited is listed on the following stock exchanges and is subject to their listing requirements: 

• JSE Limited, South Africa (1) 

• New York Stock Exchange, USA (2) 

• London Stock Exchange, UK (2) 

(1) Primary listing. (2) Secondary listings. 

Exchange rates 

2008 2007 2006 

Year Closing Year Closing Year Closing 

average rate average rate average rate 

Rand (ZAR)/ 

US Dollar (US$) 7.4294 8.0751 7.1741 6.8713 6.6039 7.7738 

US Dollar (US$)/ 

Euro (EUR)(3) 1.5064 1.4615 1.3336 1.4272 1.2315 1.2672 

US Dollar (US$)/ 

Pound (GBP)(£) 1.9804 1.8448 1.9715 2.0471 1.7985 1.8723 

Annual report printed on: 

Magno Satin 250g/m 2 (cover), Magno Satin 150g/m 2 (pages 1 to 72) and Triple Green Print Silk 115g/m 2 

(pages 73 to 200), produced by Sappi.

sappi 

Our report in overview 

In producing this report we have been mindful of the information needs of different stakeholders, from 

repeat readers with specific requirements such as easy comparability and navigation, to new readers 

requiring broader context to Sappi’s business and strategy. 

02 03 04 06 

Our business 

Provides a quick overview of the 

business, including a high-level 

description, and key facts 

(including non-financial details). 

Our performance 

Gives a comprehensive overview 

of our performance against the 

prior year, including key ratios 

and highlights for the year. 

Our performance against 

targets 

Provides five-year trends in 

key financials and sets out the 

group’s performance against its 

stated financial targets. 

Our sustainability 

performance 

Sets out our stated commitment 

to sustainable development and 

gives details of our non-financial 

performance in each area of our 

sustainable development charter. 

10 12 16 

Our operations and 

business structure 

Indicates the global footprint of 

our operations and our business 

structure, including divisional 

and geographic breakdowns of 

assets, sales and ownership. 

Our products 

Describes the wide range of 

end uses and lists our brands 

within each of our main 

product categories. 

Our strategy 

Outlines management’s new 

strategic emphasis and indicates 

the progress made in 2008 

against our strategic objectives, 

and sets out our objectives for 

the year ahead. 

18 

Our leadership 

Provides biographies for the 

non-executive and executive 

members of our board of 

directors, as well as senior 

management in each of our 

operating divisions. 

22 

Letter to shareholders 

From the chairman and chief 

executive officer; reviews the 

group’s performance and 

strategic developments in the 

year, and provides prospects 

for the year ahead. 

26 28 

Interview with 

Ralph Boëttger 

The chief executive officer’s 

views on relevant issues 

including plans for the European 

business, the M-real transaction, 

cost pressures and current 

management priorities. 

Review of operations 

Sappi Fine Paper 

34 


Sappi Forest Products 

32 

Acquisition of M-real 

Provides additional information 

on the transaction, including 

mills and brands to be acquired, 

customers, distribution 

agreements and rationale 

for the transaction. 

39 

Value added statement 

40 

Risk management 

43 

Chief financial officer’s 

report 

58 60 

Five-year review 

Sets out key financials from the 

income statement, balance sheet 

and cash flow statement, as well 

as profitability, efficiency and 

liquidity ratios, and exchange 

rates, over a five-year period. 

Share statistics 

Provides relevant statistics 

including number of shareholders, 

number of shares in issue, 

number and value of shares 

traded, price per share, earnings 

and dividend yields, PE ratio and 

total market capitalisation. 

62 

Corporate governance 

70 

Compensation report 

72 188 191 

Annual financial 

statements 

Glossary 

Notice to shareholders 

197 

Proxy form for annual 

general meeting 

// 2008 Annual report 

1

Our business 

Sappi is a global paper and pulp group. We are a leading producer of coated fine paper widely used in books, brochures, magazines, 

catalogues and many other print applications. We are also the world’s largest producer of chemical cellulose, used primarily in the 

manufacture of viscose fibre, acetate tow and consumer and pharmaceutical products. In addition, we produce newsprint, uncoated 

graphic and business papers, premium quality packaging papers, a range of coated speciality papers and a range of paper grade 

pulp. Sappi Limited was founded and incorporated in South Africa in 1936. 

Key facts 

 

 

 

 

 

 

Manufacturing operations on four continents 

Sales in over 100 countries 

15,200 employees worldwide 

Paper production of 5.2 million tons per annum 

Chemical cellulose production of 800,000 tons per annum 

Paper pulp production of 2.8 million tons per annum 

2

sappi 


The group’s operating performance improved during the year. However, operating profit 

excluding special items in the second half of the year was flat compared to the second 

half of 2007, reflecting worsening macro-economic conditions and rising input costs. 

ZAR convenience translation 

September September September September 

2008 2007 2008 2007 

US$ million US$ million ZAR million (3) ZAR million (3) 

Sales 5,863 5,304 43,559 38,051 

Operating profit 314 383 2,333 2,748 

Special items (gains) losses 52 (70) 386 (502) 

Operating profit excluding special items 366 313 2,719 2,246 

EBITDA excluding special items (1) 740 688 5,498 4,936 

Profit for the year 102 202 758 1,449 

US cents US cents SA cents (3) SA cents (3) 

Basic earnings per share 45 89 334 638 

Dividend per share (2) 16 32 156 209 

Ordinary shareholders' interest per share 700 795 5,655 5,461 

Achieved 

Achieved 

September September 

2008 2007 

Operating profit to sales (%) 5.4 7.2 

Operating profit excluding special items to sales (%) 6.2 5.9 

EBITDA excluding special items to sales 12.6 13.0 

Operating profit excluding special items to 

capital employed (ROCE) (%) 9.1 8.3 

Return on equity (ROE) (%) 6.0 12.6 

Net debt to total capitalisation 0.60 0.55 

Cash interest cover (times) 4.9 3.8 

(1) Refer to the five-year review for a reconciliation of 

profit (loss) for the year to operating profit excluding 

special items, and EBITDA excluding special items. 

(2) The dividends for both financial years were declared 

subsequent to year end. 

(3) The translation to South African Rand from United 

States Dollars has been calculated at an average 

rate for the year of US$1 to ZAR7.4294 (September 

2007: US$1 to ZAR7.1741), except for dividends 

which have been translated at the rate of exchange 

at the date of declaration. 

Note: 

Definitions for various terms and ratios used above 

are included in the Glossary on page 188. 

Financial summary 

Sales increased 11% to US$5.9 billion 

Operating profit excluding special items of US$366 million (2007: US$313 million) 

Special items; a net pre-tax charge of US$52 million 

Basic EPS of 45 US cents (unfavourably impacted by special items of 30 US cents) 

Input costs remained high, including wood, energy and chemical costs 

Net debt of US$2.4 billion, up US$148 million mainly as a result of expenditure on 

the Saiccor expansion 

Major strategic achievements: 

– Announced acquisition of M-real’s coated graphic paper business for €750 million 

– Saiccor Mill expansion commissioned 

Re-based dividend of 16 US cents declared (2007: 32 US cents) 


3

Our performance against targets* 

Target 

Operating profit excluding special items to capital employed 

(ROCE) 

Our ROCE target is >12% which is set as a minimum, to beat our 

weighted average cost of capital. 

Target 

Return on equity (ROE) 

To provide shareholders with an after tax return that, on average, 

exceeds the weighted regional risk-free rate by at least 5 per - 

centage points. Our current target is >11%. 


Our performance improved further in the year mainly as a result of the 

good performance in North America. Our European business fell well 

short of target and our strategic focus is on restoring this business 

to profitability. Forest Products had a good year but did not match 

last year’s level of performance. 


Return on equity declined sharply during the year as a result of lower 

net profit. Net profit declined despite the improved operating profit 

excluding special items, largely as a result of the charges relating to 

the closure of Blackburn Mill and Maastricht Paper Machine No 5 

and the impairment of Usutu Mill and a resulting high effective 

tax rate. 

* See definitions on page 190. 

Five-year highlights 

4

sappi 

Target 

Target 

Net debt to total capitalisation 

Our target is to operate within a range of 40% to 65%. 

Cash interest cover 

To exceed a level of 6 times cover. 

(The definition of this ratio has been changed to improve com - 

para bility. The history has been restated). 


The ratio worsened during the year as a result of higher net debt 

(US$148 million) which increased as a result of higher than normal 

capital expenditure to complete the Saiccor expansion. The ratio was 

also impacted by a reduction in equity partly as a result of asset 

closures and impairments and partly as a result of currency movement. 


The cash interest cover increased to 4.4 times in the year as a result 

of improved cash generation but still falls short of our target. 


5

Our sustainability performance in 2008 

The following four pages are a snapshot of our approach to sustainability. More comprehensive details can be found 

in our publication, Sappi and Sustainability, 2008 Report, or on our website: 

http://www.sappi.com/SappiWeb/Corporate+responsibility/ Publications/Brochures+and+reports.htm 

Our definition of sustainability 

At Sappi, we define sustainable development as “development which meets the 

needs of the present without compromising the ability of future generations to 

meet their own needs”.* We are incorporating the principles of sustainable 

development into our everyday business practices by developing a culture of 

compliance. Our commitments are set out on page 8 and 9. 

* The Brundtland Report ‘Our common Future’. 

Milestones on our sustainable journey 

Over the last year we have: 

Published our 2007 Report in accordance with the Global Reporting Initiative (GRI) guidelines. We revised the way we collect and 

collate data in order to align our environmental performance reporting more closely with the GRI guidelines and enhance transparency. 

Updated our Code of Ethics in order to realise our vision of growing and living our values. The Code gives all our employees, 

contractors and stakeholders the guidance they need to act in line with our core values of Excellence, Integrity and Respect. 

The Code was rolled out to employees and suppliers across the group. 

Joined the United Nations Global Compact, a framework for businesses that are committed to aligning their operations and 

strategies with ten universally accepted principles in the areas of human rights, labour and anti-corruption. 

Participated in a review by the Dow Jones Sustainability World Index (DJSI World), which captures the top 10% performers based 

on long-term economic, environmental and social criteria of the biggest 2,500 companies worldwide. This was a valuable 

benchmarking exercise in establishing our triple bottom line performance within our sector. 

Established the Group Sustainable Development Council (GSDC) and regional committees in order to instil the principles of 

sustainable development more fully into our everyday management of Sappi. An independent, non-executive board director 

also sits on the GSDC. In North America, sustainability ambassadors are playing a valuable role in driving this process and we 

envisage adopting this type of approach in all regions. 

Revised our Charter to incorporate new and current commitments and present these in simpler language to make them more 

meaningful and more easily understood by all our stakeholders. 

Established Prosperity, People and Planet targets for each region in order to establish benchmarks for measuring our progress. 

Participated in the Carbon Disclosure Project, a vehicle for reporting on climate change representing more than 385 investors 

globally with US$57 trillion under management (aggregated). 

Been assessed by London-based company Ethically Responsible Investment Services (EIRIS) for inclusion on the JSE’s Socially 

Responsible Investment (SRI) Index. We maintained our listing and were assessed as satisfactory in all areas, with our response 

to climate change assessed as good. 

Compiled a publication which ‘Unpacks the 3Ps’ of Prosperity, People and Planet. The publication, which explains the 

importance of each of our Charter commitments and sets out the way in which we are living up to these commitments, will be 

launched in the first quarter of 2009. 

6

sappi 

Our score on the DJSI World 

Dimension scores % 

Sappi Average Best 

Economic 74 70 91 

Environmental 65 61 83 

Social 61 63 87 

External accolades 

• Sappi was recognised as one of the top 21 performers on the JSE SRI Index. 

• We were among three companies in South Africa nominated for the Industrial Category of the 2008 National Business Initiative 

Special Award for the Top Performing Energy Efficiency Accord Signatory. 

• Ranked fourth for our investor relations website and second for financial disclosure in Africa and Asia by IR Global Ratings, 

a comprehensive ranking system for IR websites in Africa and Asia, as well as corporate governance practices and financial 

disclosure procedures. 

• Our Clean Development Mechanism (CDM) project at Tugela Mill in South Africa received an award for The Most Innovative 

Co-generation Project from Energy Africa magazine. 

• Sappi Fine Paper North America named as a recipient of the 2008 CIO 100 Award. This annual award programme, run by 

CIO magazine, recognises 100 organisations worldwide that use information technology (IT) to create business value. Sappi 

won the award for the development of an integrated knowledge management system which allows greater control over raw 

material expenditure. 

• Sappi’s UK sales office was awarded UK Supplier of the Year award for 2007 by Antalis UK, a division of Europe’s largest 

distributor of paper and support communications material. 

Our key highlights 

Acquisition of the coated graphic paper 

business of M-real 

Final commissioning of the AmaKhulu 

expansion project at Saiccor Mill, taking 

annual chemical cellulose capacity to 

800,000 tons 

Finalisation of broad based black economic 

empowerment (BBBEE) transaction with 

Lereko Property Consortium 

Launched Tempo an innovative, fastdrying 

paper technology 

Sales of Flo ® more than treble 

Global training spend up by 20% 

Renewable energy as a percentage of 

total energy used stands at 48.6% 

Our key challenges 

Focus more intensely on safety in the light 

of employee and contractor fatalities 

Promote HIV/Aids voluntary counselling 

and testing (VCT) in view of an increase 

in the mortality rates of HIV-infected 

employees in South Africa 


7

Our sustainability performance in 2008 // continued 

Our sustainability performance in 2008 – at a glance 

Prosperity 

Our commitments 

Focus on long-term profitable 

growth 

Promote an ethical culture 


• Entered into an agreement to buy the coated graphic paper business of M-real. 

• Commissioning of the expansion project at Saiccor Mill. 

• Announced the closure of Blackburn Mill and the Paper Machine No 5 at Maastricht Mill. 

• Launched new products, including Tempo. 

• Launched our revised Code of Ethics based on our core values of Excellence, Integrity and Respect. 

The Code, which was comprehensively rolled-out to employees, contractors and suppliers, is 

supported by Sappi Hotlines in each region. 

Drive customer satisfaction • Continued to focus on research and development, spending US$34 million in 2008 

through technology 

(2007: US$34 million) 

and innovation 

• Continued to drive internal innovation through the Technical Innovation Awards. 

Build on our competitive 

position in our core markets 

Maintain our licence to trade 

Create value for all stakeholders 

• In Europe, we launched Algro Topwhite and Parade Prima High Gloss. 

• In South Africa, we launched an insect-repellent board for cereal manufacturers. 

• In North America, sales of best-in-class economy brand Flo ® trebled from the time of launch 

in June 2007. 

Continued to promote broad based black economic empowerment: 

• Finalised a ZAR224 million BEE transaction with the Lereko Property Consortium (LPC) under which 

LPC will acquire a 25% economic interest in Sappi’s South African plantation land. 

• Formed a partnership with the National Business Initiative to help promote the development of 

selected black vendor small and medium enterprises (SMEs). 

• Positive annual operating profit, despite the difficult trading conditions and increased input costs. 

• Declared a dividend of 16 US cents a share. 

People 


Prioritise wellbeing, 

safety and health 

Cultivate an inclusive, diverse 

workplace 

Be a great place to work 


Two own employee fatalities and five contractor employee fatalities, as well as an increase in 

HIV/Aids mortality meant that our performance when measured against this commitment was 

unsatisfactory in some areas. Key performance indicators were: 

• The employee Lost Time Injury Frequency Rate (LTIFR) increased by 20% year on year in South 

Africa and in Europe by 126%. However, in North America, employee LTIFR reduced by 39%. 

• The contractor LTIFR for Sappi Fine Paper Europe increased because of the contractor employee 

fatality in that region. It also showed a small increase for Sappi Fine Paper North America due to the 

relatively low number of contractor hours. Despite contractor employee fatalities in Southern Africa, 

contractor LTIFR reduced from 0.48 to 0.31 due to the large numbers of forestry contractor 

employees and a general reduction in injuries. 

• In South Africa, the voluntary counselling and testing (VCT) uptake increased, but disappointingly, 

mortality rates of HIV-infected employees in the region showed an upward trend. 

• Gender diversity increased steadily, albeit slowly, throughout the group. 

• While we did not succeed in meeting our employment equity targets at senior management and 

professional levels in South Africa, we made progress at the skilled technical and academically 

qualified level, meeting our 2008 targets in all race groups. 

• We began the process of assessing our Sappi Employee Value Proposition in order to understand 

why people want to work for us and why they stay. 

Provide training and • Global training spend increased by 20%. 

development opportunities 

Partner with communities • In percentage terms, total Corporate to Social Responsibility spend increased, amounting to 3.04% 

of profit after tax compared to 1.78% in 2007. 

• We began the process of determining the impact of our Corporate Social Responsibility programmes. 

8

sappi 

People continued 



Engage with stakeholders • Employees 

openly and constructively – implemented certain findings of the Employee Engagement Survey conducted in 2007. 

– concluded successful wage negotiations in all regions. 

• Investors – continued to engage actively with our investor base. 

• Customers – introduced sustainability ambassadors in North America who engage with employees 

and customers on an ongoing basis. 

• Industry – continued to work with industry associations in each region and also continued to collaborate 

with universities on industry-specific issues. 

• Contractors and suppliers – included in our Code of Ethics roll-out. 

Planet 


Continue our commitment to 

independent environmental, 

wood and fibre certification 

systems 

Safeguard biodiversity by 

promoting sustainable forestry 

Conform with best 

environmental practice 

and legislation 

Reduce greenhouse gas 

emissions and increase our 

renewable energy 

Reduce solid waste and 

improve water quality 

Promote the recovery 

and use of recycled fibre 


In South Africa: 

• More than 70% of the wood supplied to Sappi is Forest Stewardship Council (FSC) certified. 

In North America: 

• Almost 50% of our wood fibre is procured from landowners who participate in the Sustainable Forestry 

Initiative (SFI ® ) programme. 

In Europe: 

• 62% of our fibre is certified by the Programme for the Endorsement of Forest Certification (PEFC) 

and FSC. 

Globally: 

• We use international standards including OHSAS18001, ISO14001 and ISO9001 to ensure 

continuous improvement in employee health and safety, environmental impact, product quality and 

sustainability of our operation. 

• Of the 369,000ha of land owned by Sappi in South Africa, 132,170ha or about 34% is unplated 

and managed for biodiversity conservation. 

• Biodiversity plays a vital role in ensuring the health and vitality of trees in terms of decomposition, 

soil rejuvenation and pest control – both on our own plantations and the areas from which we source 

wood fibre. 

• We also continued to promote biodiversity by involving communities in eco-tourism. 

• Ngodwana Mill was audited in August by an inspection team from the Environmental Management 

Inspectors (also known as the Green Scorpions). We are awaiting the audit results. 

• In North America, we are confident that we will be able to comply with the recently amended Lacey 

Act relating to the importation of plants and plant products. 

• Globally, carbon emissions throughout our mills show a declining trend from 2005 (based on 

internal data). 

• Announced a US$36 million investment in a chemical recovery boiler modification at Somerset Mill 

which will increase the capacity for generating energy from black liquor. 

• We teamed up with Volvo Car South Africa in an innovative carbon-offset project which links with 

Sappi South Africa’s Sandisa Imvelo (Growing Nature) programme for planting indigenous trees. 

• In North America, more than 75% of all energy used in our mills comes from renewable resources 

(waste products from our production process (black liquor, bark and sludge and also purchased 

biomass). The percentage of renewable energy for South Africa is 38.1% and for Europe is 31.8%, 

with our global figure being 48.6%. 

• Globally, the amount of solid waste going to landfill has declined by 8.09% over five years while 

we have increased our use of combustible waste by 10.48% over three years. 

• Globally, the quality of effluent has improved over five years as indicated by the 18.23% and 9.01% 

decreases in total suspended solids (TSS) and chemical oxygen demand (COD) respectively. 

• The recycled fibre used in our operations increased by 8.52% year on year. 


9

Our operations 

Europe accounts for 46% of sales, followed by North America at 28%, and Southern 

Africa at 26%. We have customers in over 100 countries and manufacturing operations 

on four continents. 

North America 

Regional head office 

4 Fine Paper mills 

6 Fine Paper sales offices 

1 Sappi Trading sales office 

Europe 

Asia 

6 


Fine Paper mills* 

4 

1 

Sappi Trading sales offices 

Paper mill – joint venture 

16 

2 

Fine Paper sales offices 

Sappi Trading sales offices 

Central America 


South America 


Southern Africa 

Corporate head office 


3 Fine Paper mills 

6 Forest Product mills 

4 Fine Paper sales offices 

4 Forest Product sales offices 

2 Sappi Trading sales offices 

East Africa 


Australia 


* Production at Blackburn Mill ceased on 17 October 2008. 

No alternative to the closure of the mill was found during the employee representative consultation process, which ended on 11 November 2008. 

10

sappi 

Our business structure 

Johannesburg 

Forest Products* 

Fine Paper 

Sappi Trading 

Saiccor 

Kraft 

Forests 

Europe 

North America 

South Africa* 

Jiangxi Chenming Paper Co 

Joint-venture 

Sappi Trading operates a 

network for the international 

selling and distribution of our 

products outside our core 

operating regions of North 

America, Europe and Southern 

Africa. Sappi Trading also 

co-ordinates our shipping 

and logistical functions for 

exports from these regions. 

* Forest Products and Fine Paper South Africa comprise our Southern African operations. 

Group statistics 

Capacity (’000 tons) Employees 

Paper 

Pulp 

Fine paper products 4,350 1,760 9,310 

Forest products 830 1,850 5,580 

* Total includes Sappi Trading and Corporate head office. 

5,180 3,610 15,160* 


11

Our products 

We are commited to serve our customers the best we can through a continued focus 

on innovation and excellence in service. Sappi’s history of paper technology ‘firsts’ 

achieved by our technology centres in the regions in which we operate, continues to 

underpin this commitment. 

Coated paper 

gives a higher level of smoothness than uncoated paper by 

applying a coating (typically clay based) on the surface of the 

paper. As a result, higher reprographic quality and printability 

is achieved. Uses include brochures, catalogues, corporate 

communications materials, direct mailers, educational textbooks, 

magazines and calendars. 

Products and brands 

• Aero ® 

• Triple Green 

• Flo ® 

• HannoArt 

• Lustro ® Offset Environmental (LOE) 

• Magno 

• McCoy ® 

• Opus ® 

• Quatro 

• Royal 

• Somerset ® 

• Tempo 

Speciality paper 

can be either coated or uncoated. Uses include bags, labels, 

packaging and release paper for casting textured finishes (eg 

artificial leather for the automotive and fashion industries). 

Coated speciality 

• Algro 

• Barricoat 

• EHR 

• Icena 

• Leine 

• Parade 

• Prime Pak 

• Stripkote ® 

• Superprint 

• Transkote ® 

• Triple Green Label 

• Ultracast ® 

• Versakote ® 

Uncoated paper 


uses include business forms, business 

stationery, general printing paper and 

photocopy paper. We also produce 

tissue wadding which is converted into 

various hygiene products. 

• African Dream 

• Camelot Cartridge ® 

• China Embossed 

• Croxley ® 

• Custodian ® 

• El Toro ® 

• Econoline ® 

• Ecomail 

• Express Brown 

• Laser Preprint 

• Lord Ariston 

• MF Tag 

• Midas Golden 

• Paradis 

• Presspride 

• Reviva Plus 

• Sentinel 

• Silken 

• Sovereign Select ® 

• Tissue wadding 

• Tokai ® 

• Typek ® 

• Uniqa ® 

• Vanguard 

12

sappi 

Pulp 

Paper pulp 

is the main raw material used in the production 

of printing, writing and packaging paper. Pulp is 

the generic term that describes the cellulose 

fibre derived from wood. These cellulose fibres 

may be separated by mechanical, thermomechanical 

or chemical processes. Mechanical 

pulp is produced by mechanically grinding 

wood or wood chips. Thermo mechanical pulp 

is produced by processing wood fibres using 

heat and mechanical grinding or refining wood 

or wood chips. Chemical pulp is produced by 

using chemical processes which remove the 

glues (lignins) that bind the wood fibres leaving 

cellulose fibres. Paper made from chemical pulp 

is generally termed ‘woodfree’ or ‘fine’ paper.* 

cellulose fibres. Chemical cellulose is used 

in the manufacture of a variety of cellulose 

textile and non-woven fibre products, including 

viscose staple fibre (rayon), solvent spun fibre 

(lyocell) and filament. It is also used in various 

other cellulose-based applications in the 

food, cigarette, chemical and pharmaceutical 

industries, including the manufacture of acetate 

tow, microcrystalline cellulose, cellophane, ethers 

and moulding powders. The various grades 

of chemical cellulose are manufactured in 

accordance with the specific requirements 

of customers in different market segments. 

The purity of the chemical cellulose is one 

of the key determinants of it’s suitability for 

particular applications. 

Pulp 

• Chemical cellulose 

• Kraft pulp 

– Springwood 

– Hardcell 

– Softcell ® 

Chemical cellulose 

is manufactured by similar processes to paper 

pulp, but purified further to leave virtually pure 

Timber products 

includes sawn timber for construction and 

furniture manufacturing. 

Packaging paper 

of heavy and lightweight grades of paper 

and board are mainly used for primary 

and secondary packaging of fast moving 

consumer goods, agricultural and industrial 

products. Products include container - 

board, sack kraft and machine glazed kraft 

which can be coated to enhance barrier 

and aesthetic properties. 


• Algro Design 

• Kraftpride ® 

• Barricoat 

• Mg Industrial 

• Beehive bag 

• Presspride ® 

• Cape Fluting 

• Printpride ® 

• Cape Liner 

• Stackraft ® 

• Glass Glaze 

• Stegi 

• Hi Yield Fluting ® 

• Stratomax 

• Kraftguard ® • Superflute 

• Superprint ® 

• Tobacco Liner 

• Wicked Wrap 

* See glossary on page 188. 


13

Sappi 2008 International Printers of the Year 

Since 1995, Sappi has recognised and rewarded excellence in print 

through the Sappi International Printers of the Year competition. These 

prestigious awards have been called the ‘Oscars’ of the print industry 

and have established the global benchmark against which any highquality 

printer can measure themselves. 

Given the significant value that such an award brings to the 

printer, Sappi has announced that the competition will in future 

be held on a biennial basis. This will provide the winning printers 

at regional and international level with substantial additional 

benefit. Recognising the importance of the triple bottom line 

approach to doing business and the fact that consumers and 

markets are increasingly conscious of environmental issues, 

Sappi is also investigating how best to incorporate recognition 

of the importance of sustainability and corporate responsibility 

into the competition. 

Over 6,000 entries were received from participating countries 

in this year’s four qualifying regional Printers of the Year 

competitions. The categories were: 

• Annual reports 

• Books 

• Brochures 

• Calendars 

• Catalogues 

• General print 

• Magazines (sheet and web) • Packaging and labels 

• Printer’s own Promotion 

Each year, the nine category winners in the Sappi International Printers 

of the Year awards receive a coveted cast-bronze elephant trophy 

created by world-renowned sculptor Donald Greig, symbolising Sappi’s 

South African heritage. 

Regional gold award winners competed against each other in 

their respective categories and were judged by an international 

panel of judges, ensuring impartiality and the broadest spectrum 

of technical expertise in print. Each entry was judged on overall 

appearance, quality of finishing and general difficulty of the print 

job, as well as various technical factors. 

The Sappi Printers of the Year Awards originated in Africa 30 

years ago, and were subsequently introduced in Europe, North 

America and Sappi’s Trading region (Asia, Australasia, South 

and Central America) to become a truly global benchmark of 

printing excellence. 

Sappi papermaking process 

pulping 

papermaking 

Wire – forms the 

sheet of paper 

Size press – coats the 

basic sheet of paper 

Calender 

Wood 

Debarked 

pulpwood 

Chipper Digester Bleaching plant Screens 

Head box 

Press – 

removes 

water 

Dryer 

Dryer 

Reel 

Paper machine 

14

sappi 

Ideas that matter 

Print remains one of the most powerful forms of communication. 

It is personal and emotive, and connects on many levels with 

its audience, making it an exceptionally effective communication 

channel for non-profit organisations – for fundraising purposes, 

education and raising awareness. 

In addition to the grants awarded, the creators, campaigns and worthy causes for whom the 

campaigns are designed and initiated are featured in a book published annually. 

A long-standing Sappi initiative, Ideas that Matter, is aimed 

at assisting non-profit organisations worldwide by awarding 

annual funding to innovative designers for print campaigns that 

promote worthwhile social causes. 

Launched in 1999, Ideas that Matter draws entries from all 

over the world, and grants totalling US$1 million are awarded 

annually. Sappi’s funding is awarded to design students, 

professional designers and design agencies. They donate 

their time and expertise in developing original and impactful 

campaigns, while Sappi funds the implementation costs. Over 

the past nine years, US$9 million in Sappi funding has resulted 

in some of the most creative and effective campaigns produced 

for non-profit organisations. 

This year, over 200 entries were received from 15 countries 

in the regions in which Sappi operates, and 36 entries were 

given grants. Causes such as climate change, cancer research, 

animal anti-cruelty and interventions for the disabled, youth and 

marginalised communities received funding. 

Sappi is committed to conducting our business responsibly and 

helping to create stable, healthy communities. Ideas that Matter 

is an important expression of this commitment. 

Sappi papermaking process continued 

coating 

cutting and wrapping 

despatch 

Super calender 

– optimises the coated paper surface to 

develop smoothness and gloss 

Sheet cutter 

Coater 

Slitter winder – cuts large rolls into smaller rolls 

Sheets 

Rolls 


15

Our strategy 

We reviewed our strategy during the year, leading to some changes in emphasis. 

Our goal is to be the most profitable company in the paper, pulp and chemical cellulose sectors. Our key 

measure will be Return on Capital Employed (ROCE) and as a minimum to beat our cost of capital. We will also 

prioritise cash generation and improving our balance sheet structure. 

We aim to build on our leading position in the coated fine paper market and to explore opportunities across the 

spectrum of coated paper. We plan to grow our chemical cellulose business and we are expanding our low-cost 

fibre base in Southern Africa. We will invest in energy reduction and self-sufficiency projects and in extracting 

chemicals derived from renewable wood resources. Core to our business, is our Southern African portfolio of 

packaging paper, newsprint, printing and writing paper, and tissue paper. 

Strategic objectives Progress in 2008 

Achieve our ROCE target 

of greater than 12% and 

therefore exceed our cost 

of capital 

Strengthen our leadership 

position in our core 

businesses through organic 

growth and selective 

acquisitions 

Expand our low-cost 

plantation fibre base in 

Southern Africa as a 

resource to grow our pulp 

and chemical cellulose 

businesses 

Drive efficient manufacturing 

and logistics to ensure 

we are a low-cost producer 

Drive growth through 

customer service, innovation 

and reliability 

Entrench our core values of 

• Excellence 

• Integrity 

• Respect 

Black Economic 

Empowerment (BEE) 

in South Africa 

• We saw further improvement to 9.1% in 2008; however, we still fell short of our target 

particularly in Europe. 

• We have taken action to improve our performance in Europe, including the pending acquisition of 

M-real’s coated graphic paper business. 

• The Saiccor Mill expansion project was completed in September, increasing chemical 

cellulose capacity by 225,000 tons to approximately 800,000 tons per annum. 

• On 29 September we announced the acquisition of M-real’s coated paper business which 

will increase our leading coated fine paper market share in Europe and give us a significant 

share in the coated magazine paper market. (Further details of the rationale for the transaction 

are included on page 33). 

• We decided to expand our plantation investments in Southern Africa. After the expansion 

of Saiccor Mill and the completion of the pending acquisition of M-real’s coated graphic 

paper business the group will be approximately 92% integrated in terms of pulp requirements 

(on an economic basis). 

• High pulp prices during the year favoured Sappi Forest Products and the North American 

business, which are net sellers of pulp, but penalised the European business which buys more 

than half of its pulp needs. 

• The impact of raw material and other input price increases was approximately US$208 million 

during 2008 compared to 2007. The effect of this was partly offset by actions including enhancing 

our procurement expertise, redesigning products, and improved planning of logistics. 

• During the completion stage of the Saiccor Mill project the current production of the mill was 

affected thereby reducing the mill’s output and sales. Production of the expansion is ramping 

up and the mill is expected to reach full capacity early in 2009. 

• Our market research has shown that our customers place customer service and reliability 

high or top of the list of requirements. We continued to make good progress in meeting 

customer needs during the year. 

• An increased proportion of our sales was derived from newly designed products in 

the year. 

• Our values have been derived from internal dialogue and incorporated in our internal and 

external communications, including our Code of Ethics, Strategy Statement and Sustainability 

Report. We strive to live our values in all our business interactions. 

• During the year we set up new structures to ensure we effectively manage the changes needed 

to achieve our BEE targets. 

• The conditions to the transaction to sell a 25% undivided right to our forestry land to a broad 

based BEE consortium led by Lereko have been fulfilled and the transaction has been completed. 

• A next step in our transformation strategy is to enter into a value-adding and broad based 

equity transaction. 

16

sappi 

Objectives for 2009 

Meaningful progress towards acceptable returns for our shareholders 

Successful integration of the coated graphic paper business we are 

acquiring from M-real and the achievement of the related synergies 

Ramping up the output of Saiccor mill to its new full capacity 

Cash flow, capital expenditure and working capital management 

and maintaining good liquidity for the group 

Improving our balance sheet structure 

Ensuring we successfuly navigate through the current global economic 

turmoil and position Sappi to take advantage of an inevitable upturn 

Steady improvement of operating performance 

Saiccor Mill, South Africa 


17

Our leadership 

Non-executive directors 

Daniël (Danie) Christiaan Cronjé // (62) chairman (independent) 

BCom (Hons), MCom, DCom (South African citizen) 

Dr Cronjé retired in July 2007 as chairman of both Absa Group Ltd and Absa Bank Ltd, a leading South African banking 

organisation in which Barclays plc obtained a majority share in 2005. He had been with the Absa group since 1975 and 

held various executive positions including group chief executive for four years and chairman for 10 years. Prior to that 

Dr Cronjé was Lecturer in Money and Banking at Potchefstroom University. Dr Cronjé’s other directorships include 

Eqstra Holdings Ltd (chairman) and TSB Sugar Holdings Ltd (non-executive). 

David Charles Brink // (69) (senior independent director) 

MSc Eng (Mining), DCom (hc), Graduate Diploma (Company Direction) (South African citizen) 

Mr Brink was appointed a non-executive director of Sappi Limited in March 1994 and in March 2006 he was appointed 

senior independent director. Mr Brink also serves on the boards of Steinhoff International Holdings Limited, the Business 

Trust, Absa Bank Limited, Absa Group Limited, the National Business Initiative and is vice president of the Institute of 

Directors in South Africa. 

Mr Brink retired from the boards of BHP Billiton Limited and BHP Billiton plc in November 2007 after serving on those 

boards and their predecessor companies since 1994. He is also a past chief executive officer and chairman of 

construction group Murray & Roberts Holdings Limited. 

Meyer Feldberg // (66) (independent) 

BA, MBA, PhD (US citizen) 

Professor Feldberg's career has included teaching and leadership positions in the business schools of the universities 

of Cape Town, Northwestern and Tulane. He served as president of Illinois Institute of Technology for three years and 

as dean of Columbia Business School for fifteen years. He is currently dean emeritus and professor of Leadership at 

Columbia Business School. He is also a senior advisor to Morgan Stanley in New York. Professor Feldberg serves on 

the Advisory Board of the British American Business Council and has served on the Council of Competitiveness in 

Washington, DC. In 2001, the International Centre in New York honoured Professor Feldberg as a distinguished foreignborn 

American who has made a significant contribution to American life. In 2007, Mayor Michael Bloomberg appointed 

him president of New York City Global Partners. He is a director of major public companies including Macy’s Inc, Revlon 

Inc, PRIMEDIA Inc and UBS Global Asset Management. 

James Edward Healey // (67) (independent) 

BSc (Public Accounting), Honorary Doctor (Commercial Science), Certified Public Accountant (USA), 

(US citizen) 

Mr Healey joined the Sappi Limited board with effect from July 2004. He has held various senior financial positions in 

a career spanning 37 years. In 1995, Mr Healey became vice president and treasurer of Bestfoods, formerly CPC 

International Inc. In 1997, he became executive vice president and chief financial officer of Nabisco Holdings Inc, one 

of the world’s largest snack food manufacturers, a position from which he retired at the end of 2000. 

18

sappi 

Deenadayalen (Len) Konar // (54) (independent) 

BCom, MAS, DCom, CA (SA) (South African citizen) 

Previously professor and head of the Department of Accountancy at the University of Durban-Westville, Dr Konar is a 

member of the King Committee on Corporate Governance, the Securities Regulation Panel and the Institute of Directors. 

Companies of which he is a non-executive director include Old Mutual South Africa, Illovo Sugar and JD Group. He is 

acting chairman of Exxaro Resources Limited (previously Kumba Resources Limited) and chairman of Steinhoff 

International Holdings Limited. 

Helmut Claus-Jürgen Mamsch // (64) (independent) 

(German citizen) 

Mr Mamsch studied economics at Deutsche Aussenhandels-und Verkehrs-Akademie, Bremen and also received training 

in business administration and shipping in Germany, the UK and Belgium. He worked for 20 years in international trade 

and shipping. In 1989, he joined VEBA AG (now E ON AG), Germany’s largest utility-based conglomerate. From 1993 

to 2000, he was a VEBA AG management board member and as from 1998 responsible for their US electronic 

businesses and their Corporate Strategy and Development. 

In 1997, he joined Logica as a non-executive director and until 2007 was appointed their deputy chairman. Mr Mamsch 

also serves on the board of Electrocomponents plc and GKN plc. 

John (Jock) David McKenzie // (61) (independent) 

BSc Chemical Engineering (cum laude), MA (South African citizen) 

Mr McKenzie joined the Sappi board after having held senior executive positions globally and in South Africa. He is a 

former president for Asia, Middle East and Africa Downstream of the Chevron Texaco Corporation and also served as 

the chairman and chief executive officer of the Caltex Corporation. 

Karen Rohn Osar // (59) (independent) 

MBA, Finance (US citizen) 

Ms Osar was executive vice president and chief financial officer of speciality chemicals company Chemtura Corporation 

until her retirement in March 2007. Prior to that, she held various senior management and board positions in her career. 

She was vice president and treasurer for Tenneco Inc and also served as chief financial officer of Westvaco Corporation 

and as senior vice president and chief financial officer of the merged MeadWestvaco Corporation. Prior to those 

appointments she spent 19 years at JP Morgan and Company, becoming a managing director of the Investment 

Banking Group. She currently serves on the boards of Webster Financial Corporation, the BNY Hamilton Funds and 

Innophos Holdings Inc. 


19

Our leadership // continued 

Non-executive directors continued 

Bridgette Radebe // (48) (independent) 

BA (Pol Sc and Socio) (South African citizen) 

Ms Radebe was the first black South African deep level hard rock mining entrepreneur in the late 1980s. She has more 

than a decade of experience in contract mining, mining construction and mergers and acquisitions. Ms Radebe also 

serves on the board of Mmakau Mining, the Minerals and Mining Development Board and is a founder and board of 

trustee member of the New Africa Mining Fund. 

Sir Anthony Nigel Russell Rudd // (62) (independent) 

DL, Chartered Accountant (UK citizen) 

Sir Nigel Rudd joined the Sappi board in April 2006. He has held various senior management and board positions in a 

career spanning more than 35 years. He founded Williams plc in 1982 and the company went on to become one of 

the largest industrial holding companies in the United Kingdom. He is chairman of BAA Limited and Pendragon plc, 

deputy chairman of Barclays plc and a non-executive director of BAE Systems plc. He was non-executive chairman of 

Pilkington plc from August 1994 to June 2006. He was knighted by the Queen for services to the manufacturing industry 

in 1996 and holds honorary doctorates at both Loughborough and Derby Universities. In 1995, he was awarded the 

Founding Societies Centenary Award by the Institute of Chartered Accountants. He is a Deputy Lieutenant of Derbyshire 

and a Freeman of the City of London. 

Franklin Abraham Sonn // (69) (independent) 

BA Hons, HdipEd (South African citizen) 

He was formerly rector of Peninsula Technikon for 17 years and appointed democratic South Africa’s first ambassador 

to the United States. His current board positions amongst others include, chairman of African Star Ventures (Pty) Ltd, 

Airports Company of South Africa Ltd, Kwezi V3 Engineers (Pty) Ltd and Ekapa Mining (Pty) Ltd. He is non-executive 

director of Absa Group Ltd, Steinhoff International Holdings Ltd, Pioneer Food Group Ltd, RGA Reinsurance Co of SA 

Ltd, Metropolitan Holdings Ltd, Macsteel Service Centres (Pty) Ltd and Xinergistix Ltd. 

Executive directors 

Roeloff (Ralph) Jacobus Boëttger // (47) 

BAcc Hons, CA (SA), Chief executive officer (South African citizen) 

At the age of 34, Mr Boëttger was appointed chief executive officer of Safair and the next year appointed to the executive 

committee of Safmarine Limited. From 1998 until July 2007, he was the chairman of the Aviation Division with Imperial 

Holdings Limited following Imperial’s acquisition of Safair and from 2002, he was an executive director of Imperial 

Holdings with responsibility for their local and international logistics operations, the aviation division and the heavy 

commercial vehicle distribution operations. His field of responsibility encompassed businesses operating in Southern 

Africa, numerous European countries, the Middle East and Asia. Mr Boëttger was appointed chief executive of Sappi 

Limited in July 2007. 

Mark Richard Thompson // (56) 

BCom, BAcc, LLB, CA (SA), Chief financial officer (South African citizen) 

Mr Thompson joined Sappi in 1999 as group corporate counsel and was appointed to his present position in August 

2006 when he was also appointed to the board of Sappi. Prior to joining Sappi, he was group treasurer at Anglo 

American, managing director of Discount House Merchant Bank and previously head of the corporate finance 

division of Central Merchant Bank. 

20

sappi 

Divisional and corporate management 

Sappi Limited 

Chief executive officer 

*Ralph Boëttger (47) BAcc Hons, CA (SA) 

Chief financial officer 

*Mark Thompson (56) BCom, BAcc, LLB, CA (SA) 

Group financial manager 

Stephen Blyth (34) BCom, PG Dip Acc, CA (SA), HDip Tax 

Group financial controller 

Laurence Newman (52) BCom, BAcc, CA (SA) 

Group head internal audit 

Roland Agar (44) BCom BAcc, CA (SA) 

Group management accountant 

Albert Dreyer (46) BCompt Hons, CA (SA) 

Group tax manager 

Bernd Ross (49) MS (Economics and Business Administration) 

Group treasurer 

Jörg Pässler (48) BCom Hons, MCom, HDip Tax, CAIB (SA) 

Group head technology 

*Andrea Rossi (54) BSc (Engineering) Hons, C Eng 

Chief information officer 

Bradley Coward (53) Grad Dip (Corporate Direction and Business 

Management), Cert (Senior Management and Leadership 

Development) 

Group head strategic development 

*Robert Hope (56) BA Hons (Economics), MRICS 

Group investor relations manager 

Wikus van Zyl (40) BCom Hons, CA (SA) 

Group head human resources 

*Lucia Swartz (51) BA, Dip HR 

Group head corporate affairs 

André Oberholzer (42) BCom (Law) 

Group corporate counsel 

Ria Sanz (43) BCom, LLB, HDip Tax, Admitted Attorney 

Group risk manager 

Gert Cruywagen (53) MBSc, PhD, FIRM (SA) 

Integration executive 

*Alex Thiel (49) BSc (Mechanical Engineering), MBA (Financial 

Management and IT) 


Sappi Fine Paper Europe 


*Berry Wiersum (53) MA (Medieval and Modern History) 

Chief financial officer 

Glen Pearce (45) BCom Hons, CA (SA) 

General counsel 

Hannes Boner (45) lic iur, DHEE, admitted attorney 

Human resources director 

Rainer Neumann (46) MS (Administrative Sciences), MS 

(Industrial Relations and HRM) 

Information technology director 

Dennis de Baar (41) MS (Computer Sciences) 

Manufacturing, research and development director 

Mat Quaedvlieg (58) BS (Electronics) 

Marketing sales graphic director 

Marco Eikelenboom (41) MS (Economics and Business 

Administration) 

Purchasing director raw materials 

Victor Kamm (49) MS (Mechanical Engineering) 

Sales director Europe 

Wim Heyvaert (42) MS (Economics, International Business 

Management and Financial Sciences) 

Logistics director 

Géry Lesaffre (44) MS (Economics and Business Administration) 

Director technical goods and utilities 

Werner Reiter (54) BS (Mechanical Engineering), MS (Social and 

Economic Sciences) 

Speciality papers director 

Theo Reijnen (61) BS (Economics) 

Sappi Fine Paper North America 

President and chief executive officer 

*Mark Gardner (53) BSc (Industrial Technology) 

Vice president and chief financial officer 

Annette Luchene (46) BS (Accounting), MBA 

Executive vice president strategic marketing and 

communications 

Jennifer Miller (53) BA (Economics), Juris Doctor 

Vice president corporate development 

Anne Ayer (43) BA (Psychology), MBA 

Vice president fibre resources 

Deece Hannigan (46) BA (Political Science) 

Vice president human resources and general counsel 

Sarah Manchester (43) BA (History), Juris Doctor 

Vice president manufacturing 

John Donahue (53) BS (Chemical Engineering) 

Vice president procurement and chief information officer 

Bob Wittstein (48) BS (Engineering), MBA 

Vice president research, development and innovation 

Beth Cormier (45) BS (Engineering Physics) 

Vice president release and technical specialities businesses 

Bob Weeden (56) BS (Chemistry), MS (Management) 

Vice president sales 

Bob Forsberg (46) BA (Economics) 

Vice president supply chain 

Randy Rotermund (46) BS, MBA 

Sappi Fine Paper South Africa 

Managing director 

Dinga Mncube (48) Dip (Forestry), BSc (Forest Management), 

MSc (Forest Products), Dip (Business Management), MCom 

General manager finance 

Sonja Scheepers (38) BCom Hons, CTA, CA (SA) 

General manager marketing 

Bernhard Riegler (38) APD Diploma 



*Jan Labuschagne (48) BCom Hons, CA (SA) 

Finance director 

Colin Mowatt (51) BCom Acc, CA (SA), EDP, MBL 

Human resources director 

Brian Dick (58) BAdmin 

Information technology director 

Deon van Aarde (48) BCompt 

Technical director 

Bertus van der Merwe (55) BSc, MBA, HDip (Engineering) 

Sappi Forests managing director 

Hendrik de Jongh (53), NDip (Elec), GCC (Elec), MDP 

Sappi Kraft managing director 

Albert Lubbe (60) NDip Mech, GCC (Mech), AEP 

Regional procurement director 

Nat Maelane (49) MDP, SEP 

Sappi Saiccor managing director 

Alan Tubb (58) BSc (Electrical Engineering), GCC (Mines and 

Works), BCom 



*Wayne Rau (46) HND (Marketing), Senior Executive Programme 

Financial director 

Henri Kirsten (55) BCom, BCompt Hons, CA (SA) 

* 

Group executive committee. 


21

Danie Cronjé | chairman 

Ralph Boëttger | chief executive officer 

Letter to shareholders 

from the chairman and chief executive officer 

Overview 

The operating performance of Sappi improved during the year. Operating profit excluding special items in 

the second half of the year was, however, flat compared to the second half of 2007, reflecting worsening 

macro-economic conditions and rising input costs. 

We had a good performance from our North American businesses but continued underperformance from 

Europe, which generated the same level of profit, excluding special items, as in 2007. As a result of the 

North American performance, EBITDA excluding special items for the Fine Paper business increased to 62% 

of the group total from 56% in 2007. 

Strategy review 

The group completed a strategy review during the year. Our main focus was the need to improve profitability 

and shareholder returns using the key measurement of return on capital employed. Particular emphasis was 

placed on restoring the level of profitability in Europe and strengthening the balance sheet. We identified 

three key issues that in our opinion had prevented a return to acceptable profitability in Europe over several 

years.These were overcapacity, the fragmented structure of the market, and the strong Euro/US Dollar 

exchange rate. We concluded that since Sappi’s European business is the leader in the European coated 

paper market with a strong customer base, good brands and products, as well as some of the most efficient 

manufacturing assets, and is Sappi’s largest regional investment, we should be proactive in doing what we 

could to improve operating conditions and profitability. 

Strategic actions 

After exploring various options, Sappi entered into an agreement to acquire the coated graphic paper 

business of M-real, for J750 million. The transaction is expected to be completed at the end of 

December 2008. We will acquire approximately 1.9 million tons of paper capacity, increasing our European 

paper capacity to about 4.4 million tons and our market share of coated fine paper in Europe from around 

18% to 30%. In our opinion this acquisition will bring about meaningful changes to the structure of the 

European coated fine paper market and allow us to achieve much improved returns. Sappi has reduced 

its coated fine paper capacity by 190,000 tons by closing the Blackburn Mill in the United Kingdom and 

the Maastricht Mill Paper Machine No 5 in The Netherlands. Together with closures announced by other 

producers, including closures of 640,000 tons announced by M-real, we expect a total coated fine paper 

capacity reduction of over 1.2 million tons before April 2009, which represents about 11% of current 

22

sappi 

We are of the opinion that successful implementation of our strategic initiatives coupled 

with capacity closures in Europe and input cost reductions across all our businesses 

will place the group in a good position to face the uncertainties of the year ahead. 

production capacity. The weakening of the Euro relative to the 

US Dollar should also help market dynamics by improving the 

margins on exports from Europe and reducing the threatof 

imports. 

Sappi has financed the M-real transaction with J500 million of 

equity with the balance in long-term debt (mainly in the form of 

vendor loan notes), which will therefore strengthen our balance 

sheet ratios. The credit rating agencies consulted prior to 

announcing the transaction, confirmed their ratings with a stable 

outlook subsequent to the announcement of the acquisition and 

the related financing. There are further details of the acquisition 

on page 32. 

A key element of our strategy in the Southern African business 

was the completion of the expansion at our Saiccor Mill, which 

has increased the annual capacity of chemical cellulose by 

225,000 tons to 800,000 tons reinforcing our leadership in 

this market. As part of our strategy, Sappi will also invest in 

plantations to increase its low-cost fibre base to provide a 

platform for future growth. We plan to establish about 150,000 

hectares of plantations in Southern Africa over the next five to 

10 years. 

In North America, we will continue to focus on customer service 

and reliability, improved product design and operating and cost 

efficiencies, which have been key to our improved performance 

over the last two years. 

Regional operating performance 

The performance of the North American business was the 

best since 2000. Sales increased strongly as a result of good 

increases in prices for paper and pulp. Unfortunately input 

costs also rose but improved product design and operating 

efficiency, served to offset some of the input cost pressure. 

Our European business experienced continued low prices 

for coated fine paper but reversed this trend in the final months 

of the year as announced price increases were realised. 

Management did well to hold operating profit at the same level 

as last year in spite of a weak pricing environment and sharp 

input cost increases. 

particular international pulp prices were very strong for most of 

the year although they started to decline in the final quarter. 

Production volumes were unfavourably impacted by the expansion 

project at Saiccor Mill and a refurbishment project at Usutu Mill, 

both of which are now behind us. 

As with our offshore operations, raw material input costs 

increased sharply during the year. In addition, the South African 

business also had to contend with high employee costs, which 

continue to rise faster than inflation. 

Our international sales network, Sappi Trading, achieved 

good margins on exports of all the group’s products around 

the world. The joint venture in China, in which we have a 

34% stake, performed profitably during the year and achieved 

good returns. 

Group financial performance 

The group’s operating profit excluding special items increased 

from US$313 million in 2007 to US$366 million in 2008. The 

return on capital employed of 9.1%, however, fell well short of 

our target of 12%. 

Special items for the year resulted in a reduction in operating 

profit of US$52 million. These items related primarily to the 

charges associated with the European capacity closures and 

an impairment of the Usutu Mill, and were partly offset by 

favourable plantation price fair value adjustments. 

Basic earnings per share for the year totalled 45 US cents 

after an unfavourable impact of special items of approxi - 

mately 30 US cents compared to 89 US cents last year, which 

included a favourable impact of approximately 22 US cents 

from special items. 

Managing cash flow and liquidity remained a top priority as the 

turmoil in financial markets deepened through the year. Following 

the completion of the Saiccor Mill project in September 2008, we 

have been able to reduce our capital expenditure to only those 

items necessary for the continued health of the business, and 

certain high-return projects including energy conservation and 

energy self-sufficiency. 

We had a reasonably good year in Southern Africa, but not as 

good as 2007. Prices for all our products improved, and in 

Our net debt at the end of the year stood at US$2.4 billion, 

substantially lower than at the end of the third quarter 


23

Letter to shareholders from the chairman and the chief executive officer // continued 

(US$2.7 billion), as a result of good cash flow and the effect of 

currency movements on the translation into US Dollars. There 

are no major long-term borrowings scheduled for repayment 

in fiscal 2009. Further, we are of the opinion that our committed 

facilities and cash holdings provide sufficient liquidity in respect 

of our short-term cash requirements. 

In the light of the rights offer and taking into account factors 

including macro-economic and global financial market conditions, 

the board decided to re-base the dividend. Accordingly, a 

dividend of 16 US cents per share was declared on all shares in 

issue on 28 November 2008. A dividend of 32 US cents per share 

was paid in respect of the prior year. 

Sustainability 

Our fourth sustainability report will be published at the same 

time as this annual report. In the report we review our progress 

against our sustainability charter and specific goals under the 

areas of sustainable development: Prosperity, People and Planet. 

We manage sustainability as an integral part of our business 

and decision-making processes and strive to meet our 

commitment to create value for current and future generations 

of stakeholders. 

Black Economic Empowerment (BEE) 

During the year we set up new structures to ensure we effectively 

manage the changes needed to achieve our BEE targets. 

The conditions to the transaction to sell a 25% undivided right to 

our forestry land to a broad based BEE consortium led by Lereko 

have been fulfilled and the transaction has been completed. 

A next step in our transformation strategy is to enter into a 

value-adding and broad based equity transaction. 

Looking forward 

World financial markets and macro-economic conditions have 

worsened since our financial year ended in September. We are 

of the opinion that we will experience a slowing in demand in all 

our major markets and downward pressure on pricing in many 

markets, but we may not see the full impact until the new 

calendar year. International pulp prices softened during the last 

quarter of 2008 and have declined further since then. As we 

are economically hedged in respect of pulp (we sell only slightly 

more than we buy, and after the Saiccor Mill expansion and 

M-real acquisition we will sell slightly less than we buy), the 

effect on the group will be small. On a regional basis, however, 

lower pulp prices will help lower costs in our European 

business, which buys more than half of its pulp requirements, 

but will have an unfavourable impact in North America and 

Southern Africa, which are both net sellers of pulp. 

To date, our Southern African pulp export businesses have 

been compensated for the lower pulp prices by the weakening 

of the Rand against the US Dollar. The recent weakening of 

the Euro against the US Dollar is also expected to have a 

positive effect on our margins in Europe. Our North American 

markets are, however, likely to be more susceptible to imports 

as a result of the stronger US Dollar. The net effect of a stronger 

US Dollar is expected to be favourable for our business in terms 

of impact on margins and the value of our debt when translated 

into US Dollars. 

The prices of many of our variable cost inputs including wood, 

energy and chemicals, have stopped rising and are beginning 

to decline from the very high levels reached. Many of these 

input prices are responding, with a time lag, to the steep decline 

in the oil prices from record highs achieved during the year. 

As the prices of these inputs had an unfavourable impact of 

US$208 million in 2008 compared to 2007, reducing them is 

crucial for our business and provides an opportunity to maintain 

our margins in the difficult market conditions we expect in the 

current financial year. 

Our strategic initiatives, including the acquisition of M-real’s 

coated graphic paper business, are progressing well. We 

expect the acquisition to be completed at the end of December 

2008. Our plans to integrate the business are well developed 

and will focus on close customer contact, motivating all 

our people in the larger business and delivering the synergies, 

which we estimate at O120 million a year. We expect to achieve 

these synergies within three years and without material capital 

investments. This transaction will enable us to deal with the 

slowing economies and challenging market conditions in Europe 

more effectively. 

Production at our expanded Saiccor Mill is ramping up well, but 

NBSK pulp prices (used as a benchmark for chemical cellulose 

pricing) have softened over the last few months as a result of 

slowing economic activity globally. Our customers for chemical 

cellulose are now starting to experience reduced demand for 

their products. Although we will see a slow down in demand 

and lower pricing in the short term, prospects for this business 

going forward remain excellent. The markets for chemical 

cellulose are varied and exciting, our production cost base is 

one of the lowest in the world and price realisation in Rand terms 

is higher now despite US Dollar prices dropping, compared to 

the previous quarter. 

Focusing on cash generation remains a priority. We plan to 

reduce the level of capital expenditure to conserve cash and 

reduce our indebtedness using internally generated cash flow. 

We are also aware that with the uncertainty in financial markets, 

refinancing existing or raising additional debt and the associated 

terms are likely to be more challenging. 

We are of the opinion that successful implementation of our 

strategic initiatives coupled with capacity closures in Europe and 

24

sappi 

input cost reductions across all our businesses will place the 

group in a good position to face the uncertainties of the year 

ahead. At present we believe it will be difficult to maintain last 

year’s operating performance in our North American business but 

in Europe the combination of reduced capacity, lower pulp and 

other input costs, the weaker Euro and the expected benefits 

from the M-real acquisition should position us for significant 

improvement. Market conditions are likely to be less favourable for 

our Southern African business, but we will tightly manage the 

factors under our control and if the Rand exchange rate remains 

weak, we expect to achieve a creditable performance. 

Appreciation 

We highly value the support of our shareholders, customers and 

suppliers in all our businesses. We are delighted by the positive 

reception of the announcement of the M-real transaction by so 

many of our existing and future customers and look forward to 

working with them to achieve a smooth integration of our new 

business and to develop our relationships to new levels. 

Our people in all our businesses have played a vital role in 

meeting the challenges of the last year, with nimbleness and 

dedication. They have also developed robust and flexible plans 

to tackle next year. We thank you for your wholehearted efforts 

and look forward to achieving new success with you in future. 

Our board has provided invaluable insights and support as we 

have mapped our new direction and we thank you for your con - 

fidence as we continue to steer the group to deliver acceptable 

returns for our shareholders. 

Change in directorships 

During the year, Eugene van As retired as chairman of the board 

and as a director. He was a director of Sappi for 31 years and 

chief executive for most of that period. Under his leadership the 

group expanded globally into the major inter national pulp and 

paper group it is today. The board thanks him for his vision and 

the diligence and energy he devoted to the group. 

Danie Cronjé joined the board in January 2008 and succeeded 

Eugene van As as chairman in March 2008. 

Danie Cronjé 

chairman 

23 December 2008 

Ralph Boëttger 

chief executive officer 


25

Interview with Ralph Boëttger, chief executive officer 

Q // Ralph, after more than a year at the helm, how do you see the prospects of the group? 

A // As I said last year, we have excellent people and the new management team has melded into a highly effective team, ready to 

take the actions needed to change our fortunes. The focus on improving profitability and returns is becoming more apparent at all levels 

of the business. We have a clear strategy and action plans and we are in the process of implementing these. Together with the 

dedication of our people and the great support we get from our customers, this makes me confident about the group’s future. 

Q // Has the European business met the groupʼs expectations? 

A // Not during the last four years, mainly as a result of the tough market environment and declining prices at a time when input costs 

were soaring. There are, however, some misperceptions about our European business, largely because we have in the last few 

years highlighted our dissatisfaction with our profitability there. Even in its worst year, 2006, the business generated a small operating 

profit and a good net cash flow. What is also not well known is that in the last six years, all or part of the group’s dividend has been 

funded by the holding company of our European business. We are taking decisive action to return our European business to 

acceptable profitability. 

Q // How does the announced acquisition of M-realʼs coated graphic paper business fit 

with the groupʼs strategy? 

A // At the core of our strategy is the need and desire to be profitable and to generate acceptable returns for our shareholders. When 

we reviewed our strategy this year with the new management team it was clear that improving the returns of our European business 

(our largest business) was key to our future. We also clearly identified that the low returns and profitability in Europe arose from 

overcapacity, a fragmented market and a strong Euro over the past few years. 

We are convinced that the acquisition will help us deal with these issues and will position us to restore good returns in our European 

business. Separately, the Euro has weakened in recent months, which will also help. 

Q // Sappi has highlighted the impact of wood, energy and chemical costs on the group. 

What have you done to manage them? 

A // We have tackled them in many ways. A year ago we appointed a group procurement 

executive to ensure that we applied the best available practices and that each of our 

businesses learned from the others. We have found alternative fuels, reduced wastage 

of our products, used substitute inputs and increased our utilisation of rail trucks. 

We have also identified energy projects that will reduce the group’s dependency on 

fossil fuels and bought-in electricity. In addition, our recently commissioned Saiccor Mill 

expansion has materially increased our energy self-sufficiency in Southern Africa. 

Right now we are of the view that the tide has turned and that we will see a gradual 

reduction in many of the costs partly as a result of the fall in the oil price as well as 

reduced demand for many of these inputs as the world economy slows. 

Q // How sure are you that the prices for coated fine paper have finally improved 

in Europe? 

A // Price increases in Europe have been likened to the Coelacanth – after years of extinction 

they have returned. On a more serious note – the price increases we implemented in 

September have been realised and we expect further price increases early in 2009. 

Recent consolidation and the closure and pending closure of high-cost or unprofitable 

mills and machines, which will amount to approximately 11% of European capacity, is 

expected to improve the supply/demand balance, hopefully creating an environment in 

which we can make reasonable margins. 

26

sappi 

Q // Will the integration of M-realʼs business distract management from their 

normal responsibilities? 

A // While some distraction is inevitable, we have put in place an integration unit that will 

report to me and an integration steering committee. Alex Thiel, the integration executive, 

will be responsible for setting the agenda, establishing work teams representing Sappi 

and M-real people, setting up synergy measurement and reporting systems, while the 

line management under Berry Wiersum, chief executive officer of Sappi Fine Paper 

Europe, will be responsible for implementation. Absolutely crucial will be ensuring a 

smooth transition for our customers throughout the world. Winning the full support of 

our people – existing and new – will be a cornerstone of our integration. 

Q // Will the M-real acquisition result in curtailed capital expenditure in other regions? 

A // No. We have financed the transaction with equity of €500 million and long-term debt, mainly vendor loan notes of €250 million, 

which will slightly improve our balance sheet ratios, and we do not envisage any major capital expenditure as a result of the deal. 

We will of course have some significant expenditure on the integration of IT systems, which are essential to continued improvement 

in customer service and reliability. 

Separately, however, as a result of the turmoil in financial markets and acting prudently, we have decided to cut capital spending 

except on maintenance capital to keep the existing business healthy, and a number of high-return energy projects and projects 

to which we are already committed. A further point is that the expenditure on the Saiccor expansion has been completed so we 

will see a significant reduction in overall capital expenditure next year. 

Q // How will fire damage to Sappiʼs plantations in Southern Africa affect future growth there? 

A // While the volume of wood lost will impact our business in terms of cost of wood and has already resulted in the impairment of the 

value of Usutu Mill in our accounts, it will not affect our strategy. In addition to re-planting the burnt areas, our strategy is to increase 

our planting to provide a low-cost fibre resource for future expansion. We plan to plant 150,000 hectares of new plantations in Southern 

Africa over the next five to 10 years as a resource for a potential new pulp mill, which we would only need to decide on in about three 

or four years time. 

Q // Will your strategy in North America be affected by the M-real acquisition? 

A // In a number of ways it will. Firstly, we are convinced that the enlarged European business will generate improved returns which will 

enable us to pursue our longer term strategies in all regions. In North America much of our improved profitability is a result of increased 

attention to our customers and their needs. The M-real business brings with it a range of excellent products which are highly valued, 

including in North America, and we will therefore be able to further enhance our offering to our customers there. 

Q // How would you sum up your current priorities? 

A // We have talked a lot about some of our major strategic initiatives, mainly improved returns and profitability and a stronger balance sheet. 

Bedding those down is clearly a high priority. 

We are, however, facing uncertain times in both financial and product markets. We will therefore develop and continually update action 

plans to deal with these challenges and changes. These will include keeping very close to our customers to understand what is 

happening in their businesses and building on the successes we have had in this area in the last two years. We will continue to drive 

costs down and improve our operational efficiencies and consistency. We will manage our production capacity to ensure we keep our 

inventories at the levels needed to service our markets. Management of cash resources will be a priority given the state of credit 

markets, and we will take advantage of opportunities to refinance shorter term indebtedness. 

All in all, if we are quick on our feet and responsive to our customers and a changing world, we will see the rewards of our 

strategic initiatives. 


27


Sappi Fine Paper’s main product line is coated fine 

paper, which represents 64% of group sales by value, 

and is used mainly in the production of calendars, 

catalogues, brochures, books, premium magazines, 

direct mailings and annual reports. Sappi Fine Paper 

also produces a range of uncoated graphic and business 

paper, coated and uncoated speciality paper – such 

as that used in flexible packaging – and casting release 

paper, used in the manufacture of artificial leather and 

textured polyurethane applications. The geographic 

spread of our operations allows us to optimise global 

knowledge of market developments, operational best 

practices and technology. Sappi Fine Paper is approx - 

imately 65% integrated in pulp. 

28

sappi 


Mills/ 

Capacity 

factories/ 

(’000 tons) 

Divisions plantations Products produced Paper Pulp Employees* 

North 

America 

Cloquet Mill 

Muskegon Mill 

Somerset Mill 

Bleached chemical pulp for own consumption 

and market pulp 410 

Coated woodfree graphic paper 330 






Westbrook Mill Coated speciality paper 30 2,570 

Europe 

Alfeld Mill Bleached chemical pulp for own consumption 125 

Coated woodfree graphic paper, coated and 

uncoated speciality paper 370 

Blackburn Mill** Coated woodfree graphic paper 120 

Ehingen Mill 




Gratkorn Mill Bleached chemical pulp for own consumption 255 

Lanaken Mill 

Maastricht Mill*** 


Bleached chemi-thermo mechanical pulp for 

own consumption 180 

Coated mechanical graphic paper 500 

Coated woodfree graphic paper, 

coated speciality paper 330 

Nijmegen Mill Coated woodfree graphic paper 240 4,870 

South Africa 

Adamas Mill Uncoated woodfree graphic paper (specialities) 40 

Enstra Mill Bleached chemical pulp for own consumption 105 

Uncoated graphic and business paper 200 

Stanger Mill Bleached bagasse pulp for own consumption 60 

Coated woodfree graphic paper and tissue paper 110 1,870 

Total Sappi Fine Paper 4,350 1,760 9,310 

* Rounded to nearest 10. 

** Production at Blackburn Mill ceased on 17 October 2008. No alternative to the closure of the mill was found during the employee representative consultation process, which ended 

on 11 November 2008. 

*** Production on Paper Machine No 5 at Maastricht Mill will cease around mid December 2008. Consultations and social plan negotiations with works council and unions were concluded 

in early October 2008. 


29

Review of operations // Sappi Fine Paper continued 

Overview 

Sappi Fine Paper sales represented 81% of group sales. 

Divisional operating profit excluding special items increased 79% 

to US$156 million for the year – 43% of the group’s total. The 

improvement came entirely from the North American business. 

The business’ return on net operating assets was 9%. 

EBITDA increased 18% to US$457 million, 62% of the 

group’s total. 

As in the previous year, high input costs had a major impact 

in all regions of the business. Wood, energy and chemical 

price increases had a US$98 million unfavourable impact on 

operating profit. 

Europe 

The business maintained a similar level of operating profit to 

last year excluding special items, despite prices remaining flat 

for most of the year, while input costs continued to rise. 

When we reviewed our strategy earlier this year it was clear 

that improving the returns in Europe was fundamental to the 

success of the group. After an extensive review of our options 

for this business we concluded that a structural solution was 

needed, which led us to enter an agreement to acquire M-real’s 

coated graphic paper business (see pages 32 and 33 for an 

overview of the M-real acquisition). 

Our acquisition of M-real’s coated business, the announced 

closure of over 1.2 million tons of coated fine paper capacity 

and the recent weakening of the Euro against the US Dollar, 

which will improve export margins, will all contribute to improving 

returns in this business. 

To combat rising costs the business extended the extensive 

efficiency initiatives implemented in the prior two years. Initiatives 

now include sales excellence, improving product design, and 

asset optimisation. We also expect prices for many of our 

inputs including pulp, wood, energy and chemicals to soften 

in reaction to a global economic slow down and lower oil and 

other commodity prices. 

Customer service, reliability and consistency are established 

priorities of this business and will be a cornerstone of our 

integration of the M-real coated graphics business after 

completion of the acquisition. 

During the year we developed and introduced a number of new 

products to meet specific needs of our customers. The launch 

of Tempo went well and sales have grown steadily. This 

product improves job turnaround as a result of fast ink-drying 

and provides other efficiencies for printers. We continue to 

undertake research and to invest in developing the design of 

our products and processes to improve both our own and our 

customers’ profitability. 

We announced the closure of Blackburn Mill and Maastricht 

Paper Machine No 5 as a result of poor profitability. The closures 

have been completed and are expected to result in future 

annual benefits to operating profit of US$30 million. 

Price increases for coated fine paper were realised in 

September, and subsequently prices have risen further. This is 

very encouraging after seven years of declining prices. We have 

announced further price increases for January 2009. 

Looking at the year ahead and current macro-economic 

conditions, we can expect demand to contract. Performance 

of the European business is, however, expected to benefit 

from an improved supply/demand balance due to capacity 

closures, lower input costs including pulp, the market price of 

which has declined approximately 25% since June, a weaker 

Euro and a higher price level. We are approximately three 

times more sensitive to price and cost changes than to 

volume changes and therefore we remain positive about 

improving the performance of our business and about a 

successful integration of the acquisition. 

North America 

Operating performance improved further during the year. Prices 

for coated paper increased which, together with our improved 

operating and cost efficiency, was sufficient to offset the significant 

input cost increases. 

We have had good support from our customers in response to 

our new product and brand line-up and continued efforts to 

30

sappi 

deliver excellent service and responsiveness to their needs. 

New products launched over the last three years represented 

24% of our sales in 2008. 

Demand for coated fine paper declined during the year as 

the US economy contracted, and we expect further demand 

decline as the US economy is expected to remain weak in the 

year ahead. The strengthening of the US Dollar will increase the 

susceptibility of the market to imports. 


Although we saw improved pricing, margins were impacted by 

rising input costs, mainly labour, pulp and chemicals. 

We expect the business to benefit from lower input costs 

including pulp in the year ahead; however, labour costs are 

likely to rise significantly. Overall the business is expected to 

improve its margins in the year ahead. 

We expect that these less favourable conditions will be partly 

offset by the expected softening of input costs and our actions 

to improve efficiency and eliminate waste. 


31

Review of operations // Sappi Fine Paper continued 

The acquisition of M-real’s coated graphic paper business 

We are acquiring the coated graphic paper business of M-real for Y750 million, including the brands, 

know-how, intellectual property, order books, and four mills. We will also enter into agreements to sell 

the coated paper output of two mills, which will continue to be owned and operated by M-real, and 

contracts to purchase pulp, wood and energy from M-real and its associates. 

Mills to be acquired 

Kirkniemi Mill – Finland 

Kangas Mill – Finland 

Stockstadt Mill – Germany 

Biberist Mill – Switzerland 

Coated papers for web 

(reels) printing 

Products are part of the 

well known Galerie 

stable of brands: 

Galerie Lite, Galerie Brite 

and Galerie Fine 

Three paper machines 

Capacity of 740,000 tons 

of coated magazine paper 

per annum; 338,000 tons 

of mechanical pulp 

per annum 

Produces 295 MWh from 

leased power plant 

Produces Galerie Silk, a 

coated magazine paper 


per annum 

One paper machine – 

rebuilt in 2001 

Produces coated and 

uncoated fine paper for 

sheet fed printing 

Pulp integrated with own 

power plant 


coated fine paper; 

210,000 tons of uncoated 

woodfree paper; 

160,000 tons of 

chemical pulp 

Two paper machines 

Produces coated fine 

paper for the graphic arts 

industry and uncoated 

fine paper mainly for 

office use 


of coated fine paper and 

75,000 tons of uncoated 

fine paper 

Three paper machines 

Distribution agreements 

Husum Paper Machine 8, Sweden 

• Annual capacity of 285,000 tons of coated 

fine paper 

• Mainly for magazine paper market 

• Products: Galerie Fine Gloss (80 –130g/m 2 ) 

coated woodfree paper with high brightness, 

smoothness and improved opacity 

Äänekoski Paper Machine 2, Finland 

• Produces coated woodfree art paper on one 

paper machine, under the brand name Galerie Art 

• Annual capacity 200,000 tons 

Coated paper production to remain 

with M-real 

Sappi entered into distribution agreements for 

the output of the following paper machines: 

Husum Paper Machine 8; and 

Äänekoski Paper Machine 2 

Husum Paper Machine 8 and Äänekoski Paper 

Machine 2 will continue to produce coated fine 

paper and remain under M-real’s ownership. 

Sappi will sell the paper on a commission basis 

on behalf of M-real. 

32

sappi 

Transaction funding 

overview 

(Source: M-real’s Image bank) 

Transaction rationale 

Sappi’s strategy calls for a structural solution 

to key problems in the European coated 

paper market 

Transaction achieves required consolidation in 

a fragmented market 

Supports Sappi’s position as a global leader 

with a focus on industry leading cost position 

The transaction strengthens Sappi’s No 1 

position in coated fine paper and Sappi becomes 

No 3 in coated magazine paper in Europe 

Expected synergies of 3120 million per annum 

to be achieved in three years; working towards 

higher internal target 

Sappi acquires M-real’s worldclass brands 

(including Galerie Fine) and M-real’s established 

customer base 

Price per ton of acquired capacity (3400/ 

US$600) is low compared to recent similar 

transactions, which have been priced at over 

US$800/ton 

The acquisition meets Sappi’s strategic and 

financial criteria: 

Increased profitability and return from synergies 

Improved cash flows 

Improved balance sheet ratios 

Increased customer base and consolidation 

of market share 

Maximised flexibility of capacity utilisation 

and improved efficiencies 

Improved customer service and reliability 

Expanded product and brand range 

Sources of funds 

* Equity rights offer: 

– Improves balance sheet ratios 

Approvals for transaction: 

** Vendor note 

– Tenure 48 months 

– Interest rate stepping up 

Obtained European Commission clearance 

on 31 October 2008 

Shareholders voted in favour of acquisition 

on 03 November 2008 

M-real’s brands 

EUR million 

Equity 500 

Equity sources*: 

• Rights offer 450 

• M-real to hold 50 

Vendor note** 250 

Assumed net liabilities 50 

Total sources 800 

Uses of funds 

Sappi is acquiring M-real’s worldclass 

graphic paper brands including: 

EUR million 

Acquisition consideration 750 

Fees and other costs 50 

Total uses 800 


33

Review of operations (continued) 

Sappi Forest Products, based in Southern Africa, produces nearly 

2 million tons of pulp – almost half the group’s output – and provides 

a pulp revenue stream that effectively hedges the purchases of pulp by 

our European business. This virtually eliminates the group’s overall 

exposure to changes in world pulp prices. 

34

sappi 


Mills/ 

Capacity 

factories/ 

(’000 tons) 

Divisions plantations Products produced Paper Pulp Employees* 

Sappi 

Kraft 

Cape Kraft Mill Waste-based linerboard and corrugating medium 60 

Ngodwana Mill 

Tugela Mill 

Unbleached kraft pulp for own consumption, 

bleached chemical pulp for own consumption 


Mechanical pulp for own consumption 100 

Kraft and white top linerboard 240 

Newsprint 140 

Unbleached kraft and semi-chemical pulp for 

own consumption 350 

Kraft linerboard and corrugating medium 300 

Other kraft packaging paper 90 2,310 

Usutu Mill Unbleached kraft market pulp 190 590 

Sappi Saicor 

Saiccor Mill*** Chemical cellulose 800 1,220 

Sappi 

Forests 

Capacity/ 

hectares 

’000 

KwaZulu Natal Plantations (pulpwood and sawlogs)** 240ha 

Mpumalanga Plantations (pulpwood and sawlogs)** 245ha 

Usutu Mill Plantations (pulpwood) ** 70ha 

Sawmills Sawn Timber 85m 3 1,460 

* Rounded to nearest 10. 

** Plantations include title deed and lease area as well as projects. 

*** Saiccor’s pulp capacity has increased to 800 000 after the expansion started up in September 2008. 

Total Sappi Forest Products 830 1,850 5,580 


35

Review of operations // Sappi Forest Products continued 

Sappi Forest Product’s business 

Sappi Saiccor is the world’s largest manufacturer of chemical 

cellulose and has one of the lowest-cost positions. The uses 

of chemical cellulose range from the production of viscose 

and lyocell fibres, moulding powders, cellophane, cellulose 

acetate for filter tow used in cigarette filters, and excipients 

for pharmaceuticals. 

Sappi Kraft makes bleached and unbleached kraft pulp, 

container board, packaging paper and newsprint. 

Sappi Forests has some 535,000 hectares of land under direct 

and indirect management of which 389,000 hectares are 

afforested. More than 34.5 million tons of timber stands on this 

land. In 2008, Sappi’s own land provided 72% of the wood 

needs of our Southern African businesses. All wood grown on 

Sappi owned, leased or managed land is Forest Stewardship 

Council (FSC) and ISO 9000 certified. Sappi’s sawmill, Lomati, 

produces sawn timber for the construction industry. 

Overview 

The forest products business represented 19% of group sales 

for the year and generated US$203 million of operating profit 

excluding special items (91% of last year) representing 55% of 

the group total. The return on net operating assets was 11.8%. 

EBITDA declined 8% to US$275 million, 38% of the group’s 

total, mainly as a result of the high cost of raw material inputs 

and the increase in employment costs. 

36

sappi 

Demand and prices in the international pulp markets was 

strong but prices started to soften in the final quarter and have 

softened further since then. In the Southern African market 

demand for packaging paper and newsprint was firm. 

The weaker Rand relative to the US Dollar and Euro had a 

positive effect on margins. 

The Saiccor Mill expansion was commissioned towards the end 

of the fourth quarter, increasing the mill’s chemical cellulose 

capacity by 225,000 tons to 800,000 tons. Although we have 

experienced a softening in demand since year end and pulp 

prices have weakened, the prospects for this business, which 

sells mainly to the textile industry, are excellent. The impact of 

weaker prices is currently largely offset by the weaker Rand 

against the US Dollar. 

In addition to re-establishing the plantations damaged by fire, 

we have a strategy to develop a substantial additional low-cost 

wood resource in Southern Africa. Fibre has become more 

scarce and valuable over the last few years as pressure to find 

renewable energy sources grows. We initiated a project to plant 

150,000 hectares of additional plantations in Southern Africa 

over the next five to 10 years to create a low-cost fibre resource 

for future expansion. 

In the year ahead we expect demand to be weaker and 

international pulp prices to be lower on average than last year. 

Input costs are, however, expected to decline significantly in 

response to the reduction in oil and commodity prices. We also 

expect that the weakening of the Rand against the US Dollar 

will have a favourable impact on margins. 

We had a second season of severe fires during the year resulting 

in damage to 26,000 hectares of our plantations. We are 

reviewing our fire protection methods to ensure we are better 

placed to deal with the threat of fires in future dry seasons. 


37

sappi 

Value added statement 

for the year ended 30 September 2008 

One measure of wealth created is the amount of value added to the cost of materials 

and services purchased. This value added statement sets out the value added by the 

Sappi group and how it was distributed among stakeholders. 

US$ million 2008 2007 2006 

Sales 5,863 5,304 4,941 

Income from investments 38 21 26 

Less: Paid to suppliers for materials and services 4,077 3,631 3,495 

Total value added 1,824 1,694 1,472 

Distributed as follows: 

To employees as salaries, wages and other benefits 965 867 802 

To lenders of capital as interest 179 169 157 

To shareholders as dividends 73 68 68 

To governments as taxation 89 111 103 

Total value added distributed 1,306 1,215 1,130 

Portion of value added reinvested to sustain and expand the business 518 479 342 

Total value added distributed and reinvested 1,824 1,694 1,472 

Taxation 

Paid in taxes to governments (including US$6 million (September 2007: 

US$38 million) direct taxes on income) 89 111 103 

Collected on behalf of, and paid over to governments: 

– Employees' taxation deducted from remuneration paid 158 148 139 

– Net value added taxation (VAT) (47) 39 74 

Total 200 298 316 

Value added 

Sales for the 2008 year increased 11% as a result of higher prices and the effect of translation of Euro sales to US Dollars at a higher 

Euro/Dollar exchange rate. Sales volumes in 2008 were at similar levels to 2007. 

The 12% increase from 2007 to 2008 in amounts paid to suppliers for materials and services reflect the high input cost increases 

that were experienced during the year, particularly as they relate to wood, energy and chemical costs. 

Value distributed 

The value distributed per category for the past three years is depicted in the graphs below. There has been no significant shift in the 

proportionate spend in each category, other than the increase in the value added which has been reinvested in the business. This 

is mainly resulting from the capital expenditure incurred on the Saiccor expansion project. 


39

Risk management 

Our top risks 

These risks are further discussed in Sappi’s annual report on Form 20-F filed with the US Securities and Exchange Commission which 

is available on our website www.sappi.com or in hard copy on request. 

Systemic risks 

We operate in a highly cyclical industry that may cause substantial fluctuations in our results. 

The markets for our pulp and paper products are significantly affected by changes in industry capacity and output levels and by 

cyclical changes in the world economy such as the current global economic downturn. We maintain a high level of economic pulp 

integration on a group-wide basis which minimises the impact of pulp price fluctuations on our results. A significant increase in the 

prices for our major inputs, cannot always be sufficiently addressed by increasing our selling prices to offset the effects of increased 

costs and we therefore pursue improved efficiencies in all aspects of our business. 

The markets for pulp and paper products are competitive. 

We will continue to strengthen our leadership position in our core businesses through organic growth, as well as through acquisitions, 

to ensure our global competitiveness. 

The cost of complying with environmental regulation may be significant to our business. 

We strive to ensure that we comply with applicable environmental laws and co-operate across regions to help us apply best 

practices in a sustainable manner. 

The availability and cost of insurance cover can vary considerably from year to year as a result of events beyond 

our control, and this can result in our paying higher premiums and periodically being unable to maintain the levels 

or types of insurance carried. 

We continue working on improved enterprise risk management to lower the risk of incurring losses from uncontrolled incidents. 

New technologies or changes in consumer preferences may affect our ability to compete successfully. 

We regularly assess changing consumer preferences and new technologies, which could impact consumption of our products 

or their competitiveness. We design and implement appropriate responses to these changes in the form of new or improved 

products, enhanced product features, or improvements in the level and quality of product servicing. 

40

sappi 

Business risks 

We may not be able to successfully or timeously integrate the M-real coated graphic paper business (see description 

on pages 32 and 33) into our existing business, and may not realise the full extent of the anticipated benefits. 

We have a good track record with the integration of acquired businesses. The due diligence process was very comprehensive. 

We have put in place an experienced integration team that will support line management and drive the achievement of synergies. 

Our indebtedness may impair our financial and operating flexibility. 

Cash generation and improving our balance sheet structure, including a reduction in borrowings, are priorities for management. 

Fluctuations in the value of currencies, particularly the Rand and the Euro, in relation to the US Dollar have in the 

past had and could in the future have a significant impact on our earnings. 

We manage our economic and transactional currency exposures on a group basis. However, we do not manage translation exposure 

which arises from translating the group’s assets, liabilities, income and expenditure into the US Dollar, our reporting currency. 

There are risks relating to the countries in which we operate that could affect your investment in our company. 

We manage these risks in each country. We do, however, operate in a broad spread of countries which helps mitigate the risk 

in any individual country. 

We face certain risks in dealing with HIV/Aids which may have an adverse effect on our southern African operations. 

We have comprehensive programmes designed to mitigate the impact of the disease on our people and our business. 

A limited number of customers account for a significant amount of our revenues. 

We understand that the success of our business depends on working closely with our customers, providing a high level of 

service and reliability. We manage and regularly review credit and other exposures. We also purchase credit insurance to cover 

a major part of our outstanding receivables. 

Because of the nature of our business and workforce, we are facing challenges in the retention and succession 

planning of management that could adversely affect our business. 

We have put in place a number of initiatives [including engagement management, performance management and incentives] to 

mitigate this risk. 

The inability to recover increasing input costs through increased prices 

We approach this in several ways including a focus on improving procurement methods, finding alternative lower-cost fuels and 

raw materials, minimising waste, improving manufacturing and logistics efficiencies and implementing energy reduction initiatives. 

Catastrophic events, such as fires, affecting our plantations may adversely impact our ability to supply our southern 

African mills with timber. 

We have implemented a number of risk and fire control measures and are re-evaluating our processes after two years of 

extensive damage. 


41

Risk management // continued 

Risk management philosophy 

The Sappi Limited board recognises that risk management 

success can only be achieved if all three elements of risk, 

namely threat, uncertainty and opportunity, are recognised 

and managed in an integrated fashion. The board is also fully 

committed to: 

• complying with the risk management requirements of the 

Code of Conduct of the Second Report of the King Committee 

on Corporate Governance (King 2). 

• complying with the risk management requirements of the 

Sarbanes-Oxley Act; 

• evaluating its risk management processes in terms of the 

COSO framework (adjusted to Sappi’s own needs) to enhance 

the overall risk management framework; 

• ensuring that an integrated enterprise-wide risk management 

system is implemented throughout its operations. 

Risk management mandate 

The Group Risk Management Team is mandated by the Sappi 

Limited Board to establish, coordinate and drive the Risk 

Management process throughout Sappi. It has established 

a comprehensive risk management system to identify and 

manage significant risks. 

Risk management methodology 

Complete risk assessments are conducted at least annually in 

our operations and for the group, and are updated every six 

months. The process uses our strategy as the base against 

which to assess risk scenarios. The scope of the risk assessment 

includes risks that may lead to a significant loss, or loss of 

opportunity or may affect the current strategic plan. These risks 

are identified and analysed, and risk responses to each individual 

risk are designed, planned, implemented and monitored. Risks 

classified as ‘uncontrollable’, or those risks where the root 

causes are outside of the control of Sappi, are identified. The 

responses to the risks are classified under the headings of 

Transfer, Treat, Tolerate, Terminate, Exploit and Avoid. 

The risk assessments are reviewed by the Sappi Group Risk 

Management Team during facilitated workshops where the 

risks are evaluated and ranked. The resultant risk profiles are 

reviewed by our group executive and are reported to the Audit 

committee at least once every six months and are reported to 

the board at least annually. 

In addition to the above mentioned risks, the risks and 

opportunities that may only manifest over the longer term (three 

to five year horizon), are identified and reported to the Audit 

committee at least annually. 

This methodology ensures that risk assessments are under - 

taken at least annually; are reviewed every six months; that 

identified risks are prioritised according to the potential impact 

on the company; and cost-effective responses are designed 

and implemented to counter the effects of identified losses. 

Risk financing 

The risk assessment process is conducted by external risk 

engineers, who conduct both underwriting surveys as well as 

risk control surveys of all the Sappi facilities. The risk control 

survey reports rate and rank the identified risks and make 

recommendations to address the probability and/or severity 

of these risks. This process is focused primarily on the risk 

exposures associated with insurable risks. 

Insurance 

Sappi follows a practice of insuring its assets against unavoidable 

loss arising from catastrophic events. These events include 

fire, flood, explosion, earthquake and machinery breakdown. 

Insurance also covers the business interruption which may result 

from these events. Specific environmental risks are also 

insured. In line with previous years, the board decided not to take 

separate cover for losses from acts of terrorism, which is 

consistent with current practice in the paper manufacturing 

industry. This insurance cover excludes insurance for plantations, 

which is placed separately. 

Sappi has a global insurance structure and the bulk of its 

insurance is placed with its own captive insurance company in 

Stockholm, Sweden; Sappisure Försäkrings AB, which in turn 

reinsures those risks outside the company’s self-insurance 

capabilities in the global reinsurance markets. 

Sappi has successfully negotiated the renewal of its 2009 

insurance cover at rates similar to those of 2008. Self-insured 

retention for any one property damage occurrence has remained 

at US$25 million, with an unchanged annual aggregate of 

US$40 million. For property damage and business interruption 

insurance, cost-effective cover to full value is not readily available. 

However, the directors believe that the loss limit cover of 

US$1 billion should be adequate for what they have determined 

as the reasonably foreseeable loss for any single claim. 

Insurance cover for credit risks currently applies on a regional 

basis to Sappi’s North American, European and South African 

domestic trade receivables. 

Sappi places the insurance for its plantations on a stand-alone 

basis into local and European insurance markets. The wide - 

spread fires that occurred in South Africa and which resulted in 

extensive damage to our plantations, exhausted our plantation 

insurance cover. As the fires occured at the end of the high risk 

season, reinstatement insurance cover was not purchased 

for the remainder of the current insurance period. Plantation 

insurance cover will be renewed effective 01 April 2009 before 

commencement of the next high risk season. 

For a summary of our top risks, please see page 40 of 

this report. 

42

sappi 

Chief financial officer’s report 

Introduction 

The objective of this discussion and analysis is to provide additional insight 

into the operating performance and financial position of the group. This 

report should be read in conjunction with the operational reviews on pages 

28 to 37 and the group annual financial statements beginning on page 72. 

Mark Thompson 

The group reports its financial results in US Dollars and the main exchange rates used in preparing the group financial statements were: 

Income statement 

Average rates 

Balance sheet 

Closing rates 

2008 2007 2006 2008 2007 2006 

US Dollar/SA Rand 7.4294 7.1741 6.6039 8.0751 6.8713 7.7738 

EURO/US Dollar 1.5064 1.3336 1.2315 1.4615 1.4272 1.2672 

Operating performance 

Since fiscal 2006, Operating Profit excluding Special Items (which we believe is a good indicator of underlying operating performance) 

has improved year by year from US$91 million in fiscal 2006 to US$366 million in fiscal 2008. 

The key indicators of the group’s operating performance are: 

Key figures: (US$ millions) 2008 2007 2006 

Sales 5,863 5,304 4,941 

Operating profit/loss 314 383 125 

Special items – losses (gains)* 52 (70) (34) 

Operating profit excluding special items** 366 313 91 

EBITDA excluding special items** 740 688 483 

Basic EPS (US cents) 45 89 (2) 

Net working capital*** 422 395 424 

Key ratios: (%) 

Operating profit to sales 5.4 7.2 2.5 

Operating profit excluding special items to sales 6.2 5.9 1.8 

Operating profit excluding special items to Capital Employed (ROCE)* 9.1 8.3 2.6 

EBITDA excluding special items to sales 12.6 13.0 9.8 

Return on average equity (ROE)* 6.0 12.6 (0.3) 

Net working capital to sales 7.2 7.5 8.6 

* Refer to page 188 for the definition of the term. 

** Refer to page 59 for the reconciliation of operating profit and EBITDA excluding special items to operating profit. 

*** Net working capital = Inventory plus trade and other receivables minus trade and other payables and provisions. 


43

Chief financial officer’s report // continued 

Sales 

Sales volumes 

Sales volume by division is shown in the table below: 

Sales volume 

metric tons (000’s) 2008 2007 2006 

Fine Paper 4,438 4,349 4,204 

North America 1,553 1,506 1,426 

Europe 2,546 2,493 2,450 

South Africa 339 350 328 

Forest Products 2,413 2,514 2,995 

Pulp & paper 1,419 1,484 1,470 

Forestry 994 1,030 1,525 

Total 6,851 6,863 7,199 

Sales volumes declined by approximately 12,000 tons in fiscal 

2008, mainly due to a 101,000 ton decline in volumes at Forest 

Products partly offset by an increase of 89,000 tons in Fine 

Paper volumes. Fine Paper volumes increased mainly due to 

increased sales in North America and Europe as market share 

was regained. The decline at Forest Products was attributable 

to reduced external forestry sales volumes (36,000 tons) and 

production issues which impacted pulp and paper volumes 

adversely (65,000 tons). External forestry sales volumes were 

intentionally reduced as timber resources are being managed to 

meet current and future internal timber requirements. 

Sales revenue 

Sales revenue by division is shown in the table below: 

Sales US$ million 2008 2007 2006 

Fine Paper 4,764 4,256 3,958 

North America 1,664 1,511 1,439 

Europe 2,720 2,387 2,194 


Forest Products 1,099 1,048 983 

Pulp & paper 1,023 979 896 

Forestry 76 69 87 

Total 5,863 5,304 4,941 

In fiscal 2008, group sales revenue increased by US$559 million 

(10.5%) to US$5,863 million compared to fiscal 2007. Increases 

were seen in all divisions. 

Changes in sales in US Dollars are impacted by volume, price and 

exchange rate movements. The table below reflects the impact of 

each of these items on the sales revenue of each division. 

Sales variance analysis 2008 2007 

Exchange 

Exchange 

US$ million Volume Price Rate Total Volume Price Rate Total 

Fine Paper 

North America 47 106 – 153 81 (9) – 72 

Europe 51 (30) 312 333 39 (28) 182 193 

South Africa (11) 47 (14) 22 22 41 (30) 33 

Total 87 123 298 508 142 4 152 298 

Forest Products 

Pulp & Paper (43) 123 (36) 44 9 159 (85) 83 

Forestry (2) 12 (3) 7 (28) 16 (6) (18) 

Total (45) 135 (39) 51 (19) 175 (91) 65 

Total 42 258 259 559 123 179 61 363 

In monetary terms, volume accounted for an increase in sales 

revenue of US$42 million compared to the previous year. 

Although volume (in tons) reduced during the year by an overall 

12,000 tons, in monetary terms, the higher value of fine paper 

volume increases (89,000 tons) exceeded the lower value 

volume reductions of 101,000 tons in Forest Products. 

Price increases accounted for US$258 million of the increase in 

sales revenue compared to fiscal 2007. US$106 million of this 

increase arose due to better price realisation on paper and pulp 

in North America. The improved paper price realisation was due 

to the improved coated fine paper supply demand balance in 

the region. Higher international pulp prices benefited our Forest 

44

sappi 

Products business (US$135 million). These positive pricing 

impacts, together with improved selling prices in the South 

African Fine Paper business (US$47 million) were partly offset 

by lower selling prices in Europe (US$30 million). 

Exchange rates also had a large positive impact (US$259 

million) on the increase in sales revenue in 2008. The exchange 

rate impact reflects the movement in US$/Euro and ZAR/US$ 

exchange rates when translating sales from underlying currencies 

into US Dollars, our reporting currency. The US$/Euro exchange 

rate weakened from an average of US$1.33/Euro in fiscal 2007 

to US$1.51/Euro in fiscal 2008. This impacted the European 

Region’s sales in US Dollars favourably by US$312 million in fiscal 

2008. The weakening of the Rand against the US Dollar from an 

average of ZAR7.17/US$ in fiscal 2007 to ZAR7.43/US$ in fiscal 

2008 resulted in the US Dollar value of the South African Region’s 

sales reducing by US$53 million in total. 

Sales revenue per ton increased by 11% from US$773 per ton 

in fiscal 2007 to US$856 per ton in fiscal 2008. 

Costs 

Variable costs 

The group’s variable manufacturing costs increased by 

US$388 million (14%) in fiscal 2008 compared to fiscal 2007. 

An analysis of variable costs by major raw material category is 

as follows: 

Variable manufacturing 

costs 


Wood 722 635 631 

Energy 558 438 433 

Pulp* 702 623 563 

Other** 1,091 989 889 

Total 3,073 2,685 2,516 

* Pulp includes only bought in fully bleached hardwood and softwood. 

** Other costs relate to inputs such as chemicals, water, fillers, bought in pulp (other than 

fully bleached hardwood and softwood) and consumables. 

Increases occurred in all categories, driven by volume and, more particularly, by price increases and exchange rates. The impact of 

each of these elements is shown in the table below: 

Variable cost movement analysis 2008 2007 

Exchange 

Exchange 

US$ million Volume Price Rate Total Volume Price Rate Total 

Wood 41 28 18 87 (43) 42 5 4 

Energy 5 87 28 120 (7) 5 7 5 

Pulp (12) 39 52 79 (15) 50 25 60 

Other (19) 54 67 102 71 3 26 100 

Total 15 208 165 388 6 100 63 169 

The increase in bought-in wood volumes (US$41 million) was 

partially off-set by decreased volumes of pulp and other raw 

materials consumed, resulting in a net increase of US$15 million 

due to volume changes compared to fiscal 2007. 

High world commodity prices reflected in price increases in all 

categories of raw materials but particularly in energy prices 

which increased by approximately 20% compared to prices in 

fiscal 2007. Overall price increases contributed US$208 million 

to the total increase in variable costs. 

The impact of converting costs incurred in non-US Dollar 

currencies into US Dollar at the different exchange rates prevailing 

in fiscal 2008 compared to fiscal 2007, was to increase variable 

costs in US Dollars by US$165 million compared to fiscal 2007. 

On a per ton basis, variable costs increased by 15% from 

US$391 in fiscal 2007 to US$449 per ton in fiscal 2008. 

An analysis of variable manufacturing costs in US Dollars by 

region is as follows: 

Regional variable 

manufacturing costs 


SFPNA 925 869 825 

SFPE 1,608 1,370 1,231 

SFPSA 229 210 203 

Forest Products 542 462 484 

* The above figures are before consolidating entries. 


45


The largest increases were experienced in Europe (17%) and 

Forest Products (17%) with the increases for North America 

and Fine Paper South Africa being 6% and 9% respectively. 

Fixed costs 

Fixed costs increased by US$111 million in 2008 compared to 

2007. The major components of fixed costs (shown here in 

US Dollars) were as follows: 

Fixed costs 


Personnel 1,016 926 878 

Maintenance 253 236 229 

Depreciation 370 372 387 

Other 280 274 305 

Total 1,919 1,808 1,799 

In fiscal 2008, fixed costs increased by 6% in US Dollars 

compared to fiscal 2007. Of this increase, 76% (US$84 million) 

was due to the impact of exchange rates when translating costs 

in Euro and Rand into the US Dollar reporting currency. Thus, 

excluding the currency impact, fixed costs were well controlled, 

increasing by only 1.5% (US$27 million) year-on-year. 

An analysis of fixed costs by region is as follows: 

Regional fixed costs 


SFPNA* 543 542 561 

SFPE* 863 778 770 

SFPSA* 111 107 104 


Total 1,919 1,808 1,799 

* SFPNA – Sappi Fine Paper North America, SFPE – Sappi Fine Paper Europe, 

SFPSA – Sappi Fine Paper South Africa. 

Sales and costs per ton 

In the tables below we set out the sales and costs per ton in 

both the local currency and US Dollars for each of the divisions 

and the group for the past three years. 


SFPNA sales and cost 2008 2007 2006 

per ton US$/ton US$/ton US$/ton US$/ton 

Sales 1,071 1,003 1,009 

Costs 1,010 988 1,030 

Operating profit 

excluding special items 61 15 (21) 

Although cost management and product re-design have been 

major focus areas in recent years, the region experienced 

a 2.2% increase in cost per ton as a result of international 

commodity price pressures. An improved supply-demand 

balance in the market during fiscal 2008 facilitated a 7% selling 

price increase per ton. 


2008 2007 2006 

SFPE sales and cost per ton €/ton US$/ton €/ton US$/ton €/ton US$/ton 

Sales 709 1,068 718 957 728 896 

Costs 694 1,046 701 935 724 891 

Operating profit excl special items 15 22 17 22 4 5 

In local currency (Euro), sales prices declined 3% compared to fiscal 2006, although, due to the weakening US Dollar over that period, 

sales prices increased in US Dollar terms. In Euro, costs per ton decreased from €724 to €694 (4%) compared to fiscal 2006. 

46

sappi 

Sappi Fine Paper South Africa 

2008 2007 2006 

SFPSA sales and cost per ton ZAR/ton US$/ton ZAR/ton US$/ton ZAR/ton US$/ton 

Sales 8,320 1,121 7,339 1,023 6,544 991 

Costs 8,195 1,103 7,153 997 6,663 1,009 

Operating profit excluding special items 133 18 186 26 (119) (18) 

Pricing in local currency (Rand) benefited from the weakening of the Rand against the US Dollar which reduces the threat of marginal 

imports to the region. Sales prices per ton in Rand terms improved 27% since fiscal 2006. Costs per ton in Rand terms increased 

23% since fiscal 2006 due to international commodity price movements and increased personnel costs. 


2008 2007 2006 

SFP sales and cost per ton ZAR/ton US$/ton ZAR/ton US$/ton ZAR/ton US$/ton 

Sales 3,380 455 2,992 417 2,166 328 

Costs 2,756 371 2,353 328 1,915 290 

Operating profit excluding special items 624 84 639 89 251 38 

The Region saw the benefit of escalating pulp prices and the weakening of the Rand against the US Dollar on the revenue line. 

Sales price per ton in Rand terms increased 56% over the past three years while costs per ton in Rand terms increased 44% over 

the same period. 

Sappi group 

Sappi group sales 

and cost per ton 

US$ 2008 2007 2006 

Sales 856 773 686 

Costs 803 727 673 


excluding special items 53 46 13 

Movements at a group level reflect the underlying regional 

prices and costs per ton and the impact of exchange rates on 

translation into the reporting currency. 

In US Dollar terms sales price per ton in fiscal 2008 increased 

by 25% compared to fiscal 2006 and cost per ton increased by 

19% compared to fiscal 2006 leading to the margin per ton 

increasing from US$13 to US$53 over that period. 


Below is an abridged income statement by fiscal period for the 

years 2006 to 2008: 

Abridged income 

statement 


Sales 5,863 5,304 4,941 

Delivery costs 509 453 441 

Variable manufacturing 

costs 3,073 2,685 2,516 

Contribution 2,281 2,166 1,984 

Fixed costs 1,919 1,808 1,799 

Special items 52 (70) (34) 

Other (4) 45 94 

Operating profit 314 383 125 

In considering operating profit, we believe that it is useful to 

highlight special items. 

Special items are those items which management believes are 

material by nature or amount in relation to the operating results 

and require separate disclosure. Such items would generally 

include profit and loss on disposal of property, investments and 

businesses, asset impairments, restructuring charges, natural 

disasters and non-cash gains or losses on the price fair value 

adjustment of plantations. 


47


The table below shows the items classified as special items in 

each of the past three years and the reconciliation of operating 

profit to operating profit excluding special items: 


Operating profit 314 383 125 

Special items before tax 

Plantation fair value 

price adjustment (120) (54) (34) 

Asset impairments/ 

(reversals) 119 – (31) 

Restructuring and 

closure costs/(reversal) 41 (7) 50 

Fire, flood, storm and 

related events 17 17 9 

Pension restructuring 

gain – – (28) 

Profit on sale of 

fixed assets (5) (26) – 


excluding special items 366 313 91 

Operating profit excluding special items has shown a steady 

improvement since its low point in fiscal 2005, as is reflected in 

the bar chart below: 

Divisional contributions to operating profit excluding special 

items in the last three years are set out in the table below: 


excluding special items 


Fine Paper 156 87 (23) 

North America 95 22 (30) 

Europe 55 56 13 

South Africa 6 9 (6) 


Corporate 7 2 (1) 

Total 366 313 91 

During fiscal 2008 operating profit excluding special items 

improved by US$53 million to US$366 million from US$313 

million in fiscal 2007. The major reasons for this improvement 

were a US$559 million increase in sales discussed earlier, partly 

offset by a US$388 million and US$111 million increase in 

variable and fixed costs respectively. Operating profit after 

special items declined from US$383 million in fiscal 2007 to 

US$314 million in fiscal 2008 mainly due to the net special 

items charge of US$52 million in 2008 and a credit of US$70 

million in 2007, both explained above. 

Key target ratios 

Our results have generally shown improvement in recent years. 

However, performance is still below the key target ratios which 

have been set, as indicated in the table below: 

Key Ratios Target 2008 2007 2006 


excluding special 

items to sales >8.5% 6.2% 5.9% 1.8% 

EBITDA excluding 

special items 

to sales >15% 12.6% 13.0% 9.8% 


excluding special 

items to capital 

employed 

(ROCE)* >12% 9.1% 8.3% 2.6% 

Return on 

average equity 

(ROE)* >11% 6.0% 12.6% (0.3)% 

*Refer to page 188 for definition of the term. 

48

sappi 

We have derived these target ratios to meet the group’s weighted average cost of capital after adjusting book assets for inflation. 

These key target ratios are closely monitored and benchmarked against peer groups. 

Major sensitivities 

Some of the more important factors which impact the group’s operating profit excluding special items, based on current anticipated 

revenue and cost levels, are summarised in the table below. 

SFPE SFPNA SFPSA Forest 

Operating profit excluding EURO US$ ZAR Products Group 

special items sensitivity million million million ZAR million US$ million 

Volumes Change 1% 9 6 11 36 25 

Selling Prices Change 1% 29 18 35 105 78 

Pulp Price Change/Ton US$10 7 2 8 (56) 6 

Variable Costs Change 1% 18 11 22 56 46 

Fixed Costs Change 1% 7 5 9 29 19 

The calculation of these sensitivities on operating profit excluding 

special items assumes all other factors remain the same and does 

not take into account potential management interventions to 

mitigate negative impacts or enhance benefits. As the table 

shows, the impact on the individual businesses of one sensitivity 

may be different as indeed is the case with changes in inter - 

national pulp prices which affect Forest Products (which is a 

net seller of pulp) and the European business (which is a net 

purchaser of pulp) in opposite ways. 

The table above shows that operating profit excluding special 

items is most sensitive to changes in the selling prices of our 

products. 

Finance costs 

Details of net finance costs are set out below: 


Interest paid 181 173 162 

Interest earned (38) (21) (26) 

Finance costs capitalised (16) (14) (2) 

Net foreign exchange gains (8) (13) (7) 

Net movement on 

marking-to-market of 

financial instruments 7 9 3 

Net finance costs 126 134 130 

Net interest paid (interest paid less interest earned) in fiscal 

2008 was US$143 million compared to US$152 million in 2007. 

The decrease was mainly due to the lower level of US Dollar 

interest rates in 2008 and the resulting lower interest cost on 

the group’s floating rate debt. 

The much higher finance costs capitalised in fiscal 2008 and 

fiscal 2007 relate to the Saiccor Mill expansion project in South 

Africa. The expansion was commissioned during fiscal 2008 

and capitalisation of finance costs on this project has ceased. 

The group’s policy is to identify foreign exchange transaction 

risks when they arise and to cover these risks to the functional 

currency of the operation where the risk lies. The majority of the 

group’s foreign exchange exposures are covered centrally by 

the group treasury which nets the internal exposures and 

hedges the residual exposure with third party banks. Due mainly 

to the timing of the netting process some residual foreign 

exchange results arise and these results (ie gain of US$8 million 

in 2008) are shown as part of Finance Costs. 

The ‘net movement on marking-to-market of financial instru - 

ments’ relates to the net impact of currency and interest rate 

movements after hedge accounting for certain interest rate 

and currency swaps the group has entered into in order to 

swap US$857 million of fixed rate debt to floating rates and 

in order to manage the interest and currency exposure on 

US$233 million of cross border inter-company loans. 


49


Taxation 


Profit (loss) 

before taxation 188 249 (5) 

Expected taxation 

charge (benefit) 38 50 (1) 

Tax rate reductions (9) (19) (1) 

Net effect of losses with 

no tax relief and 

permanent differences 35 (1) 3 

Secondary Tax 

on Companies 7 8 9 

Other 15 9 (11) 

Taxation charge 

(benefit) 86 47 (1) 

Effective tax rate 46% 19% 15% 

With a profit before taxation of US$188 million, the total taxation 

charge to the income statement of US$86 million results in a tax 

rate of 46%. The expected taxation charge of approximately 

20% (US$38 million) was favourably impacted by tax rate 

reductions in South Africa. On the other hand, tax relief was not 

taken on the taxation losses of certain loss-making entities due 

to management’s judgement that these losses may not be 

recoverable in the near future and certain of the group’s profit 

are not taxed as a result of losses carried forward or favourable 

permanent differences. The Secondary Tax on Companies of 

US$7 million relates to South African tax on the group dividend 

paid during the year at a rate of 10%. 

Earnings per share 

The group has not issued significant additional shares over 

the five years to September 2008 and as a result earnings 

per share have tracked profit for the year closely. A listing 

requirement of the JSE Limited in South Africa is to disclose 

‘headline earnings per share’ which removes items of a capital 

nature from the calculation – the computation of headline 

earnings per share is disclosed in Note 7 to the financial 

statements. Earnings per share and headline earnings per share 

over the past five years are depicted in the bar chart below left. 

In fiscal 2008 earnings per share was adversely impacted 

by certain major items classified as special items (discussed 

in Operating Profit on page 47). These major items being 

asset impairments (US$119 million), restructuring provisions 

(US$41 million) and fire and flood related events (US$17 million). 

These negative impacts were partly offset by a favourable fair 

value price adjustment (US$120 million). Excluding these 

special items after the impact of tax, earnings per share for fiscal 

2008 would have been 75 US cents. On the same basis, earnings 

per share excluding special items for fiscal 2007 would have 

been 67 US cents and for fiscal 2006 negative 22 US cents. 

Working capital 

Optimising the levels of our working capital is a key management 

focus area. The aim is to minimise the investment in working 

capital to the point where it does not negatively impact profitability 

by more than the savings in finance costs from the lower invest - 

ment in working capital. 

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 favourably 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 businesses. 

The component parts of our working capital at the financial year 

end for the past three years are shown in the table below, as is 

the net working capital to sales percentage. 


Inventories 725 712 699 

Receivables 698 653 573 

Payables (1001) (970) (848) 

Net working capital 422 395 424 

Net working capital 

to sales 7.2% 7.5% 8.6% 

50

sappi 

Cash flow analysis 

In the table below we present the group’s cash flow statement in a summarised format. 


Cash generated by operations before post employment benefits 711 686 464 

Contributions to post employment benefits (88) (101) (68) 

Cash generated by operations 623 585 396 

Net movement in working capital 1 60 (17) 

Cash generated by operating activities 624 645 379 

Cash spent to maintain and expand assets (505) (442) (303) 

Finance costs (126) (162) (138) 

Taxation (70) (27) (13) 

Other 11 78 16 

Dividends to shareholders (73) (68) (68) 

Net cash (utilised)/generated (139) 24 (127) 

In line with the required accounting disclosure, we show 

‘Contributions to post employment benefits’ (US$88 million and 

US$101 million in fiscal 2008 and fiscal 2007 respectively) as a 

reduction to ‘Cash generated by operations’. Approximately 

US$38 million in 2008 and US$49 million in 2007 of the 

contributions to post employment funding relate to ‘catchingup’ 

on deficits in certain of our funds. Assuming stock markets 

recover in 2009 or 2010 and that long-term discount rates 

remain favourable to pension schemes, we expect the ‘catchup’ 

element of our post retirement contribution payouts to 

reduce substantially in fiscal 2010 and thereafter. 

Over the past five years the relationship between capital 

expenditure and depreciation was as follows: 

In fiscal 2007 and fiscal 2008 cash spent to maintain and expand 

assets was higher than usual due to the Saiccor expansion 

project (US$236 million in fiscal 2008 and US$247 million in fiscal 

2007) and also due to the acquisition of Paper Machine 3 at 

Somerset (US$75 million in fiscal 2008) after the termination of 

the lease over that paper machine. 

Due largely to the higher than usual capital expenditure, we 

utilised net cash of US$139 million in fiscal 2008. 


51


Capital expenditure by region may be summarised as follows: 


The development of net debt over the past three years is shown 

in the bar chart below: 

Fine Paper 230 156 203 

North America * 130 42 48 

Europe 91 102 136 



Saiccor upgrade 236 247 32 

Other 38 38 67 

Corporate 1 1 1 

Total 505 442 303 

* 2008 includes Paper Machine No 3 at Somerset after termination of the lease 

(US$75 million). 

The above figures include both ‘maintenance’ and ‘expansion’ 

capital expenditures which in fiscal 2008 were US$250 million 

and US$255 million respectively. 

Debt 

General 

Debt is a major source of funding for the group. In the 

management of debt the group focuses on net debt, which is 

the sum of current and non-current interest-bearing borrowings 

and bank overdraft, net of cash, cash equivalents and shortterm 

deposits. 

As shown in the table below, as at the end of fiscal 2008, 41% of our total assets were financed by net debt, the balance being 

financed by equity and current and non-current non-interest bearing debt: 

US$ million % 2008 % 2007 % 2006 

Net debt 41 2,405 38 2,257 40 2,113 

Shareholder’s equity 28 1,605 30 1,816 26 1,386 

Other liabilities (non interest bearing) 31 1,825 32 1,907 34 1,794 

Total assets (excluding cash) 100 5,835 100 5,980 100 5,293 

52

sappi 

The movement in net debt over the past three years is 

explained below. 

The average maturity of our debt is 5.7 years with the profile as 

shown below. 


Net debt at beginning 

of period 2,257 2,113 2,008 

Cash utilised/(generated) 

during the period 139 (24) 127 

Currency and fair 

value impact 9 168 (22) 

Net debt at end 

of period 2,405 2,257 2,113 

Since the beginning of fiscal 2006, net debt has increased by 

US$397 million. US$155 million of this increase was due to the 

impact of translating our European and South African debt into 

the weakening US$ and other fair value adjustments. During 

this period we utilised US$242 million of cash due mainly to 

the expenditure over the past three years on the Saiccor Mill 

expansion project (US$515 million) and the acquisition of Paper 

Machine No 3 at Somerset Mill (US$75 million). 

Debt profile 

The make-up of net debt is set out in the table below: 


Long-term debt 1,832 1,828 1,634 

Short-term debt 821 771 694 

Bank overdraft 26 22 9 

Cash (274) (364) (224) 

Net debt 2,405 2,257 2,113 

We believe we follow a prudent approach with regard to liquidity 

risk. As at September 2008 financial year-end, short-term debt 

and overdraft funding was US$847 million, US$274 million of 

which was covered by cash and near cash resources. Thus, the 

true short-term liquidity exposure is more of the order of US$573 

million. Of this, US$360 million (at the financial year-end) was in 

the form of revolving securitised trade receivables funding which 

in the normal course we expect to continue to be available. For 

further information on group borrowing facilities secured by trade 

receivables, refer to Note 20 of the Financial Statements. 

The short-term debt of US$821 million in 2008 includes an 

amount of US$360 million (2007: US$354 million) of securitised 

receivables funding under various revolving securitisation 

programmes. 


53


The group has unutilised committed and uncommitted borrowing 

facilities of US$605 million and US$478 million respectively. The 

committed facilities are largely in terms of the undrawn portion 

of our P600 million syndicated loan facility. 

The make-up of net debt by currency is shown in the following 

table: 

Net debt by currency ratio 2008 2007 2006 

USD 41.3% 40.0% 45.0% 

EUR 40.3% 42.0% 40.0% 

CHF 6.3% 7.0% 6.0% 

ZAR 12.1% 11.0% 9.0% 

debt would be at substantially higher margins than we are 

currently paying. 

Interest rate risk 

The group has a policy of maintaining a reasonable balance 

between fixed and variable rate loans which enables it to minimise 

the impact of borrowing costs on reported earnings. Hedging 

activity in relation to borrowings are restricted to interest rate 

swaps and where appropriate, cross-currency swaps. 

In the 2008 financial year no further interest rate swaps were 

concluded and, at year end, the ratio of gross debt at fixed and 

floating interest rates was 39:61 respectively. 

Off balance sheet funding 

Off balance sheet funding at the end of each of the last three 

financial years is shown below: 

US$ millions 2008 2007 2006 

Forest Products 

securitisation 194 145 106 

Somerset Paper Machine 

No 3 lease – 86 104 

Westbrook biomass lease – 5 13 

Total 194 236 223 

The Forest Products securitisation facility involves the outright 

sale of receivables to a financing vehicle and we expect 

this funding to remain off-balance sheet for the foreseeable 

future. For more information on this, refer to note 16 to the 

Financial Statements. 

Interest on borrowings 

To compare our borrowing costs with market rates, we convert 

interest rates on all debt to US$ equivalent rates. The resulting 

interest rate is currently 4.51% before taking account of interest 

rate swaps taken up to swap US$857 million of borrowings 

from fixed to floating interest rates. 

The average tenure of our debt is 5.7 years. Compared with the 

current six-year US$ swap rate (a benchmark rate at which blue 

chip credits transact in longer term maturities) of 3.65%, our 

average interest cost is 86 basis points above the swap rate. 

The fixed to floating interest rate swaps decrease the total 

interest cost to 4.06%, which is 41 basis points above the sixyear 

US$ swap rate. 

We expect that in current market circumstances, and based on 

our current credit ratings, raising new debt or replacing existing 

Covenants 

Financial covenants apply to approximately US$920 million of 

our non-South African long-term debt and our P600 million 

syndicated loan facility. This debt is supported by a Sappi 

Limited guarantee. For this reason the first two of the three 

covenants mentioned below are measured on a consolidated 

group level. 

1. Net Debt to Adjusted Total Capitalisation (on the basis 

agreed with our lenders) should not exceed 65%. 

2. EBITDA to Net Interest should not be less than 

(a) 3.0 times over four quarters’ average and 

(b) 3.5 times over eight quarters’ average. 

3. The Net Debt to Adjusted Total Capitalisation of Sappi 

Manufacturing (Pty) Ltd, the subsidiary that owns virtually all 

of our southern African assets and operations, should not 

exceed 65%. 

The table below shows that as at September 2008 we were 

comfortably in compliance with these covenants. 

Group covenants 2008 Covenant 

Net debt to total capitalisation 55.9% < 65% 

EBITDA to net interest – 4 Quarters 5.91 > 3.0 

– 8 Quarters 5.57 > 3.5 

Sappi Manufacturing Covenant 

Net debt to total capitalisation 21.4% < 65% 

These covenants also apply to the securitisation programmes 

with outstanding balances of US$360 million at the end of 

September 2008. No Sappi Limited guarantee has been 

provided for these facilities. 

54

sappi 

Credit ratings 

At the time of writing, our credit ratings were as follows: 

Fitch South African national rating 

Sappi Manufacturing 

(Pty) Limited AA-/F1+/Stable (June 2008) 

Moody’s international rating 

Sappi Papier Holding GmbH 

Ba2/NP/Stable 

(supported by Sappi Limited (September 2008) 

guarantee) 

Standard & Poor’s international rating 

Corporate Credit Rating BB/B/Stable (September 2008) 

In October 2007, S&P revised its rating for the group from BB+ 

to BB, while moving the outlook from negative to stable. This 

change was mainly as a result of an industry-wide re-rating of 

the European Forest Products sector, sustained cost inflation, 

and an uncertain outlook for paper pricing and demand in 

the light of an expected softening of economic growth. In 

April 2008, the outlook was changed to negative in view of 

the challenging market conditions. However, the outlook 

was returned to stable after the announcement of the M-real 

transaction in view of the level of equity funding proposed 

and the improved outlook for the rating metrics to meet the 

requirements of the rating. 

In June 2008, Moody’s revised its rating for the group from Ba1 

to Ba2, with a stable outlook. The main reasons for this revision 

were the difficult market conditions in the European paper 

industry, and the slower than expected improvement in the key 

rating metrics. In September 2008 this rating and outlook were 

confirmed after the announcement of the M-real transaction. 

Fitch confirmed the Sappi Manufacturing rating in June 2008, 

commenting on the strong contribution by Saiccor and the 

sound debt position. 

Gearing 

Net debt to capitalisation for each of the past three years as 

set out below: 

Management monitors the group’s gearing in the context of the 

complex trade-offs associated with determining an appropriate 

level of debt finance, viz – financial risk, credit rating, the cost 

of debt and the expected return that can be earned on that 

debt. With regard to our debt level we also monitor cash flow 

to net interest cover. We recognise that we operate in a mature 

industry that normally generates substantial and reasonably 

reliable cash flows and that management has significant 

flexibility to delay or minimise capital expenditure (which is a 

major absorber of cash) in difficult times, in order to reduce 

financial risk. 

Significant accounting policies and judgments 

The group has defined accounting policies as significant if 

they have the potential to materially affect the group’s financial 

performance, position or cash flow statement. 

The group’s significant accounting policies are those that 

relate to: 

• Asset impairments; 

• Plantations; 

• Taxation; 

• Property, plant and equipment; 

• Hedge accounting; 

• Post employment benefit funds; and 

• Provisions. 

The effect of these accounting policies and judgments is 

included on page 94 of the financial statements. 

Effect of the adoption of new standards 

There has been no effect on the group’s reported results 

because of new accounting standards which the group has 

adopted in the current year. 

Impact of accounting standards not yet adopted 

The group accounting policies set out certain accounting 

standards which the group has not yet adopted. The group has 

done a preliminary evaluation of the potential effect of these 

standards and has determined that they will not have a material 

impact on the group’s reported result, although there will be 

more disclosure that is required by the group. 


Net debt 2,405 2,257 2,113 

Net debt & equity 4,010 4,073 3,499 

Net debt to 

capitalisation ratio 60% 55% 60% 


55


Shareholding and equity 

Shareholding 

The group’s primary listing is on the JSE Limited, the main stock 

exchange in South Africa, and has secondary listings on the 

New York and London Stock Exchanges. Information regarding 

shares, share price, the value of shares traded, main shareholders 

and other related information is contained on pages 60 

and 61 of the Annual Report. 

Share price performance* 

Sappi share price is shown on the graph below: 

Blackburn and Maastricht Mills 

Maastricht and Blackburn mills form part of Sappi Fine Paper 

Europe. Maastricht Mill produces coated fine and label paper 

while Blackburn produced coated fine and board paper. Due 

to the significant increases in input costs and the overcapacity 

in the European market, Blackburn Mill and Maastricht Paper 

Machine No 5 were unable to produce acceptable returns on 

investment, despite significant efforts to curb costs and improve 

profitability. Production at Blackburn Mill ceased on 17 October 

2008. No alternative to the closure of the mill was found during 

the employee representative consultation process, which ended 

on 11 November 2008. In respect of Paper Machine No 5 at 

Maastricht Mill, consultations and social plan negotiations with 

works council and unions were con cluded in early October 2008. 

Production on Paper Machine No 5 at Maastricht Mill ceased 

around mid December 2008. An impairment loss of US$78 million 

was recognised as a result. 

European restructuring 

The closures at Blackburn Mill and Maastricht have affected 

approximately 300 employees. A provision of US$47 million 

relating to severance, retrenchment and other related costs was 

raised during fiscal 2008. 

Dividends 

The percentage change has been calculated based on a 

comparison of the weighted average daily share price in the 

six months prior to the commencement date, compared to 

the weighted average daily share price in the six months prior 

to the end date plus dividends paid during the period. The 

percentage change is a simple TSR over that period, and is 

based on the US Dollar price of the share. 

Other matters 

Impairment of assets 

Usutu Mill 

Usutu Mill is an unbleached pulp mill and forms part of the 

Sappi Forest Products reporting segment. In August 2008, 

forest fires caused by severe weather conditions resulted in 

damage to approximately 26,000 hectares of planted trees. The 

volume of trees damaged reduced the value of the Usutu 

Mill which has therefore been impaired. In 2008, a charge of 

US$37 million was recorded in respect of this impairment. 

On 06 November 2008, the directors declared a dividend 

(number 85) of 16 US cents per share (US$37 million) which 

was paid to shareholders on 02 December 2008. This dividend 

was declared after year-end and is not included as a liability in 

these financial statements. 

The group aims to declare annual dividends, which, over time, 

incorporate real growth for shareholders. To this end, dividend 

cover in each year will vary in line with changes in the business 

cycle, but the current intention is to maintain a long-term 

average earnings to dividend ratio of three to one. The 2008 

dividend was covered 2,8 times by basic earnings per share. 

Litigation 

The group becomes involved, from time to time, in various 

claims and lawsuits incidental to the ordinary course of 

business. The group is not currently involved in legal 

proceedings which, either individually or in the aggregate, are 

expected to have a material adverse effect on our business, 

assets or properties. 

Post year-end events 

On 29 September 2008, Sappi announced that it had signed an 

agreement to acquire a substantial portion of the coated graphic 

paper business of M-real for P750 million (US$1.1 billion; 

56

sappi 

ZAR8.9 billion), subject to a purchase price adjustment for 

net debt and working capital. The transaction includes four 

graphic paper mills – 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 graphic paper business of 

M-real. In addition, Sappi will enter into the transitional marketing 

agreements under which M-real will produce products at 

certain graphic paper machines at the Husum Mill (Sweden) 

and the Äänekoski Mill (Finland) and Sappi will market and 

distribute those products. The transaction also includes longterm 

supply agreements for wood, pulp and other services. The 

acquisition will be financed through a combination of equity, 

assumed debt, the cash proceeds from a rights offering and 

a vendor note. 

On 03 November, 2008, Sappi’s shareholders approved 

the transaction and a rights offering to finance a portion of 

the transaction. Sappi has also to date obtained various 

regulatory approvals for the acquisition, including European 

Union competition approval. The acquisition is expected to 

close on 31 December 2008. 

Sappi subsequently successfully completed a rights offering of 

286,886,270 new ordinary shares at a subscription price of 

ZAR20.27 per new share. New shares were issued in a ratio of six 

(6) new shares for every five (5) Sappi shares held. 

Conclusion 

We will again strive to generate increased cash returns for 

shareholders by optimising the main factors that management 

has influence over and that contribute to increasing cash flow. 

In this regard we will focus on improving operating profit and 

thereby improving cash flow, and on optimising working 

capital and debt levels. We will also again strive to mobilise 

cash generated efficiently by carefully evaluating whether to 

return cash to shareholders, to re-invest it in the company or to 

repay debt. 

In view of the current financial market turmoil, special attention 

will be focused on the group’s liquidity in fiscal 2009. 

M R Thompson 

chief financial officer 



57

Five year review 

Not restated 

for IFRS* 

September September September September September 

2008 2007 2006 2005*** 2004 

US$ million US$ million US$ million US$ million US$ million 

Income statement 

Sales 5,863 5,304 4,941 5,018 4,728 

Operating profit excluding special items 366 313 91 83 146 

Special items** losses (gains) 52 (70) (34) 192 (42) 

Operating profit (loss) 314 383 125 (109) 188 

Net finance costs 126 134 130 80 110 

Profit (loss) before taxation 188 249 (5) (189) 78 

Taxation charge (benefit) 86 47 (1) (5) (17) 

Profit (loss) for the year 102 202 (4) (184) 95 

Balance sheet 

Non-current assets 4,408 4,608 3,997 4,244 4,564 

Current assets 1,701 1,736 1,500 1,645 1,580 

Assets held for sale – – 20 – – 

Total assets 6,109 6,344 5,517 5,889 6,144 

Current liabilities 1,926 1,916 1,666 1,753 1,524 

Shareholders’ equity 1,605 1,816 1,386 1,589 2,157 

Capital employed 4,010 4,073 3,499 3,597 3,741 

Net debt 2,405 2,257 2,113 2,008 1,584 

Cash flow 

Cash generated from operations 623 585 396 569 601 

Decrease (increase) in working capital 1 60 (17) (30) (50) 

Finance costs paid (139) (183) (164) (162) (136) 

Finance revenue received 13 21 26 35 27 

Taxation paid (70) (27) (13) (43) (31) 

Dividends paid (73) (68) (68) (68) (66) 

Cash retained from operating activities 355 388 160 301 345 

Capital expenditure 505 458 303 345 334 

Cash effects of financing activities 49 98 (21) (37) (121) 

EBITDA excluding special items (1) 740 688 483 507 556 

Statistics 

Number of ordinary shares (millions) 

In issue at year end (2) 229.2 228.5 227.0 225.9 226.5 

Weighted average number of shares 

in issue during the year (2) 228.8 227.8 226.2 225.8 226.3 

Per share information (US cents per share) 

Basic earnings (loss) 45 89 (2) (81) 42 

Diluted earnings (loss) 44 88 (2) (81) 42 

Headline earnings (loss) 94 82 (11) 20 43 

Diluted headline earnings (loss) 93 81 (11) 20 43 

Ordinary dividend declared (3) 16 32 30 30 30 

Net asset value 700 795 611 703 952 

Ordinary dividend cover (times) (3) 2.8 2.8 – – 1.4 

Profitability ratios (%) 

Operating profit (loss) excluding special 

items to sales 6.2 5.9 1.8 1.7 3.1 

EBITDA excluding special items to sales 12.6 13.0 9.8 10.1 11.8 

Operating profit (loss) excluding special 

items to capital employed (ROCE) 9.1 8.3 2.6 2.3 4.1 

Profit (loss) to average ordinary 

shareholders’ equity (ROE) 6.0 12.6 (0.3) (10.4) 4.6 

58

sappi 

Not restated 

for IFRS* 


2008 2007 2006 2005*** 2004 


Debt ratios (%) 

Net debt to total capitalisation 0.60 0.55 0.60 0.56 0.42 

Efficiency ratios (%) 

Asset turnover ratio 0.96 0.84 0.90 0.85 0.77 

Inventory turnover ratio 6.9 6.4 6.3 6.3 5.4 

Liquidity ratios (%) 

Current asset ratio 0.88 0.91 0.90 0.94 1.04 

Trade accounts receivable days outstanding 

(including receivables securitised) 48 49 44 45 56 

Cash interest cover (times) 4.4 3.8 2.9 4.6 5.5 

Number of employees 15,156 15,081 15,200 15,618 16,010 

Sales per employee (US$'000) 387 352 325 321 295 

Exchange rates 

US$ per one Euro exchange rate – closing 1.4615 1.4272 1.2672 1.2030 1.2309 

US$ per one Euro exchange rate 

– average (12 month) 1.5064 1.3336 1.2315 1.2659 1.2152 

ZAR to one US$ exchange rate – closing 8.0751 6.8713 7.7738 6.3656 6.4290 

ZAR to one US$ exchange rate 

– average (12 month) 7.4294 7.1741 6.6039 6.2418 6.6824 

Definitions for various terms and ratios used above are included in the glossary on page 188. 

Reconciliation of profit (loss) for the year to operating profit excluding special items and EBITDA excluding special items (1) 

September 2008 September 2007 September 2006 September 2005 *** September 2004 


Profit (loss) for the year 102 202 (4) (184) 95 

Net finance costs 126 134 130 80 110 

Taxation (benefit) charge 86 47 (1) (5) (17) 

Special items losses (gains) 52 (70) (34) 192 (42) 

Operating profit excluding special items 366 313 91 83 146 

Depreciation and amortisation 374 375 392 424 410 

EBITDA excluding special items 740 688 483 507 556 

(1) In compliance with the U.S. Securities Exchange Commission (SEC) rules relating to ‘Conditions for Use of Non-GAAP Financial Measures’, we have reconciled EBITDA excluding special 

items to net profit rather than operating profit. As a result our definition retains minority interest as part of EBITDA excluding special items. 

Operating profit excluding special items represents earnings before interest (net finance costs), taxation and special items. Net finance costs includes: gross interest paid; interest received; 

interest capitalised; net foreign exchange gains; and net fair value adjustments on interest rate financial instruments. See the group income statement for an explanation of the 

computation of net finance costs. Special items cover those items which management believe are material by nature or amount to the operating results and require separate disclosure. 

Such items would generally include profit and loss on disposal of property, investments and businesses, asset impairments, restructuring charges, financial impacts of natural disasters 

and non-cash gains or losses on the price fair value adjustment of plantations. 

EBITDA excluding special items represents operating profit before depreciation, amortisation and special items. 

We use both operating profit excluding special items and EBITDA excluding special items as internal measures of performance to benchmark and compare performance, both between 

our own operations and as against other companies. Operating profit excluding special items and EBITDA excluding special items are measures used by the group, together with 

measures of performance under IFRS, to compare the relative performance of operations in planning, budgeting and reviewing the performances of various businesses. We believe 

they are useful and commonly used measures of financial performance in addition to net profit, operating profit and other profitability measures under IFRS because they facilitate 

operating performance comparisons from period to period and company to company. By eliminating potential differences in results of operations between periods or companies 

caused by factors such as depreciation and amortisation methods, historic cost and age of assets, financing and capital structures and taxation positions or regimes, we believe both 

operating profit excluding special items and EBITDA excluding special items can provide a useful additional basis for comparing the current performance of the operations being 

evaluated. For these reasons, we believe operating profit excluding special items and EBITDA excluding special items and similar measures are regularly used by the investment 

community as a means of comparison of companies in our industry. Different companies and analysts may calculate operating profit excluding special items and EBITDA excluding 

special items differently, so making comparisons among companies on this basis should be done very carefully. Operating profit excluding special items and EBITDA excluding special 

items are not measures of performance under IFRS and should not be considered in isolation or construed as a substitute for operating profit or net profit as indicators of the company's 

operations in accordance with IFRS. 

(2) Net of treasury shares (refer note 17). 

(3) The dividends for all the financial years were declared subsequent to year end. 

* The financial results of the group have from the beginning of the 2005 financial year been prepared in accordance with International Financial Reporting Standards. Figures prior to 

2005 prepared in accordance with SA GAAP have not been restated to comply with International Financial Reporting Standards. 

** Special items cover those items which management believe are material by nature or amount to the operating results and require separate disclosure. Such items would generally include 

profit and loss on disposal of property, investments and businesses, asset impairments, restructuring charges, financial impacts of natural disasters and non-cash gains or losses on 

the price fair value adjustment of plantations. 

*** The year ended September 2005 included 53 weeks. 


59


at September 2008 

Shareholding Number Number % of shares 

– ordinary shares in issue of shareholders % of shares* in issue 

1 – 5,000 5,188 85.7 2,649,472 1.2 

5,001 – 10,000 180 3.0 1,309,917 0.6 

10,001 – 50,000 317 5.2 7,521,414 3.3 

50,001 – 100,000 117 1.9 8,492,024 3.7 

100,001 – 1,000,000 212 3.5 45,892,506 20.0 

Over 1,000,000 39 0.7 163,299,898 71.2 

6,053 100.0 229,165,231 100.0 

Shareholder spread 

% of shares 

– type of shareholder in issue 

Non-public 0.02 

Group directors 0.02 

Associates of group directors – 

Trustees of the company's share and retirement funding schemes – 

Shareowners who, by virtue of any agreement, have the right to nominate board members – 

Shareowners interested in 10% or more of the issued shares – 

Public (the number of public shareholders as at September 2008 was 6,051) 99.98 

100.00 

* The number of shares excludes 9,906,661 treasury shares held by the group. 

Sappi has a primary listing on the JSE Limited and secondary listings on the New York Stock Exchange and London Stock Exchange. 

A large number of shares are held by nominee companies for beneficial shareholders. Pursuant to Section 140A of the South African 

Companies Act, 1973, as amended, the directors have investigated the beneficial ownership of shares in Sappi Limited including 

those which are registered in the nominee holdings and these investigations revealed as of September 2008 the following beneficial 

holders of more than 5% of the issued share capital of Sappi Limited: 

Shares % 

Public Investment Commissioner (SA) 26,156,661 11.4 

Industrial Development Corporation (SA) 15,420,620 6.7 

Further, as a result of these investigations, the directors have ascertained that some of the shares registered in the names of the 

nominee holders are managed by various fund managers and that, as of September 2008, the following fund managers were 

responsible for managing 5% or more of the share capital of Sappi Limited: 

Shares % 

Allan Gray Limited 55,177,014 24.1 

Old Mutual Investment Group South Africa 25,185,015 11.0 

Rand Merchant Bank 16,545,506 7.2 

60

sappi 


for the year ended September 2008 


Share statistics 2008 2007 2006 2005 2004 

Ordinary shares in issue (millions)** 229.2 228.5 227.0 225.9 226.5 

Net asset value per share (US cents) 700 795 611 703 952 

Number of shares traded (millions) 

JSE 241.58 246.95 252.60 264.70 304.25 

New York 51.04 49.81 57.60 83.60 51.56 

Value of shares traded 

JSE (ZAR million) 22,623.4 27,983.7 20,946.0 20,035.7 28,608.9 

New York (US$ million) 634.3 770.8 715.0 999.4 707.1 

Percentage of issued shares traded 127.7 129.9 136.7 154.2 157.1 

Market price per share 

– year end JSE (South African cents) 8,000 10,450 10,029 7,475 9,040 

New York (US$) 10.00 15.30 12.73 11.79 14.11 

– highest JSE (South African cents) 12,100 14,150 10,100 9,550 10,450 

New York (US$) 15.79 19.84 15.40 15.50 16.13 

– lowest JSE (South African cents) 7,165 9,425 6,105 5,780 7,720 

New York (US$) 9.10 12.48 9.46 9.14 12.60 

Earnings yield (%)* 9.49 5.39 negative 1.70 3.06 

Dividend yield (%)* 1.61 2.10 2.33 2.56 2.13 

Price/earnings ratio (times)* 10.54 18.55 negative 58.70 32.70 

Total market capitalisation (US$ million)* 2,271 3,475 2,928 2,652 3,185 

* Based on financial year end closing prices on the JSE Limited. Income statement amounts have been converted at average year-to-date exchange rates. 

** The number of shares excludes 9,906,661 treasury shares held by the group. 

Sappi is also listed on the London Stock Exchange however the shares are traded infrequently and that is why the LSE statistics have not been presented above. 

Note: Definitions for various terms and ratios used above are included in the glossary on page 188. 


61

Corporate governance 

We are committed to the highest standards of corporate governance and continue to 

seek areas of improvement by measuring ourselves against international best practice. 

The group endorses the Code of Corporate Practices and Conduct as contained in the South African King II Report issued in 2002, 

and continues to apply the principles incorporated therein. The group maintains its primary listing on the JSE Limited as well as listings 

on the New York and London Stock Exchanges. The group complies in all material aspects with the regulations and codes of these 

exchanges as they apply to Sappi. 

Summary 

The following table provides a summary of how we have 

implemented corporate governance. Discussed are the 

seven characteristics of good governance (King II report) 

and certain selected international best practices (from the 

King II report and other sources). Full disclosure is provided 

on the areas where the board has applied these standards 

differently. The board believes that in certain circumstances 

this is justified when this is in the best interest of the group 

and the principles of good governance are balanced. 

Element/best practice 

Sappi application/comments 

Discipline 

Clear and comprehensive board 

charter approved by the board 

In terms of the board charter, the board 

should meet five times per year (at least 

once per quarter). 

Changes to the governance structure 

and compliance thereto subject to 

discussion at Annual General Meeting 

The charter sets out powers, responsibilities, functions, delegation of authority, and 

the areas of authority expressly reserved for the board. The current charter was 

reviewed in 2008 as part of our continuous improvement efforts. A copy is available on 

the company website www.sappi.com 

The board met eight times during the year 

The financial statements, including our report on Corporate Governance, as well 

as the appointment of directors, their remuneration and resolutions related to issuance 

of and re-purchase of shares are submitted to the Annual General Meeting of shareholders 

for approval. Refer to page 191 for the notice to shareholders 

Transparency 

Clear disclosure of strategies, 

objectives and corporate governance. 

A summary of the Sappi Limited strategy and how we measure our progress is 

available in the annual report and on the company website www.sappi.com. Both 

the progress against these objectives as well as our corporate governance are 

fully disclosed in this annual report. A disclosure committee comprising management 

from various fields of expertise is responsible for reviewing financial reporting 

disclosures 

Fees for non-executive directors 

Refer to page 191 for the notice to shareholders which sets out the proposed fees 

should be submitted to the for 2008/2009 

shareholders in general meeting 

for approval 

Full disclosure of directors’ 

For a full disclosure refer to note 34 ‘Directors Remuneration’. Information conremuneration 

and additional 

cerning the management incentive scheme and share incentive scheme can be 

information concerning incentive found under the compensation report on pages 70 to 71 

schemes for senior management 

62

sappi 


Stakeholder communication 


The investor relations department as well as the corporate communications 

department maintain regular contact with relevant stakeholders and utilises the 

company website www.sappi.com as a means of distributing relevant information. 

Stakeholders can also contact Sappi directly via a contact form on the company 

website. Refer to the sustainability report on pages 6 to 9 for further description of our 

communication efforts 

Independence 

Given the strategic operational role of 

the chief executive officer, this function 

should be separate from that of the 

chairperson of the board. 

Audit committee should consist of 

independent board members. 

Remuneration committee should consist 

of mainly non-executive members 

Majority of independent 

board members 

The chairperson should preferably be 

an independent non-executive director 

The role of chief executive officer is held by Mr Ralph Boëttger. This role is separate 

separate from the chairperson of the board 

The audit committee and the compensation committee both consist entirely of 

independent non-executive directors 

11 of the 13 board members are independent 

The chairperson of the board is Dr Danie Cronjé, an independent, non-executive 

director. Dr Cronjé took over the chairperson responsibilities following Mr Eugene van 

As’ retirement from the board at the AGM in March 2008 

Accountability 

Effective subcommittees to assist 

the board 

To manage its workload, the board has appointed sub-committees with the specific 

objective of evaluating key areas of business performance, in particular governance, on 

a more detailed basis and to report to the board regularly on any issues that might 

arise although it is understood that delegation of responsibilities to sub-committees 

does not relieve the board of its ultimate responsibility for the affairs of the company. 

The following board committees have been appointed to deal with specific subjects: 

• Nomination and governance committee 

• Compensation committee 

• Audit committee 

• Human resources committee 

In addition, a number of management committees have been formed to assist the chief 

executive officer in the discharge of his responsibilities: 

• Sustainability council 

• Executive management committee 

• Disclosure committee 

• Treasury committee 

• Technical committees 

• Group risk management team 

Performance related elements should 

constitute a substantial portion of the 

total remuneration policy 

A significant portion of the remuneration of the executive directors and senior 

management consists of a performance bonus and awards in terms of the Sappi 

Limited Performance Share Incentive Scheme to align their objectives with those of 

stakeholders. Refer to pages 174 to 180 for details of these incentive schemes 


63

Corporate governance // continued 



Accountability 

Board and director evaluations 

The board should regularly review 

processes and procedures to ensure 

the effectiveness of the group’s 

internal systems of control, so that its 

decision-making capability and 

the accuracy of its reporting are 

maintained at a high level at all times 

The board, through the nomination and governance committee, performs regular 

self evaluations of its committees and the contribution of each individual director. The 

composition and effectiveness of the board and its committees form part of 

this evaluation 

This review is primarily the role of the audit committee, refer to the further disclosure 

disclosure on its activities in this section 

Responsibility 

A management committee is responsible for the implementation of risk manage- 

ment. The board monitors the overall process of risk management in conjuction 

conjunction with the audit committee 

Induction programmes are tailored for each individual director on appointment as a 

director and continued individual training is available thereafter 

Directors retire by rotation at least every three years 

Prior to the nomination of all candidates to the board, the nomination and governance 

committee considers the skills, experience and background of such candidates in order 

to ensure an appropriate balance to the composition of the board 

Risk management: the board must 

identify key risk areas and monitor 

effectiveness of the risk management 

process 

Induction and training of directors 

Terms should not exceed three years 

Skills, experience and background 

Fairness 

Equal rights for shareholders and 

other stakeholders 

Every listed company should have 

a practice regulating dealings in its 

securities by directors, officers 

and other selected employees 

Whistle blowing 

Each shareholder has the right to one vote for each share held. The interests of 

minority shareholders are protected in law and in the regulations of the stock 

exchanges on which Sappi Limited is listed 

An approved policy has been implemented 

‘Hotlines’ are available for all our employees to report anonymously on environmental, 

safety, ethics, accounting, auditing, control issues or other concerns 

Social responsibility 

Sustainability report 

The group’s sustainability management programme and activities are covered in a 

separate Sustainable Development report which will be issued simultaneously with this 

annual report. Also see pages 6 to 9 of this report 

64

sappi 

The board of directors 

The basis for good governance at Sappi is laid out in the charter for the board of directors as published on the company website 

www.sappi.com. This charter sets out the role of the board and its committees, guidelines and internal rules for board and board 

committee composition, frequency of meetings, annual work plans and evaluations of board and board committee and compliance 

with board policies. It also specifically defines the roles of the chairman and chief executive officer. 

The board currently comprises two executive and eleven independent, non-executive directors, who collectively determine major 

policies and strategies. The non-executive directors do not derive any benefits from the company for their services as directors other 

than their fees. The business experience and expertise of the non-executive directors enable them to evaluate strategy and to act 

in the group’s best interest, and to provide a check and balance to the executive directors. 

The composition of the board, its sub-committees and attendance at meetings, including by teleconference and videoconference, 

is summarised in the following table: 

Board committees 

Nomination 

Audit and Human 

Name Status Board committee governance Compensation resources 

R Boëttger chief executive officer 8/8 B 7/7 B 6/6 B 4/4 

M R Thompson chief financial officer 8/8 B 7/7 

E van As (1) non-executive, chairman 3/3 √ 4/4 √C 1/1 

D Cronjé (2) independent non-executive, 

chairman 7/7 B 3/3 √ 3/3 B 4/4 √C 1/1 

D C Brink senior independent 

non-executive 8/8 √ 6/7 √ 6/6 √C 4/4 

M Feldberg independent non-executive 6/8 √C 6/6 √ 4/4 

J E Healey independent non-executive 8/8 √ 7/7 √ 2/2 

D Konar independent non-executive 7/8 √C 7/7 √ 2/2 

H C Mamsch independent non-executive 8/8 √ 6/7 √ 4/4 

J McKenzie independent non-executive 8/8 √ 4/4 

K R Osar (3) independent non-executive 8/8 √ 6/6 

B Radebe independent non-executive 8/8 √ 2/2 

A N R Rudd (4) independent non-executive 6/8 √ 3/3 √ 4/4 

F A Sonn independent non-executive 7/8 √ 6/6 

1) E van As retired as chairman of the board at the AGM in March 2008. 

2) Dr D Cronjé took over chairman of the board responsibilities at the March 2008 AGM as well as being appointed to the nomination and governance and human resources committees. 

3) K R Osar was appointed to the audit committee in November 2007. 

4) A N R Rudd was appointed to the nomination and governance committee in February 2008. 

√ indicates board committee membership, C indicates board committee chairman and B indicates attendance by invitation. 

The figures in each column indicate the number of meetings attended out of the maximum possible number of meetings. 

Induction and training of directors 

Following appointment to the board, directors receive a 

comprehensive induction tailored to their individual needs. This 

includes meetings with senior management to enable them to 

build up a detailed understanding of the group’s business and 

strategy, and the key risks and issues that it faces. During the 

year the new chairman of the board followed an in-depth 

induction programme, which involved presentations and site 

visits to major operations as well as meetings with fellow 

directors and executive management. The company secretary 

arranges induction training for the new independent nonexecutive 

directors, where appropriate. Additional training is 

available so that directors can suitably update their skills and 

knowledge as appropriate. 

Board committees 

The board has established sub-committees to assist it to 

properly discharge its duties. These sub-committees operate 

within written terms of reference set by the board. Each 

committee performs an annual self-assessment. The board 

sub-committees are as follows: 


65


Audit committee 

The audit committee was established in 1984 and assists the 

board in discharging its duties relating to the: 

• safeguarding of assets; 

• oversight role for the risk management function; 

• operation of adequate systems, and control processes; 

• reviewing of financial information and the preparation of 

accurate financial reporting in compliance with all applicable 

legal requirements and accounting standards; 

• oversight of the external auditors’ qualifications, experience 

and independence; 

• oversight of the performance of the internal and external 

audit functions; and 

• monitoring of compliance with applicable external legal and 

regulatory requirements. 

In terms of the South African Corporate Laws Amendment Act, 

which came into effect during the financial year, the audit 

committee is required to perform certain duties, including the 

nomination for appointment of an independent auditor and the 

determination of the independence of the auditor. The audit 

committee monitors the qualifications, expertise, resources and 

independence of both the internal and external auditors and 

assesses annually the auditors’ performance and effectiveness. 

The audit committee approves the external auditor’s 

engagement letter, nature and scope of the audit and the audit 

fee. The audit committee can confirm that it is satisfied with the 

independence of the external auditor for the 2008 financial year. 

The audit committee oversees the financial reporting process 

and is concerned with compliance with accounting policies, 

group policies, legal requirements and internal controls within 

the group. It reviews compliance with the group’s code of 

ethics and ensures facilities are in place to enable employees 

to submit concerns confidentially or anonymously, and 

ensures independent investigations are conducted where 

necessary. The audit committee consists of five independent, 

non-executive directors and has satisfied its responsibilities for 

the year in terms of the mandate. The adequacy of the mandate 

is reviewed and reassessed annually and several changes were 

made during 2008 to accommodate requirements of the 

Corporate Laws Amendment Act. The audit committee meets 

with senior management, which includes the chief executive 

officer and the chief financial officer, at least four times a year. 

The external and internal auditors attend these meetings and 

have unrestricted access to the committee and its chairman. 

The external and internal auditors meet privately with the audit 

committee on a regular basis. The audit committee chairman is 

available at the annual general meeting. Regional committees 

exist in the three major regions and are chaired by independent 

non-executive directors. These committees have a mandate 

from the group’s audit committee, to whom they report on a 

regular basis and they meet at least four times per year. These 

regional committees assist the Sappi Limited audit committee 

in the discharge of its duties, particularly as regards the 

requirements of the Corporate Laws Amendment Act, such as 

the review of the performance, independence and effectiveness 

of the auditors as well as the review of the financial information 

and systems of internal controls of all major operations 

throughout the group. Dr D Konar has been designated as 

the audit committee financial expert as required by the 

Sarbanes-Oxley Act of 2002. 

Human resources committee 

The responsibilities of the Human resources committee are, 

inter alia, to determine the group’s human resource policy 

and strategy, assist with the hiring and setting of terms and 

conditions of employment of executives, the approval of 

retirement policies and succession planning for management 

and the chief executive officer as well as employment equity 

and transformation in South Africa. The human resources 

committee consists of three independent non-executive directors 

and the independent non-executive chairman of the group (who 

serves as chairman of the committee). 

Management representation at meetings is by way of invitation 

and not as members of the committee. This representation 

includes the chief executive officer of the group as well as the 

group head of human resources. 

Compensation committee 

The compensation committee ensures that the compensation 

philosophy and practices of the group are aligned to the strategy 

and performance goals. It reviews and agrees compensation 

of executive directors and senior executives. It also reviews 

and agrees executive proposals on the compensation of nonexecutive 

directors for approval by the Board and ultimately by 

shareholders. The compensation committee consists of five 

independent non-executive directors (one of whom serves as 

chairman). Directors’ emoluments are disclosed in the notes 34 

to 36 of the group annual financial statements. 

Management representation at meetings is by way of invitation 

and not as members of the committee. This representation 

includes the chief executive officer of the group as well as 

the group head of human resources. For further details on 

compensation and management incentives at Sappi please 

refer to the Compensation report on pages 70 to 71. 

Nomination and governance committee 

The nomination and governance committee considers the 

leadership requirements of the group and identifies and 

nominates suitable candidates for appointment to the board 

for board and then shareholders’ approval. It reviews the 

composition of the board and performs regular self evaluations 

of the board and the various board committees. This evaluation 

66

sappi 

includes board members’ individual as well as collective con - 

tributions and performance. The committee makes appropriate 

recommendations to the board based on these evaluations, at 

least annually. A policy detailing the procedures for appointments 

to the board is in place. The committee makes recommendations 

on corporate governance practices and disclosures for Sappi and 

reviews compliance with corporate governance requirements. 

The nomination and governance committee consists of five 

independent non-executive directors (one of whom serves as 

chairman). The chief executive officer is invited to meetings of the 

committee. 

Management committees 

Responsibility for the day to day management of the group has 

been assigned by the board to the chief executive officer. To 

assist the chief executive officer in discharging these duties, a 

number of management committees have been formed. 

Sustainability council 

A sustainability council has been constituted as a management 

committee consisting of senior executive and corporate 

management representatives (human resources, risk, financial, 

technical, legal, communications and regional environmental 

specialists), as well as one non-executive director. The council 

oversees and provides direction to management’s responsibilities 

regarding sustainable development, risk management and 

occupational health and safety. 

Sappi strives to be a trustworthy and valuable corporate citizen. 

Making appropriate social investment and managing the impact 

on the environment are an integral part of sound corporate 

governance. Sappi is committed to promoting a racially, 

culturally and ethnically diverse workplace. Sappi promotes fair 

employment practices and complies with employment equity 

legislation in the countries in which we operate. The group 

encourages open dialogue, employee participation and a 

culture of engagement with all our stakeholders. 

A separate sustainability review is included on pages 6 to 9. 

Please also refer to our 2008 Sustainable Development Report 

available on request or at www.sappi.com. 

Executive committee 

This committee comprises executive directors and senior 

management from Sappi Limited and the chief executive 

officers of the three main regional business operations of the 

group. The chief executive officer has assigned responsibility 

to the executive committee for a number of functional 

areas relating to the management of the group, including the 

development of policies and alignment of initiatives with 

regards to: strategic, operational, financial, governance and risk 

processes. The executive committee meets monthly. 

Disclosure committee 

This committee comprises members of the executive committee 

and senior management from various disciplines whose objective 

is to review and discuss any financial information prepared for 

public release. 

Treasury committee 

The treasury committee is an advisory body to the chief financial 

officer for Sappi’s treasury activities and operations. The committee 

meets every second week. The committee comprises senior 

financial and treasury managers. The responsibility of the 

committee is to review and discuss treasury related matters. 

Technical committees 

A number of technical committees have been established 

which focus on global technical alignment, performance and 

efficiency measurement as well as new product development. 

Knowledge generated is rapidly transferred between regions 

through the technical committees who help to ensure that areas 

of development are targeted, projects are correctly resourced 

and global shuts are properly planned. 

Group risk management team 

The board recognises that risk management success can only 

be achieved if all three elements of risk, namely threat, 

uncertainty and opportunity, are recognised and managed in 

an integrated fashion. The Group Risk Management Team is 

mandated by the Sappi Limited board to establish, coordinate 

and drive the risk management process throughout Sappi. It 

has established a comprehensive risk management system to 

identify and manage significant risks. A full report on Sappi’s 

risk management can be found on pages 40 to 42. 

Financial statements 

The directors are responsible for overseeing the preparation 

and final approval of the group annual financial statements. 

The auditors are responsible for auditing the group annual 

financial statements and expressing an opinion thereon. While 

management is responsible for the preparation of the annual 

financial statements, the directors have overall responsibility 

to ensure that suitable accounting policies, supported by 

reasonable and prudent judgements and estimates, are used in 

the preparation of the annual financial statements, which fairly 

present in all material respects the state of affairs of the group. 

The directors are responsible for determining that appropriate 

accounting standards have been applied and adequate 

accounting records have been maintained. The directors also 

oversee the appropriate adoption of the going concern basis in 

preparing the annual financial statements, based on the historic 

financial performance of the group, the ready access to financial 


67


resources and financial forecasts. The group’s results are 

reviewed prior to submission to the board as follows: 

• All four quarters and financial year end – by the disclosure 

committee and audit committee; and 

• Interim and final quarters – by the group’s external auditors. 

Internal controls 

The board is responsible for the group’s systems of internal 

financial and operational control. The group’s internal controls 

and systems are designed to provide reasonable assurance as 

to the integrity and reliability of external financial reports, that 

assets are adequately safeguarded against material loss and 

that transactions are properly authorised and recorded. Such 

controls are based on established written policies and 

procedures which are monitored throughout the group and 

are applied by trained, skilled personnel with an appropriate 

segregation of duties through clearly defined lines of accountability 

and delegation of authority. The control system includes 

comprehensive reporting and analysis of actual results against 

approved standards and budgets. All employees are required 

to maintain the highest ethical standards in ensuring that the 

company’s business practices are conducted in a manner 

which in all reasonable circumstances is above reproach. As 

part of an ongoing process, reviews were undertaken across 

the group of the effectiveness of various elements of the group’s 

internal controls, procedures and systems. Where potential 

improvements are identified, they are being addressed. The 

reviews enabled management to further strengthen the group’s 

controls and the results of the reviews did not indicate 

any material breakdown in the functioning of these controls, 

procedures and systems during the year under review. A material 

breakdown is defined as a critical weakness in process 

or financial systems which could result in a material loss, 

contingency or uncertainty requiring disclosure in the published 

annual financial statements. Section 404 of the US Sarbanes- 

Oxley Act requires companies listed on the NYSE to complete 

a comprehensive evaluation and report on the effectiveness 

of their internal controls over financial reporting. Sappi has 

conducted its third evaluation at the end of fiscal 2008 and will 

include its section 404 report in its Form 20-F to be filed with 

the United States Securities and Exchange Commission. 

Disclosure controls 

Disclosure controls and procedures include controls and 

procedures designed to ensure that information required to be 

disclosed by the group in the reports that it files or submits is 

accumulated and communicated to the group’s management, 

including the chief executive officer and chief financial officer, 

as appropriate to allow timely decisions regarding required 

disclosure. The group has implemented disclosure controls 

and procedures as deemed appropriate by management. The 

disclosure committee meets to review all Sappi Limited external 

financial reports prior to their release. On occasion, these 

meetings are held jointly with the audit committee. 

Internal audit 

The group’s internal audit department has a current complement 

of 20 persons, of which 15 are experienced and qualified and 

five are in training. It has a specific mandate from the audit 

committee and independently appraises the adequacy and 

effectiveness of the group’s systems, financial internal controls 

and accounting records, reporting its findings to local and 

divisional management, the external auditors as well as the 

respective audit committees. The head of internal audit reports 

to the audit committee on a functional basis and to the chief 

financial officer on a daily operational basis and has direct 

access to the chief executive officer. The internal audit coverage 

plan is based on a risk assessment performed for each operating 

unit. This incorporates risks identified by management during 

the group risk assessment process as well as the results of 

audit work performed. This process ensures that the audit 

coverage is focused on identified high risk areas. During 2008 

internal audit focused on expanding the IT audit scope 

to provide additional assurance to management in the IT 

security audit area, application control reviews and forensic IT 

audit. Internal Audit also started to focus more resources on 

operational audits and the inclusion of the top risks per region 

in the determination of the audit coverage plan. Internal audit 

meets privately with the audit committee and individual board 

members on a regular basis. The report submitted by Internal 

Audit to the audit committee includes amongst other things 

an overview of hotline allegations and forensic activities, a 

summary of potentially significant control issues identified, audit 

risk assessments, audit coverage plans, actual performance 

against planned activities, the periodic evaluation of the system 

of internal controls and details of any scope restrictions as well 

as audit resource developments. 

Company secretary 

All directors have access to the advice and services of the 

company secretary and are entitled and authorised to seek 

independent and professional advice about affairs of the group 

at the group’s expense. The company secretary is responsible 

for the duties set out in section 268G of the South African 

Companies Act of 1973. Specific responsibilities include the 

provision of guidance to directors as to how to discharge their 

duties in the best interests of the company as well as arranging 

for the induction of new directors. 

Code of ethics 

Sappi requires its directors and employees to act with the 

utmost good faith and integrity in all transactions and with all 

68

sappi 

stakeholders with whom they interact. This commitment is 

reflected in the group’s code of ethics that commits the 

company and employees to sound business practices and 

compliance with legislation. (‘Hotlines’) have been implemented 

for all the regions in which the group operates. This service, 

operated by various independent companies, enables employees 

to report anonymously; environmental, safety, ethics, accounting, 

auditing, control issues or other concerns. All reported matters 

are followed up by group internal audit, resolved appropriately 

and reported to the audit committee. Of all complaints reported 

to the hotlines since inception none included fraudulent financial 

reporting. As the company is listed on the NYSE and has 

securities registered under the US Securities Exchange Act of 

1934, it is subject to the US Foreign Corrupt Practices Act 

(FCPA). The company has ensured that all aspects of the FCPA 

have been addressed in its policies. 

As part of continuous improvement the company completed a 

review of the wording of the code and communicated a new 

and revised version to all employees during 2008. The revised 

code is also available on the company website. 

Legal compliance programme 

A legal compliance programme designed to increase awareness 

of, and enhance compliance with, applicable legislation is in 

place. This programme involves the delegation of responsibility 

for compliance with country specific legislation to designated 

people throughout the organisation and includes a quarterly selfassessment 

process. The self-assessment process includes a 

review of any changes in legislation and the impact of these 

changes on the business. The group compliance officer reports 

quarterly to the group audit committee. 

Information technology (IT) governance 

The need for strong IT governance has been recognised within 

Sappi and as such the group is actively involved in reviewing its 

IT governance structures. IT governance represents one of 

the pillars of the IT strategy and Sappi adheres to industry 

recognised best practices as laid down by the IT governance 

Institute and more specifically the new standard for governance 

ISO/IEC 38500. 

Interest in contracts 

The group has a policy regulating disclosure of interest in 

contracts. The policy dictates that all employees disclose any 

interest in contracts to assess any possible conflict of interest. 

The policy also dictates that directors and senior officers of the 

group must disclose any interest in contracts as well as other 

appointments to assess any conflict of interest in fiduciary 

duties. During the year under review, save as disclosed in the 

financial statements, no directors had a significant interest 

in any material contract or arrangement entered into by the 

company or its subsidiaries. 

Insider trading 

The company has a code of conduct for dealing in company 

securities. No employee of Sappi in possession of material nonpublic 

information in respect of Sappi Limited or any of its 

subsidiaries, nor any member of his/her family or household 

may, at any time, buy or sell securities of Sappi Limited or its 

subsidiaries, or engage in any other action to take advantage 

of such information. All officers, directors and employees who 

have access to unpublished price-sensitive information are 

precluded from trading in Sappi Limited securities during 

‘closed periods’, which apply from the end of the financial 

quarters in March, June, September and December respectively, 

until two full business days after the release of the results for the 

respective quarters. Prior to dealing in Sappi Limited securities 

(even outside closed periods); clearance is required from the 

Sappi Limited chairman through the Sappi Limited group 

secretary. In practice, the chairman clears the transactions of 

directors of Sappi Limited and its subsidiaries and the chairman 

himself requires the clearance of the audit committee chairman 

for his own transactions. 

Fraud and illegal acts 

The group does not engage in or accept or condone the 

engaging in of any illegal acts in the conduct of its business. The 

directors’ policy is to actively pursue and encourage prosecution 

of perpetrators of fraudulent or other illegal activities should 

they become aware of any such acts. The group has im ple - 

mented hotlines to facilitate reporting any fraudulent, illegal 

acts or unethical behaviour which are externally managed 

and administered. 

Communication 

The board is responsible for presenting a balanced and 

understandable assessment of the company’s position in 

reporting to stakeholders. The reporting addresses material 

matters of significant interest and is based on principles of 

openness and substance over form. We recognise that the 

reporting and communication is made in the context that 

society now demands greater transparency and accountability 

from companies regarding non-financial matters. The board 

strives to ensure that reports present a comprehensive and 

objective assessment of the activities of the company so that 

stakeholders with a legitimate interest in the company’s affairs 

can obtain full, fair and honest information regarding its 

performance. The board takes cognisance of the communities 

in which it operates when communicating to its stakeholders. 

For further details of our communication activities please refer 

to the sustainability report on page 6 to 9. 


69

Compensation report 

Compensation committee 

Sappi has a dedicated board committee that determines 

governance of compensation matters, group compensation 

philosophy, compensation of executive directors and other 

senior managers as well as the compensation of non-executive 

directors which is approved by the board and ultimately by 

the shareholders. 

The compensation committee meets twice a year and holds 

special meetings on an ad hoc basis when necessary. Attendance 

at these meetings is set out in the Corporate Governance section 

on page 65. The committee comprises five independent nonexecutive 

directors (one of whom serves as a chairperson). 

Members of the committee during fiscal 2008 were Mr D C Brink 

(chairman); Prof M Feldberg; Mr H C Mamsch; Mr J D McKenzie 

and Sir A N R Rudd. 

At the invitation of the committee, Dr D C Cronjé (group 

chairman), Mr R J Boëttger (group chief executive officer) and 

Ms L Swartz (group head human resources) attended meetings 

except where matters pertaining to their own compensation 

were considered. Mr D J O’Connor (group company secretary) 

also attended meetings by invitation. 

Compensation committee mandate 

The compensation committee is responsible for: 

• Ensuring that the compensation philosophy and practices of 

the group are aligned to the strategy and performance goals; 

• Reviewing the compensation of company directors and 

senior executives to ensure that they are fairly rewarded 

based on their performance and contribution to the company’s 

overall performance and that the compensation packages 

are market related; 

• Satisfying shareholders that the senior executive compensation 

is set by a committee of board members who are independent 

and who will give due regard to the interests of the shareholders 

and to the financial and commercial health of the group; 

• Reviewing and agreeing of proposals (submitted by the group 

executive committee) on the fees and benefits of non-executive 

directors, including reference to external benchmarks, and to 

make recommendations to the board. 

Compensation philosophy 

Underpinning our compensation practices is a philosophy that 

is based on the following principles: 

• Reward people fairly and equitably in relation to job levels, 

experience and the employment market; 

• Achieve competitive compensation levels, which enables the 

group to attract and retain talented individuals; 

• Align the interests of management with those of the 

group’s shareholders; 

• Implement a globally consistent pay philosophy with regional 

application to local market practices. 

Our compensation practice aims to meet the following objectives: 

• Attract, retain and motivate high calibre employees at 

all levels; 

• Reward individuals and teams for their contribution and 

performance that delivers on the business objectives; 

• Encourage behaviour which is linked to the six core Sappi 

Leadership Competencies (leading others, strategic thinking, 

operational delivery, driving change, commercial insight and 

self-awareness) and/or group values (excellence, integrity 

and respect). 

Compensation structures 

Our compensation structures comprise of fixed and variable 

components: 

Fixed pay: 

Variable pay: 

base salary and benefits 

annual performance bonus and long-term 

share incentive programmes 

Base salary 

Base salary is targeted at the median of the market for 

comparable roles in companies of similar size. Market data is 

used to benchmark salary levels and to inform decisions on 

base salary changes. Salaries are reviewed annually and an 

individual’s performance is a key consideration. 

Retirement benefits 

Across the group and based on the location, employees 

are offered membership in a defined benefit or a defined 

contribution fund. 

70

sappi 

In certain European jurisdictions, retirement benefits are 

provided by the state through the social security system. The 

design of both the defined benefit and contribution schemes in 

Europe takes into account these social security benefits when 

determining the contribution tables and final pensions earned. 

Contributions to plans are either contributory or non-con - 

tributory. A number of defined benefit plans in the group have 

been closed to new entrants. Employees who participate in 

these legacy defined benefit plans continue to accrue benefits 

in such plans. 

Other benefits 

These include benefits such as medical insurance, death and 

disability insurance, vehicle benefits, leave and recognition for 

service, and are applied where applicable in respective regions 

and employee categories. 

participate in the share scheme received share options under 

the Share Incentive Scheme. 

Long-term incentives are intended to be a key retention tool. 

Details of The Sappi Limited Share Incentive Trust and The 

Sappi Limited Performance Share Incentive Plan can be 

found in note 29 on page 144. 

• Service contracts and notice provisions 

The group chief executive officer and his direct reports all 

have employment contracts which outline the required notice 

periods in the event of a termination of employment. 

The notice terms vary from six months to 18 months, and 

include base salary plus benefits, for that period. 

Variable pay 

• Short-term incentives 

Executive directors and other key management personnel 

throughout the group participate in an annual management 

incentive scheme. 

Incentive target awards range from 15% to 85% of base 

salary. 

The key business performance criteria for the 2008 

financial year were operating income, working capital and 

capital expenditure. 

All other employees participate in either sales incentive 

plans, performance bonus schemes or receive discretionary 

bonuses or a thirteenth cheque payment. 

Payments in terms of short-term incentives are dependent 

upon achievement of the business performance targets or 

production/sales targets being met or exceeded in addition 

to an employee’s individual performance. 

• Long-term incentive programmes 

The group operates two long-term incentive programmes: 

the Sappi Share Incentive Scheme and the Performance 

Share Incentive Plan. 

For 2008, executive directors and other key management 

personnel received share allocations under the Performance 

Share Incentive Plan. All other employees who are eligible to 


71

Annual financial statements 


Page 

Auditor’s report 73 

Directors’ approval 74 

Secretary’s certificate 74 

Directors’ report 75 

Group income statement 78 

Group balance sheet 79 

Group cash flow statement 80 

Group statement of recognised income 

and expense 81 

Group income statement in Rands 

(convenience translation) 82 

Group balance sheet in Rands 


Group cash flow statement in Rands 


Notes to the group annual financial statements 

1. Business 85 

2. Accounting policies 85 

2.1 Basis of preparation 85 

2.2 Accounting policies 85 

2.3 Critical accounting policies and estimates 94 

2.4 Adoption of accounting standards in the 

current year 97 

2.5 Potential impact of future changes in 

accounting policies 98 

3. Segment information 100 

4.1 Operating profit 102 

4.2 Employment cost 103 

4.3 Other operating expenses (income) 103 

5. Net finance costs 104 

6. Taxation charge (benefit) 104 

7. Earnings per share and headline 

earnings per share 106 

8. Dividends 108 

9. Property, plant and equipment 108 

10. Plantations 110 

11. Deferred tax 111 

12. Goodwill and intangible assets 114 

13. Joint ventures and associates 114 

14. Other non-current assets 116 

15. Inventories 116 

16. Trade and other receivables 117 

17. Ordinary share capital and share premium 120 

18. Reconciliation of changes in equity 122 

19. Non-distributable reserves 123 

20. Interest-bearing borrowings 124 

21. Other non-current liabilities 130 

22. Provisions 130 

Page 

23. Notes to the cash flow statement 132 

24. Encumbered assets 133 

25. Commitments 134 

26. Contingent liabilities 135 

27. Post-employment benefits – pensions 135 

28. Post-employment benefits 

– other than pensions 141 

29. Share based payments 144 

30. Financial instruments 149 

31. Related party transactions 171 

32. Events after balance sheet date 172 

33. Environmental matters 173 

34. Directors’ remuneration 174 

35. Directors’ interests 177 

36. Directors’ participation in the Sappi Limited 

Share Incentive Trust (Scheme) and the 

Performance Share Incentive Trust (Plan) 178 

Company auditor’s report 181 

Condensed company income statement 182 

Condensed company balance sheet 183 

Condensed company cash flow statement 184 

Condensed company statement of recognised 

income and expense 184 

Notes to the condensed company 

financial statements 185 

Investments 187 

72

sappi // 

Auditor’s report 

Independent auditor’s report to the members 

of Sappi Limited 

We have audited the group annual financial statements of Sappi 

Limited, which comprise the directors’ report, the group balance 

sheet as at September 2008, the group income statement, the 

group statement of recognised income and expense and the 

group cash flow statement for the year then ended, a summary 

of significant accounting policies and other explanatory notes, as 

set out on pages 75 to 81 and pages 85 to 180. 

Directors’ Responsibility for the Financial 

Statements 

The company’s directors are responsible for the preparation 

and fair presentation of these financial statements in accordance 

with the International Financial Reporting Standards as issued 

by the International Accounting Standards Board, and in the 

manner required by the Companies Act of South Africa. This 

responsibility includes: designing, implementing and maintaining 

internal control relevant to the preparation and fair presentation 

of financial statements that are free from material misstatement, 

whether due to fraud or error; selecting and applying appropriate 

accounting policies; and making accounting estimates that are 

reasonable in the circumstances. 

Auditor’s Responsibility 

Our responsibility is to express an opinion on these financial 

statements based on our audit. We conducted our audit in 

accordance with International Auditing Standards (IAS). Those 

standards require that we comply with ethical requirements and 

plan and perform the audit to obtain reasonable assurance whether 

the financial statements are free from material misstatement. 

An audit involves performing procedures to obtain audit 

evidence about the amounts and disclosures in the financial 

statements. The procedures selected depend on the auditor’s 

judgement, including the assessment of the risks of material 

misstatement of the financial statements, whether due to fraud 

or error. In making those risk assessments, the auditor considers 

internal control relevant to the entity’s preparation and fair 

presentation of the financial statements in order to design audit 

procedures that are appropriate in the circumstances, but not for 

the purpose of expressing an opinion on the effectiveness of 

the entity’s internal control. An audit also includes evaluating 

the appropriateness of accounting principles used and the 

reasonableness of accounting estimates made by the directors, 

as well as evaluating the overall financial statement presentation. 

We believe that the audit evidence we have obtained is sufficient 

and appropriate to provide a basis for our audit opinion. 

Opinion 

In our opinion, the financial statements present fairly, in all 

material respects, the financial position of the group as at 

September 2008, and of its financial performance and its cash 

flows for the year then ended in accordance with the International 

Financial Reporting Standards as issued by the International 

Accounting Standards Board, and in the manner required by the 

Companies Act of South Africa. 

Deloitte & Touche 

Per M J Comber 

Partner 


Deloitte & Touche – Registered Auditors 

Buildings 1 and 2, Deloitte Place 

The Woodlands, Woodlands Drive, Woodmead Sandton 

Johannesburg, South Africa 

National Executive: G G Gelink Chief Executive A E Swiegers Chief Operating 

Officer G M Pinnock Audit D L Kennedy Tax & Legal and Financial Advisory 

L Geeringh Consulting L Bam Corporate Finance C R Beukman Finance T J Brown 

Clients & Markets N T Mtoba Chairman of the Board 

A full list of partners and directors is available on request. 


73

Directors’ approval 

The directors and officers of the company are responsible 

to the extent respectively indicated for the annual financial 

statements which are submitted to shareholders in the 

general meeting. 

The directors are principally responsible for the overall coordination 

of the preparation and for the final approval of such 

submission. The initial preparation is the responsibility of the 

company’s officers. The auditors are responsible for auditing 

the annual financial statements in the course of executing their 

statutory duties. 

80 Group cash flow statement 

81 Group statement of recognised income and expense 

82 Group income statement in Rands 

83 Group balance sheet in Rands 

85 Notes to the group annual financial statements 

181 Condensed company financial statements 

187 Investments 

The above statements were approved by the board of directors 

on 03 December 2008 and were signed on its behalf by: 

The report and annual financial statements of the group and 

the company appear on the following pages: 

75 Directors’ report 

78 Group income statement 

79 Group balance sheet 

R J Boëttger 

chief executive officer 


M R Thompson 

chief financial officer 

Secretary’s certificate 

In terms of section 268G(d) of the Companies Act of South Africa, I hereby certify that, to the best of my knowledge and belief, the 

company has lodged with the Registrar of Companies, for the financial year ended September 2008, all such returns as are required 

of a public company in terms of this Act and that such returns are true, correct and up to date. 

Sappi Management Services (Pty) Limited 

D J O’Connor 

group secretary 


74

sappi // 

Directors’ report 


Your directors submit their report for the year ended 

September 2008. 

Business of Sappi Limited (Sappi or the 

company) and its operating companies 

mentioned below (the group) 

The group manufactures and sells a wide range of pulp, paper 

and wood products for use in almost every sphere of economic 

activity. The group conducts its business through two business 

units, namely: 

• Sappi Fine Paper; and 

• Sappi Forest Products. 

Sappi Fine Paper has manufacturing and marketing facilities 

in Europe, North America, Southern Africa and Asia and 

produces mainly high quality branded coated fine paper. It also 

manufactures uncoated graphic and business paper, coated 

and uncoated specialities papers, and casting release paper 

used in the manufacture of artificial leather and textured 

polyurethane applications. Sappi Forest Products, based in 

South Africa, produces packaging paper and newsprint, pulp, 

chemical cellulose, and forest and timber products for 

Southern Africa and export markets. Sappi Trading operates a 

trading network for the marketing and distribution of chemical 

cellulose and market pulp throughout the world and of the 

group’s other products in areas outside our core operating 

regions of North America, Europe and Southern Africa. 

Reporting period 

The group’s financial period ends on the Sunday closest to 

the year end date and results are reported as if at the year 

end date. 

International Financial Reporting Standards 

(IFRS) 

As a South African company and in terms of the requirements 

of the JSE Limited (JSE), Sappi’s financial reporting is based 

on IFRS as published by the International Accounting Standards 

Board (IASB). 

Sappi no longer reconciles its reporting annually from IFRS to 

US GAAP. This follows a release by the US Securities Exchange 

Commission (SEC) on 21 December 2007 which allows Foreign 

Private Issuers to file Annual Financial Statements prepared under 

IFRS as issued by the IASB, without reconciliation to US GAAP. 

The US Dollar is the major trading currency of the pulp and 

paper industry. The group reports its results in US Dollars in 

order to facilitate the understanding of the results. 

Share capital 

As at September 2008 the authorised and issued share capital 

of Sappi were as follows: 

Authorised: 

325,000,000 ordinary shares of ZAR1 each ZAR325 million 

Issued: 

239,071,892 ordinary shares of ZAR1 each US$28 million 

Share premium 

US$679 million 

The authorised and issued share capital have been increased 

substantially subsequent to year end for purposes of funding the 

acquisition of M-real’s coated graphic paper business announced 

on 29 September 2008. Further comprehensive details can be 

found in the Rights Offering Circular approved by the directors 

on 10 November 2008 and posted to qualifying shareholders on 

24 November 2008. 

Purchase of shares by a subsidiary 

Through a wholly-owned subsidiary the Sappi group has 

to date acquired approximately 19.4 million Sappi shares – 

(treasury shares) on the open market of the JSE Limited for 

approximately US$186.7 million. This accords with Sappi’s 

stated intention, announced on 9 November 2000, and the 

approval given at all subsequent annual general meetings of 

the company’s shareholders, for a wholly owned Sappi subsidiary 

to acquire Sappi shares, if prevailing circumstances (including 

market conditions) so warrant. None of these shares were 

acquired during the 2008 financial year. Some of the treasury 

shares, have been, and will continue to be, utilised to meet the 

requirements of the Sappi Limited Share Incentive Trust and the 

Sappi Limited Performance Share Incentive Trust from time to 

time. During the year, approximately 725,950 treasury shares 

were issued to participants of the Sappi Limited Share Incentive 

Trust for a consideration of approximately US$6.2 million. Refer to 

note 29 of the group annual financial statements for additional 

details relating to these treasury shares. 

As the company is currently conducting a rights issue, it is unlikely 

that the company will seek approval for the purchase of Sappi 

shares in the foreseeable future. 

Significant announcements during the year 

under review and subsequent to year end 

During August 2008, Sappi announced the planned closures 

of the Blackburn mill and the Maastricht Mill’s Paper Machine 

No 5. Further details can be found in note 9 of the group annual 

financial statements. 


75

Directors’ report // continued 


On 29 September 2008, Sappi announced the proposed 

acquisition of a substantial portion of M-real’s coated graphic 

paper business (the transaction) for €750 million and that the 

transaction would be financed through a combination of equity, 

assumed debt, the cash proceeds from a rights offering and a 

vendor note. 

On 3 November 2008, Sappi’s shareholders approved 

the transaction and a rights offering to finance a portion of 

the transaction. 

Following such approvals, Sappi has commenced a rights 

offering of 286,886,270 new ordinary shares at a subscription 

price of ZAR20.27 per new share. New shares will be issued at 

a ratio of six new shares for every five Sappi shares held. In 

connection with the rights offering, Sappi has entered into an 

underwriting agreement with two international banks. 

Sappi has also to date obtained various regulatory approvals 

for the acquisition, including the approval of the competition 

authorities of the European Union. The transaction is expected 

to be consummated on 31 December 2008. 

Financing 

During the first half of fiscal 2008, Sappi Manufacturing (Pty) 

Ltd raised ZAR240 million in long term bank debt to fund a 

portion of the Saiccor expansion project. The average tenure of 

this debt at year end is 4.2 years. 

Of the EUR600 million five-year revolving credit facility obtained 

in 2005, approximately EUR400 million remains unutilised and 

is considered as a strategic back-up line. 

There have been no changes to the group’s other long-term 

debt. Covenants on all international term debt are identical and 

long-term debt is supported by a Sappi Limited guarantee. 

At the end of the financial year, Sappi’s net debt had an average 

time to maturity of 5.7 years. 

In the financial year, Sappi concluded no further interest rate 

swaps and, at year end, the ratio of gross debt at fixed and 

floating interest rates was 39:61. 

There are no long-term debt repayments scheduled for the 

remainder of 2008 or 2009. 

Dividends 

The directors have declared a dividend (number 85) of 

16 US cents per share (2007: 32 US cents) for the year 

ended September 2008. The record date for the dividend 

was 28 November 2008 and payment was made on 

2 December 2008. 

The Sappi Limited Share Incentive Trust 

and The Sappi Limited Performance Share 

Incentive Trust 

Sappi has in place two share-based incentive programmes. 

The first is The Sappi Limited Share Incentive Trust (the Scheme) 

which was approved by shareholders in March 1997, and which 

has been amended in certain respects from time to time. The 

second is The Sappi Limited Performance Share Incentive Trust 

(the Plan) which was approved by shareholders in 2005. 

In approving the Plan, shareholders fixed the maximum number 

of shares which may be allocated in aggregate to the Scheme 

and the Plan at 19 million shares (equivalent to 7.9% of the 

shares currently in issue), subject to adjustment in case of any 

increase or reduction of Sappi’s issued share capital on any 

conversion, redemptions, consolidations, sub-division and/or 

any rights or capitalisation issues of shares. 

In connection with the rights offering, adjustments are made 

to outstanding grants to employees to address the dilution 

resulting from the change in the number of shares issued as a 

result of the rights offering. 

Borrowing facilities 

The group’s net debt at September 2008 amounted to 

US$2.4 billion (September 2007: US$2.6 billion). The 

company’s Articles of Association allow net borrowings of up 

to US$5.85 billion. Details of the non-current borrowings are 

set out in note 20 of the group annual financial statements. 

Insurance 

The group has an active programme of risk management in 

each of its geographical operating regions to address and to 

reduce exposure to property damage and business interruption. 

All production and distribution units are subjected to regular 

risk assessments by external risk engineering consultants, the 

results of which receive the attention of senior management. 

The risk mitigation programmes are co-ordinated at group level 

in order to achieve a standardisation of methods. Work on 

improved enterprise risk management is on-going and aims to 

lower the risk of incurring losses from uncontrolled incidents. 

Fixed assets 

The only major changes in the nature of the fixed assets of the 

group are as set out under note 9 in the group annual financial 

76

sappi // 

statements. There was no change to the group’s policy relating 

to the use of fixed assets. 

Litigation 

We become involved from time to time in various claims and 

lawsuits incidental to the ordinary course of our business. We 

are not currently involved in legal proceedings which, either 

individually or in the aggregate, are expected to have a material 

adverse effect on our business, assets or properties (see 

note 26). 

Directors and secretaries 

The directors of Sappi Limited are set out below: 

Executive directors: 

Roeloff (Ralph) Jacobus Boëttger 

Mark Richard Thompson 

Non-executive directors: 

Daniël (Danie) Christiaan Cronjé (chairman) 

David Charles Brink 

Meyer Feldberg 

James Edward Healey 

Deenadayalen (Len) Konar 

Helmut Claus-Jürgen Mamsch 

John (Jock) David McKenzie 

Karen Rohn Osar 

Bridgette Radebe 

Sir Anthony Nigel Russell Rudd 

Franklin Abraham Sonn 

the course of 2009. His reappointment, if approved, will be for 

approximately nine months until 31 December 2009, when in 

terms of company policy, he will retire from the board. Likewise, 

Dr F A Sonn will turn 70 years of age in 2009. He will retire from 

the board on 31 December 2009. 

The beneficial interests of directors in the shares of the company 

(including options and rights and options in terms of the Scheme 

and conditional share awards in terms of the Plan) are disclosed 

in notes 35 and 36 to the group annual financial statements. 

A register of interests of directors and other executives in 

shares of the company is available to shareholders and the 

public on request. 

The secretaries and their business and postal addresses are 

set out on page 195. 

Special resolutions 

A full list of the special resolutions passed by the company 

and its subsidiaries during the year will be made available to 

shareholders on request. 

Subsidiary companies 

Details of the company’s significant subsidiaries are set out in 

Annexure A on page 187 of the condensed company financial 

statements. 

During the year, Mr Eugene van As retired as chairman and 

as a director. Dr Danie C Cronje was appointed to the board 

during the year as an independent non-executive director 

and succeeded Mr Eugene van As as chairman in March 2008. 

In terms of the company’s Articles of Association these appoint - 

ments were confirmed at the annual general meeting held on 

3 March 2008. 

At the year end there were thirteen directors, two of whom 

were executive directors. All eleven non-executive directors 

are independent. 

In terms of the company’s Articles of Association, Mr D C Brink, 

Professor M Feldberg, Mr J E Healey and Mr H C Mamsch will 

retire by rotation from the board at the forthcoming annual 

general meeting and all being eligible, have offered themselves 

for re-election. The current directors have recommended them 

for re-appointment. Mr D C Brink turns 70 years of age during 


77

Group income statement 


US$ million Note 2008 2007 2006 

Sales 5,863 5,304 4,941 

Cost of sales 4 5,016 4,591 4,419 

Gross profit 847 713 522 

Selling, general and administrative expenses 4 385 362 367 

Other operating expenses (income) 4 165 (22) 29 

Share of (profit) loss from associates and joint ventures 13 (17) (10) 1 

Operating profit 4 314 383 125 

Net finance costs 5 126 134 130 

Finance costs 181 173 162 

Finance revenue (38) (21) (26) 

Finance cost capitalised (16) (14) (2) 


Net fair value loss on financial instruments 7 9 3 

Profit (loss) before taxation 188 249 (5) 

Taxation charge (benefit) 6 86 47 (1) 

Profit (loss) for the year 102 202 (4) 

Weighted average number of ordinary shares in issue (millions) 228.8 227.8 226.2 

Basic earnings (loss) per share (US cents) 7 45 89 (2) 

Diluted earnings (loss) per share (US cents) 7 44 88 (2) 

Dividends per share (US cents) – declared after year-end 8 16 32 30 

78

sappi // 

Group balance sheet 


US$ million Note 2008 2007 

Assets 

Non-current assets 4,408 4,608 

Property, plant and equipment 9 3,361 3,491 

Plantations 10 631 636 

Deferred tax assets 11 41 60 

Goodwill and intangible assets 12 7 7 

Joint ventures and associates 13 124 112 

Other non-current assets 14 168 165 

Derivative financial instruments 30 76 137 

Current assets 1,701 1,736 

Inventories 15 725 712 

Trade and other receivables 16 698 653 


Cash and cash equivalents 274 364 

Total assets 6,109 6,344 

Equity and liabilities 

Shareholders’ equity 1,605 1,816 

Ordinary share capital and share premium 17,18 707 825 

Non-distributable reserves 18,19 124 114 

Foreign currency translation reserve 18 (121) 9 

Retained earnings 18 895 868 

Non-current liabilities 2,578 2,612 

Interest-bearing borrowings 20 1,832 1,828 

Deferred tax liabilities 11 399 385 


Other non-current liabilities 21 346 384 

Current liabilities 1,926 1,916 

Interest-bearing borrowings 20 821 771 

Overdraft 26 22 


Trade and other payables 959 952 

Taxation payable 54 125 

Provisions 22 42 18 

Total equity and liabilities 6,109 6,344 


79

Group cash flow statement 


US$ million Note 2008 2007 2006 

Cash retained from operating activities 355 388 160 

Cash generated from operations 23.1 623 585 396 

– Decrease (increase) in working capital 23.2 1 60 (17) 

Cash generated from operating activities 624 645 379 

– Finance costs paid 23.3 (139) (183) (164) 

– Finance revenue received 13 21 26 

– Taxation paid 23.4 (70) (27) (13) 

Cash available from operating activities 428 456 228 

– Dividends paid (73) (68) (68) 

Cash utilised in investing activities (494) (364) (287) 

Investment to maintain operations (239) (38) (144) 

– Replacement of non-current assets 23.5 (250) (116) (160) 

– Proceeds on disposal of non-current assets 23.6 7 50 4 

– Decrease in other non-current assets 4 28 12 

Investment to expand operations (255) (326) (143) 

– Additions of non-current assets (255) (326) (143) 

Cash effects of financing activities 49 98 (21) 

Proceeds from interest-bearing borrowings* 2,077 806 925 

Repayment of interest-bearing borrowings* (2,032) (719) (793) 

Increase (decrease) in bank overdrafts 4 11 (153) 

Net movement in cash and cash equivalents (90) 122 (148) 

Cash and cash equivalents at beginning of year 364 224 367 

Translation effects – 18 5 

Cash and cash equivalents at end of year 23.7 274 364 224 

* Includes gross cash flows relating to ongoing short-term financing activities. 

80

sappi // 

Group statement of recognised income and expense 



Pension fund assets recognised (not recognised) – 45 (43) 

Actuarial gains on pension and other post-employment benefit liabilities 7 101 100 

Fair value adjustment on available for sale financial instruments – 1 – 

Deferred taxation on above items (1) (21) (10) 

Exchange differences on translation (262) 151 (189) 

Net (expense) income recorded directly in equity (256) 277 (142) 


Total recognised (expense) income for the year (154) 479 (146) 


81

Group income statement in Rands convenience translation 


Unaudited 

ZAR million 2008 2007 2006 

Sales 43,559 38,051 32,630 

Cost of sales 37,266 32,936 29,183 

Gross profit 6,293 5,115 3,447 

Selling, general and administrative expenses 2,860 2,597 2,423 

Other operating expenses (income) 1,226 (158) 192 

Share of (profit) loss from associates and joint ventures (126) (72) 7 

Operating profit 2,333 2,748 825 

Net finance costs 937 962 858 

Finance costs 1,345 1,241 1,069 

Finance revenue (282) (151) (172) 

Finance cost capitalised (119) (100) (13) 



Profit (loss) before taxation 1,396 1,786 (33) 

Taxation charge (benefit) 638 337 (7) 

Profit (loss) for the year 758 1,449 (26) 

Weighted average number of ordinary shares in issue (millions) 228.8 227.8 226.2 

Basic earnings (loss) per share (SA cents) 334 638 (13) 

Diluted earnings (loss) per share (SA cents) 327 631 (13) 

Dividends per share (SA cents) – declared after year end 156 209 220 

Note: 

The above financial results have been translated into ZAR from US Dollars using the exchange rates as set out in accounting policies note 2.2.1. The year end rate was used 

for translating assets and liabilities and the average rate for translating income, expenditure and cash flow items except for dividends which have been translated at the rate 

of exchange on the date of declaration. The translation was made solely for the convenience of the readers and is not defined in IAS 21. It should be noted that the translated 

ZAR figures from US Dollars do not necessarily represent that these US Dollar amounts could be converted into ZAR at the time when the transaction occurred. 

82

sappi // 

Group balance sheet in Rands convenience translation 


Unaudited 

ZAR million 2008 2007 

Assets 


Property, plant and equipment 27,140 23,988 

Plantations 5,095 4,370 

Deferred tax assets 331 412 

Goodwill and intangible assets 57 48 

Joint ventures and associates 1,001 770 

Other non-current assets 1,356 1,133 

Derivative financial instruments 614 941 

Current assets 13,735 11,928 

Inventories 5,854 4,892 

Trade and other receivables 5,636 4,487 


Cash and cash equivalents 2,213 2,501 




Non-current liabilities 20,817 17,947 

Interest-bearing borrowings 14,794 12,561 

Deferred tax liabilities 3,222 2,645 


Other non-current liabilities 2,793 2,638 

Current liabilities 15,551 13,165 

Interest-bearing borrowings 6,630 5,298 

Overdraft 210 151 


Trade and other payables 7,744 6,541 


Provisions 337 124 


Note: 






83

Group cash flow statement in Rands convenience translation 


Unaudited 

ZAR million 2008 2007 2006 

Cash retained from operating activities 2,638 2,783 1,057 

Cash generated from operations 4,586 4,234 2,650 

– Decrease (increase) in working capital 7 430 (112) 

Cash generated from operating activities 4,593 4,664 2,538 

– Finance costs paid (1,033) (1,313) (1,083) 

– Finance revenue received 97 151 172 

– Taxation paid (520) (194) (86) 

Cash available from operating activities 3,137 3,308 1,541 

– Dividends paid (499) (525) (484) 

Cash utilised in investing activities (3,669) (2,611) (1,896) 

Investment to maintain operations (1,775) (272) (952) 

– Replacement of non-current assets (1,857) (832) (1,057) 

– Proceeds on disposal of non-current assets 52 359 26 

– Decrease in other non-current assets 30 201 79 

Investment to expand operations (1,894) (2,339) (944) 

– Additions of non-current assets (1,894) (2,339) (944) 

Cash effects of financing activities 364 703 (138) 

Proceeds from interest-bearing borrowings* 15,431 5,782 6,109 

Repayment of interest-bearing borrowings* (15,097) (5,158) (5,237) 

Increase (decrease) in bank overdrafts 30 79 (1,010) 

Net movement in cash and cash equivalents (667) 875 (977) 

Cash and cash equivalents at beginning of year 2,501 1,741 2,336 

Translation effects 379 (115) 382 

Cash and cash equivalents at end of year 2,213 2,501 1,741 

* Includes gross cash flows relating to ongoing short term financing activities. 

Note: 





84

sappi // 

Notes to the group annual financial statements 


1. Business 

Sappi Limited, a corporation organised under the laws of the 

Republic of South Africa (the “company” and, together with its 

consolidated subsidiaries, “Sappi” or the “group”), was formed 

in 1936 and is a major, vertically integrated international pulp 

and paper producer. Sappi is a leading global producer of 

coated fine paper and chemical cellulose. The group has 

manufacturing facilities in nine countries, on four continents, 

and customers in over 100 countries across the globe. 

The group is composed of its Sappi Fine Paper and Sappi Forest 

Products business units. Sappi Fine Paper has manufacturing 

and marketing facilities in North America, Europe, Southern 

Africa and Asia and produces mainly high quality branded 

coated fine paper. It also manufactures uncoated graphic and 

business paper, coated and uncoated speciality paper, and 

casting release paper used in the manufacture of artificial 

leather and textured polyurethane applications. Sappi Forest 

Products, based in Southern Africa, produces commodity 

paper products, pulp, chemical cellulose and forest and timber 

products for Southern Africa and export markets. The group 

operates a trading network called Sappi Trading for the 

international marketing and distribution of chemical cellulose 

and market pulp throughout the world and of the group’s 

other products in areas outside our core operating regions 

of North America, Europe and Southern Africa. All sales 

and costs associated with Sappi Trading are allocated to our 

two reporting segments. 

2. Accounting policies 

The following principal accounting policies have been 

consistently applied in dealing with items that are considered 

material in relation to the Sappi Limited group financial 

statements. 

2.1 Basis of preparation 

The group’s consolidated financial statements have been 

prepared in accordance with: 

– International Financial Reporting Standards (IFRS) as issued 

by the International Accounting Standards Board (IASB); 

– Interpretations issued by the International Financial Reporting 

Interpretations Committee (IFRIC) of the IASB; and 

– the requirements of the South African Companies Act 

of 1973. 

The financial statements are presented in United States Dollars 

(US$), as it is the major trading currency of the pulp and paper 

industry, and are rounded to the nearest million. 

The financial statements are prepared on the historical-cost 

basis, except for certain financial assets and liabilities and 

plantations that are stated at their fair value. 

Non-current assets and disposal groups held for sale are stated 

at the lower of carrying amount and fair value less costs to sell. 

The accounting policies set out below have been applied 

consistently to all periods presented in these consolidated 

financial statements by all the group entities. 

(i) Fiscal year 

The group’s financial year end is on the Sunday closest to the 

last day of September. 

Accordingly the last three financial years ended as follows: 

• 28 September 2008 (year ended September 2008) 

(52 weeks) 

• 30 September 2007 (year ended September 2007) 

(52 weeks) 

• 01 October 2006 (year ended September 2006) 

(52 weeks) 

The financial years commenced as follows: 

• 01 October 2007 (October 2007) 



(ii) Underlying concepts 

The financial statements are prepared on the going concern 

basis. 

Assets and liabilities and income and expenses are not offset 

in the income statement or balance sheet unless specifically 

permitted by an accounting standard or interpretation. 

Changes in accounting estimates are recognised prospectively 

in profit or loss, except to the extent that they give rise to changes 

in the carrying amount of recognised assets and liabilities where 

the change in estimate is recognised immediately. 

Prior period errors are retrospectively restated if material. 

2.2 Accounting policies 

2.2.1 Foreign currencies 

(i) Foreign currency transactions 

Transactions in foreign currencies are converted into the functional 

currency of the group’s individual operations at the rate of 

exchange ruling at the date of such transactions. 


85

Notes to the group annual financial statements // continued 


2. Accounting policies (continued) 

Monetary and non-monetary assets and liabilities in foreign 

currencies are translated into the functional currency of the 

entities in the group at rates of exchange ruling at the reporting 

date. Non-monetary assets (plantations) denominated in foreign 

currencies that are stated at fair value are translated into the 

functional currency of the group’s individual operations at 

foreign exchange rates ruling at the reporting date. 

Exchange gains and losses on the translation and settlement of 

foreign currency monetary assets and liabilities during the 

period are recognised in the income statement in the period in 

which they arise. 

(ii) Consolidation of foreign operations 

The assets and liabilities, including goodwill of entities that have 

non-dollar functional currencies are translated at the closing 

rate, while the income and expenses are translated using the 

average exchange rate. The differences that arise on translation 

are reported directly in equity. These translation differences are 

recognised in profit or loss for the period on disposal of the 

foreign operation. 

The functional currency of the European business is Euro, the 

Southern African business is ZAR and the North American 

business is US Dollars. Other minor companies in the group 

may have different functional currencies depending on the 

business environment in which they operate. 

Goodwill and fair value adjustments arising on the acquisition of 

a non-dollar functional currency entity are treated as assets and 

liabilities of the entity and are translated at the closing rate. 

The group used the following exchange rates for financial 

reporting purposes: 

Rate at 

Sep 08 Sep 07 Sep 06 

ZAR to one US$ 8.0751 6.8713 7.7738 

GBP to one US$ 0.5421 0.4885 0.5340 

EUR to one US$ 0.6843 0.7007 0.7891 

Average annual rate 

Sep 08 Sep 07 Sep 06 

ZAR to one US$ 7.4294 7.1741 6.6039 

GBP to one US$ 0.5049 0.5072 0.5560 

EUR to one US$ 0.6638 0.7499 0.8120 

2.2.2 Group accounting 

(i) Subsidiary undertakings and specialpurpose 

entities 

The group financial statements include the assets, liabilities and 

results of the company and subsidiary undertakings (including 

special-purpose entities) controlled by the group. The results 

of subsidiary undertakings acquired or disposed of in the year 

are included in the consolidated income statement from 

the date of acquisition or up to the date of disposal or cessation 

of control. 

Intragroup balances and transactions, and profits and losses 

arising from intragroup transactions, are eliminated in the 

preparation of the group financial statements. Unrealised losses 

are not eliminated to the extent that they provide objective 

evidence of impairment. 

(ii) Associates and Joint Ventures 

The results and assets and liabilities of associates and joint 

ventures are incorporated in the group’s financial statements 

using the equity method of accounting. The share of the 

associates’ or joint venture’s retained income, which is the profit 

after tax, is determined from their latest financial statements. 

The carrying amount of such investments is reduced to 

recognise any impairment in the value of individual investments. 

When the group’s share of losses exceeds the carrying amount 

of the associate or joint venture, the carrying amount is reduced 

to nil, inclusive of any debt outstanding, and recognition of 

further losses is discontinued, except to the extent that the 

group has incurred or guaranteed obligations in respect of the 

associate or joint venture. 

Where an entity within the group transacts with an associate 

or joint venture of the group, unrealised profits and losses are 

eliminated to the extent of the group’s interest in the relevant 

associate or joint venture. 

Investments in associates and joint ventures held with the 

intention of disposing thereof within 12 months are accounted 

for as non-current assets held for sale. 

(iii) Goodwill 

The excess between the cost of the business combination and 

the group’s interest in the net fair value of the identifiable assets, 

liabilities and contingent liabilities acquired is recognised as 

goodwill in the balance sheet. 

Goodwill is subsequently held at cost less any accumulated 

impairment losses. Goodwill is not amortised but tested 

for impairment annually or more frequently where there is an 

indication of impairment. 

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Goodwill is tested for impairment based on an allocation to one 

or more cash-generating units (CGUs) in which the synergies 

from the business combinations are expected. Each CGU 

containing goodwill is tested annually for impairment. An 

impairment loss is recognised whenever the carrying amount of 

an asset or its CGU exceeds its recoverable amount. 

Impairment losses recognised in respect of CGUs are allocated 

first to reduce the carrying amount of any goodwill allocated 

to a CGU and then to reduce the carrying amount of the other 

assets in the CGU on a pro-rata basis. Impairment losses relating 

to goodwill are not reversed. 

Critical areas of judgement and the use of estimates involving 

goodwill are included in section 2.3 of the accounting policies. 

2.2.3 Environmental expenditures and liabilities 

Environmental expenditure that pertains to current operations 

or relates to future revenues are expensed or capitalised, 

consistent with the company’s capitalisation policy. Expenditures 

that result from the remediation of an existing condition caused 

by past operations, and do not contribute to current or future 

revenues, are recognised in profit and loss for the period. 

Environmental accruals are recorded based on current inter - 

pretation of environmental laws and regulations. Amounts 

accrued do not include third-party recoveries. All available 

information is considered including the results of remedial 

investigation/feasibility studies (RI/FS). In evaluating any disposal 

site environmental exposure, an assessment is made of the 

company’s potential share of the remediation costs by reference 

to the known or estimated volume of the company’s waste that 

was sent to the site and the range of costs to treat similar waste 

at other sites if a RI/FS is not available. 

2.2.4 Financial instruments 

(i) Initial recognition 

Financial instruments are recognised on the balance sheet 

when the group becomes a party to the contractual provisions 

of a financial instrument. All purchases of financial assets that 

require delivery within the time frame established by regulation 

or market convention (’regular way’ purchases) are recognised 

at transaction date. 

(ii) Initial measurement 

All financial instruments are initially recognised at fair value plus 

transaction costs that are incremental to the group and directly 

attributable to the acquisition or issue of the financial asset or 

financial liability except for those classified as ’fair value through 

profit and loss’. 

Financial instruments carried at fair value through profit and loss 

are measured at fair value on transaction date. All transaction 

costs are immediately written off in the income statement. 

(iii) Subsequent measurement 

Subsequent to initial measurement, financial instruments are 

either measured at fair value or amortised cost, depending on 

their classification: 

• Financial assets and financial liabilities at fair value 

through profit or loss 

Financial instruments at fair value through profit or loss 

consist of items classified as held for trading. The group has not 

designated any financial instruments as at fair value through 

profit or loss. 

• Non-trading financial liabilities 

All financial liabilities, other than those at fair value through profit 

or loss, are classified as non-trading financial liabilities and are 

measured at amortised cost. 

• Held-to-maturity financial assets 

Held-to-maturity financial assets are measured at amortised 

cost, with interest income recognised in profit and loss for 

the period. 

The group does not presently have any held to maturity financial 

assets. 

• Loans and receivables 

Loans and receivables are carried at amortised cost, with 

interest revenue recognised in profit and loss for the period. The 

majority of the group’s receivables are included in the loans and 

receivables category. 

• Available-for-sale financial assets 

Available-for-sale financial assets are measured at fair value, 

with any gains and losses recognised directly in equity along 

with the associated deferred taxation. Any foreign currency 

translation gains or losses or interest revenue, measured on an 

effective-yield basis, are removed from equity to the income 

statement on debt instruments when they arise. 

(iv) Embedded derivatives 

Certain derivatives embedded in financial and host contracts, 

are treated as separate derivatives and recognised on a 

standalone basis, when their risks and characteristics are not 

closely related to those of the host contract and the host 

contract is not carried at fair value, with unrealised gains and 

losses reported in profit or loss. 


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(v) Derecognition 

The group derecognises a financial asset when the rights to 

receive cash flows from the asset have expired or have been 

transferred and the group has transferred substantially all risks 

and rewards of ownership. 

A financial liability is derecognised when and only when the 

liability is extinguished, i.e. when the obligation specified in the 

contract is discharged, cancelled or has expired. 

(vi) Impairment of financial assets 

• Loans and receivables 

An impairment is recognised when there is evidence that the 

group will not be able to collect all amounts due according 

to the original terms of the receivables. The amount of the 

impairment is charged to the income statement. 

• Available-for-sale financial assets 

When there is objective evidence that an available for sale 

financial asset is impaired, the cumulative unrealised gains and 

losses previously recognised in equity are removed from equity 

and recognised in profit or loss even though the financial asset 

has not been derecognised. 

If, in a subsequent period, the fair value of a debt instrument 

classified as available-for-sale increases due to an objective 

event occurring after the impairment loss was recognised in 

profit or loss, the impairment loss is reversed in profit or loss 

for the period. Impairment losses recognised in profit or loss 

for an investment in an equity instrument classified as availablefor-sale 

are not reversed through profit or loss. 

(vii) Derivatives and hedge accounting 

Hedge accounting recognises the offsetting effects on profit or 

loss of changes in the fair values of the hedging instrument and 

the hedged item. 

Hedging relationships are of three types: 

• Fair value hedges 

If a fair value hedge meets the conditions for hedge accounting, 

any gain or loss on the hedged item attributable to the hedged 

risk is included in the carrying amount of the hedged item and 

recognised in profit or loss. The changes in the fair value of the 

hedging instrument and the hedged item is recognised in net 

finance costs in profit or loss. 

hedging instrument that is determined to be an effective hedge 

is recognised directly in shareholders’ equity and the ineffective 

portion is recognised in income. 

The gains or losses, which are recognised directly in share - 

holders’ equity, are transferred to income in the same period in 

which the hedged transaction affects income. Any ineffective - 

ness related to cash flow hedges is recognised in the profit or 

loss for the period. 

The group does not currently apply cash flow hedge accounting. 

• Hedge of a net investment in a foreign operation 

The group does not currently have any hedges of net 

investments in foreign operations. 

Hedge accounting is discontinued on a prospective basis 

when the hedge no longer meets the hedge accounting criteria 

(including when it becomes ineffective), when the hedge 

instrument is sold, terminated or exercised when, for cash flow 

hedges, the designation is revoked and the forecast transaction 

is no longer expected to occur. Any cumulative gain or loss on 

the hedging instrument for a forecast transaction is retained in 

equity until the transaction occurs, unless the transaction is no 

longer expected to occur, in which case it is transferred to profit 

or loss for the period. 


hedge accounting are included in section 2.3 of the 

accounting policies. 

(viii) Offsetting financial instruments 

and related income 

Financial assets and liabilities are offset and the net amount 

reported in the balance sheet only when there is a legally 

enforceable right to set off and there is an intention of settling 

on a net basis or realising the asset and settling the liability 

simultaneously. Income and expense items are offset only to 

the extent that their related instruments have been offset in the 

balance sheet, with the exception of those relating to hedges, 

which are disclosed in accordance with the profit or loss effect 

of the hedged item. 

(ix) Interest income and expense 

Interest income and expense are recognised in profit or loss 

using the effective interest rate method taking into account the 

expected timing and amount of cash flows. 

• Cash flow hedges 

In relation to cash flow hedges, which meet the conditions 

for hedge accounting, the portion of the gain or loss on the 

(x) Other 

Dividends from investments and gains or losses on the sale of 

investments are recognised in profit or loss when the amount 

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of revenue from the transaction or service can be measured 

reliably, it is probable that the economic benefits of the transaction 

or service will flow to the group and the costs associated with the 

transaction or service can be measured reliably. 

2.2.5 Government grants 

Government grants are recognised in income over the periods 

necessary to match them with the related costs which they are 

intended to compensate. 

Government grants related to assets are recognised by deducting 

the grant from the carrying amount of the related asset. 

2.2.6 Intangible assets 

(i) Research activities 

Expenditures on research activities, internally generated goodwill 

and brands are recognised in profit or loss as an expense 

as incurred. 

(ii) Development activities 

Expenditure on engineering projects, computer software and 

other development activities, is capitalised if these projects and 

activities are technically and commercially feasible and the 

group has sufficient resources to complete development. 

Computer development expenditure is amortised only once 

the relevant software has been commissioned. Intangible 

assets are stated at cost less accumulated amortisation and 

impairment losses. Intangible assets, which have not yet been 

commissioned, are stated at cost less impairment losses. 

Amortisation of engineering projects, computer software and 

development costs is charged to profit or loss on a straightline 

basis over the estimated useful lives of these assets, not 

exceeding five years. Subsequent expenditure relating to 

computer software is capitalised only when it increases the 

future economic benefits embodied in the specific asset to 

which it relates. 

(iii) Patents 

Patents acquired are capitalised and amortised on a straight 

line basis over their estimated useful lives, which is on average 

ten years. 

2.2.7 Impairment of assets other than goodwill 

and financial instruments 

The group assesses all assets (other than goodwill and 

intangible assets not yet available for use) at each balance 

sheet date for indications of an impairment or the reversal of a 

previously recognised impairment. 

Intangible assets not yet available for use are tested at least 

annually for impairment. 

Should there be any indications of impairment, the recoverable 

amounts of the assets are estimated. These impairments, 

where the carrying value of an asset exceeds its recoverable 

amount, or the reversal of a previously recognised impairment, 

are recognised in profit or loss for the period. 

The recoverable amount of an asset is the higher of its fair value 

less cost to sell and its value-in-use. The fair value less cost 

to sell is determined by ascertaining the current market value 

of an asset and deducting any costs related to the realisation 

of the asset. 

For an asset whose cash flows are largely dependent on those 

of other assets the recoverable amount is determined for the 

cash-generating unit (CGU) to which the asset belongs. 

When an asset previously tested as part of a larger CGU is no 

longer expected to contribute to the future cash flows of this 

CGU or is no longer in use, the applicable asset is evaluated on 

a stand-alone basis. 

A previously recognised impairment loss will be reversed if the 

recoverable amount increases as a result of a change in the 

estimates used previously to determine the recoverable amount, 

but not to an amount higher than the carrying amount that would 

have been determined, net of depreciation or amortisation, had 

no impairment loss been recognised in prior periods. 


asset impairments are included in section 2.3 of the 


2.2.8 Inventories 

Inventories are stated at the lower of cost or net realisable 

value. Cost includes all costs of purchase, costs of conversion 

and other costs incurred in bringing the inventories to their 

present location and condition. Net realisable value is the 

estimated selling price in the ordinary course of business, less 

the estimated cost of completion, distribution and selling. 

Cost is determined on the following basis: 

• First in first out (FIFO): finished goods 

• Weighted average: raw materials, work in progress and 

consumable stores 

• The specific identification basis is used to arrive at the cost 

of items that are not interchangeable. 


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2.2.9 Leases 

(i) 

The group as lessee 

Leases in respect of which the group bears substantially all 

the risks and rewards incidental to ownership are classified as 

finance leases. Finance leases are capitalised at the inception 

of the lease at the lower of the fair value of the leased asset or 

the present value of the minimum lease payments. 

Lease payments are allocated between capital repayments and 

finance charges using the effective interest rate method. 

Capitalised leased assets are depreciated on a consistent 

basis as those with owned assets except where the transfer 

of ownership is uncertain at the end of the lease period in 

which case they are depreciated on a straight line basis over 

the shorter of the lease period and the expected useful life 

of the asset. 

Leases in respect of which a significant portion of the risks and 

rewards of ownership are retained by the lessor are classified 

as operating leases. Lease payments made under operating 

leases are charged to income on a straight-line basis over the 

term of the lease unless another systematic basis is more 

representative of the time pattern of the group’s benefit. 

(ii) Recognition of lease of land 

Leases of land and buildings are classified as operating or 

finance leases in the same way as leases of other assets. The 

land and buildings elements of a lease are considered separately 

for the purpose of lease classification. 

If the lease payments cannot be allocated reliably between 

these two elements, the entire lease is classified as a finance 

lease, where the building is a finance lease, unless it is clear 

that both elements are operating leases. 

2.2.10 Non-current assets held for sale and 

discontinued operations 

Non-current assets (or disposal groups) are classified as held 

for sale when their carrying value will be recovered principally 

through sale within 12 months rather than use. Non-current 

assets held for sale are measured at the lower of carrying 

amount and fair value less cost to sell and are not depreciated. 

The entire asset or disposal group must be available for 

immediate sale in its present condition and the sale should be 

highly probable, with an active programme to find a buyer and 

the appropriate level of management approving the sale. The 

group does not currently have any discontinued operations. 

2.2.11 Provisions 

Provisions are recognised when the group has a legal or 

constructive obligation arising from past events that will probably 

be settled. Where the effect of discounting (time value) is material, 

provisions are discounted and the discount rate used is a pretaxation 

rate that reflects current market assessments of the 

time value of money and, where appropriate, the risks specific to 

the liability. 

The following specific policies are applied: 

• A provision for onerous contracts is recognised when the 

expected benefits to be derived by the group from a contract 

are lower than the unavoidable costs of meeting the obligations 

under the contract. 

• A provision for restructuring is recognised only if the group has 

created a detailed formal plan and raised a valid expectation, 

among those parties directly affected, that the plan will be 

carried out, either by having begun implementation or by 

publicly announcing the plan’s main features. Future operating 

costs or losses are not provided for. 


provisions are included in section 2.3 of the accounting policies. 

2.2.12 Pension plans and other post-retirement 

benefits 

(i) Post-employment benefits – pensions 

Defined-benefit and defined-contribution plans have been 

established for eligible employees of the group, with the assets 

held in separate trustee-administered funds. 

The present value of the defined benefit obligation and related 

current service cost are calculated annually by independent 

actuaries using the projected unit method. 

The group’s policy is to recognise actuarial gains and losses, 

which can arise from differences between expected and 

actual outcomes or changes in actuarial assumptions, in the 

consolidated statement of recognised income and expense. 

Any increase in the present value of plan liabilities expected to 

arise due to current service costs is charged to operating profit. 

The expected return on plan assets and the expected increase 

during the period in the present value of plan liabilities are 

included in investment income and interest expense. 

Gains or losses on the curtailment or settlement of a defined 

benefit plan are recognised in the income statement when 

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the group is demonstrably committed to the curtailment or 

settlement. Past service costs are recognised immediately to 

the extent that the benefits are already vested, and otherwise 

are amortised on a straight-line basis over the vesting period of 

those benefits. 

The net liability recognised in the balance sheet represents the 

present value of the defined benefit obligation adjusted for 

unrecognised past service costs, reduced by the fair value of 

the plan assets. Where the calculation results in a benefit to the 

group, the recognised asset is limited to the net total of past 

service costs and the present value of any future refunds from 

the plan or reductions in future contributions to the plan. 

Contributions in respect of defined-contribution plans are 

recognised as an expense in profit or loss as incurred. 

(ii) Post employment benefits – medical 

The projected unit credit method is used in determining 

the present value of post employment medical benefits. The 

estimated cost of retiree health care and life insurance benefit 

plans is accrued during the participants’ actual service periods 

up to the dates they become eligible for full benefits. Experience 

adjustments and plan amendments in respect of existing 

employees are treated in a similar manner as described in the 

preceding paragraph, in the statement of recognised income 

and expenditure. 

(iii) Workmen’s compensation insurance 

Sappi Fine Paper North America has a combination of selfinsured 

and insured workers’ compensation programmes. 

The self-insurance claim liability for workers’ compensation is 

based on claims reported and actuarial estimates of adverse 

developments and claims incurred but not reported. 


pension plans and other post-retirement benefits are included 

in section 2.3 of the accounting policies. 

2.2.13 Plantations 

Plantations are stated at fair value less estimated cost to sell at 

the harvesting stage. Fair value is determined using the present 

value of expected future cash flows for immature timber and 

the standing value method for mature timber. The age threshold 

used for quantifying immature timber is dependent on the rotation 

period of the specific timber genus which varies between eight to 

eighteen years. In the Southern African region softwood less 

than eight years and hardwood less than five years is classified 

as immature timber. All changes in fair value are recognised in 

the period in which they arise. 

The fair value of immature timber calculation takes into account; 

unadjusted current market prices, estimated projected growth 

over the rotation period for the existing immature timber volumes 

in metric ton, cost of delivery and estimated maintenance costs 

up to the timber becoming mature. The standing value for mature 

timber is based on unadjusted current market prices in available 

markets and estimated timber volumes in metric tons less cost 

of delivery. 

Cost of delivery includes all costs associated with getting the 

harvested agricultural produce to the market, being harvesting, 

loading, transport and allocated fixed overheads. 

Trees are generally felled at the optimum age when ready for 

intended use. At the time the tree is felled it is taken out of 

plantations and accounted for under inventory and reported as 

depletion cost (fellings). 

Depletion costs include the fair value of timber felled, which is 

determined on the average method, plus amounts written 

off against standing timber to cover loss or damage caused by 

fire, disease and stunted growth. These costs are accounted 

for on a cost per metric ton allocation method multiplied by 

unadjusted current market prices. Tons are calculated using the 

projected growth to rotation age and are extrapolated to current 

age on a straight-line basis. 

Sappi directly manages plantations established on its own land 

that the company either owns or leases from a third party. 

Indirectly managed plantations represent plantations established 

on land held by independent commercial farmers where Sappi 

provides technical advice on the growing and tendering of 

trees. The associated costs for managing the plantations are 

recognised as silviculture costs in cost of sales (see note 4.1). 


plantations are included in section 2.3 of the 


2.2.14 Property, plant and equipment 

Items of property, plant and equipment are stated at cost less 

accumulated depreciation and impairment losses. Cost includes 

the estimated cost of dismantling and removing the assets, 

where specifically required in terms of legislative requirements or 

a constructive obligation exists. 

Owner-occupied investment properties and properties in the 

course of construction are carried at cost, less any impairment 

loss where the recoverable amount of the asset is estimated 

to be lower than its carrying value. Cost includes professional 


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fees and, for qualifying assets, borrowing costs capitalised in 

accordance with the group’s accounting policy. Depreciation 

commences, on the same basis as other property assets, when 

the assets are ready for their intended use. The group currently 

does not hold any investment properties. 

Subsequent expenditure is capitalised when it is measurable 

and will result in probable future economic benefits. Expenditure 

incurred to replace a component of an item of owner-occupied 

property or equipment is capitalised to the cost of the item of 

owner-occupied property and equipment and the part replaced 

is derecognised. All other expenditure is recognised in profit or 

loss as an expense when incurred. 

Depreciation is charged to write off the depreciable amount of 

the assets, other than land, over their estimated useful lives to 

estimated residual values, using a method that reflects the 

pattern in which the asset’s future economic benefits are 

expected to be consumed by the entity. 


property, plant and equipment are included in section 2.3 of the 


2.2.15 Segment reporting 

The primary business segments are Sappi Fine Paper and Sappi 

Forest Products. On a secondary segment basis, significant 

geographic regions have been identified based on the location 

of the productive assets, being Asia, Southern Africa, Europe 

and North America. 

loss for the period in full on grant date with a corresponding 

increase in equity. 

Where the equity instruments do not vest until the employee 

has completed a specified period of service, it is assumed 

that the services rendered by the employee, as consideration 

for those equity instruments, will be received in the future 

during the vesting period. These services are accounted 

for in profit or loss as they are rendered during the vesting 

period, with a corresponding increase in equity. Sharebased 

payment expenses are adjusted for non-marketrelated 

performance conditions. 

(ii) Measurement of fair value of equity 

instruments granted 

The equity instruments granted by the group are measured 

at fair value at measurement date using modified binomial 

option pricing valuation models. The valuation technique is 

consistent with generally acceptable valuation methodologies 

for pricing financial instruments and incorporates all factors and 

assumptions that knowledgeable, willing market participants 

would consider in setting the price of the equity instruments. 

2.2.17 Shareholders’ equity 

(i) Share capital 

Share capital issued by the company is recorded as the 

proceeds received, net of direct issue costs. 

Ordinary and preference share capital is classified as equity, if 

the shares are non-redeemable by the shareholder and any 

dividends are discretionary. 

Assets, liabilities, revenues or expenses that are not directly 

attributable to a particular segment are allocated between 

segments where there is a reasonable basis for doing so. The 

group accounts for inter segment revenues and transfers as if 

the transactions were with third parties at current market prices. 

2.2.16 Share-based payments 

(i) Equity-settled share-based payment 

transactions with employees 

The services received in an equity-settled share-based payment 

transaction with employees are measured at the fair value of 

the equity instruments granted. The fair value of those equity 

instruments is measured at grant date. 

If the equity instruments granted vest immediately and an 

employee is not required to complete a specified period of 

service before becoming unconditionally entitled to those 

instruments, the services received are recognised in profit or 

Shares repurchased by the issuing company are cancelled. 

(ii) Treasury shares 

When share capital recognised as equity is repurchased by the 

company or other members of the group, the amount of the 

consideration paid, including directly attributable costs, is 

recognised as a change in equity. 

Shares repurchased by group companies are classified as 

treasury shares and are held at cost. These shares are treated 

as a deduction from the issued and weighted average number 

of shares and the cost price of the shares is presented as a 

deduction from total equity. 

(iii) Dividends 

Dividends are recognised as distributions within equity in the 

period in which they are payable to shareholders. Dividends for 

the year that are declared after the balance sheet date are 

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disclosed in the dividends note. Taxation costs incurred on 

dividends are recognised in the period in which the dividend 

is declared. 

2.2.18 Taxation 

Taxation on the profit or loss for the year comprises current and 

deferred taxation. Taxation is recognised in profit or loss except 

to the extent that it relates to items recognised directly to equity, 

in which case it is recognised in equity. 

(i) Current taxation 

Current taxation is the expected taxation payable on the taxable 

income, which is based on the results for the period after taking 

into account the necessary adjustments, for the year, using 

taxation rates enacted or substantively enacted at the balance 

sheet date, and any adjustment to taxation payable in respect 

of previous years. 

Secondary Tax on Companies (STC) is a South African 

Income Tax, that arises from the distribution of dividends 

and is recognised at the same time as the liability to pay the 

related dividend. 

(ii) Deferred taxation 

Deferred taxation is provided using the balance sheet liability 

method, based on temporary differences. Temporary differences 

are differences between the carrying amounts of assets and 

liabilities for financial reporting purposes and their taxation base. 

The amount of deferred taxation provided is based on the 

expected manner of realisation or settlement of the carrying 

amount of assets and liabilities using taxation rates enacted or 

substantively enacted at the balance sheet date. Deferred 

taxation is charged to profit or loss for the period, except to the 

extent that it relates to a transaction that is recognised directly 

in equity, or a business combination that is an acquisition. The 

effect on deferred taxation of any changes in taxation rates is 

recognised in profit or loss, except to the extent that it relates 

to items previously charged or credited directly to equity. 

A deferred taxation asset is recognised to the extent that it is 

probable that future taxable income will be available against 

which the unutilised taxation losses and deductible temporary 

differences can be used. The carrying amount of deferred tax 

assets is reviewed at each balance sheet date and is reduced 

to the extent that it is no longer probable that sufficient taxable 

profits will be available to allow all or part of the asset to 

be recovered. 


taxation are included in section 2.3 of the accounting policies. 

2.2.19 Borrowing costs 

Borrowing costs directly attributable to the acquisition, 

construction and production of qualifying assets are capitalised 

as part of the costs of those assets. 

Capitalisation of borrowing costs continues up to the date 

when the assets are substantially ready for their use or sale. 

Borrowing costs capitalised are calculated at the group’s 

average funding cost, except to the extent that funds are 

borrowed specifically for the purpose of obtaining a qualifying 

asset. Where this occurs, actual borrowing costs incurred less 

any investment income on the temporary investment of those 

borrowings are capitalised. 

2.2.20 Cost of sales 

When inventories are sold, the carrying amount is recognised 

as part of cost of sales. Any write down of inventories to net 

realisable value and all losses of inventories or reversals of 

previous write downs or losses are recognised in cost of sales 

in the period the write down, loss or reversal occurs. 

2.2.21 Revenue 

Revenue from the sale of goods (sales) is recognised when 

the significant risks and rewards of ownership have been 

transferred, when delivery has been made and title has passed, 

when the amount of the revenue and the related costs can be 

reliably measured and when it is probable that the debtor will 

pay for the goods. For the majority of local and regional sales, 

transfer occurs at the point of offloading the shipment into 

the customer warehouse, whereas for the majority of export 

sales transfer occurs when the goods have been loaded 

into the relevant carrier, unless the contract of sale specifies 

different terms. 

Revenue is measured at the fair value of the amount received 

or receivable. Trade and settlement discounts, rebates and 

customer returns given are included in sales. 

Shipping and handling costs, such as freight to our customers’ 

destination are included in cost of sales. These costs, when 

included in the sales price charged for our products are 

recognised in net sales. 

2.2.22 Emission trading 

The group accounts for grants allocated by governments for 

emission rights as an intangible asset with an equal liability at 

the time of the grant. The asset and liability are recognised at a 

nominal amount when the grants are issued. 


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The group does not recognise a liability for emissions to the 

extent that it has sufficient allowances to satisfy emission 

liabilities incurred. Where there is a shortfall of allowances that 

the group would have to deliver for emissions, a liability is 

recognised at the current market value of the shortfall. 

Where the group has allowances that exceed actual emissions 

and the excess allowances are sold to parties outside the 

group, a gain is recognised in profit or loss for the period. 

2.2.23 Black Economic Employment (BEE) deal 

The group has entered into a transaction that introduces 

empowered black ownership to the group’s land portfolio in 

South Africa. This empowerment transaction has resulted in 

our empowerment partner obtaining an undivided 25% interest 

of this land portfolio via a swap arrangement for the continued 

right of use of the land. This transaction was based on the current 

fair value of the 25% undivided interest in the share of the land. 

In terms of the agreement, both Sappi and the empowerment 

partner have issued preference shares, for the purchase of 

undivided share of land and the continued right of use of 

the land respectively, the terms of which require payment of 

dividends on an annual basis. Sappi’s liability for dividends will 

vary in relation to the value of 25% of the undivided share of 

the land not paid for by redemption of the preference shares 

issued to the empowerment partner. 

The group has recognised a financial derivative liability in terms 

of IAS 39: Financial Instruments Recognition and Measurement. 

The liability is initially recognised at fair value. Subsequently the 

liability will continue to be measured at fair value with changes 

in fair value recognised in profit or loss in each financial 

reporting period. 

2.3 Critical accounting policies and estimates 

Our group financial statements have been prepared in 

accordance with IFRS as issued by the IASB. The preparation 

of financial statements requires management to make estimates 

and assumptions about future events that affect the reported 

amounts of assets and liabilities and disclosure of contingent 

assets and liabilities. 

Future events and their effects cannot be determined with 

absolute certainty. Therefore, the determination of estimates 

requires the exercise of judgement based on various assumptions 

and other factors such as historical experience, current and 

expected economic conditions, and in some cases, actuarial 

techniques. The group constantly re-evaluates these significant 

factors and makes adjustments where facts and circumstances 

dictate. The group believes that the following accounting 

policies are critical due to the degree of estimation required 

and/or the potential material impact they may have on the 

group’s financial position and performance. 

Asset impairments 

The group periodically evaluates its long-lived assets for 

impairment, including identifiable intangibles and goodwill, 

whenever events, such as losses being incurred, or changes 

in circumstances, such as changes in the pulp and paper 

market, indicate that the carrying amount of the asset may 

not be recoverable. Our judgements regarding the existence 

of impairment indicators are based on market conditions 

and operational performance of the business. Future events 

could cause management to conclude that impairment 

indicators exist. 

In order to assess if there is any impairment, we estimate 

the future cash flows expected to result from the use of the 

asset(s) and its eventual disposition. Considerable management 

judgement is necessary to estimate discounted future cash 

flows, including appropriate bases for making judgements and 

estimates as to future product pricing in the appropriate 

markets, raw material and energy costs, volumes of product 

sold, changes in the planned use of machinery or equipment or 

closing of facilities. The calculation of appropriate pre-tax 

discount rates (weighted average cost of capital) is another 

sensitive input to the valuation. While every effort is made to 

make use of independent information and apply consistent 

methodology, actual circumstances or outcomes could vary 

significantly from such estimates, including as a result of changes 

in the economic and business environment. These variances 

could result in changes in useful lives or impairment. These 

changes can have either a positive or negative impact on our 

estimates of impairment and can result in additional charges. 

Goodwill impairment testing is conducted at reporting unit levels 

of our business and is based on a cash flow based valuation 

model to determine the fair value of the cash generating unit. 

The assumptions used in estimating future cash flows were 

based upon our business forecasts and incorporated external 

information from industry sources, where applicable. Actual 

outcomes could vary significantly from our business forecasts. 

Changes in certain of these estimates could have a material 

effect on the estimated fair value of the reporting unit. In addition 

to the judgments described in the preceding paragraph that are 

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sappi // 

necessary in estimating future cash flows, significant judgments 

in estimating discounted cash flows also include the selection of 

the pre-tax discount rate (weighted average cost of capital) and 

the terminal value (net present value at end of period where there 

is a willing buyer and seller) multiple used in our valuation model. 

The discount rate used in our valuation model considers a 

debt and equity mix, a market risk premium, and other factors 

consistent with valuation methodologies. The terminal value 

multiple used in our valuation model considered the valuations for 

comparable companies. 

Small changes to the valuation model would not significantly 

impact the results of our valuation; however, if future cash 

flows were materially different than our forecasts, then the 

assessment of the potential impairment of the carrying value 

may be impacted. 

Property, plant and equipment 

Where significant parts of an item of property, plant and 

equipment have different useful lives to the item itself, these 

parts are depreciated over their estimated useful lives. The 

methods of depreciation, useful lives and residual values are 

reviewed annually. Depreciation rates for similar items of plant 

or equipment could vary significantly based on the location and 

use of the asset. 

Determining the depreciable amount for an item of plant and 

equipment, the residual amount of the item of plant and 

equipment is taken into consideration. The residual value for 

the majority of items of plant and equipment has been deemed 

to be zero by management due to the underlying nature of the 

equipment. 

The following methods and rates were used during the year to 

depreciate property, plant and equipment to estimated residual 

values: 

Land 

No depreciation 

Buildings 

straight line 40 years 

Plant 

straight line 5 to 20 years 

Vehicles 

straight line 5 to 10 years 

Furniture and equipment straight line 3 to 6 years 

Assets held under finance leases are depreciated over their 

expected useful lives or the term of the relevant lease, where 

shorter. The useful lives and residual values of property, 

plant and equipment are reviewed on an annual basis and 

are revised when the current estimate is different from the 

existing estimate. 

For material items of property, plant and equipment an internal 

engineer is used to assist in determining the remaining useful 

lives and residual values. Management believes that the assigned 

values and useful lives, including the underlying assumptions 

have been adequately considered and consistently applied. 

Different assumptions and assigned useful lives could have an 

impact on the reported amounts. 

Taxation 

The group estimates its income taxes in each of the jurisdictions 

in which it operates. This process involves estimating its current 

tax liability together with assessing temporary differences resulting 

from differing treatment of items for tax and accounting purposes. 

These differences result in deferred tax assets and liabilities, which 

are included within the consolidated balance sheet. 

The group then assesses the likelihood that the deferred tax 

assets will be recovered from future taxable income and, to the 

extent recovery is not likely, a deferred tax asset is not recognised. 

In recognising deferred tax assets the group considers profit 

forecasts including the effect of exchange rate fluctuations on 

sales and external market conditions. Where it is probable that 

a position may be successfully challenged by revenue authorities, 

a tax provision is raised for the tax on the probable adjustment. 

Management’s judgement is required in determining the provision 

for income taxes, deferred tax assets and liabilities. Deferred tax 

assets have been recognised where management believes 

there are sufficient taxable temporary differences or convincing 

other evidence that sufficient taxable profits will be available in 

future to realise deferred tax assets. Although the deferred tax 

assets which have been recognised are considered realisable, 

actual amounts could be reduced if future taxable income is 

not achieved. This can materially affect our reported net income 

and financial position. 

Hedge accounting for financial instruments 

The financial instruments that are used in hedging transactions 

are assessed both at inception and quarterly thereafter to 

ensure they are effective in offsetting changes in either the fair 

value or cash flows of the related underlying exposures. Hedge 

accounting is mainly used for debt instruments to hedge 

interest rate and foreign currency risk exposures and for firm 

commitments to hedge foreign currency risk exposures. We do 

not currently use hedge accounting for trading transactions. 

External market data is applied in measuring the hedge 

effectiveness of financial instruments. Hedge ineffectiveness is 

recognised immediately against income. 


95




Refer to note 30.6 of the Group Annual Financial Statements 

contained elsewhere in this Annual Report for details of the fair 

value hedging relationships as well as the impact of the hedge 

on the pre-tax profit or loss for the period. 

Plantations 

The fair value of immature timber is the present value of the 

expected future cashflows taking into account, unadjusted 

current market prices in available markets, estimated projected 

growth over the rotation period for the existing immature 

timber volumes in metric ton, cost of delivery and estimated 

maintenance costs up to the timber becoming usable. The 

discount rate used is the applicable pre-tax weighted average 

cost of capital of the business unit. Determining the appropriate 

discount rate requires significant assumption and judgement 

and changes in these assumptions could change the outcomes 

of the plantation valuations. The standing value of mature timber 

is based on unadjusted current market prices in available 

markets and estimated timber volumes in metric tons less cost 

of delivery at current market prices. 

Management focuses their attention on good husbandry 

techniques which include ensuring that the rotation of 

plantations is met with adequate planting activities for future 

harvesting. The rotation periods vary from eight to eighteen 

years in Southern Africa. 

Assumptions and estimates are used in the recording of 

plantation volumes, maintenance cost per metric ton, and 

depletion. Changes in the assumptions or estimates used in 

these calculations may affect the group’s results, in particular, 

our plantation valuation and depletion costs. 

A key assumption and estimation is the projected growth 

estimation over a period of eight to eighteen years per rotation. 

The inputs to our immature timber growth model are complex 

and involve estimations and judgements, all of which are 

regularly updated. Sappi established a long term sample plot 

network which is representative of the species and sites on 

which we grow trees and the measured data from these 

permanent sample plots are used as input into our growth 

estimation. Periodic adjustments are made to existing models 

for new genetic material. 

Sappi manages its plantations on a rotational basis and by 

implication, the respective increases by means of growth 

are,over the rotation period, negated by depletions for the 

group’s own production or sales. Estimated volume changes, 

on a rotational basis, amount to approximately five million tons 

per annum. 

Ruling unadjusted current market prices applied at the reporting 

date, as well as the assumptions that are used in determining 

the extent of biological transformation (growth) can have a 

significant effect on the valuation of the plantations, and as a 

result, the amount recorded in the income statement arising 

from fair value changes and growth. In addition, the discount 

rate applied in the valuation of immature timber has an impact 

as tabled below. 


Fair value changes 

1% increase in market prices 17 17 14 

1% decrease in market prices (17) (17) (14) 

Discount rate 

(for immature timber) 

1% increase in rate (4) (4) (3) 

1% decrease in rate 4 4 4 

Volume assumption 

1% increase in estimate of volume 6 6 5 

1% decrease in estimate of volume (6) (6) (5) 

Growth assumptions 

1% increase in rate of growth 1 2 1 

1% decrease in rate of growth (1) (2) (1) 

The group is exposed to financial risks arising from climatic 

changes, disease and other natural risks such as fire, flooding 

and storms and human-induced losses arising from strikes, 

civil commotion and malicious damage. These risks are covered 

by an appropriate level of insurance as determined by 

management. The plantations have an integrated management 

system that is certified to ISO 9001, ISO 14001, OHSAS 18001 

and FSC standards. 

For further information see note 10 of our group annual financial 

statements. 

Post-employment benefits 

The group accounts for its pension benefits and its other post 

retirement benefits using actuarial models. These models use 

an attribution approach that generally spreads individual events 

over the service lives of the employees in the plan. Examples of 

‘events’ are changes in actuarial assumptions such as discount 

rate, expected long-term rate of return on plan assets, and rate 

of compensation increases. 

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sappi // 

The principle underlying the required attribution approach is that 

employees render service over their service lives on a relatively 

consistent basis and, therefore, the income statement effects 

of pension benefits or post retirement healthcare benefits are 

earned in, and should be expensed in the same pattern. 

Numerous estimates and assumptions are required, in the 

actuarial models, to determine the proper amount of pension 

and other post retirement liabilities to record in the group’s 

consolidated financial statements and set the expense for the 

next fiscal year. These include discount rate, return on assets, 

salary increases, health care cost trends, longevity and service 

lives of employees. Although there is authoritative guidance on 

how to select these assumptions, our management and its 

actuaries exercise some degree of judgement when selecting 

these assumptions. Selecting different assumptions, as well as 

actual versus expected results, would change the net periodic 

benefit cost and funded status of the benefit plans recognised 

in the financial statements. 

Refer to notes 27 and 28 for the key assumptions, the benefit 

obligations, plan assets, net periodic pension cost and the impact 

on the future financial results of the group in relation to post 

employment benefits that may arise due changes in economic 

conditions, employee demographics and investment performance 

as at the end of September 2008 and September 2007. 

Provisions 

Provisions are recognised when a reliable estimate can be 

made of the amount that the group would rationally pay to 

settle the liability. Risks, uncertainties and future events, such as 

changes in law and technology, are taken into account by 

management in determining the best estimates. 

The establishment and review of the provisions requires 

significant judgement by management as to whether or not there 

is a probable obligation and as to whether or not a reliable 

estimate can be made of the amount of the obligation. All 

provisions are reviewed at each balance sheet date. Various 

uncertainties can result in obligations not being considered 

probable or estimable for significant periods of time. As a 

consequence, potentially material obligations may have no 

provisions and a change in facts or circumstances that results in 

an obligation becoming probable or estimable can lead to a need 

for the establishment of material provisions. In addition, where 

estimated amounts vary from initial estimates the provisions may 

be revised materially, up or down, based on the facts. 

2.4 Adoption of accounting standards in the 

current year 

The following standards, interpretations and significant amend - 

ments or revisions to standards have been adopted by the 

group in the current year: 

IFRS 7 – Financial Instruments: Disclosures 

The group has adopted IFRS 7 Financial Instruments: 

Disclosures. This has resulted in the financial instrument 

disclosures previously required by IAS 32 Financial Instruments: 

Presentation and Disclosure being replaced by those required 

under IFRS 7. 

Adoption of this standard had no impact on the reported profits 

or financial position of the group. 

IFRIC 10 – Interim Financial Reporting 

The interpretation addresses an apparent conflict between the 

requirements of IAS 34 – interim financial reporting and those 

in other standards on the recognition and reversal in financial 

statements of impairment losses on goodwill and certain 

financial assets. The interpretation concludes that an entity shall 

not reverse an impairment loss recognised in a previous interim 

period in respect of goodwill, or an investment in either an 

equity instrument or a financial asset carried at cost. 

The implementation of this interpretation did not have a material 

impact on the group’s reported results or financial position. 

IFRIC 11 – Group and Treasury Share Transactions 

This interpretation addresses two issues. The first is whether 

the transactions should be accounted for as equity-settled or 

as cash-settled share-based payment arrangements, and the 

second where a share-based payment transaction involves two 

or more entities within the same group. 

The implementation of this interpretation did not have a material 


IAS 1 – Amendment to International Accounting 

Standard 1 – Presentation of Financial Statements: 

Capital Disclosures 

The amendment requires the group to disclose information that 

will enable users of its financial statements to evaluate the 

group’s objectives, policies and processes of managing capital. 

Adoption of this standard had no impact on the reported profits 

or financial position of the group. 


97




Amendment to IAS 39 Financial Instruments: 

Recognition and Measurement and IFRS 7 

Financial Instruments: Disclosures – 

Reclassification of Financial Instruments 

This amendment permits an entity to reclassify some financial 

instruments out of the fair value through profit or loss category 

in particular circumstances. The amendment also permits an 

entity to transfer from the available-for-sale category to the 

loans and receivables category a financial asset that would 

have met the definition of loans and receivables, if the entity 

has the intention and ability to hold that financial asset for the 

foreseeable future. 

The implementation of this amendment did not have a material 


2.5 Potential impact of future changes in 

accounting policies 

The following standards, interpretations and significant amend - 

ments or revisions to standards which have been issued but 

which are not yet effective and which are applicable to Sappi, 

have not been applied in these financial statements: 

Revised IAS 1 – Presentation of Financial 

Statements 

The main changes from the previous standard require that an 

entity must present: 

• all non-owner changes in equity (that is, ’comprehensive 

income’) – either in one statement of comprehensive income 

or in two statements (a separate income statement and a 

statement of comprehensive income); 

• a statement of financial position (balance sheet) as at the 

beginning of the earliest comparative period in a complete 

set of financial statements when the entity applies an 

accounting policy; retrospectively or makes a retrospective 

restatement; 

• income tax relating to each component of other comprehensive 

income; and 

• reclassification adjustments relating to components of other 

comprehensive income. 

This revised standard is effective for our September 2010 

year end. 

IFRS 8 – Operating Segments 

This standard introduces the concept of an operating segment; 

it expands the identification criteria for segments of an entity 

and the measurement of segment results. This statement will 

allow an entity to align its operating segment reporting with the 

internal identification and reporting structure. 

The standard first becomes applicable to the group for the 

financial year ending September 2010, and we are currently 

assessing the impact of this on the group. 

IFRIC 12 – Service Concession Arrangements 

The interpretation serves to clarify the treatment of arrangements 

whereby a government or other body grants contracts for the 

supply of public services – such as roads, energy distribution, 

prisons or hospitals – to private operators. The objective of this 

IFRIC is to clarify aspects of accounting for service concession 

arrangements. 

The interpretation first becomes applicable to the group for the 



IFRIC 13 – Customer Loyalty Programmes 

This interpretation addresses accounting by entities that grant 

loyalty awards to customers who buy other goods or services. 

The interpretation deals with the accounting treatment of the 

obligations to provide free or discounted goods or services 

granted under such a programme. 




IFRIC 15 – Agreements for the Construction 

of Real Estate 

The Interpretation provides guidance on when and how to apply 

IAS 11 Construction Contracts and IAS 18 Revenue to real estate 

construction agreements before construction is complete. 




IFRIC 16 – Hedges of a Net Investment in a 

Foreign Operation 

The Interpretation clarifies the accounting for net investment 

hedges and it provides guidance on the following issues: 

• which foreign currency risks qualify for hedge accounting, 

and what amount can be designated; 

98

sappi // 

• where within the group the hedging instrument can be held; 

and 

• what amount should be reclassified to profit or loss when the 

foreign operation is disposed of. 




Revision to IFRS 3: Business Combinations 

The standard introduces a comprehensive revision of some of 

the aspects of business combination accounting by restricting 

options or allowable methods. The revised standard aims to 

achieve greater consistency in business combination accounting 

among entities applying IFRS. 

hedged item, and would cause ineffectiveness if the entire 

option is designated as a hedging instrument; and 

• a risk-free or benchmark interest rate portion of the fair 

value of a fixed rate financial instrument will normally be 

separately identifiable and reliably measurable, and hence 

may be hedged. 

The amendment first becomes applicable to the group for the 



Various improvements to IFRSs 

A number of standards have been amended as part of the 

IASB’s improvement project. We are assessing the impact of 

these amendments on the group. 

The revised standard will only be applicable to the group for the 



Amendments to IAS 27 Consolidated and Separate 

Financial Statements, IAS 28 Investments in 

Associates and IAS 31 Investments in Joint Ventures 

As part of the IASB’s revision to IFRS 3 Business Combinations, 

IAS 27, IAS 28 and IAS 31 were also amended. 

The amendments first become applicable to the group for the 


assessing the impact of these on the group. 

Amendment to IFRS 2 Vesting Conditions 

and Cancellations 

The amendment clarifies the definition of vesting conditions and 

provides guidance on the accounting treatment of cancellations 

by other parties. 

The amendment will only be applicable to the group for the 



Amendment to IAS 39 Financial Instruments: 

Recognition and Measurement on Eligible 

Hedged Items 

The amendment clarifies that: 

• inflation can only be designated as a hedged risk or portion, 

if it is a contractually-specified portion of the cash flows of a 

recognised financial instrument; 

• the time value of a purchased option used as a hedging 

instrument is not a risk or a portion of a risk present in a 


99



3. Segment information 

For management purposes, the group has two reporting segments which operate as separate business units: Sappi Fine 

Paper and Sappi Forest Products. These divisions are the basis on which the group reports its primary segment information. 

Sappi Fine Paper produces coated and uncoated fine paper and speciality paper grades. Sappi Forest Products produces 

commodity paper products, pulp, forest and timber products. The secondary segments have been determined by the 

geographical location of the production facilities: North America, Europe and Southern Africa. 

The accounting policies of the segments are the same as those described in the summary of significant accounting policies 

(refer note 2.2). 

The group accounts for intragroup sales and transfers as if the sales or transfers were to third parties, that is, at current market 

prices. All such sales and transfers are eliminated on consolidation. 



US$ million 2008 2007 2006 2008 2007 2006 

External sales (1) 4,764 4,256 3,958 1,099 1,048 983 

Inter-segment sales 677 602 504 657 658 517 

Total sales 5,441 4,858 4,462 1,756 1,706 1,500 

Segment result (2) 34 119 (49) 273 264 175 

Share of profit (loss) of 

equity investments 2 3 1 5 3 (1) 

Depreciation 300 298 321 73 75 68 

Amortisation and fellings – 1 2 80 70 74 

Asset impairments 82 2 6 37 – 3 

Asset impairment reversals – – – – – (40) 

Other non-cash expenses 

(including fair value 

adjustment on plantations) 151 (11) 62 (150) (117) (131) 

Capital expenditures 216 158 203 290 299 99 

Total assets (6) 3,724 3,931 3,810 2,049 2,096 1,419 

Operating assets (3)(6) 3,678 3,836 3,726 1,972 1,984 1,407 

Operating liabilities (4) 706 682 639 241 251 178 

Net operating assets (5)(6) 2,955 3,121 3,049 1,721 1,654 1,188 

Property, plant and equipment 2,353 2,503 2,478 1,008 988 669 


North America Europe Southern Africa 

US$ million 2008 2007 2006 2008 2007 2006 2008 2007 2006 

Sales (1) 1,664 1,511 1,439 2,720 2,387 2,194 380 358 325 

Segment result (2) 92 22 (16) (64) 88 (27) 6 9 (6) 

Capital expenditures 125 44 48 82 102 136 9 12 19 

Operating assets (3) 1,285 1,263 1,334 2,226 2,371 2,196 167 202 196 

Net operating assets (5) 1,087 1,031 1,108 1,758 1,941 1,796 110 149 145 

Property, plant 

and equipment 879 864 926 1,363 1,502 1,428 111 137 124 

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sappi // 

Corporate and eliminations 

Group 

2008 2007 2006 2008 2007 2006 

– – – 5,863 5,304 4,941 

(1,334) (1,260) (1,021) – – – 

(1,334) (1,260) (1,021) 5,863 5,304 4,941 

7 – (1) 314 383 125 

10 4 (1) 17 10 (1) 

1 1 1 374 374 390 

– – – 80 71 76 

– – – 119 2 9 

– – – – – (40) 

(58) (14) (58) (57) (142) (127) 

1 1 1 507 458 303 

336 317 288 6,109 6,344 5,517 

144 99 86 5,794 5,919 5,219 

78 66 45 1,025 999 862 

39 21 19 4,715 4,796 4,256 

– – 2 3,361 3,491 3,149 


Southern Africa Corporate and other Group 

2008 2007 2006 2008 2007 2006 2008 2007 2006 

1,099 1,048 983 – – – 5,863 5,304 4,941 

273 264 175 7 – (1) 314 383 125 

290 299 99 1 1 1 507 458 303 

1,972 1,984 1,407 144 99 86 5,794 5,919 5,219 

1,721 1,654 1,188 39 21 19 4,715 4,796 4,256 

1,008 988 669 – – 2 3,361 3,491 3,149 


101



3. Segment information (continued) 

Sales by geographical location of customers 


North America 1,716 1,559 1,502 

Europe 2,319 2,078 1,972 

Southern Africa 883 789 750 

Asia and other 945 878 717 

5,863 5,304 4,941 

(1) Sales where the product is manufactured. 

(2) Segment result is operating profit (loss). 

(3) Operating assets consist of property, plant and equipment, plantations, non-current assets (excluding deferred taxation) and current assets (excluding cash). 

(4) Operating liabilities consist of trade payables, other payables, provisions and derivative financial instruments. 

(5) Net operating assets consist of operating assets less operating liabilities, adjusted for taxation payable and dividends payable. 

(6) Corporate region includes the group’s treasury operations and the investment in the Chinese joint venture. 

2008 2007 2006 

Selling, Selling, Selling, 

general and general and general and 

admini- admini- admini- 

Cost of strative Cost of strative Cost of strative 

US$ million sales expenses sales expenses sales expenses 

4.1 Operating profit 

Operating profit has been arrived 

at after charging (crediting): 

Raw materials, energy and other 

direct input costs* 3,073 – 2,685 – 2,516 – 

Wood (includes felling adjustment) (1) 722 – 635 – 631 – 

Energy 558 – 438 – 433 – 

Chemicals 898 – 676 – 658 – 

Pulp 791 – 623 – 563 – 

Other variable costs 104 – 313 – 231 – 

Fair value adjustment on plantations (1) 

Growth (70) – (76) – (70) – 

Price (120) – (54) – (34) – 

Employment costs 864 153 809 116 769 109 

Depreciation 350 24 350 24 362 28 

Delivery charges 509 – 453 – 441 – 

Maintenance 252 – 235 – 226 – 

Other overheads* 158 – 189 – 209 – 

Marketing and selling expenses – 105 – 91 – 86 

Administrative and general expenses – 103 – 131 – 144 

5,016 385 4,591 362 4,419 367 

(1) Fair value adjustment on plantations. 

* Costs included in Raw materials in 2007 have been reallocated to Other overheads of US$58 million (2006: US$31 million). 

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4.1 Operating profit (continued) 

Changes in volumes 

Fellings 80 70 74 

Growth (70) (76) (70) 

10 (6) 4 

Plantation price fair value adjustment (120) (54) (34) 

(110) (60) (30) 

Silviculture costs (included within cost of sales) 50 41 43 

Leasing charges for premises 16 16 15 

Leasing charges for plant and equipment 32 43 44 

Remuneration paid other than to employees of the company 

in respect of: 33 31 44 

– technical services 15 15 10 

– administration services 18 16 34 

Auditors’ remuneration: 10 7 9 

– audit and related services 6 5 7 

– tax planning and tax advice 1 2 2 

– Acquisition related services** 3 – – 

Government grants towards environmental expenditure (1) – (1) 

Research and development costs 34 34 34 

Amortisation – 1 2 

Cost on derecognition of loans and receivables* 22 15 12 

4.2 Employment cost 

Wages and salaries 921 816 813 

Defined contribution plan expense (refer note 27) 23 18 10 

Pension costs (refer note 27) 9 20 (1) 

Post employment benefit other than pensions expense (refer note 28) 14 13 12 

Share-based payment expense 10 5 6 

Other 40 53 38 

4.3 Other operating expenses (income) 

1,017 925 878 

Net asset impairment (reversal) 119 2 (31) 

(Profit) loss on sale and write-off of property, plant and equipment (5) (24) 13 

Restructuring provisions raised (released) and closure costs (refer note 22) 41 (11) 44 

* The cost on sale of trade receivables relates to the derecognition of trade receivables in terms of the securitisation programme in South Africa and to the sale 

of letters of credit in Hong Kong. 

** These costs are included in other non-current assets in note 14. 


103




5. Net finance costs 

Gross interest and other finance costs on liabilities 

carried at amortised cost 181 173 162 

– Interest on bank overdrafts 4 8 11 

– Interest on redeemable bonds and other loans 174 161 143 

– Interest cost on finance lease obligations 3 4 8 

Finance revenue received on assets carried at amortised cost (38) (21) (26) 

– Interest on bank accounts (22) (3) (8) 

– Interest revenue on other loans and investments (16) (18) (18) 

Interest capitalised to property, plant and equipment (16) (14) (2) 



– Loss on intercompany non hedged loans 2 7 4 

– Amortisation of cost of de-designated hedges 5 2 2 

– Hedge ineffectiveness 

– (gain) loss on hedging instrument (derivative) (30) (14) 14 

– loss (gain) on hedged item 30 14 (17) 

126 134 130 

6. Taxation charge (benefit) 

Current taxation: 

– Current year 23 44 8 

– Prior year over provision* (19) (7) (3) 

– Other company taxes 2 1 – 

Deferred taxation: (refer note 11) 

– Current year** 89 36 (6) 

– Prior year (over) under provision – (8) 1 

– Attributable to tax rate changes (9) (19) (1) 

86 47 (1) 

* Primarily relates to the expiration of statute of limitations 

in various jurisdictions 

** Includes Secondary Tax on Companies (STC) (1) 7 8 9 

Due to the utilisation of previously unrecognised tax assets, 

the deferred taxation expense for the year has been reduced by 19 11 24 

In addition to income taxation expense charges to profit and loss, a deferred taxation charge of US$1 million (2007: US$18 million; 

2006: US$13 million) has been recognised directly in equity (refer note 11). 

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6. Taxation charge (benefit) 

Reconciliation of the tax rate 

Profit (loss) before taxation 188 249 (5) 

Profit-making regions 560 424 268 

Loss-making regions (372) (175) (273) 

Taxation at the average statutory tax rate 72 68 (13) 

Profit-making regions at 30% (2007: 28%; 2006: 28%) 167 119 75 

Loss-making regions at 26% (2007: 29%; 2006: 32%) (95) (51) (88) 

Net exempt income and non-tax deductible expenditure (51) (34) (24) 

Effect of tax rate changes (9) (19) (1) 

Deferred tax asset not recognised 103 49 54 

Utilisation of previously unrecognised tax assets (19) (11) (24) 

Secondary Tax on Companies (STC) 7 8 9 

Prior year adjustments (19) (15) (2) 

Other taxes 2 1 – 

Taxation charge (benefit) 86 47 (1) 

Effective tax rate for the year 46% 19% 15% 

Our effective tax rate reflects the benefits from reduced tax rates in South Africa (2008: US$9 million; 2007: nil; 2006: nil), 

Germany (2008: nil; 2007: US$19 million; 2006: nil) and The Netherlands (2008: nil; 2007: US$2 million; 2006: US$1 million). 

The corporate tax rate in South Africa was reduced from 29% in 2007 to 28% in 2008. The corporate tax rate in Germany 

was reduced from 38% in 2006 to 30% in 2007. In The Netherlands the corporate tax rate was reduced from 31.5% in 2005 

to 29.6% in 2006 and 25.5% in 2007. In addition a taxation charge of US$2 million was recognised in 2007 as a result of 

the substantively enacted STC rate adjustment from 12.5% to 10% (effective date: 01 October 2007). The deferred tax asset 

not recognised in the current year is primarily relating to the restructuring and impairment charges recognised in Europe for 

which no relief is expected. 

On 06 November 2008, the directors declared a dividend (number 85) of 16 US cents per share (US$37 million) to be paid 

to shareholders on 02 December 2008 (refer note 8). The estimated STC on this dividend at a rate of 10% is US$4 million 

which will fully utilise our STC credits of US$2 million (refer note 11). 

(1) The imposition of Secondary Tax on Companies (STC) effectively means that a dual corporate taxation system exists in South Africa comprising a normal income 

taxation and STC. Liability for STC is determined independently from normal income taxation and is paid by South African companies at the flat rate of 10% 

in respect of the amount of dividends declared less all dividends which accrued to them (but subject to certain exclusions) during its relevant ‘dividend cycle’. 

‘Dividend cycle’ means the period commencing on the day following the date of accrual to a company’s shareholders of the last dividend declared by that 

company and ending on the date on which the dividend in question accrues to the shareholder concerned. An excess of dividends accruing to a company 

over dividends paid may be carried forward to subsequent dividend cycles as an STC credit. 


105



7. Earnings per share and headline earnings per share 

Basic earnings per share (EPS) 

EPS is based on the group’s profit (loss) for the year divided by the weighted average number of shares in issue during the 

year under review. 

2008 2007 2006 

Earnings Earnings Earnings 

per per per 

Profit share Profit share Loss share 

US$ Shares US US$ Shares US US$ Shares US 

million millions cents million millions cents million millions cents 

Basic EPS calculation 102 228.8 45 202 227.8 89 (4) 226.2 (2) 

Share options and 

performance shares 

under Sappi Limited 

Share Trust – 2.3 – – 2.7 – – – – 

Diluted EPS calculation 102 231.1 44 202 230.5 88 (4) 226.2 (2) 

The diluted EPS calculations are based on Sappi Limited’s daily average share price of ZAR94.08 (2007: ZAR114.42; 

2006: ZAR82.90) and exclude the effect of certain share options granted under the Sappi share incentive scheme as they 

would be anti-dilutive. 

The number of share options not included in the weighted average number of shares (as they would have been anti-dilutive) 

are 2.3 million (September 2007: 0.8 million; September 2006: 4.2 million). 

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7. Earnings per share and headline earnings per share (continued) 

Headline earnings per share* 

Headline earnings per share is based on the group’s headline earnings divided by the weighted average number of shares 

in issue during the year. This is a JSE Limited required measure. 

Reconciliation between net profit (loss) for the year and headline earnings: 

2008 2007 2006 

Gross Tax Net Gross Tax Net Gross Tax Net 

Attributable earnings 

(loss) to ordinary 

shareholders 188 86 102 249 47 202 (5) (1) (4) 

(Profit) loss on sale and 

write-off of property, 

plant and equipment (5) – (5) (24) (6) (18) 14 5 9 

Impairment (reversals) 

of plant and equipment 119 – 119 2 – 2 (31) – (31) 

Headline earnings (loss) 302 86 216 227 41 186 (22) 4 (26) 

Weighted average 

number of ordinary 

shares in issue (millions) 228.8 227.8 226.2 

Headline earnings 

(loss) per share 

(US cents) 94 82 (11) 

Diluted weighted 

average number 

of shares (millions) 231.1 230.5 226.2 

Diluted headline 

earnings (loss) per 

share (US cents) 93 81 (11) 

* Headline earnings – as defined in circular 8/2007 issued by the South African Institute of Chartered Accountants, separates from earnings all separately identifiable 

re-measurements. It is not necessarily a measure of sustainable earnings. It is a listing requirement of the JSE Limited to disclose headline earnings per share. 


107




8. Dividends 

Dividend number 84 paid on 08 January 2008: 32 US cents per share 

(2007: 30 US cents per share; 2006: 30 US cents per share), net of 

dividends attributable to treasury shares. (73) (68) (68) 

On 06 November 2008, the directors declared a dividend (number 85) of 

16 US cents per share (US$37 million) which was payable to shareholders 

on 02 December 2008. This dividend was declared after year end and 

was not included as a liability in these financial statements. 

9. Property, plant and equipment 

Land and buildings 

At cost 1,457 1,429 

Accumulated depreciation and impairments 845 810 

612 619 

Plant and equipment* 

At cost 7,056 6,928 

Accumulated depreciation and impairments 4,448 4,225 

2,608 2,703 

Capitalised leased assets** 

At cost 751 773 

Accumulated depreciation and impairments 610 604 

141 169 

Aggregate cost 9,264 9,130 

Aggregate accumulated depreciation and impairments 5,903 5,639 

Aggregate book value 3,361 3,491 

* Plant and equipment includes vehicles and furniture, the book value of which does not warrant disclosure in a separate class of assets. 

** Capitalised leased assets consist primarily of plant and equipment. 

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9. Property, plant and equipment (continued) 

The movement of property, plant and equipment is reconciled as follows: 

Land and Plant and Capitalised 

US$ million buildings equipment leased assets Total 

Net book value at September 2006 582 2,359 188 3,129 

Additions (1) 19 437 2 458 

Disposals (3) (2) – (5) 

Depreciation (33) (312) (29) (374) 

Impairment – (2) – (2) 

Translation difference 54 223 8 285 

Net book value at September 2007 619 2,703 169 3,491 

Additions (1) 59 446 2 507 

Disposals – (6) – (6) 

Depreciation (34) (316) (24) (374) 

Impairment (13) (106) – (119) 

Translation difference (19) (113) (6) (138) 

Net book value at September 2008 612 2,608 141 3,361 

(1) Additions include capitalised interest of US$16 million (2007: US$14 million) capitalised at 10% (2007: 9.5%). 

Details of land and buildings are available at the registered offices of the respective companies who own the assets (refer 

note 24 for details of encumbrances). 

September 2008 

Usutu Mill 

Usutu Mill is an unbleached pulp mill and forms part of the Sappi Forest Products reporting segment. In August 2008, forest 

fires caused by severe weather conditions resulted in the loss of approximately 28% of the mill’s fibre supply, resulting in 

insufficient fibre for the mill to continue operating in the long term under its current regime. An impairment loss of US$37 million 

has been recognised as a result. The recoverable amount of the various assets has been determined on the basis of value 

in use. The value in use was established using a pre-tax real discount rate of 3.6%. 

Blackburn and Maastricht mills 

Maastricht and Blackburn Mills form part of Sappi Fine Paper Europe. Maastricht Mill produces coated fine and label paper 

while Blackburn produces coated fine and board paper. Due to the ongoing increases in input costs and the overcapacity 

in the European market, Blackburn Mill and Maastricht Paper Machine No. 5 have been unable to produce acceptable 

returns on investment, despite significant efforts to curb costs and improve profitability. Production at Blackburn Mill ceased 

on 17 October 2008. No alternative to the closure of the mill was found during the employee representative consultation 

process, which ended on 11 November 2008. In respect of Paper Machine No. 5 at Maastricht Mill, consultations and social 

plan negotiations with works council and unions were concluded in early October 2008. 

Production on Paper Machine No. 5 at Maastricht Mill will cease around mid December 2008. A non-cash impairment charge 

of US$78 million has been recognised as a result of these closures. The recoverable amount of the assets at both sites has 

been determined on the basis of value in use. The value in use was calculated using a pre-tax real discount rate of 6.1%. 


109



US$ million 2008 2007 

10. Plantations 

Fair value of plantations at beginning of year 636 520 

Gains arising from growth 70 76 

Fire, hazardous weather and other damages (10) (13) 

Gains arising from fair value price changes 120 54 

Harvesting – agriculture produce (fellings) (80) (70) 

Translation difference (105) 69 

Fair value of plantations at end of year 631 636 

Sappi manages the establishment, maintenance and harvesting of its plantations on a compartmentalised basis. These 

plantations are comprised of pulpwood and sawlogs and are managed in such a way so as to ensure that the optimum fibre 

balance is supplied to its paper and pulping operations in Southern Africa. 

Sappi owns approximately 369,000 (2007: 369,000) hectares of plantation directly and indirectly manages a further 166,000 

(2007: 184,000) hectares. 389,000 (2007: 409,000) hectares of this land is forested with approximately 35 million (2007: 37 million) 

standing tons of timber. 

As Sappi manages its plantations on a rotational basis, the respective increases by means of growth are negated by 

depletions over the rotation period for the groups own production or sales. Estimated volume changes on a rotational basis, 

amount to approximately five million tons per annum. 

Sappi owns plantations on land that we own, as well as on land that we lease. We disclose both of these as directly 

managed plantations. 

With regard to indirectly managed plantations, Sappi has several different types of agreements with over 3,600 different 

independent farmers. The agreement depends on the type and specific needs of the farmer and the areas planted. These 

agreements range in time from one to more than twenty years. In certain circumstances we provide loans to the farmers, 

which are disclosed as accounts receivable in the group balance sheet (these loans are considered immaterial to the group). 

If Sappi provides seedlings, silviculture and/or technical assistance, the costs are expensed when incurred by the group. 

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US$ million Assets Liabilities Assets Liabilities 

11. Deferred tax 

Other liabilities, accruals and prepayments (106) 6 (100) 16 

Inventory 2 – 2 1 

USA alternative minimum taxation credit carry forward 11 – 11 – 

Unutilised Secondary Tax on Companies (STC) credits (1) 2 – 10 – 

Tax loss carry forward 389 27 379 19 

Property, plant and equipment (163) (254) (168) (234) 

Plantations (11) (162) (12) (165) 

Other non-current assets 35 – 37 – 

Other non-current liabilities (118) (16) (99) (22) 

41 (399) 60 (385) 

(1) Refer note 6 ’Taxation charge (benefit)’ for a description of STC credits. 

Negative asset and liability positions 

These balances reflect the impact of tax assets and liabilities arising in different tax jurisdictions, which cannot be netted 

against tax assets and liabilities arising in other tax jurisdictions. 

Deferred tax assets recognised on the balance sheet 

The recognised deferred tax assets relate mostly to unused tax losses. It is expected that there will be sufficient future taxable 

profits against which these losses can be recovered. In the estimation of future taxable profits, future product pricing and 

production capacity utilisation are taken into account. 

Unrecognised deferred tax assets 

Deferred tax assets are not recognised for carry-forward of unused tax losses when it cannot be demonstrated that it is 

probable that taxable profits will be available against which deductible temporary differences can be utilised. 


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11. Deferred tax (continued) 

The unrecognised deferred tax assets relate to the following: 

Other non-current liabilities 29 31 

Tax losses 538 475 

Property, plant and equipment 24 – 

591 506 

Attributable to the following tax jurisdictions: 

Belgium 6 2 

The Netherlands 20 2 

United Kingdom 75 59 

United States of America 188 190 

Swaziland 27 19 

South Africa 2 2 

Austria 273 232 

591 506 

Expiry after five years 165 155 

Indefinite life 426 351 

591 506 

The following table shows the movement in the unrecognised 

deferred tax assets for the year 

Balance at beginning of year 506 465 

Unrecognised deferred tax assets originating during the current year 89 6 

Prior year adjustments 4 8 

Rate adjustments – (6) 

Movement in foreign exchange rates (8) 33 

Balance at end of year 591 506 

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sappi // 


11. Deferred tax (continued) 

Reconciliation of deferred tax 

Deferred tax balances at beginning of year 


Deferred tax liabilities (385) (336) 

(325) (262) 

Deferred taxation charge for the year (refer note 6) (89) (28) 

Other liabilities, accruals and prepayments (11) (37) 

Inventory – (4) 

Utilisation of Secondary Tax on Companies (STC) credits (7) (8) 

Tax loss carry forward 19 29 

Property, plant and equipment (37) 15 

Plantations (29) (13) 

Other non-current assets (2) 2 

Other non-current liabilities (22) (12) 

Amounts recorded directly against equity (1) (18) 

Rate adjustments 9 19 

Translation differences 48 (36) 

Deferred tax balances at end of year (358) (325) 


Deferred tax liabilities (399) (385) 

Secondary Tax on Companies (STC) 

STC is levied on South African companies at a rate of 10% with effect from 01 October 

2007 (previously 12.5%) on net dividends declared. 

Current and deferred tax are measured at the tax rate applicable to undistributed income 

and therefore only take STC into account to the extent that dividends have been received 

or paid. 

On declaration of a dividend, the company includes the STC on this dividend in its 

computation of the income taxation expense in the period of such declaration. 

Undistributed earnings that would be subject to STC 895 868 

Tax effect if distributed 81 79 

Available STC credits at end of year 2 10 


113



Licence 


Licence 

US$ million Goodwill fees Patents Total Goodwill fees Patents Total 

12. Goodwill and 

intangible assets 

Cost net of accumulated 

amortisation and 

impairment at beginning 

of year 4 3 – 7 4 3 1 8 

Amortisation – – – – – – (1) (1) 

Net carrying amount 4 3 – 7 4 3 – 7 

Cost (gross carrying 

amount) 4 3 21 28 4 3 21 28 

Accumulated amortisation 

and impairment – – (21) (21) – – (21) (21) 

Net carrying amount 4 3 – 7 4 3 – 7 


13. Joint ventures and associates* 

Cost of equity investments 99 106 

Share of post-acquisition profit, net of distributions received 14 1 

Foreign currency translation effect 11 5 

124 112 

Summarised financial information in respect of the group’s equity investments 

is set out below: 

Total assets 659 641 

Total liabilities 338 376 

Net assets 321 265 

Group’s share of equity investments net assets 124 106 

2008 2007 2006 

Sales 902 749 331 

Profit (loss) for the period 46 20 (4) 

Group’s share of equity investments’ profit (loss) for the period 17 10 (1) 

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sappi // 

13. Joint ventures and associates* continued 

Jiangxi Chenming 

During 2005 Sappi acquired 34% of Jiangxi Chenming Paper Company Limited (Jiangxi Chenming) in a joint venture 

arrangement. Jiangxi Chenming is established in the People’s Republic of China and is principally engaged in the 

manufacturing and sales of paper and paper products. The annual financial statements of Jiangxi Chenming are to 

31 December of each year. The last audited financials were to 31 December 2006. 

Umkomaas Lignin (Pty) Ltd 

A joint venture agreement between Sappi and Borregaard Industries Limited for the construction and operation of a lignin 

plant at Umkomaas and the development, production and sale of products based on lignosulphates in order to build a 

sustainable lignin business. The annual financial statements of Umkomaas Lignin (Pty) Ltd are to 31 December of each year 

which is the year end of Borregaard. The last audited financials were to 31 December 2007. 

Sapin S.A. 

A joint venture agreement located in Belgium for the buying and selling of wood and wood chips to Sappi and other paper 

manufacturers. The annual financial statements of Sapin S.A. are to 31 December of each year. The last audited financials 

were to 31 December 2007. 

Papierholz Austria GmbH 

A joint venture agreement for the buying and selling of wood and wood chips to Sappi and other paper and pulp 

manufacturers. The annual financial statements of Papierholz Austria GmbH are to 31 December of each year. The last 

audited financials were to 31 December 2007. 

VOF Warmtekracht 

A joint venture agreement located in The Netherlands between Sappi and Essent for a co-generation electricity and steam 

producing plant. The annual financial statements of VOF Warmtekracht are to 31 December of each year. The last audited 

financials were to 31 December 2007. 

Timber IV 

In 1998, our interests in timberlands located in Maine and certain equipment and machinery were sold to a third party timber 

company, Plum Creek Timberlands LLP, in exchange for cash of US$3 million and three promissory notes receivable in the 

aggregate amount of US$171 million. In 1999, Sappi contributed these promissory notes to a special purpose entity (SPE). 

The promissory notes were pledged as collateral for the SPE to issue bonds to investors in the amount of US$156 million. 

This has been partially repaid as described below. The SPE is bankruptcy remote and serves to protect the investors in the 

notes from any credit risk relating to Sappi Limited by isolating cash flows from the Plum Creek notes receivable. The structure 

was set up to raise funding using the promissory notes as collateral in a manner that would not result in either debt or the 

Plum Creek Timberlands LLP notes being reflected on balance sheet. This would not be the case if we monetised the 

promissory notes through an issuance of secured notes directly or by an entity that was required to be consolidated in our 

financial statements under the applicable accounting principles. In 2001, Sappi contributed its interest in the SPE to a limited 

liability company in exchange for 90% of the outstanding limited liability membership interest. All voting control of the limited 

liability company is controlled by an unrelated investor and therefore has not been consolidated by Sappi in its financial 

statements. The SPE is not consolidated in our financial statements because we have taken the position that it is controlled 

by an unrelated investor which has sufficient equity capital at risk. Sappi’s investment in the SPE is US$11 million as of 

September 2008 (2007: US$11 million). 


115



13. Joint ventures and associates* continued 

The Limited Liability Company Agreement dated 04 May 2001 between Sappi and the unrelated investor was revised in 

2007 as follows: 

– a waiver has been granted for any administrative breach in respect of past distributions to the extent that they may have 

violated return of capital restrictions; and 

– an allowance was made for the distribution to the members, prior to 04 May 2007 of amounts received by the company 

in respect of the bond that was due in February 2007. 

The SPE may not be liquidated prior to repayment of the bonds it issued. The first tranche of the bonds matured on 

11 February, 2007. The SPE distributed to the limited liability company the net proceeds (US$6 million) for the first repayment 

receivable (US$71 million) and the bonds (US$65 million). The limited liability company distributed these proceeds to its 

members. The remaining bonds mature in 2 further tranches on 11 February, 2009, and 11 February, 2011. Sappi may not 

redeem its investment in the SPE (via its ownership interest in the limited liability company) prior to complete repayment of the 

bonds issued by the SPE and our investment has a subordinate interest to the payment of the outstanding bonds. We have 

not guaranteed the obligations of the SPE and the holders of the notes payable issued by the SPE have no recourse to us. 

The annual financial statements of Timber IV are to 30 September of each year. The results are unaudited. 

The directors believe that the book values of the joint ventures and associates equate to the market values. 

* Where the year ends of joint ventures and associates are different to Sappi’s, the management accounts are used for the periods to Sappi’s year end. 


14. Other non-current assets 

Loans to the Sappi Limited Share Incentive Trust participants 6 8 

Financial assets* 22 25 

Post-employment benefits – pension asset (refer note 27) 117 118 

Acquisition costs** 10 – 

Other loans 13 14 

* Details of investments are available at the registered offices of the respective companies. 

** Acquisition costs relate to the proposed acquisition of M-real’s coated graphic paper business (refer note 32). 

These costs have been capitalised as management deems it probable that the acquisition will be completed 

during fiscal 2009. 

15. Inventories 

168 165 

Raw materials 163 145 

Work in progress 62 58 

Finished goods 324 328 

Consumable stores and spares 176 181 

725 712 

The charge to the group income statement relating to the write down of inventories to net realisable value amounted to 

US$11 million (2007: US$12 million and 2006: US$19 million). An amount of US$1 million (September 2007: US$1 million 

and September 2006: US$1 million) in respect of the finished goods inventory write-down for the prior year was reversed in 

the current year due to changing market conditions. 

The cost of inventories recognised as an expense and included in cost of sales amounted to US$4,552 million (September 

2007: US$4,150 million and September 2006: US$3,984 million). 

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16. Trade and other receivables 

Trade accounts receivable, gross 579 566 

Provision for impairment (5) (13) 

Trade accounts receivable, net 574 553 

Prepayments and other receivables 124 100 

698 653 

Management rate the quality of the trade and other receivables, which are neither past due 

nor impaired, periodically against its own internal credit rating parameters. The quality of 

these trade receivables at balance sheet date were rated at the top range of our parameters. 

The carrying amount of US$698 million (2007: US$653 million) represents the group's 

maximum credit risk exposure. 

Prepayments and other receivables primarily represent prepaid insurance and other 

sundry receivables. 

16.1 Reconciliation of the provision for impairment 

Opening balance 13 17 

Impairment provision created 3 – 

Impairment provision reversed (9) – 

Bad debts written off (2) (4) 

Closing balance 5 13 

An allowance has been made for estimated irrecoverable amounts from the sale of goods of US$5 million (2007: US$13 million). 

This allowance has been determined by reference to past default experience. 

16.2 Analysis of amounts past due 


The following provides an analysis of the amounts that are past the due contractual maturity dates: 

Not impaired Impaired Total 

Less than 7 days overdue 15 – 15 

Between 7 and 30 days overdue 18 – 18 


More than 60 days overdue 7 5 12 

46 5 51 


117



16. Trade and other receivables (continued) 

16.2 Analysis of amounts past due (continued) 

September 2007 

The following provides an analysis of the amounts that are past the due contractual maturity dates: 

Not impaired Impaired Total 

Less than 7 days overdue 16 – 16 



More than 60 days overdue 2 6 8 

32 6 38 

All amounts due which are beyond their contractual repayment terms are reported to regional management on a regular basis. 

Any provision for impairment is required to be approved by the regional credit controller. All provisions for impairment greater 

than US$50,000 are required to be approved by regional management. The group has a provision of US$5 million (2007: 

US$6 million) against trade receivables that are past due. The group holds collateral of US$17 million (2007: US$14 million) 

against these trade receivables that are past due. 


The group has granted facilties to customers to buy on credit for the following amounts: 

Less than and equal to US$0.5 million 280 302 

Less than US$1 million but equal to or greater than US$0.5 million 246 408 

Less than US$3 million but equal to or greater than US$1 million 426 453 

Less than US$5 million but equal to or greater than US$3 million 207 200 

Equal to or greater than US$5 million 812 444 

1,971 1,807 

16.3 Fair value 

The directors consider that the carrying amount of trade and other receivables approximates their fair value. 

16.4 Trade receivables pledged as security 

Trade receivables with a value of US$415 million (2007: US$415 million) have been pledged as collateral for amounts received 

from the banks in respect of the securitisation programme. The value of the associated liabilities at year end amounted to 

US$360 million (2007: US$354 million). The group is restricted from selling and repledging the trade receivables that have 

been pledged as collateral for the liability. 

16.5 Off balance sheet structures 

Letters of credit discounting 

To improve the group working capital, the group sells certain Letters of Credit to ABN AMRO Hong Kong and DBS bank 

(London) every month end at a discount on a non recourse basis. 

‘Scheck-Wechsel’ 

The Scheck-Wechsel is a financial guarantee supplied to the bank of certain trade receivables who wish to obtain a loan to 

finance early payment of trade receivables thereby benefiting from an early settlement discount. By signing the Scheck- 

Wechsel, Sappi provides a financial guarantee to the bank of the customer. This financial guarantee contract falls under the 

scope of IAS 39 Financial instruments. 

This financial guarantee contract is initially recognised at fair value. At inception the risk for Sappi having to reimburse the 

bank is nil because there is no evidence that the customer will not reimburse its loan to the bank. There is also no guarantee 

fee due by the bank and the Scheck-Wechsel is a short term instrument (maximum 90 days). Therefore the fair value is zero 

118

sappi // 

at inception. Subsequently the financial guarantee contract is measured at the higher of: 

(i) the amount determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and 

(ii) the amount initially recognised less any cumulative amortisation. 

As no event of default has occurred, no provision has been set up and the fair value at year-end remains at zero. However, 

according to IAS 37 a contingent liability of US$20 million (2007: US$20 million) has been disclosed in this respect. 

Trade receivables securitisation 

To improve our cash flows in a cost-effective manner, we sell all eligible trade receivables on a non-recourse basis to special 

purpose entities (SPEs) that are owned and controlled by third party financial institutions. Sappi Fine Paper North America, 

Sappi Fine Paper Europe and Sappi Trading sell their trade receivables on a recourse basis whilst Sappi Forest Products sell 

their trade receivables on a non-recourse basis. These SPEs are funded in the commercial paper market and are not limited 

to transactions with us but securitise assets on behalf of their sponsors for a diverse range of unrelated parties. We have a 

servicing agreement with the entities acquiring our receivables, acting as servicers for the collection of cash and administration 

of the trade receivables sold. 

Sappi Forest Products securitisation facility 

Sappi sells the majority of its ZAR receivables to a securitisation vehicle managed by Rand Merchant Bank that issues 

commercial paper to finance the purchase of the receivables. Sappi retains a small proportion of the credit risk attached to 

each underlying receivable. Sappi administers the collection of all amounts processed on behalf of the bank that are due from 

the customer. The purchase price of these receivables is adjusted dependent on the timing of the payment received from 

the client. The rate of discounting that is charged on the receivables is JIBAR (Johannesburg Inter Bank Agreed Rate) plus 

a spread. This structure is currently treated as an off balance sheet arrangement. 

We have no obligation to repurchase any receivables which may default and do not guarantee the recoverability of any 

amounts apart from a small portion on a proportionate basis over and above the first tier loss provisions. The total amount 

of trade receivables sold at the end of September 2008 amounted to US$194 million (September 2007: US$144 million). 

Details of the securitisation programme at the end of fiscal 2008 and 2007 are disclosed in the tables below. 

If this securitisation facility were to be terminated, we would discontinue further sales of trade receivables and would not incur 

any losses in respect of receivables previously sold in excess of our first tier loss amounts. There are a number of events which 

may trigger termination of the facility, amongst others, an amount of defaults above a specified level; terms and conditions 

of the agreement not being met; or breaches of various credit insurance ratios. The impact on liquidity varies according to 

the terms of the agreement; generally however, future trade receivables would be recorded on balance sheet until a 

replacement agreement was entered into. 

Details of the securitisation facility at September are set out below: 

Bank Currency Value Facility Discount charges 

2008 

Rand Merchant Bank ZAR ZAR1,568 million Unlimited* Linked to 3 month JIBAR 

2007 

Rand Merchant Bank ZAR ZAR993 million Unlimited* Linked to 3 month JIBAR 

* The facility in respect of the securitisation facility is unlimited, but subject to the sale of qualifying receivables to the securitisation vehicle. 

Details of the on-balance sheet securitisation facilities that are applicable to Sappi Fine Paper are described in note 20. 

A significant portion of the group’s sales and accounts receivable are from major groups of customers. Two ( 2007: two) of 

the group’s major customers, represent more than 10% of our sales during the year ended September 2008. These sales 

were recorded in Sappi Fine Paper. The sales for the year ended September 2008 amounted to US$1,242 million (two 

customers 2007: US$1,143 million). The trade receivables balance, net of securitisation, outstanding on balance sheet at 

September 2008 was US$83 million (September 2007: two customers US$49 million). Where appropriate, credit insurance 

has been taken out over the group’s trade receivables. 


119



16. Trade and other receivables (continued) 

16.5 Off balance sheet structures (continued) 

None of the group’s other receivable financial instruments represent a high concentration of credit risk because the group 

has dealings with a variety of major banks and customers world-wide. 

The group has the following amounts due from single customers: 


No of 

No of 

customers US$m Percentage customers US$m Percentage 

Greater than or equal to 

US$10 million 6 122 21% 7 106 19% 

Greater than or equal 

to US$5 million 9 62 11% 11 70 13% 

Less than US$5 million 1,713 390 68% 1,788 377 68% 

1,728 574 100% 1,806 553 100% 

None of the trade receivables, with balances of equal to or greater than US$5 million as at year end have breached their 

contractual maturity terms. No impairment charges have been recognised in respect of customers who owe the group more 

than US$5 million. Refer note 30 for further details on credit risk. 


17. Ordinary share capital and share premium 

Authorised share capital: 

325,000,000 (September 2007: 325,000,000) shares of ZAR1 each 

Issued share capital: 

239,071,892 (September 2007: 239,071,892) shares of ZAR1 each 28 34 

Share premium 679 791 

707 825 

Included in the issued ordinary shares above are 9,906,661 (September 2007: 10,600,811) shares held as treasury shares 

by group entities, including The Sappi Limited Share Incentive Trust (the Scheme). These may be utilised to meet the 

requirements of the Scheme. 

Number of shares 

The movement in the number of treasury shares is set out in the table below: 

Treasury shares at beginning of year (including Scheme shares) 10,600,811 12,077,861 

Treasury shares issued to participants of the Scheme (694,150) (1,477,050) 

– Share options (per note 29) (452,200) (1,046,800) 

– Allocation shares (per note 29) (273,750) (450,650) 

– Scheme shares forfeited, released and other 31,800 20,400 

Treasury shares at end of year 9,906,661 10,600,811 

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sappi // 

17. Ordinary share capital and share premium (continued) 

Sappi has a general authority to purchase its shares up to a maximum of 10% of the issued ordinary share capital in any one 

financial year. This was ratified at the annual general meeting of shareholders on 3 March 2008. The general authority is 

subject to the Listings Requirements of the JSE Limited and the Companies Act No 61 of 1973 of South Africa, as amended 

and expires at the next annual general meeting. 

Included in the 85,928,108 unissued shares and in the 239,071,892 issued shares are a total of 19,000,000 shares which 

may be used to meet the requirements of the Scheme and/or The Sappi Limited Performance Share Incentive Trust (the Plan). 

In terms of the rules of the Scheme and the Plan the maximum number of shares which may be acquired in aggregate by 

the Scheme and/or the Plan and allocated to participants of the Scheme and/or the Plan from time to time is 19,000,000 

shares, subject to adjustment in case of any increase or reduction of Sappi’s issued share capital on any conversion, 

redemption, consolidation, sub-division and/or any rights or capitalisation issue of shares. Sappi is obliged to reserve and 

keep available at all times out of its authorised but unissued share capital such number of shares (together with any Treasury 

shares held by Sappi subsidiaries which may be used for the purposes of the Scheme and/or the Plan) as shall then be 

required in terms of the Scheme and/or the Plan. Authority to use treasury shares for the purposes of the Scheme and/or 

the Plan was granted by shareholders at the annual general meeting held on 7 March 2005. 

Since March 1994, 6,752,522 (September 2007: 8,223,372) shares have been allocated to the Scheme participants and paid 

for and 5,772,812 (September 2007: 5,980,162) shares have been allocated to the Scheme participants and not yet paid 

for. In terms of the Plan, 3,961,100 (September 2007: 3,928,400) shares have been allocated and remain unpaid for to the 

Plan participants. 

Shares allocated and accepted more than ten years ago are added back to the number of shares that the Scheme and/or 

the Plan may acquire. 

The net after tax loss on sale of treasury shares to participants written off against share premium for September 2008 was 

US$1 million (September 2007: US$1 million). 

Subsequent to year end, Sappi Limited launched a fully underwritten rights offer (refer note 32 for further details). 


121



18. Reconciliation of changes in equity 

Ordinary 

share 

Number capital Non- Foreign 

of Ordinary and distrib- currency 

ordinary share Share share utable translation Retained 

US$ million shares capital premium premium reserves reserve earnings Total 

Balance – 

September 2005 225.9 35 832 867 95 2 625 1,589 

Transfer from 

distributable reserves – – – – 5 – (5) – 

Share-based payment – – – – 6 – – 6 

Transfers to Sappi 

Limited Share 

Incentive Trust 1.1 – 5 5 – – – 5 

Total recognised 

expense – (6) (151) (157) 3 (35) 43 (146) 

Dividends – 

US$0.30 per share* – – – – – – (68) (68) 

Balance – 

September 2006 227.0 29 686 715 109 (33) 595 1,386 

Transfer to distributable 

reserves – – – – (13) – 13 – 

Share-based payment – – – – 5 – – 5 


Limited Share 


Total recognised income – 5 91 96 13 42 328 479 

Dividends – 

US$0.30 per share* – – – – – – (68) (68) 

Balance – 

September 2007 228.5 34 791 825 114 9 868 1,816 

Transfer from 

distributable reserves – – – – 8 – (8) – 

Share-based payments – – – – 10 – – 10 


Limited Share 


Total recognised 

expense – (6) (118) (124) (8) (130) 108 (154) 

Dividends – 

US$0.32 per share* – – – – – – (73) (73) 

Balance – 

September 2008 229.2 28 679 707 124 (121) 895 1,605 

Note reference: 17 19 

* Dividends relate to the previous financial year’s earnings but were declared subsequent to year-end. 

122

sappi // 

18. Reconciliation of changes in equity (continued) 

Capital risk management 

The capital structure of the group consists of: 

– issued share capital and premium and accumulated profits disclosed in note 17 and 18 respectively; 

– debt, which includes interest bearing borrowings and obligations due under finance leases disclosed under note 20; and 

– cash and cash equivalents. 

The group’s capital management objective is to achieve an optimal weighted average cost of capital while continuing to 

safeguard the group’s ability to meet its liquidity requirements (including capital expenditure commitments), repay borrowings 

as they fall due and continue as a going concern. 

The group monitors its gearing through a ratio of net debt (interest-bearing borrowings and overdraft less cash and cash 

equivalents) to total capitalisation (shareholders equity plus net debt). 

The group has entered into a number of debt facilities which contain certain terms and conditions in respect of capital 

management. 

During fiscal 2008 and 2007 we were in compliance with the financial covenants relating to the material loans payable. 

The group’s strategy with regard to capital risk management remains unchanged from 2007. 


19. Non-distributable reserves 

Reduction in capital arising from the transfer of share premium under a 

special resolution dated 14 April 1975 1 1 

Capitalisation of distributable reserves 13 15 

Legal reserves in subsidiaries 75 66 

Share-based payment reserve 35 32 

124 114 


123



19. Non-distributable reserves (continued) 


Share- 

Sharebased 

based 

Capital- pay- Capital- pay- 

Capital isation Legal ment Capital sation Legal ment 

reduction reserve reserves reserve Total reduction reserve reserves reserve Total 

Opening balance 1 15 66 32 114 1 13 71 24 109 

Transfer from retained 

earnings – – 8 – 8 – – – – – 

Released to retained earnings – – – – – – – (13) – (13) 

Share-based payment 

expense – – – 10 10 – – – 5 5 

Translation difference – (2) 1 (7) (8) – 2 8 3 13 

1 13 75 35 124 1 15 66 32 114 

The amounts recorded as “Capitalisation of distributable reserves” and “Legal reserves in subsidiaries” represent equity of 

the company that is not available for distribution as a result of appropriations of equity by subsidiaries and legal requirements, 

respectively. 


20. Interest-bearing borrowings 

Secured borrowings 

– Mortgage and pledge over trade receivables and certain assets 

(refer note 24 for details of encumbered assets) 468 457 

– Capitalised lease liabilities (refer note 24 for details of encumbered assets) 29 41 

Total secured borrowings 497 498 

Unsecured borrowings 2,156 2,101 

Total borrowings (refer note 30) 2,653 2,599 

Less: Current portion included in current liabilities 821 771 

1,832 1,828 

124

sappi // 


20. Interest-bearing borrowings (continued) 

The repayment profile of the interest-bearing borrowings is as follows: 

Payable in the year ended September: 

2008 – 771 

2009* 821 19 

2010 65 69 

2011 629 623 

2012 615 619 

2013 (September 2008: thereafter) 159 498 

Thereafter 364 – 

2,653 2,599 

* Included in the US$821 million reflected as short-term payable in 2009 is US$360 million debt relating to securitisation funding (2008: US$354 million 

included in US$771 million) which has the character of a short-term revolving facility but is expected to run until 2012 under the existing contractual arrangements. 

A further amount of US$297 million (2007: US$142 million) is the utilisation under our revolving credit facility, and while rolled on a short term basis the facility 

has a maturity date of May 2010. 

Capitalised lease liabilities 

Finance leases are primarily for plant and equipment. Lease terms generally range from 5 to 10 years with options to make 

early settlements or renew at varying terms. At the time of entering into capital lease agreements, the commitments are 

recorded at their present value using applicable interest rates. As of September 2008, the aggregate amounts of minimum 

lease payments and the related imputed interest under capitalised lease contracts payable in each of the next five financial 

years and thereafter are as follows: 


Present 

Present 

value of 

value of 

Minimum minimum Minimum minimum 

lease lease lease lease 

payments Interest payments payments Interest payments 

Payable in the year 

ended September: 

2008 – – – 13 (3) 10 

2009 10 (3) 7 12 (5) 7 

2010 4 (2) 2 5 (3) 2 

2011 4 (2) 2 5 (2) 3 

2012 5 (2) 3 5 (1) 4 

2013 (September 2007: 

thereafter) 5 (1) 4 18 (3) 15 

Thereafter 12 (1) 11 – – – 

Total future minimum 

lease payments 40 (11) 29 58 (17) 41 


125




Set out below are details of the more significant non-current interest-bearing borrowings in the group at September 2008. 

Principal 

Balance 

Interest amount sheet Security/ Financial 

Currency rate (9) outstanding value Cession Expiry covenants 

Redeemable bonds 

Public bond US$ Variable (7) US$500 million US$490 million (2,3,6) Unsecured June 2012 No financial 

covenants 

Public bond US$ Variable (7) US$250 million US$239 million (2,3,6) Unsecured June 2032 No financial 

covenants 

Town of US$ Variable (7) US$35 million US$35 million (6) Land and October 2015 No financial 

Skowhegan buildings covenants 

(partially) 

Town of US$ Variable (7) US$28 million US$28 million (6) Land and November 2013 No financial 

Skowhegan buildings covenants 

(partially) 

Michigan US$ Variable (7) US$44 million US$45 million (6) Land and January 2022 No financial 

Strategic buildings covenants 

Fund and 

(partially) 

City of 

Westbrook 

Public bond ZAR Fixed ZAR1,000 million ZAR1,000 million Unsecured June 2013 No financial 

covenants 

Public bond ZAR Fixed ZAR1,000 million ZAR999 million Unsecured October 2011 No financial 

covenants 

Bravura/ ZAR Fixed ZAR109 million ZAR109 million Unsecured November 2012 No financial 

Sanlam 

covenants 

Bravura/ ZAR Fixed ZAR108 million ZAR108 million Unsecured January 2013 No financial 

Sanlam 

covenants 

Bravura/ ZAR Fixed ZAR27 million ZAR27 million Unsecured March 2013 No financial 

Sanlam 

covenants 

Secured loans 

State Street EUR Variable EUR150 million EUR150 million Trade Revolving facility EBITDA to net 

Bank (10) receivables interest and net 

debt to 

capitalistion (5) 

State Street US$ Variable US$73 million US$73 million Trade Revolving facility EBITDA to net 


debt to 


State Street US$ Variable US$68 million US$68 million Trade Revolving facility EBITDA to net 


debt to 


126

sappi // 


Principal Balance 

Interest amount sheet Security/ Financial 

Currency rate (9) outstanding value Cession Expiry covenants 

Capitalised leases 

Standard ZAR Fixed ZAR45 million ZAR47 million (1) Plant and No financial 

Bank equipment October 2008 covenants 

Rand ZAR Fixed ZAR169 million ZAR169 million (1) Buildings September 2015 No financial 

Merchant 

covenants 

Bank 

Unsecured bank term loans 

BNP Paribas EUR Variable EUR100 million EUR100 million November 2008 No financial 

Syndication 

covenants 

BNP Paribas EUR Variable EUR25 million EUR25 million November 2008 No financial 

covenants 

Österreichische EUR Variable EUR58 million EUR58 million (1,8) March 2009 No financial 

Kontrollbank 

covenants 

Österreichische EUR Fixed EUR400 million EUR399 million (2,6,8) December 2010 EBITDA to net 

Kontrollbank 

interest and 

net debt to 


ABN AMRO US$ Fixed US$21 million US$21 million May 2009 No financial 

covenants 

Österreichische US$ Fixed US$38 million US$38 million (2,6,8) June 2010 EBITDA to net 

Kontrollbank 

interest and 

net debt to 


BNP Paribas CHF Variable CHF165 million CHF165 million (2,8) November 2008 EBITDA to net 

Syndication 

interest and 

net debt to 


Nedbank ZAR Fixed ZAR349 million ZAR349 million (1) January 2011 No financial 

covenants 

Commerzbank ZAR Fixed ZAR147 million ZAR147 million (1) March 2010 No financial 

covenants 

Calyon ZAR Variable ZAR55 million ZAR55 million (1,4) October 2009 EBITDA to net 

interest and 

net debt to 

capitalistion 

RZB Bank EUR Fixed EUR7 million EUR7 million December 2009 No financial 

covenants 


127




Local 

currency 

US$ 

million 

The analysis of the currency per debt is: 

US$ 1,038 1,038 

Swiss Franc 165 151 

EURO 747 1,091 

ZAR 3,009 373 

(1) The value outstanding equals the total facility available. 

(2) In terms of the agreement, limitations exist on liens, sale and leaseback transactions and mergers and consolidation. Sappi Limited must maintain a majority 

holding in Sappi Papier Holding GmbH Group. 

(3) Sappi Papier Holding GmbH, Sappi Limited or Sappi International SA may at any time redeem the June 2012 and 2032 public bonds (the ‘Securities’) in whole 

or in part at a redemption price equal to the greater of (i) 100% of the principal amount of the Securities to be redeemed and (ii) a make-whole amount based 

upon the present values of remaining payments at a rate based upon yields of specified US treasury securities plus 25 basis points, with respect to the 2012 

Securities, and 30 basis points, with respect to the 2032 Securities, together with, in each case, accrued interest on the principal amount of the securities 

to be redeemed to the date of redemption. 

(4) The financial covenant relates to the financial position of Sappi Manufacturing, a wholly owned subsidiary of Sappi Limited. 

(5) Financial covenants relate to the Sappi Limited Group. 

(6) The principal value of the loans / bonds corresponds to the amount of the facility, however, the outstanding amount has been adjusted by the discounts paid 

upfront and the fair value adjustments relating to hedge accounting. 

(7) Fixed rates have been swapped into variable rates. These swaps are subject to hedge accounting in order to reduce as far as possible the fair value exposure. 

Changes in fair value of the underlying debt which are attributable to changes in credit spread have been excluded from the hedging relationship. 

(8) A limitation exists on the disposal of assets. Sappi Limited must maintain a majority in Sappi Papier Holding GmbH Group. 

(9) The nature of the variable rates for the group bonds is explained in note 30 to the financial statements. The nature of the interest rates is determined with 

reference to the underlying economic hedging instrument. 

(10) Trade receivables have been securitised for the amounts outstanding. 

A detailed reconciliation of total interest bearing borrowings has been performed in note 30. 

2,653 

Other restrictions 

As is the norm for bank loan debts, a portion of Sappi Limited’s financial indebtedness is subject to cross default provisions. 

Breaches in bank covenants in certain subsidiaries, if not corrected in time, might result in a default in group debt, and in 

this case, a portion of Sappi Limited consolidated liabilities might eventually become payable on demand. 

During fiscal 2008 and 2007 we were in compliance with the financial covenants relating to the material loans payable. 

Regular monitoring of compliance with applicable covenants occurs. If there is a possible breach of a financial covenant in 

the future, negotiations are commenced with the applicable institutions before such breach occurs. 

Borrowing facilities secured by trade receivables 

The group undertakes several trade receivable securitisation programmes due to the cost effectiveness of such structures. 

These structures, with the exception of the South African scheme, are treated as on balance sheet, with a corresponding 

liability (external loan) being recognised and corresponding interest is recognised as finance cost. 

The trade receivables are legally transferred, however most of the market risk (foreign exchange risk and interest rate risk) 

and the credit risk is retained by Sappi. As a consequence based on the risks and rewards evaluation these securitisations 

do not qualify for de-recognition under IAS 39. 

Further detail of the value of trade receivables pledged as security for these loans is included in note 16 of the financial 

statements. 


Sappi sells the majority of its US$ receivables to Galleon Capital LLC on a non recourse basis. Credit enhancement includes 

a 3% deferred purchase price plus a letter in the amount of US$18 million that relates to the uninsured portion of those 

obligors with concentrations above 3% (Sappi, as servicer of the receivables, is responsible for the collection of all amounts 

that are due from the customer). The rate of discounting charged on the receivables is LIBOR (London Inter Bank Offered 

Rate) plus a margin for receivables to customers located in OECD countries. 

128

sappi // 



Sappi sells the majority of its receivables to Galleon Capital LLC on a non recourse basis. Credit enhancement is calculated 

by deducting a deferred purchase price of 14%. Sappi is responsible for the collection of all amounts that are due from the 

customer. The rate of discounting that is charged on the receivables is EURIBOR (European Inter Bank Offered Rate) plus a 

margin for receivables to customers located in OECD countries plus a further margin for receivables to customers located 

in non-OECD countries. 


Sappi sells the majority of its US$ denominated receivables to Galleon Capital LLC on a non recourse basis. Credit 

enhancement is calculated by deducting a deferred purchase price of 14%. A letter of credit is issued by Sappi to Galleon 

Capital LLC as a guarantee for funding of excess concentrations if this would be the case. Sappi is responsible for the 

collection of all amounts that are due from the customer. The rate of discounting that is charged on the receivables is LIBOR 

(London Inter Bank Offered Rate) plus a margin for receivables to customers located in OECD countries plus a further margin 

for receivables to customers located in non-OECD countries. 

Non-utilised facilities 

The group monitors its availability to funds on a weekly basis.The group treasury committee determines the amount of 

unutilised facilities to determine the headroom which it currently operates in. The net cash balances included in current 

assets and current liabilities are included in the determination of the headroom available. 

Non-utilised committed facilities 

US$ million Currency Interest rate 2008 2007 

Commercial Paper* ZAR Variable (JIBAR) 25 1 

Syndicated loan** EUR Variable (EURIBOR) 580 713 

605 714 

* Commercial paper programme sponsored by Investec for a committed liquidity facility of ZAR200 million for each further issue. The remainder of the unutilised 

portion of the total ZAR1 billion programme facility has been included under uncommitted facilities disclosed below. 

** Syndicated loan with a consortium of banks with BNP Paribas as agent with a remaining revolving facility available of EUR397 million, which are subject to net 

finance cost cover and debt to total capitalisation ratio financial covenants which relate to the Sappi Limited group. 

These committed facilities represent amounts that the group could utilise. The syndicated loan facility matures in May 2010 

and the commercial paper facility is ongoing without a precise maturity date. We have paid a total commitment fee of 

US$1 million (2007 US$2 million) in respect of the syndicated loan facility. 

Non-utilised uncommitted facilities 

Geographic region Currency Interest rate 2008 2007 

Southern Africa ZAR Variable (JIBAR) 205 150 

Group Treasury – Europe EUR Variable (EURIBOR) 143 277 

Europe EUR Variable (EURIBOR) 130 – 

Europe USD Variable (LIBOR) – 69 

478 496 

Total non-utilised facilities excluding cash 1,083 1,210 

Fair value 

The fair value of all interest bearing borrowings is disclosed in note 30 on financial instruments. 


129




21. Other non-current liabilities 

Post-employment benefits – pension liability (refer note 27) 144 144 

Post-employment benefits other than pension liability (refer note 28) 141 181 

Long-term employee benefits 6 10 

Workmen’s compensation 7 6 

Long service awards 18 19 

Land restoration obligation 16 16 

Deferred income 4 1 

Other 10 7 

346 384 

22. Provisions 

Summary of provisions: 

Restructuring provisions 41 16 

Other provisions 1 2 

Balance at September* 42 18 

* These are all current liabilities. 

Severance, 

retrench- Lease 

ment cancellation 

and related and penalty Other 

Restructuring provisions costs costs restructuring Total 

Balance at September 2006* 40 – 1 41 

Increase in provisions 6 – 1 7 

Utilised (16) – (1) (17) 

Released during the year (17) – – (17) 

Other movements (1) – – (1) 

Translation effect 3 – – 3 

Balance at September 2007* 15 – 1 16 

Increase in provisions 23 5 19 47 

Utilised (8) – – (8) 

Released during the year (4) – – (4) 

Other movements 1 – (10) (9) 

Translation effect – (1) – (1) 

Balance at September 2008* 27 4 10 41 

* These are all included in current liabilities. 

130

sappi // 

22. Provisions (continued) 

Restructuring plans 


Regional Restructuring. The regional restructuring plan was introduced in fiscal 2006. The original number of employees 

expected to be impacted by this plan was 650. From a total of 650, 450 employees were expected to receive termination 

benefits. The remaining number of 200 employees was comprised of those who were employed on a contractual basis as 

well as employees nearing retirement. The number of employees expected to receive termination benefits was revised from 

450 to 357 at September 2007 and further revised to 347 at the end of fiscal 2008 of which 333 were already impacted. 

The total provision relating to the restructuring plan at of the end of fiscal 2008 is approximately US$5 million (2007: 

US$15 million). 

Blackburn Mill. During the financial year ended September 2008, Sappi Fine Paper Europe announced that it had entered 

into a consultation process with employee representatives with a view to cease production at Blackburn Mill which had an 

annual production capacity of 120,000 tons of graphic coated fine paper. Whilst various ancillary production and selling 

activities are ongoing, the mill ceased production of paper in October 2008, and on 11th November 2008, the consultation 

process with employee representatives came to an end resulting in 95 employees being made redundant. A further 34 

employees are expected to be made redundant by the end of March 2009. A provision of US$23 million relating to severance, 

retrenchment and other related closure costs has been raised. 

Maastricht Mill. During the financial year ended September 2008, Sappi Fine Paper Europe announced that it had entered 

into a consultation process with employee representatives with a view to shutting down one of its coated paper machines 

with an annual production capacity of 60,000 tons of graphic coated fine paper at Maastricht Mill. Negotiations with Unions 

and the Works Council were concluded in October 2008. Cessation of production is expected to occur in December 2008 

and to affect 175 employees. A provision of US$24 million relating to severance, retrenchment and other related closure costs 

has been raised. 


Muskegon Mill. In 2007 Sappi Fine Paper North America completed its plan of restructuring the Muskegon Mill. The total 

number of remaining employees who were expected to be affected by the restructuring plan was 23 at the beginning of fiscal 

2007. All these employees were impacted by the plan by the end of the year. Approximately half of the provision of 

US$1 million that remained at the end of fiscal 2006 was utilised to provide severance and related costs and the remainder 

was reversed. 

Regional head office. All the remaining activities of the restructuring plan relating to the regional head office were completed 

during fiscal 2007. 


131




23. Notes to the cash flow statement 

23.1 Cash generated from operations 


Adjustment for: 

– Depreciation 374 374 390 

– Fellings 80 70 74 

– Amortisation – 1 2 

– Taxation charge (benefit) 86 47 (1) 

– Net finance costs 126 134 130 

– Other asset impairments (reversals) and write-offs 119 2 (14) 

– Fair value adjustment gains and growth on plantations (190) (130) (104) 

– Post employment benefits funding (88) (101) (68) 

– Other non-cash items 14 (14) (9) 

623 585 396 

23.2 Increase in working capital 

(Increase) decrease in inventories (38) 44 (3) 

Increase in receivables (19) (38) (3) 

Increase (decrease) in payables 58 54 (11) 

1 60 (17) 

23.3 Finance costs paid 

Gross interest and other finance costs (181) (173) (162) 

Net foreign exchange gains 8 13 7 

Net loss on marking to market of financial instruments (7) (9) (3) 

Non-cash movements included in items above 41 (14) (6) 

(139) (183) (164) 

23.4 Taxation paid 

Amounts unpaid at beginning of year (125) (101) (120) 

Translation effects 7 (12) 9 

Amounts charged to the income statement (6) (38) (5) 

Reversal of non-cash movements – (1) 2 

Amounts unpaid at end of year 54 125 101 

Cash amounts paid (70) (27) (13) 

23.5 Replacement of non-current assets 

Property, plant and equipment (250) (116) (160) 

132

sappi // 


23. Notes to the cash flow statement (continued) 

23.6 Proceeds on disposal of non-current assets 

Book value of property, plant and equipment disposed of 2 23 2 

Profit on disposal 5 27 2 

7 50 4 

23.7 Cash and cash equivalents 

Cash and deposits on call 221 354 218 

Money market instruments 53 10 6 

274 364 224 

24. Encumbered assets 

The book values of assets which are mortgaged, hypothecated or subject 

to a pledge as security for borrowings, subject to third party ownership 

in terms of capitalised leases or suspensive sale agreements are 

as follows: 

Land and buildings 17 24 

Plant and equipment 4 28 

Trade receivables 415 415 

436 467 

Suspensive sale agreements are instalment sale agreements which the group has entered into in respect of certain property, 

plant and equipment and the assets purchased are encumbered as security for the outstanding liability until such time as 

the liability is discharged. 

A significant portion of the assets at Cloquet Mill are subject to several long-term, cross-border leases assumed at the 

time of its acquisition in May 2002. Under the lease arrangements, the previous owner sold assets to an unrelated third 

party, leased the assets back, and made an upfront lease payment. As a result, no future lease payments are required under 

the agreement. 

Sappi has the right to acquire full ownership of these assets at the end of the lease term. Early termination of the lease may 

occur under three different scenarios; namely, under Scenario A, payment would be made by Sappi as a result of the following 

events: voluntary early termination, termination due to default and total loss of plant and equipment without substitution; 

under Scenario B, payment would be made by Sappi as a result of changes in statute rendering the agreement illegal 

or unenforceable; and under Scenario C, the lease naturally expires or early termination is triggered by the lessor. 

As at September 2008 the termination value of this lease is approximately US$8 million (September 2007: US$10 million). 

Refer to note 9 for details on property, plant and equipment. 


133




25. Commitments 

Capital commitments 

Contracted but not provided 76 188 

Approved but not contracted 130 249 

206 437 

Future forecasted cashflows of capital commitments: 


2009 154 33 

2010 35 15 


206 437 

The capital expenditure is expected to be financed by funds generated by the business, 

existing cash resources and borrowing facilities available to the group. 

Lease commitments 

Future minimum obligations under operating leases: 

Payable in the year ended September: 


2009 28 14 

2010 14 10 

2011 9 5 

2012 4 2 

2013 (September 2007: thereafter) 2 2 


92 145 

Future minimum obligations under operating leases include the following two significant arrangements: 

Sale and Lease Back of the Somerset Paper Machine: In 1997 we sold one of our paper machines at our Somerset Mill for 

US$150 million and entered into a leaseback arrangement. This transaction diversified our sources of funding and provided 

a longer-term horizon to our repayment profile. This qualified as an operating lease under the applicable accounting principles. 

The lease term expired after 15 years, and an option was available to either return the paper machine; renew the lease 

for at least 2 years, but for no longer than 80% of its remaining useful life; or repurchase it at its fair market value at the 

end of the lease term. On January 29, 2008, we exercised our purchase option under the lease agreement to buy back 

Somerset Paper Machine No. 3 for approximately US$75 million. Lease payments made during fiscal year 2008 amounted 

to US$7.6 million. 

Westbrook Cogeneration Agreement: In 1982 a cogeneration facility was installed adjacent to our Westbrook Mill at a cost 

of US$86 million, to supply steam and electricity to the mill on a take-or-pay basis. We took the position that this was an 

operating lease. An unrelated investor owned the facility. In July 2007, we notified the lessor of our intent to purchase the 

asset in accordance with the terms of the agreement at the end of the Basic Term (July 15, 2008) at its fair market value and 

on 29 August 2008, we purchased the facility for approximately US$10 million. Lease payments in fiscal 2008 amounted to 

US$4.8 million. 

Environmental matters: Further information on capital commitments relating to environmental matters can be found in note 33. 

134

sappi // 


26. Contingent liabilities 

Guarantees and suretyships 38 43 

Other contingent liabilities 7 26 

Included under guarantees and suretyships are bills of exchange where Sappi has guaranteed third party funding of payments 

to Sappi for certain German accounts receivables. 

Other contingent liabilities mainly relate to taxation queries to which certain group companies are subject. The decrease in 

contingent liabilities reflects management’s revised estimate of losses which could arise from taxation queries to which certain 

group companies are subject. These amounts have been recognised as current income tax liabilities. 

The group is involved in various lawsuits and administrative proceedings. The relief sought in such lawsuits and proceedings 

includes injunctions, damages and penalties. Although the final results in these suits and proceedings cannot be predicted 

with certainty, it is the present opinion of management, after consulting with legal counsel, that they are not expected to have 

a material effect on the group’s consolidated financial position, results of operations or cash flows. 

27. Post-employment benefits – pensions 

Defined contribution plans 

The group operates eleven defined contribution retirement benefit schemes covering all qualifying employees. The assets of 

the schemes are held separately from those of the group in funds under the control of trustees. In addition the group 

participates in a country-wide union scheme open to eligible employees in South Africa. 

The total cost charged to the income statement of US$23 million (September 2007: US$18 million, September 2006: 

US$10 million) represents contributions payable to these schemes by the group based on the rates specified in the rules of 

these schemes. As at September 2008, US$2 million (September 2007: nil, September 2006: nil) was due in respect of the 

current reporting period that had not yet been paid over to the schemes. 

Defined benefit plans 

The group operates eight large defined benefit pension plans plus a number of smaller plans. This includes plans closed to 

new entrants as well as plans closed for future accrual for existing members. Those plans, open to new entrants or future 

accrual, cover all qualifying employees. Such plans have been established in accordance with applicable legal requirements, 

customs and existing circumstances in each country. Benefits are generally based upon compensation and years of service. 

In North America benefits are based on a ’multiplier’ and years of service for most schemes, which historically has increased 

from time to time. With the exception of our German and Austrian plans (which are unfunded), the assets of these schemes 

are held in separate trustee administered funds which are subject to varying statutory requirements in the particular countries 

concerned. In terms of these requirements, periodic actuarial valuations of these funds are performed by independent 

actuaries. As at September 2008, the number of active members in schemes is approximately 8,000. 

Actuarial valuations of the European and North American funds are performed annually. An actuarial review is performed 

annually for the South African and United Kingdom funds, with an actuarial valuation being performed on a tri-annual basis. 

Group companies have no other significant post-employment benefit liabilities except for the following: 

– health care benefits provided to persons in North America and in South Africa (refer note 28). 

– jubilee (long service award schemes) provided in continental Europe and an early retirement plan in Belgium, totalling 

$23 million (included within other non-current liabilities in note 21). 

All obligations and assets were measured at the end of this financial year. 


135



27. Post-employment benefits – pensions (continued) 


Southern Europe North Southern Europe North 

US$ million Africa (incl UK) America Total Africa (incl UK) America Total 

Change in present value of 

defined benefit obligation 

Defined benefit obligations 

at beginning of year 305 889 413 1,607 256 819 438 1,513 

Current service cost 8 12 6 26 10 11 7 28 

Past service cost – 1 – 1 – – 1 1 

Interest cost 24 47 26 97 24 39 25 88 

Plan participants’ contribution 4 – – 4 4 – – 4 

Actuarial loss (gain) 

experience 11 (2) 7 16 (16) 7 (4) (13) 

Actuarial (gain) loss 

assumptions (11) (127) (51) (189) 20 (37) (30) (47) 

Gain on curtailment 

and settlement – (1) – (1) – – – – 

Benefits paid (26) (50) (23) (99) (27) (44) (24) (95) 

Translation difference (44) (4) – (48) 34 94 – 128 

Defined benefit obligation 

at end of year 271 765 378 1,414 305 889 413 1,607 

Present value of wholly 

unfunded obligations – 114 3 117 – 129 3 132 


and partly funded obligations 271 651 375 1,297 305 760 410 1,475 

Change in fair value of 

plan assets 

Fair value of plan assets 

at beginning of year 398 763 384 1,545 295 661 329 1,285 

Expected return on 

plan assets 36 46 33 115 32 39 27 98 

Actuarial (loss) gain on 

plan assets (30) (93) (66) (189) 40 (14) 15 41 

Employer contribution 9 32 34 75 11 41 37 89 

Additional employer 

contribution – 1 – 1 – 1 – 1 

Plan participants’ contribution 4 – – 4 4 – – 4 

Benefits paid (26) (50) (23) (99) (27) (44) (24) (95) 

Translation difference (59) (6) – (65) 43 79 – 122 

Fair value of plan assets 

at end of year 332 693 362 1,387 398 763 384 1,545 

Surplus (deficit) 61 (72) (16) (27) 93 (126) (29) (62) 

Unrecognised past 

service cost – – – – – – 1 1 

Recognised pension plan 

asset (liability) 61 (72) (16) (27) 93 (126) (28) (61) 

136

sappi // 




US$ million Africa (incl UK) America Total Africa (incl UK) America Total 

Periodic pension 

cost recognised in 

income statement 

Current service cost 8 12 6 26 10 11 7 28 

Past service cost – 1 – 1 – – – – 

Fund administration costs – – – – 1 – – 1 

Interest cost 24 47 26 97 24 39 25 88 

Expected return on 

plan assets (36) (46) (33) (115) (32) (39) (27) (98) 

Amortisation of past 

service cost – – 1 1 – – 1 1 

Gain on curtailment 

and settlement – (1) – (1) – – – – 

Net periodic pension (credit) 

cost charged to cost of sales 

and selling, general and 

administrative expenses (4) 13 – 9 3 11 6 20 

Actual return (loss) on 

plan assets 6 (47) (33) (74) 74 26 42 142 

Actual return (loss) on 

plan assets (%) 1.3 (6.2) (9.0) (5.0) 25.0 3.9 12.9 11.0 

Amounts recognised in the 

statement of recognised 

income and expense 

Actuarial (losses) gains (30) 36 (22) (16) 36 16 49 101 

Pension asset surplus release – – – – 45 – – 45 

Cumulative actuarial gains 

and losses recognised in 

the statement of 

recognised income 

and expense 

Actuarial gains (losses) 52 (98) (81) (127) 82 (134) (59) (111) 

Weighted average 

actuarial assumptions 

at balance sheet date: 

Discount rate (%) 9.00 6.90 7.60 8.25 5.30 6.30 

Compensation increase (%)* 6.45 3.10 3.50 6.24 3.05 3.50 

Expected return on assets (%) 9.40 6.75 8.25 9.66 6.00 8.25 

Weighted average actuarial 

assumptions used to 

determine periodic 

pension cost: 

Discount rate (%) 8.25 5.30 6.30 8.50 4.65 5.75 

Compensation increase (%)* 6.24 3.05 3.50 6.00 3.30 3.50 

Expected return on assets (%) 9.66 6.00 8.25 10.50 5.60 8.25 

* Weighted average of schemes that use a compensation increase assumption. 


137




Illustrating sensitivity 

The discount and salary increase rates can have a significant effect on the amounts reported. The table below illustrates the 

effect of changing key assumptions: 

1% 1% 

1% 1% increase decrease 

increase decrease in salary in salary 

in discount in discount increase increase 

US$ million rate rate rate rate 


(Decrease) Increase in defined benefit obligation (141) 167 37 (34) 

(Decrease) Increase in aggregate of current service 

cost and interest cost (2) 7 – – 

2007 


(Decrease) Increase in aggregate of current service 

cost and interest cost (6) 8 – – 


Pension plan liability is presented on the balance sheet as follows: 

Pension liability (refer note 21) 144 144 

Pension asset (refer note 14) (117) (118) 

Pension liability (included in other payables) – 35 

27 61 

In determining the expected long term return assumption on plan assets, Sappi considers the relative weighting of plan 

assets to various asset classes, the historical performance of total plan assets and individual asset classes and economic 

and other indicators of future performance. 

Peer data and historical returns are reviewed to check for reasonableness and appropriateness. In addition, Sappi may 

consult with and consider the opinions of financial and other professionals in developing appropriate return benchmarks. 

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sappi // 


Plan fiduciaries set investment policies and strategies for the local trusts. Long-term strategic investment objectives include 

preserving the funded status of the trust and balancing risk and return while keeping in mind the regulatory environment in 

each region. The plan fiduciaries oversee the investment allocation process, which includes selecting investment managers, 

setting long-term strategic targets and rebalancing assets periodically. Target versus actual weighted average allocations (by 

region) are shown below: 



Africa (incl UK) America Africa (incl UK) America 

Weighted average target asset 

allocation by region % % % % % % 

Equity 40.2 37.6 38.0 40.0 21.1 48.0 

Debt securities 43.8 58.7 22.0 44.0 65.6 22.0 

Real estate 0.0 0.0 0.0 0.0 1.1 0.0 

Other 16.0 3.7 40.0 16.0 12.2 30.0 

Weighted average actual asset 

allocation by region % % % % % % 

Equity 24.9 34.4 35.0 55.0 23.1 38.2 

Debt securities 51.8 49.6 22.0 30.0 63.6 23.2 

Real estate 0.0 3.9 0.0 0.0 1.5 0.0 

Other 23.2 12.1 43.0 15.0 11.8 38.6 

Expected benefit payments for pension benefits are as follows: 

Southern Europe North 

US$ million Africa (incl UK) America Total 

Payable in the year ending September: 

2009 10 42 22 74 

2010 11 45 22 78 

2011 11 47 23 81 

2012 12 47 24 83 

2013 12 50 26 88 

Years 2014 – 2018 68 258 152 478 

The expected company contributions for 2009 are US$76 million. 


139




Aggregate total of present value of the defined benefit obligation, fair value of assets and the surplus or deficit in the defined 

benefit plans for the current annual period and for the previous four annual periods (ignoring unrecognised adjustments): 

US$ million 2008 2007 2006 2005 2004 

Defined benefit obligations 1,414 1,607 1,513 1,589 1,420 

Fair value of assets 1,387 1,545 1,285 1,222 1,081 

(Deficit) (27) (62) (228) (367) (339) 

Aggregate gains and losses arising on plan liabilities and plan assets 

for the current annual period and for the previous four annual periods: 

2008 2007 2006 2005 2004 

Plan liabilities gains (losses) 173 60 73 (141) (35) 

Plan assets (losses) gains (189) 41 27 82 26 

Net (losses) gains (16) 101 100 (59) (9) 

Reconciliation of gains and losses to 

Group Statement of Recognised 

Income and Expenses 

Net (losses) from pensions (16) 

Net gains from post employment benefits 

other than pensions (note 28) 23 

Net gains to Group Statement of 

Recognised Income and Expenses 7 

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sappi // 

28. Post-employment benefits other than pensions 

The group sponsors two defined benefit post-employment plans that provide certain health care and life insurance benefits 

to eligible retired employees of the North American and South African operations. Employees are generally eligible for benefits 

upon retirement and completion of a specified number of years of service. 

Actuarial valuations of all the plans are performed annually. 

The North American and the South African post-employment obligations were measured at the end of the financial year. 

The following schedule provides the plans’ funded status and obligations for the group: 


South North South North 

US$ million Africa America Total Africa America Total 

Change in present value of 

defined benefit obligation 

Defined benefit obligations 

at beginning of year 78 95 173 61 103 164 

Current service cost 2 2 4 1 2 3 

Past service cost – – – – (2) (2) 

Interest cost 6 5 11 6 5 11 

Actuarial (gain) loss experience (1) (10) (11) (6) (3) (9) 

Actuarial (gain) loss assumptions (4) (8) (12) 13 (4) 9 

Benefits paid (3) (7) (10) (6) (6) (12) 

Translation difference (12) – (12) 9 – 9 

Defined benefit obligation 

at end of year 66 77 143 78 95 173 


unfunded obligations 66 77 143 78 95 173 

Unrecognised past service credit – (5) (5) – (6) (6) 

Recognised post employment 

benefit liability (66) (82) (148) (78) (101) (179) 

Periodic post-employment 

benefit cost recognised in 


Current service cost 2 2 4 1 2 3 

Interest cost 6 5 11 6 5 11 

Amortisation of past service credit – (1) (1) – (1) (1) 

Gain on curtailments & settlements – – – – (1) (1) 

Net periodic post-employment 

benefit cost charged to cost of 

sales and selling, general and 

administrative expenses 8 6 14 7 5 12 


141



28. Post-employment benefits other than pensions (continued) 


South North South North 

US$ million Africa America Total Africa America Total 

Amounts recognised in the 

statement of recognised 

income and expense 

Actuarial gains (losses) 5 18 23 (7) 7 – 

Cumulative actuarial gains and 

losses recognised in the statement 

of recognised income and expense 

Actuarial losses (19) (13) (32) (24) (31) (55) 


assumptions at balance 

sheet date: % % % % 

Discount rate 9.00 7.60 8.25 6.30 

Health care cost trend initial rate 7.00 9.00 6.75 9.50 

which gradually reduces to an 

ultimate rate of 7.00 5.00 6.75 5.00 

over a period of (years) – 4 – 5 


assumptions used to determine 

periodic benefit cost: % % % % 

Discount rate 8.25 6.30 8.50 5.75 

Health care cost trend initial rate 6.75 9.50 6.50 10.00 

which gradually reduces to an 

ultimate rate of 6.75 5.00 5.60 5.00 

over a period of (years) – 5 – 5 

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sappi // 


Illustrating sensitivity 

The discount rate and health care cost trend rate can have a significant effect on the amounts reported. The table below 

illustrates the effect by changing key assumptions: 

1% 1% 

1% 1% increase decrease 

increase decrease in health in health 

in discount in discount care cost care cost 

rate rate trend rate trend rate 



(Decrease) Increase in aggregate of current service cost 

and interest cost (1) 1 1 (1) 

2007 

(Decrease) Increase in defined benefit obligation n/a n/a 14 (10) 

(Decrease) Increase in aggregate of current service cost 

and interest cost n/a n/a 1 (1) 


Post-employment benefits other than pension liabilities are presented on the 

balance sheet as follows: 

Post-employment benefits other than pension liability (refer note 21) 141 181 

Post-employment benefits other than pension included in other payables (receivables) 7 (2) 

148 179 

Expected benefit payments for other than pension benefits are as follows: 

South North 

Africa America Total 

Payable in the year ending September: 

2009 3 9 12 

2010 3 9 12 

2011 3 8 11 

2012 4 8 12 

2013 4 8 12 

Years 2014 – 2018 20 32 52 

The expected employer contribution for 2009 is US$11 million. 


143




Aggregate total of present value of the defined benefit obligation in the post retirement medical plans for the current annual 

period and for the previous four annual periods (ignoring unrecognised adjustments): 

2008 2007 2006 2005 2004 

Defined benefit obligations 143 173 164 178 172 

Aggregate gains and losses arising on plan liabilities for the current annual period and previous four annual periods: 

2008 2007 2006 2005 2004 

Plan liabilities gains (losses) 23 – (1) – (8) 

29. Share-based payments 

The Sappi Limited Share Incentive Trust and The Sappi Limited Performance Share Incentive Trust 

At the annual general meeting of shareholders held on 7 March 2005, shareholders adopted The Sappi Limited Performance 

Share Incentive Trust (Plan) in addition to The Sappi Limited Share Incentive Trust (Scheme) which had been adopted on 

5 March 1997, and fixed the aggregate number of shares which may be acquired by all participants under the Plan together 

with the Trust at 19,000,000 shares, which constitute 7.9% of the issued share capital of Sappi Limited. 

The Sappi Limited Share Incentive Trust (Scheme) 

Under the rules of the Scheme, participants may be offered the opportunity to acquire ordinary shares (Scheme shares). This 

entails that Scheme shares are sold by the Scheme to participants on the basis that ownership thereof passes to the 

participant on conclusion of the contract but the purchase price is not payable immediately. Scheme shares are registered 

in the name of the participants and will be pledged in favour of the Scheme as security for payment of debt. Subject to 

certain limitations, a participant’s outstanding share debt will bear interest at such rate as determined by the board of 

directors. Dividends on Scheme shares are paid to the Scheme and will be applied in the payment of such interest. Scheme 

shares may only be released to participants as described below. 

Under the rules of the Scheme, participants may be offered options to acquire ordinary shares (Share options). This entails 

that employees are offered options to purchase or subscribe for shares. Each share option will confer to the holder the right 

to purchase or subscribe for one ordinary share. This is based on the terms and conditions of the Scheme. Share options 

may only be released to participants as described below. 

Under the rules of the Scheme, participants may be granted options to enter into agreements with the company to acquire 

ordinary shares (Allocation shares). These options need to be exercised by the employee within 12 months, failing which the 

option will automatically lapse. The exercise of the option must be accompanied by a deposit (if any) as determined by the 

board of directors of Sappi (the board). The participant will be entitled to take delivery of and pay for Allocation shares which 

are subject to the rules as described below. 

Certain managerial employees are eligible to participate in the Scheme. The amount payable by a participant for Scheme 

Shares, Share Options or Allocation Shares is the closing price at which shares are traded on the JSE Limited on the trading 

date immediately preceding the date upon which the board authorised the grant of the opportunity to acquire relevant 

Scheme Shares, Share Options or Allocation Shares, as the case may be, to a participant. Pursuant to resolutions of the 

board passed in accordance with the rules of the Scheme, Scheme Shares may be released from the Scheme to participants, 

Share Options may be exercised by participants and Allocation Shares may be delivered to participants as follows for 

allocations prior to November 2004: 

(i) 20% of the total number of shares after one year has elapsed from the date of acceptance by the participant of the grant; 

(ii) up to 40% of the total number of shares after two years have elapsed from the date of acceptance by the participant of 

the grant; 

144

sappi // 

(iii) up to 60% of the total number of shares after three years have elapsed from the date of acceptance by the participant 

of the grant; 

(iv) up to 80% of the total number of shares after four years have elapsed from the date of acceptance by the participant of 

the grant and 

(v) the balance of the shares after five years have elapsed from the date of acceptance by the participant of the grant; 

and for allocations subsequent to November 2004 as follows: 

(i) 25% of the total number of shares after one year has elapsed from the date of acceptance by the participant of the grant; 

(ii) up to 50% of the total number of shares after two years have elapsed from the date of acceptance by the participant of 

the grant; 

(iii) up to 75% of the total number of shares after three years have elapsed from the date of acceptance by the participant 

of the grant; and 

(iv) the balance of the shares after four years have elapsed from the date of acceptance by the participant of the grant; 

provided that the board may, at its discretion, anticipate or postpone such dates. Prior to the annual general meeting held 

on 2 March 2000, the Scheme provided that Share Options will lapse, among other reasons, if they remain unexercised 

after the tenth anniversary of the acceptance and that Scheme Shares and Allocation Shares must be paid for in full by 

participants by no later than the tenth anniversary of the acceptance. However, the annual general meeting approved an 

amendment to decrease the aforesaid ten-year period to eight years, in respect of offers made since 3 December 1999. The 

board has resolved that the benefits under the Scheme of Participants will be accelerated in the event of a change of control 

of the company, as defined in the Scheme, becoming effective (a) if, in concluding the change of control, the board in office 

at the time immediately prior to the proposed change of control being communicated to the board ceases to be able to 

determine the future employment conditions of the group’s employees or (b) unless the change of control is initiated by the 

board. Participants are entitled to require such acceleration by written notice to the company within a period of 90 days after 

the date upon which such change of control becomes effective. 

The Scheme provides that appropriate adjustments are to be made to the rights of Participants in the event that the group, 

inter alia, undertakes a rights offer, a capitalisation issue, or consolidation of ordinary shares or any reduction in its ordinary 

share capital. 

The Sappi Limited Performance Share Incentive Trust (Plan) 

Under the rules of the Plan, participants who will be officers and other employees of the company may be awarded conditional 

contracts to acquire Shares for no cash consideration. If the performance criteria from time to time determined by the human 

resources committee or compensation committee of the board (Performance Criteria) applicable to each Conditional 

Contract, are met or exceeded, then Participants shall be entitled to receive such number of shares as specified in the 

Conditional Contract for no cash consideration after the fourth anniversary of the date on which the board resolves to award 

a Conditional Contract to that Participant. The Performance Criteria shall entail a benchmarking of the company’s 

performance against an appropriate peer group of companies. 

If the board determines that the Performance Criteria embodied in a Conditional Contract have not been satisfied or 

exceeded, the number of shares to be allotted and issued and/or transferred to a Participant under and in terms of such 

Conditional Contract shall be adjusted downwards. 

Provision is made for appropriate adjustments to be made to the rights of Participants in the event that the company, inter 

alia, undertakes a rights offer, is a party to a scheme of arrangement affecting the structuring of its issued share capital or 

reduces its share capital if, (a) the company undergoes a change in control after an Allocation date other than a change in 

control initiated by the board itself, or (b) the person/s (or those persons acting in concert) who have control of the company 

as at an Allocation date, take/s any decision, pass/es any resolution and/or take/s any action the effect of which is to delist 

the company from the JSE Limited and the company becomes aware of such decision, resolution and/or action, the company 

is obligated to notify every Participant thereof on the basis that such Participant may within a period of one month (or such 

longer period as the board may permit) take delivery of those shares which he/she would have been entitled to had the 

Performance Criteria been achieved. 


145



29. Share-based payments (continued) 

Allocations (number of shares) 2008 2007 

During the year the following offers were made to employees: 

Share Options 925,700 – 

Share Options Declined (14,000) – 

Performance Shares** 730,000 1,713,000 

Performance Share Declined – (1,500) 

Restricted shares** – 45,000 

1,641,700 1,756,500 

Scheme shares, share options, restricted shares, performance shares and allocation shares activity was as follows during 

the financial years ended September 2008 and 2007: 

Weighted 

Weighted 

average 

average 

Perfor- exercise exercise 

Scheme Restricted Share mance price Allocation price Total 

Shares*** Shares options (1) shares (2) (ZAR)* Shares (1) (ZAR)* Shares 

Outstanding at 

September 2006 1,535,362 12,500 4,503,450 1,892,400 85.09 1,930,500 90.82 9,874,212 

– Offered and accepted – 45,000 – 1,711,500 – – – 1,756,500 

– Paid for/released (92,700) (47,500) (1,046,800) – 64.88 (450,650) 61.86 (1,637,650) 

– Returned, lapsed and forfeited – – (327,700) (286,500) 52.54 (71,300) 124.94 (685,500) 


September 2007 1,442,662 10,000 3,128,950 3,317,400 49.01 1,408,550 98.20 9,307,562 

– Offered and accepted – – 911,700 730,000 52.02 – – 1,641,700 

– Paid for/released (90,800) – (452,200) – 63.47 (273,750) – (816,750) 

– Returned, lapsed and forfeited (31,800) – (355,750) (96,300) 93.76 (29,350) – (513,200) 

Back into Trust 31,800 – – – 147.20 – – 31,800 


September 2008 1,351,862 10,000 3,232,700 3,951,100 46.00 1,105,450 98.20 9,651,112 

Exercisable at September 2006 595,750 – 2,525,750 – 85.69 1,436,950 86.55 4,558,450 

Exercisable at September 2007 587,600 – 2,104,550 – 96.21 1,196,650 99.71 5,800,130 

Exercisable at September 2008 491,300 – 1,906,330 5,000 96.97 1,032,300 110.22 3,434,930 

* The share options are issued in South African Rands. 

** Restricted shares (awarded on an ad-hoc basis to certain individuals on various terms and conditions) and performance shares are issued for no cash 

consideration. The value is determined on the day the shares are taken up. 

*** The number of Scheme shares, which are not subject to credit sales amounts to 855,662 (2007: 823,862). 

(1) Issued in terms of the Scheme. 

(2) Issued in terms of the Plan. 

The fair value of Scheme shares held at September 2008 was US$8.7 million (September 2007: US$12.5 million). 

146

sappi // 

29. Share-based payments (continued) 

The following table sets out the number of share options outstanding at the end of September, excluding the scheme shares: 

Exercise 

Vesting Vesting Expiry price 

2008 2007 conditions date date (ZAR) 

19 January 1998 – 30,100 Time (i) 19 January 2008 19.90 

14 December 1998 48,300 79,700 Time (i) 14 December 2008 22.10 

03 February 1999 1,000 1,000 Time (i) 03 February 2009 22.35 

21 December 1999 – 284,800 Time (i) 21 December 2007 53.85 

15 January 2001 213,800 243,200 Time (i) 15 January 2009 49.00 

15 August 2001 – 5,000 Time (i) 15 August 2009 75.90 


28 March 2002 623,000 662,000 Time (i) 28 March 2010 147.20 

30 January 2003 – 250,000 Time (i) 30 January 2011 115.00 


30 December 2003 150,250 155,500 Time (i) 30 December 2011 79.25 

14 January 2004 630,700 801,800 Time (i) 14 January 2012 79.25 

25 March 2004 1,000 1,000 Time (i) 25 March 2012 86.60 

26 March 2004 – 3,000 Time (i) 26 March 2012 87.50 

13 December 2004 1,029,500 1,200,100 Time (i) 13 December 2012 78.00 

13 December 2004 148,000 148,000 Performance 13 December 2008 N/A – 

13 December 2005 1,413,800 1,462,900 Performance 13 December 2009 N/A – 

08 August 2006 50,000 50,000 Performance 08 August 2010 N/A – 

15 January 2007 5,000 5,000 Performance 31 December 2007 N/A – 

15 January 2007 5,000 5,000 Performance 31 December 2008 N/A – 

15 January 2007 5,000 5,000 Performance 31 December 2009 N/A – 

29 January 2007 50,000 50,000 Performance 29 January 2011 N/A – 

31 May 2007 1,419,300 1,456,500 Performance 31 May 2011 N/A – 

01 June 2007 – 10,000 Performance 01 June 2011 N/A – 

02 July 2007 100,000 100,000 Performance 02 July 2011 N/A – 

10 September 2007 10,000 10,000 Time 10 September 2008 N/A – 

10 September 2007 25,000 25,000 Performance 10 September 2011 N/A – 

12 December 2007 610,600 – Time 12 December 2011 12 December 2015 91.32 

12 December 2007 525,000 – Performance 12 December 2011 N/A – 

19 March 2008 279,200 – Time 19 March 2012 19 March 2016 98.80 

19 March 2008 205,000 – Performance 12 March 2012 N/A – 

8,299,250 7,864,900 

(i) These vest over four or five years depending on the date of allocation. 


147



29. Share-based payment (continued) 

The following assumptions have been utilised to determine the fair value of the shares granted in the financial period in terms 

of the Scheme and the Plan: 

Issue 32 Issue 32 Issue 32 Issue 33 Issue 33 Issue 33 

Date of grant 12 Dec 07 12 Dec 07 12 Dec 07 19 Mar 08 19 Mar 08 19 Mar 08 

Type of award Normal Per- Per- Normal Per- Per- 

Option formance formance Option formance formance 

Share Price at grant date ZAR90.00 US$14.22 US$14.22 ZAR94.98 US$11.64 US$11.64 

Strike Price of share ZAR91.32 – – ZAR98.8 – – 

Vesting Period 4 years 4 years 4 years 4 years 4 years 4 years 

Vesting conditions Cash Flow Cash Flow 

Market Return on Market Return on 

Propor- related – Net Assets Propor- related – Net Assets 

tionately relative relative tionately relative relative 

over time to peers to peers over time to peers to peers 

Expected life of options (years) 8 years n/a n/a 8 years n/a n/a 

Market related vesting conditions n/a Yes No n/a Yes No 

Percentage expected to vest n/a 39.4% 100% n/a 41.8% 100% 

Number of shares offered 633,000 525,000 525,000 282,900 205,000 205,000 

Volatility 30.5% 32,4% n/a 30.8% 33.0% n/a 

Risk free discount rate 11.6% 5.3% 11.8% 2.7% 

(US yield) (US yield) n/a (US yield) (US yield) n/a 

Expected dividend yield 2.29% 2.11% 2.11% 2.34% 2.75% 2.75% 

Expected percentage of issuance 95% 95% 95% 95% 95% 95% 

Model used to value Modified Market Modified Market 

Binomial binomial price Binomial binomial price 

Fair value of option ZAR43.75 ZAR53.13 ZAR70.22 ZAR41.70 ZAR52.07 ZAR68.68 

Volatility has been determined with reference to the historic volatility of the Sappi share price over the expected period. 

Share options, allocation shares, restricted shares and performance shares to executive directors, which are included in 

the above figures, are as follows: 


Number Number 

of options/ of options/ 

shares shares 

At beginning of year 249,000 633,000 

Share Options, Restricted Shares and Performance Shares granted 90,000 – 

Share Options and Allocation Shares exercised/declined – (90,000) 

Shares removed on resignation or retirement of directors – (394,000) 

Shares brought in on appointment of director – 100,000 

At end of year 339,000 249,000 

148

sappi // 

29. Share-based payment (continued) 

The following table sets forth certain information with respect to the 339,000 Share Options and Performance Shares granted 

by Sappi to executive directors: 

Number of 

Exercise price 

Issue date options/shares Expiry date (ZAR) 

15 January 2001 3,000 15 January 2009 49.00 

28 March 2002 15,000 28 March 2010 147.20 

13 February 2003 15,000 13 February 2011 112.83 

30 December 2003 18,000 30 December 2011 79.25 

13 December 2004 18,000 13 December 2012 78.00 

13 December 2004 * 6,000 13 December 2008 – 

13 December 2005 * 24,000 13 December 2009 – 

08 August 2006 * 50,000 08 August 2010 – 

02 July 2007 * 100,000 02 July 2011 – 

12 December 2007 * 90,000 12 December 2011 – 

339,000 

* Performance shares. 

Refer to note 36 for further information on Directors participation in the Scheme and the Plan. 

No new loans have been granted to the executive directors since 28 March 2002. 

30. Financial instruments 

The group’s financial instruments consist mainly of cash and cash equivalents, accounts receivable, certain investments, 

accounts payable, borrowings and derivative instruments. 

Introduction 

The principal risks to which Sappi is exposed through financial instruments are: 

a) market risk (the risk of loss arising from adverse changes in market rates and prices), arising from: 

– interest rate risk 

– foreign exchange risk 

– commodity price and availability risk 

b) credit risk 

c) liquidity risk 

The group’s main financial risk management objectives are to identify, measure and manage the above risks as more fully 

discussed under the individual risk headings below. 

Sappi’s Group Treasury is comprised of two components: Sappi International, located in Brussels, which manages the 

group’s non-South African treasury activities and, for local regulatory reasons, the operations based in Johannesburg which 

manage the group’s Southern African treasury activities. 

These two operations collaborate closely and are primarily responsible for the group’s interest rate, foreign currency, liquidity 

and credit risk (insofar as it relates to deposits of cash, cash equivalents and financial investments). 

Commodity risk and credit risk (insofar as it relates to trade receivables) are primarily managed regionally but are co-ordinated 

on a group basis. 


149



30. Financial instruments (continued) 

The group’s Limits of Authority framework delegates responsibility and approval authority to various officers, committees 

and boards based on the nature, duration and size of the various transactions entered into by, and exposures of, the group 

including the exposures and transactions relating to the financial instruments and risks referred to in this note. 

a) Market risk 


Interest rate risk is the risk that an investment's value will change due to a change in the absolute level of interest rates, in 

the spread between two rates, in the shape of the yield curve or in any other interest rate relationship. 

The group is exposed to interest rate risk as it borrows funds at both fixed and floating interest rates. The group monitors 

market conditions and may utilise approved interest rate derivatives to alter the existing balance between fixed and variable 

interest rate loans in response to changes in the interest rate environment. Hedging of interest rate risk for periods greater 

than one year is only allowed if income statement volatility can be minimised by means of hedge accounting, fair value 

accounting or other means. The group’s exposure to interest rate risk is set out below. 

Interest-bearing borrowings 

The table below provides information about Sappi’s current and non-current borrowings that are sensitive to changes in 

interest rates. The table presents discounted cash flows by expected maturity dates. The average fixed effective interest rates 

presented below are based on weighted average contract rates applicable to the amount expected to mature in each 

respective year. Forward looking average variable effective interest rates for the financial years ended September 2008 and 

thereafter are based on the yield curves for each respective currency as published by Reuters on 28 September 2008. The 

information is presented in US$, which is the group’s reporting currency. 

A detailed analysis of the group’s borrowings is presented in note 20. 

Expected maturity date 

Total 2008 2007 2007 

Carrying Fair Carrying Fair 

(US$ equivalent in millions) 2009 2010 2011 2012 2013 2014+ Value Value Value Value 

US Dollar 

Fixed rate 21 38 – – – – 59 58 55 56 

Average interest rate (%) 4.00 4.49 – – – – 4.31 5.01 

Variable rate (1)(2) 142 – – 487 – 350 979 885 946 947 

Average interest rate (%) 4.08 4.18 4.18 6.84 4.18 7.33 6.61 7.39 

Euro 

Fixed rate 6 6 584 2 2 3 603 582 716 721 


Variable rate (3) 488 – – – – – 488 488 297 297 

Average interest rate (%) 4.43 – – – – – 4.43 3.98 

Rand 

Fixed rate 7 20 45 126 157 11 366 350 399 408 


Variable rate (4) 6 1 – – – – 7 7 44 44 

Average interest rate (%) 10.67 10.67 – – – – 10.67 9.84 

150

sappi // 


Expected maturity date 

Total 2008 2007 2007 

Carrying Fair Carrying Fair 

(US$ equivalent in millions) 2009 2010 2011 2012 2013 2014+ Value Value Value Value 

Swiss Franc 

Fixed rate 

Average interest rate (%) 

Variable rate 151 – – – – – 151 151 142 142 

Average interest rate (%) 3.26 – – – – – 3.26 3.3 

Total 

Fixed rate 34 64 629 128 159 14 1,028 990 1,170 1,184 


Variable rate 787 1 – 487 – 350 1,625 1,531 1,429 1,429 

Average interest rate (%) 4.19 10.67 – 6.84 – 7.33 5.66 6.36 

Fixed and variable 821 65 629 615 159 364 2,653 2,521 2,599 2,613 

Current portion 821 821 771 764 

Long term portion 1,832 1,700 1,828 1,898 

Total interest-bearing borrowings (refer note 20) 2,653 2,521 2,599 2,662 

The fair value of non-current borrowings is estimated by Sappi based on the rates from market quotations for non-current 

borrowings with fixed interest rates and on quotations provided by internationally recognised pricing services for notes, 

exchange debentures and revenue bonds. 

The above mentioned fair values include Sappi’s own credit risk. Please refer to the sensitivity analysis regarding interest rate 

risk for additional information regarding Sappi’s rating. 

(1) Includes fixed rate loans where fixed-for-floating rate swap contracts have been used to convert the exposure to floating rates. Some of the swaps do not cover 

the full term of loans. 

(2) The US Dollar floating interest rates are based on the London Inter-bank Offered Rate (LIBOR). 

(3) The Euro floating interest rates are based on the European Inter-bank Offered Rate (EURIBOR). 

(4) The Rand floating interest rates are predominately based on the Johannesburg Inter-bank Agreed Rate (JIBAR). 

The range of interest rates in respect of all non-current borrowings comprising both fixed and floating rate obligations, is 

between 2.45% and 11.28% (depending on currency). At September 2008, 39% of Sappi’s borrowings were at fixed rates 

of interest, and 61% were at floating rates. Floating rates of interest are based on LIBOR for US$ borrowings, on EURIBOR 

for Euro denominated borrowings and on JIBAR for ZAR borrowings. Fixed rates of interest are based on contract rates. 

Sappi’s Southern African operations have in the past been particularly vulnerable to adverse changes in short-term domestic 

interest rates, as a result of the volatility in interest rates in South Africa. During 2008 domestic interest rates have increased 

from 10.26 % to 12.05 % for the 3-month JIBAR. 

Sappi uses interest rate options, caps, swaps and interest rate and currency swaps as a means of managing interest rate 

risk associated with outstanding debt entered into in the normal course of business. Sappi does not use these instruments 

for speculative purposes. Interest rate derivative financial instruments are measured at fair value at each reporting date with 

changes in fair value recorded in profit or loss for the period. The group has designated certain derivatives as hedges of fixed 

rate debt in a documented hedging strategy. 


151



30. Financial Instruments (continued) 

Interest rate derivative financial instruments are measured at fair value at each reporting date with changes in fair value 

recorded in profit or loss for the period. The hedge relationship has been assessed as highly effective on a quarterly basis. 

Changes in the fair value of the underlying debt, attributable to changes in the credit spread are excluded from the 

hedging relationship. 

The group has determined at inception and in subsequent periods that the derivatives are highly effective in offsetting fair 

value exposure of the debt being designated as hedged. Because only interest rate risk is designated as being hedged, credit 

risk related to the hedged debt is excluded from the group's assessment of the hedge being highly effective. The carrying 

value of the hedged debt is adjusted to reflect only changes in fair value related to changes in interest rates. This is offset by 

the change in fair value of the derivative instrument, which reflects changes in fair value related to both interest rate risk and 

credit risk. 

At September 2008 Sappi had in total seven US$ interest rate swap contracts, converting fixed rates to floating rates, 

outstanding for a total amount of US$856.6 million and the swaps had a positive total fair value of US$18.7 million (2007: seven 

contracts, total amount US$856.6 million, negative fair value US$10 million) and an interest rate and currency swap (IRCS) 

contract outstanding for the amount of US$233 million with a positive fair value of US$56.8 million. This swap converts 

future US$ cash flows into GBP and fixed US$ interest rates into fixed GBP interest rates (2007: US$350 million with a fair 

value of US$137 million). See details of the swaps in the table below: 

Fair value* 

favourable 

Nominal value (unfavourable) 

Instrument Interest Rate Maturity date US$ million US$ million 

Interest rate swaps: 

Interest rate and 

currency swaps: 

6.75% to variable (LIBOR) June 2012 250 4 




5.90% to variable (LIBOR) November 2013 28 1 

7.38% to variable (LIBOR) July 2014 44 2 

6.65% to variable (LIBOR) October 2014 35 2 

US Dollar 6.30% into 

Pound Sterling 6.66% December 2009 233 57 

Total 75 

* This refers to the carrying value. 

The fair value of interest rate swaps and IRCS is the estimated amount that Sappi would pay or receive to terminate 

the agreement at the balance sheet date, taking into account current interest rates and the current creditworthiness of 

the counterparties considering the specific relationships of Sappi group with those counterparties. 

152

sappi // 


Summary sensitivity analyses external interest rate derivatives 

The following is a sensitivity analysis of the impact on the income statement in US Dollars due to the change in fair value of 

interest rate derivative instruments due to changes in the interest rate basis points (bps). The sensitivity analysis of floating 

rate debt, including fixed rate debt swapped into floating rates, is carried out separately (see below). 

Interest rate currency swap 

Base Scenario 

Scenario name value value Change % Change 

–50 bps GBP-LIBOR-6M 56.8 57.9 1.1 1.9 

+50 bps GBP-LIBOR-6M 56.8 55.8 (1.0) (1.8) 

Base Scenario 


–50 bps USD-LIBOR-3M 56.8 56.0 (0.8) (1.4) 

+50 bps USD-LIBOR-3M 56.8 57.7 0.9 1.6 

The IRCS covers an intra-group loan from a GBP-reporting Sappi entity of US$233 million, maturing in tranches between 

December 2008 and 2009. The derivative converts fixed US$ interest payments of 6.30% into fixed GBP interest income of 

6.6%, as well as the redemption of principal amounts at maturity. The fair value of the instrument is subject to changes of 

both the inherent exchange rates and interest rates. Fair value changes of the derivative caused by currencies are neutralised 

by currency changes in the underlying intra-group loan. 

At 28 September 2008 the fair value of the derivative amounted to US$56.8 million (‘Base Value’ in the table above), of 

which US$51.1 million was due to the exchange rate movement between inception and the reporting date. This amount is 

compensated by the opposite movement of the underlying loan and therefore has no impact on the income statement. The 

portion of the fair value due to interest rate movements, which has impacted the income statement, amounts to a negative 

value of US$2.3 million. This value will reduce to zero at maturity. 

For the period outstanding, the table above shows the impact that a shift of 50 bps on the LIBOR curve would have on the 

fair value. An increase in the US$ LIBOR adds to the fair value, as does a decrease of the GBP LIBOR. When the GBP and 

the US$ interest rates move the same way, the one roughly compensates the other. If the rates would drift in opposite 

directions this would have an impact of approximately US$2 million for a shift of 50 bps. 

Since the inception of the instrument, the largest shift in opposite directions experienced over a twelve-month period was 

3.14%, due to a decrease in US$ rates of 2.56 % and an increase in the GBP rates of 0.58%. Applied to the fair value as 

per 28 September 2008, this would have resulted in a negative change in fair value of US$5.8 million. 

Interest rate currency swap 

Base Scenario 


–256 bps USD-LIBOR-3M 56.8 52.2 (4.6) (8.1) 

+58 bps GBP-LIBOR-6M 56.8 55.6 (1.2) (2.1) 

Total (5.8) 


153




The interest rate swaps (fixed to floating) applied to the US$750 million bonds issued by Sappi Papier Holding (SPH) and to 

the US$106 million bonds issued by SD Warren show the following sensitivity to a 50 bps interest rate change on a tenor of 

four years for the Sappi Papier Holding bonds and six years for the SD Warren bonds: 

IRS – Sappi Papier Holding 

Base Scenario 


–50 bps USD-LIBOR-3M (750.7) (749.6) 1.1 (0.1) 

+50 bps USD-LIBOR-3M (750.7) (751.7) (1.0) 0.1 

IRS – SD Warren 

Base Scenario 


–50 bps USD-LIBOR-3M (106.8) (106.6) 0.2 (0.2) 

+50 bps USD-LIBOR-3M (106.8) (107.0) (0.2) 0.2 

The largest change in the 3-month USD interest rates since inception of the swaps in a twelve month period was a 

2.56% decrease. Applied to the fair value as per September 2008, the net impact on the SPH bonds would have been 

a US$5.5 million gain and for the SD Warren bonds a US$1.0 million gain. 

IRS – Sappi Papier Holding 

Base Scenario 


–256 bps USD-LIBOR-3M (750.7) (745.2) 5.5 (0.7) 

IRS – SD Warren 

Base Scenario 


–256 bps USD-LIBOR-3M (106.8) (105.8) 1.0 (0.9) 

The above analysis measures the impact on the income statement that a change in fair value of the interest rate derivatives 

would have, if the specified scenarios were to occur. 

154

sappi // 


Sensitivity analysis of interest rate risk – in case of a credit rating downgrade of Sappi 

The following table shows the sensitivity of securitisation debt to changes in the group's own credit rating. It is worth 

noting that the change in value of the securitisation debt is included in the sensitivity analysis of floating rate debt in the 

table below. 

Impact on 


of downgrade 

below BB 

Securitisation in Europe and Hong Kong Notional credit rating 

Europe 219.9 0.11 

Hong Kong 73.5 0.04 

Sub-total 293.4 0.15 

Impact calculated on total portfolio amounts to: 0.05% 

The pricing of the securitisation contracts in Europe and Hong Kong would be impacted as set out in the table above if the 

company were to be downgraded below the current rating. The US securitisation arrangement would not be impacted by a 

possible downgrade, as there are sufficient other credit enhancements to mitigate the co-mingling risk. 

All other external debt would not be impacted by a possible downgrading of Sappi. 

Sensitivity analysis of interest rate risk of floating rate debt – in ’000 USD 

Impact on I/S of 

US$ million Total Fixed rate Floating rate 50 bps interest 

Total debt 2,653.3 1,028.5 1,624.9 8.1 

Ratio fixed/floating to total debt 39% 61% 

The floating rate debt represents 61% of total debt. If interest rates were to increase (decrease) by 50 bps the finance cost 

on floating rate debt would increase (decrease) by US$8.1 million. 


155




Currency risk 

Sappi is exposed to economic, transaction and translation currency risks. The objective of the group in managing currency 

risk is to ensure that foreign exchange exposures are identified as early as possible and actively managed. 

– Economic exposure consists of planned net foreign currency trade in goods and services not yet manifested in the form 

of actual invoices and orders; 

– Transaction exposure arises due to transactions entered into, which result in a flow of cash in foreign currency, such as 

payments under foreign currency long and short term loan liabilities, purchases and sales of goods and services, capital 

expenditure purchases and dividends. Where possible, commercial transactions are only entered into in currencies that 

are readily convertible by means of formal external forward exchange contracts; and 

– Translation exposure arises when translating the groups assets, liabilities, income and expenditure into the group's 

presentation currency. Borrowings are taken out in a range of currencies which are based on the group's preferred ratios 

of gearing and interest cover based on a judgement of the best financial structure for the group. On consolidation this gives 

rise to translation exposure which is not hedged. 

In managing currency risk, the group first makes use of internal hedging techniques, with external hedging being applied 

thereafter. External hedging techniques consist primarily of foreign currency forward exchange contracts and currency options. 

Foreign currency capital expenditure on projects must be covered as soon as practical (subject to regulatory approval). 

Currency risk analysis 

In the preparation of the currency risk analysis the derivative instrument has been allocated to the currency which the 

underlying instrument has been hedging. 

Other 

Total in 

(converted 

Total scope USD EUR ZAR GBP into USD) 


Financial assets 

Other non-current assets 168 44 2 5 37 – – 

Long term derivative 

financial instruments* 76 76 (223) – – 299 – 

Trade and other receivables 698 626 287 275 22 32 10 

Current derivative 

financial instruments* 4 4 1 – – 3 – 

Cash and cash equivalents 274 274 82 101 91 – – 

1,024 149 381 150 334 10 

Financial liabilities 

Non-current interestbearing 

borrowings 1,832 1,832 875 597 360 – – 

Derivative financial instruments* 1 1 – – 1 – – 

Current interestbearing 

borrowings 821 821 164 494 12 – 151 

Overdraft 26 26 – 10 2 4 10 

Current: derivative 

financial instruments* 24 24 24 – – – – 

Trade and other payables 959 756 196 297 239 8 16 

3,460 1,259 1,398 614 12 177 

Foreign exchange gap (2,436) (1,110) (1,017) (464) 322 (167) 

156

sappi // 


Currency risk (continued) 

Other 

Total in 

(converted 

Total scope USD EUR ZAR GBP into USD) 

2007 


Other non-current assets 165 36 1 6 29 – – 


financial instruments* 137 137 (356) – – 493 – 

Trade and other receivables 653 600 295 201 27 32 45 


financial instruments* 7 7 7 – – – – 

Cash and cash equivalents 364 364 79 108 174 – 3 

1,144 26 315 230 525 48 


Non-current interestbearing 

borrowings 1,828 1,828 851 576 401 – – 

Derivative financial instruments* 15 15 12 3 – – – 

Current interestbearing 

borrowings 771 771 162 425 42 – 142 

Overdraft 22 22 7 8 1 2 4 

Current: derivative 

financial instruments* 28 28 26 – 2 – – 

Trade and other payables 952 816 214 341 252 6 3 

3,480 1,272 1,353 698 8 149 

Foreign exchange gap (2,336) (1,246) (1,038) (468) 517 (101) 

* The amount disclosed with respect to derivative instruments, reflects the currency which the derivative instrument is covering. 

The above table does not indicate the group’s foreign exchange exposure, it only shows the financial instruments assets and 

liabilities classified per underlying currency. 


157




The group’s foreign currency forward exchange contracts at September 2008 are detailed below. 


Contract Fair value* Fair value* 

amount (un- (un- 

(notional favourable) Contract favourable) 

US$ million amount) favourable amount favourable 

Foreign currency 

Bought: US Dollar 2 – 33 (2) 

EURO 13 – 27 – 

ZAR 11 – – – 

Sold: US Dollar (168) (3) (173) 7 

EURO (735) (17) (875) (25) 

ZAR – – (89) (4) 

(877) (20) (1,077) (24) 

* This refers to the fair value. 

The fair value of foreign currency contracts has been computed by the group based upon the market data valid at 

September 2008. 

All forward currency exchange contracts are valued at fair value with the resultant profit or loss included in the net finance 

costs for the period. 

Forward exchange contracts are used to hedge the group from potential unfavourable exchange rate movements that may 

occur on recognised financial assets and liabilities or planned future commitments. 

The foreign currency forward exchange contracts have different maturities, with the most extended maturity date being 

September 2009. 

As at the year end there was an open exposure of US$35.6 million which has since been hedged. 

Sensitivity analysis – in USD gain (loss) 

Base currency Exposure +10 % –10% 

EUR (28.8) (2.6) 3.2 

GBP 1.3 0.1 (0.1) 

USD 13.0 1.2 (1.4) 

ZAR (24.4) (2.2) 2.7 

Other currencies 3.3 0.3 (0.4) 

Total (35.6) (3.2) 4.0 

Based on the exposure as at September 2008, if the foreign currency rates had moved 10% upwards or downwards 

compared to the closing rates, the result would have been impacted by a loss of US$3.2 million (increase of 10%) or a gain 

of US$4.0 million (decrease of 10%). 

During 2008 we have contracted non-deliverable average rate foreign exchange transactions for a total notional value of 

US$173.4 million which were used as an overlay hedge of export sales. Since these contracts have all matured before 

28 September 2008, these constitute non-representative positions. The total impact on the income statement amounts to a loss 

of US$2.7 million. 

158

sappi // 


Commodity risk 

Commodity risk arises mainly from price volatility and threats to security of supply. 

A combination of contract and spot deals are used to manage price volatility and contain costs. Contracts are limited to the 

group's own use requirements. The group aims to improve its understanding of the direction, magnitude and duration of future 

commodity price changes and to develop commodity specific expertise. 

The group manages security of supply by establishing alternate sources of supply and focusing on products and processes 

that allow the use of alternative commodities. Sappi examines its supply and quality risk on an ongoing basis with the view 

to continuously improve its commodity management practices. 

During 2008 we have not contracted any derivatives with respect to commodities. 

b) Credit risk 

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the 

group. The group faces credit risk in relation to trade receivables, cash deposits and financial investments. 

Credit risk relating to trade debtor management is the responsibility of regional management and is co-ordinated on a 

group basis. 

The group’s objective in relation to credit risk is to limit the exposure to credit risk through specific group-wide policies and 

procedures. Credit control procedures are designed to ensure the effective implementation of best trade receivable practices, 

the comprehensive maintenance of all related records, and effective management of credit risk for the group. 

The group assesses the credit worthiness of potential and existing customers in line with the credit policies and procedures. 

Appropriate collateral is obtained to minimise risk. Exposures are monitored on an ongoing basis utilising various reporting 

tools which highlight potential risks. 

In the event of deterioration of credit risk, the appropriate measures are taken by the regional credit management. All known 

risks are required to be fully disclosed, accounted for, and provided for as bad debts in accordance with the applicable 

accounting standards. 

Quantitative disclosures on credit risk are included in note 16 of the annual financial statements. 

A large percentage of our trade receivables are credit insured. 

Hedge accounting 

The group has the following fair value hedges which qualify for hedge accounting: 

Bonds at fixed interest rates for a total notional amount of US$856 million are hedged by seven external interest rate swaps 

(IRS). These IRS with a positive fair value of US$18.7 million convert the US$ fixed interest rates into floating 6-month LIBOR 

set in arrears. The hedged risk is designated to be the interest rate risk arising from fluctuations in the US LIBOR swap curve. 

The effect of this transaction is to convert fixed rate debt into floating rate debt. 

In fiscal 2005 the hedge was de-designated at the end of March, April and June 2005 respectively and was only re-designated 

in June 2005. During this period, hedge accounting was interrupted for a certain number of deals. The changes in fair value 

of the bonds until the moment of de-designation are amortised over the remaining life of the hedge. 


159




In fiscal 2007 Sappi decided to replace its valuation and hedge effectiveness tool by the REVALHedgeRx Module (see 

description hereunder). At the same time it was decided to switch from the Volatility Variance Method (VVM) to the linear 

regression analysis as the statistical test, which is an appropriate alternative to test hedge effectiveness of a fair value hedge. 

A change in the hedge effectiveness measurement methodology requires the de-designation of the existing hedge 

relationship. Simultaneously a re-designation of the same hedge relationship was carried out, however this has catered for 

a revised hedge effectiveness measurement methodology. There was no material impact on the income statement as a 

result of this change. 

As the swaps were contracted some time after the issuance of the underlying bonds, at the time of designating the hedge 

relationship it was required to mark-to-market the bonds for the hedged risk (ie for changes in the benchmark interest rate) 

in order to determine the hedged fair value at inception of the hedge (create an initial fair value benchmark) which was 

different to the face value as market conditions had changed since the bonds were issued. All future hedge adjustments to 

the carrying value of the bonds are based on changes in the fair value of this benchmark due to changes in the benchmark 

interest rate. The bonds are remeasured for changes in the benchmark interest rate and the swaps are revalued for changes 

in their fair value on a monthly basis and show movements in line with changing market conditions. Over the life of the bonds, 

the hedged fair value benchmark will revert to the face value of the bonds (the repayment amounts), whereas the hedging 

swaps will revert to a final fair value of zero. The carrying value of the bonds, including the effect of hedge accounting, will 

at maturity be equal to the sum of (1) the face value and (2) the total change in the initial hedged fair value (fair value 

benchmark), which will be different to the effective amount to be repaid (the face value). Therefore Sappi decided in fiscal 

2007 to amortise the mismatch between the initial fair value benchmark and the face value payable at maturity in order to 

recognise the income statement impact over the remaining period until maturity, instead of recognising the difference only 

at maturity. 

The following is an analysis of the impact on pre-tax profit and loss from the period 


(without brackets favourable) US$ million US$ million 

De/re-designation – – 

Amortisation* (5) (2) 

Residual ineffectiveness – – 

– gain on hedging instruments 30 14 

– loss on hedged item (30) (14) 

Total (5) (2) 

* The outstanding amount on the balance sheet to be amortised over the next five years corresponds to US$27.9 million. 

Sappi uses the REVALHedgeRx module (REVAL), a web based application providing treasury and risk management solutions 

supplied by Reval.Com, Inc., a financial technology company based in New York to assess both the prospective and the 

retrospective effectiveness of the fair value hedge relationship. 

The statistical method chosen to measure prospective and retrospective effectiveness is the linear regression analysis. 

REVAL uses past data to demonstrate that a hedge relationship is expected to be highly effective in a prospective hedge 

effectiveness test and, was highly effective in a retrospective hedge effectiveness test. 

The number of data points used to measure effectiveness and the frequency of the data must be consistent over the life of 

the hedge for both prospective and retrospective testing and must be appropriate given the particularities of the hedge. It is 

therefore considered appropriate to use 60 monthly rolling data points. The monthly data points correspond to the historical 

Sappi month-end dates. 

160

sappi // 


In order to create a complete set of data for the regression analysis, both the hedging instrument and the hedged item are 

back dated at the inception date by creating a proxy trade. Actual historical 3-month US$ LIBOR curves are used to generate 

net present values of the proxy trades. As time passes, REVAL will update the regression by adding new actual observations 

and excluding the same number of the oldest simulated observations from the data set. 

The prospective test is considered to be identical to the retrospective test, which implies that for the prospective test the same 

past data (i.e. actual historical curves and remaining cash flows at each Sappi month-end date of the retrospective test) is 

used for the retrospective test. 

Changes in fair value will represent period-to-period changes in ‘clean’ fair value (accruals of interest excluded). 

During September and October 2006, Sappi entered into firm commitments for the purchase of equipment in foreign 

currency. These commitments were hedged for foreign exchange risk by forward exchange contracts and were designated 

as a fair value hedge. The hedged risk was designated to be the foreign currency risk arising from fluctuations in the foreign 

currency rates relating to the purchase of equipment. 

The fair value hedge was accounted for as follows: 

The hedging instrument was recorded at fair value in the balance sheet with changes in fair value recorded through 

the income statement. The full fair value method is used to calculate the changes in fair value of the hedging instrument. 

At maturity of the foreign exchange contract the related cash flows were booked at the spot rate of that day according 

to IAS 21. 

The firm commitment (hedged item) was not recognised in the balance sheet at inception of the hedge because it was an 

executory contract for the future delivery of equipment. Only the subsequent changes in fair value of the commitment 

attributable to the hedged risk are recorded on the balance sheet and through the income statement. 

In 2008, Sappi took delivery of the purchased equipment. Hedge accounting has been discontinued in the 2008 fiscal year. 

The portion of the hedge that was determined to be effective has been included on the balance sheet as part of the cost of 

purchase for the equipment. 

c) Liquidity risk 

Liquidity risk is the risk that the group will be unable to meet its current and future financial obligations as they fall due. 

The group’s objective is to manage its liquidity risk by: 

– managing its bank balances, cash concentration methods and cash flows; 

– managing its working capital and capital expenditure; 

– ensuring the availability of a minimum amount of short-term borrowing facilities at all times, to meet any unexpected 

funding requirements; and 

– ensuring appropriate long-term funding is in place to support the group’s long term strategy. 

Details of the group’s borrowings, including the maturity profile thereof, as well as the group’s committed and uncommitted 

facilities are set out in note 20. 

The group is in compliance with all material financial covenants applicable to its borrowing facilities. 


161




Liquidity risk management – September 2008 

Total Fair 

financial value of 

assets financial Undiscounted cash flows 

and instru- 0 – 6 6 – 12 1 – 2 2 – 5 > 5 

liabilities ments months months years years years Total 


Other non-current assets 44 44 12 – 14 5 6 37 


financial instruments 76 76 38 10 37 – 1 86 

Receive leg 186 35 211 127 8 567 

Pay leg (148) (25) (174) (127) (7) (481) 

Trade and other receivables 626 626 609 17 – – – 626 


financial instruments 4 4 5 – – – – 5 

Receive leg 335 – – – – 335 

Pay leg (330) – – – – (330) 

Cash and cash equivalents 274 274 257 17 – – – 274 

921 44 51 5 7 1,028 


Interest-bearing borrowings 1,832 1,719 57 55 186 1,658 762 2,718 

Derivative financial instruments 1 1 – – – – 1 1 

Pay leg – – – – 1 1 

Receive leg – – – – – – 

Other non-current liabilities – – – – – – 

Interest-bearing borrowings 821 821 709 128 – – – 837 

Overdraft 26 26 26 – – – – 26 



Pay leg 578 – – – – 578 

Receive leg (555) – – – – (555) 

Trade and other payables 756 756 695 42 – – – 737 

1,510 225 186 1,658 763 4,342 

Liquidity gap (589) (181) (135) (1,653) (756) (3,314) 

162

sappi // 


Liquidity risk management – September 2007 

Total Fair 

financial value of 

assets financial 

and instru- 0 – 6 6 – 12 1 – 2 2 – 5 > 5 

liabilities ments months months years years years Total 


Other non-current assets 36 36 12 – 9 2 12 35 


financial instruments 137 137 50 4 51 47 (1) 151 

Receive leg 180 15 183 187 15 580 

Pay leg (130) (11) (132) (140) (16) (429) 

Trade and other receivables 600 607 604 3 – – – 607 



Receive leg 312 – 3 – – 315 

Pay leg (303) – (3) – – (306) 

Cash and cash equivalents 364 364 364 – – – – 364 

1,039 7 60 49 11 1,166 


Interest-bearing borrowings 1,828 1,898 50 59 148 1,660 958 2,875 

Derivative financial instruments 15 15 5 1 3 12 – 21 

Pay leg 70 34 55 170 – 329 

Receive leg (65) (33) (52) (158) – (308) 

Interest-bearing borrowings 771 764 677 112 – – – 789 

Overdraft 22 22 22 – – – – 22 


financial instruments 28 28 32 2 – – – 34 

Pay leg 908 23 1 – – 932 

Receive leg (876) (21) (1) – – (898) 

Trade and other payables 816 818 796 1 7 – – 804 

1,582 175 158 1,672 958 4,545 

Liquidity gap (543) (168) (98) (1,623) (947) (3,379) 


163




Derivative financial instruments with maturity profile 

The following tables indicates the different types of derivative financial instruments for 2008 and 2007, included within the 

various categories on the face of the balance sheet. 

The reported maturity analysis is calculated based on an undiscounted basis. 

Maturity analysis 

Undiscounted cash flows 

Classes of 

Fair value 

financial instruments Total hedge 6M 1Y 2Y 5Y 


Assets 

Fair value of derivatives by risk factor 


Interest rate swaps 76 76 38 10 37 – 1 

receiving leg 532 532 186 35 211 127 8 

paying leg (456) (456) (148) (25) (174) (127) (7) 

Foreign exchange risk 

FX forward contracts 4 – 5 – – – – 

receiving leg 334 (11) 335 – – – – 

paying leg (330) 11 (330) – – – – 

Liabilities 



Interest rate swaps (1) – – – – – (1) 

paying leg (1) – – – – – (1) 

receiving leg – – – – – – – 


FX forward contracts (24) – (23) – – – – 

paying leg (576) – (578) – – – – 

receiving leg 552 – 555 – – – – 

164

sappi // 


Derivative financial instruments with maturity profile (continued) 

Maturity analysis 

Undiscounted cash flows 

Classes of 

Fair value 

financial instruments Total hedge 6M 1Y 2Y 5Y 

September 2007 

Assets 



Interest rate swaps 137 137 50 4 51 47 (1) 

receiving leg 536 536 180 15 183 187 15 

paying leg (399) (399) (130) (11) (132) (140) (16) 


FX forward contracts 7 – 9 – – – – 

receiving leg 309 – 312 – – – – 

paying leg (302) – (303) – – – – 

Liabilities 



Interest rate swaps (12) (12) (2) (1) (3) (13) – 

paying leg (246) (246) (28) (27) (56) (171) – 

receiving leg 234 234 26 26 53 158 – 


FX forward contracts (31) (4) (27) (1) – – – 

paying leg (879) (89) (794) (1) – – – 

receiving leg 848 85 767 – – – – 


165




Fair values 

All financial instruments are carried at fair value or amounts that approximate fair value, except the non-current interestbearing 

borrowings at fixed rates of interest. The carrying amounts for cash, cash equivalents, accounts receivable, certain 

investments, accounts payable and current portion of interest-bearing borrowings approximate fair value due to the shortterm 

nature of these instruments. Where these fixed rates of interest have been hedged into variable rates of interest and 

fair value hedge accounting has been applied, then the non-current interest-bearing borrowings are carried at fair value 

calculated by discounting all future cash flows at market data valid at closing date. The same data is used to value the 

related hedging instrument. 

No financial assets were carried at an amount in excess of fair value. 

Direct and incremental transaction costs are included in the initial fair value of financial assets and financial liabilities, other 

than those at fair value through profit or loss. The best evidence of the fair value of a financial asset or financial liability at initial 

recognition is the transaction price, unless the fair value of the instrument is evidenced by comparison with other current 

observable market transactions. Where market prices or rates are available, such market data is used to determine the fair 

value of financial assets and financial liabilities. 

If quoted market prices are unavailable, the fair value of financial assets and financial liabilities is calculated using pricing 

models or discounted cash flow techniques. Where discounted cash flow techniques are used, estimated future cash flows 

are based on management’s best estimates and the discount rate used is a market-related rate at the balance sheet date 

for an instrument with similar terms and conditions. Where pricing models are used, market-related inputs are used to 

measure fair value at the balance sheet date. 

Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot 

be reliably measured, and derivatives that are linked to and have to be settled by delivery of such unquoted equity instruments, 

are not measured at fair value but at cost. 

Fair values of foreign exchange and interest rate derivatives are calculated by using recognised treasury tools which use 

discounted cash flow techniques based on effective market data valid at closing date. 

The fair value of loan commitments are based on the commitment fees effectively paid. 

166

sappi // 


Fair values (continued) 

Out of 

Total 

Total scope in Fair 

September 2008 balance IAS 39 Categories according to IAS 39 scope value 

Loans 

and 

Classes of Held for receiv- Held to Available 

financial instruments trading ables maturity for sale 

Non-current assets 

Other non-current assets 168 124 – 30 – 14 44 44 

Loans to associates 

(minority interests) – – 3 – – 3 3 

AFS – Club debentures – – – – 2 2 2 

AFS – (Investment) funds – – – – 12 12 12 

Other assets 124 – 27 – – 27 27 

Derivative financial 

instruments 76 – 76 – – – 76 76 

Current assets 

Trade and other receivables 698 72 – 626 – – 626 626 

Trade receivables – – 574 – – 574 574 

Other accounts receivable 

– current 72 – 52 – – 52 52 


instruments 4 – 4 – – – 4 4 

Cash (and cash equivalents) 274 – – 274 – – 274 274 

Overnight deposits and 

current accounts 

(incl. petty cash) – – 59 – – 59 59 

Time deposits (< 3 months) – – 162 – – 162 162 

Money market funds – – 53 – – 53 53 


167





Out of Categories Total 

Total scope according in Fair 

September 2008 balance IAS 39 to IAS 39 scope value 

Other 

Classes of Held for financial 

financial instruments trading liabilities 

Non current liabilities 

Interest bearing borrowings 1,832 – – 1,832 1,832 1,719 

Bank loans payable (>1 year) – including 

syndicated loans – – 664 664 642 

Bonds – – 1,084 1,084 998 

Financial leasing liabilities – – 21 21 21 

Other – – 63 63 58 


instruments 1 – 1 – 1 1 

Current liabilities 

Interest bearing borrowings 821 – – 821 821 821 

Bank loans payable (< 1 year) 

– incl. syndicated loans – – 446 446 446 

Current portion of other 

non-current loans payable – – 6 6 6 


Secured loans (< 1 year) – – 142 142 142 

Securitisation debt – – 220 220 220 

Other current loans – external – – 5 5 5 

Overdraft 

Bank overdrafts (< 3 months) 26 – – 26 26 26 


instruments 24 – 24 – 24 24 

Trade and other payables 959 203 – 756 756 756 

Accruals 202 – 233 233 233 

Accounts payable to associates – – 1 1 1 

Other accounts payable – current 1 – 522 522 522 

168

sappi // 


7. Fair values (continued) 

Out of 

Total 

Total scope in Fair 

September 2007 balance IAS 39 Categories according to IAS 39 scope value 

Loans 

and 

Classes of Held for receiv- Held to Available 

financial instruments trading ables maturity for sale 

Non-current assets 

Other non-current assets 165 129 – 22 – 14 36 36 

Loans to associates 

(minority interests) – – 3 – – 3 3 

AFS – Club debentures – – – – 1 1 1 

AFS – (Investment) funds – – – – 13 13 13 

Other assets 129 – 19 – – 19 19 


instruments 137 – 137 – – – 137 137 

Current assets 

Trade and other receivables 653 53 – 600 – – 600 607 

Trade receivables – – 553 – – 553 553 

Other accounts receivable 

– current 53 – 47 – – 47 54 


instruments 7 – 7 – – – 7 7 

Cash (and cash equivalents) 364 – – 364 – – 364 364 

Overnight deposits and 

current accounts 

(including petty cash) – – 236 – – 236 236 

Time deposits (< 3 months) – – 117 – – 117 117 

Money market funds – – 11 – – 11 11 


169





Out of Categories Total 

Total scope according in Fair 

September 2007 balance IAS 39 to IAS 39 scope value 

Other 

Classes of Held for financial 

financial instruments trading liabilities 

Non current liabilities 

Interest bearing borrowings 1,828 – – 1,828 1,828 1,898 

Bank loans payable (>1 year) 

– including syndicated loans – – 624 624 631 

Bonds – – 1,093 1,093 1,144 


Other – – 79 79 86 

Derivative financial instruments 15 – 15 – 15 15 

Current liabilities 

Interest bearing borrowings 771 – – 771 771 764 

Bank loans payable (

sappi // 

31. Related party transactions 

Transactions between Sappi Limited and its subsidiaries, which are related parties of the group, have been eliminated 

on consolidation and are not disclosed in this note. Details of transactions between the group and related parties are 

disclosed below: 

Amounts owed Amounts owed 

US$ million Sale of goods Purchases of goods by related parties to related parties 

Joint ventures 2008 2007 2006 2008 2007 2006 2008 2007 2008 2007 

Jiangxi Chenming 4.0 3.8 2.3 2.6 2.2 9.0 – – 7.6 8.3 

Sapin S.A. 0.3 – – 30.9 28.2 19.9 – – 1.1 2.1 

VOF Warmtekracht 44.2 41.4 35.7 32.8 30.5 26.1 – – – 

Umkomaas Lignin (Pty) Ltd 1.1 0.9 0.6 – – – 0.7 1.6 – 

Papierholz Austria GmbH – – 92.7 90.4 55.7 – – 5.3 3.8 

49.6 46.1 38.6 159.0 151.3 110.7 0.7 1.6 14.0 14.2 

Joint venture Timber IV: A full description of the transaction concerning Timber IV is discussed in note 13. 

Sales of goods and purchases to and from related parties were made on an arm’s length basis. The amounts outstanding 

at balance sheet date are unsecured and will be settled in cash. Guarantees given by the group are disclosed in note 26. 

No expense has been recognised in the period for bad or doubtful debts in respect of the amounts owed by related parties. 

Directors 

Details relating to executive and non-executive directors’ emoluments, interests and participation in the Scheme and Plan 

are disclosed in notes 34 – 36. 

Interest of directors in contracts 

None of the directors have a material interest in any transaction with the company or any of its subsidiaries, other than those 

on a normal employment basis. Professor Meyer Feldberg, a non-executive director of the company, disclosed his role as 

senior advisor of Morgan Stanley & Co. Limited, a financial advisor to Sappi, and Morgan Stanley South Africa (Proprietary) 

Limited, a transaction sponsor to Sappi Ltd. 

Key management personnel 

Compensation for key management was as follows: 

Total excluding directors 

Total including directors 

US$ million 2008 2007 2006 2008 2007 2006 

Short term benefits 2.9 2.5 2.0 4.3 4.1 7.2 

Post – employment benefits 0.4 0.3 0.6 0.7 0.8 3.3 

Share- based payments 0.0 0.2 0.1 – 0.2 0.5 

3.3 3.0 2.7 5.0 5.1 11.0 

The number of key management personnel included above for 2008 was ten (2007: twelve). 


171



32. Events after balance sheet date 

On 29 September 2008, Sappi announced that it had signed an agreement to acquire a substantial portion of the the coated 

graphic paper business of M-real Corporation (M-real) for P750 million (US$1.1 billion; ZAR8.9 billion), subject to a purchase 

price adjustment for net debt and working capital. The transaction includes four graphic paper mills – 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 graphic 

paper business of M-real. In addition, Sappi will enter into the transitional marketing agreements under which M-real will 

produce products at certain graphic paper machines at the Husum mill (Sweden) and the Äänekoski Mill (Finland) and Sappi 

will market and distribute those products. The transaction also includes the long term supply agreements for wood, pulp and 

other services. The acquisition will be financed through a combination of equity, assumed debt, the cash proceeds from a 

rights offering and a vendor note. 

On November 03, 2008, Sappi’s shareholders approved the transaction and a rights offering to finance a portion of 

the transaction. 

Following such approvals, Sappi has commenced a rights offering of 286,886,270 new ordinary shares at a subscription price 

of ZAR20.27 per new share. 

New shares will be issued at a ratio of 6 new shares for every 5 Sappi shares held. In connection with the rights offering, Sappi 

has entered into an underwriting agreement with two international banks. 

Sappi has also to date obtained various regulatory approvals for the acquisition, including with respect to European Union 

competition regulations. 

172

sappi // 

33. Environmental matters 

We are subject to a wide range of environmental laws and regulations in the various jurisdictions in which we operate, and 

these laws and regulations have tended to become more stringent over time. Violations of environmental laws could lead to 

substantial costs and liabilities, including civil and criminal fines and penalties. Environmental compliance is an increasingly 

important consideration in our businesses, and we expect to continue to incur significant capital expenditures and operational 

and maintenance costs for environmental compliance, including costs related to reductions in air emissions including carbon 

dioxide and other greenhouse gases (GHG), waste water discharges and waste management. We closely monitor the 

potential for changes in pollution control laws and take actions with respect to our operations accordingly. Sappi spent 

approximately US$15 million in the financial year ended September 2008 (September 2007: US$15 million) on capital projects 

that control air or water emissions or otherwise create an environmental benefit. 

Sappi Fine Paper North America is subject to stringent environmental laws in the United States. These laws include the 

Federal Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental 

Response, Compensation and Liability Act and their respective state counterparts and implementing regulations. The State 

of Maine has ordered a hearing, scheduled for later this year, to determine whether it will require Sappi Fine Paper North 

America to install a fishway at its Cumberland Mills dam on the Presumpscot River. A fishway on the Cumberland Mills dam 

would trigger the obligation to install fishways at Sappi Fine Paper North America’s dams upstream of the Cumberland Mills 

dam, to allow natural fish migration and thus promote the restoration of native species to the river. The total cost of these 

projects, if required, is estimated to be approximately US$18 million. Previous settlement discussions with government 

agencies and environmental groups regarding the removal of the Cumberland Mills dam were not successful. 

Although the United States has not ratified the Kyoto Protocol, and has not yet adopted a federal programme for controlling 

GHG emissions, there are various state and regional initiatives regarding GHG regulation and Congress is considering a 

number of legislative proposals regarding climate change. Accordingly, we closely monitor state, regional and federal GHG 

initiatives in anticipation of any potential effects on our operations. 

Our European facilities are subject to extensive environmental regulation in the various countries in which we operate. 

For example: 

• The Integrated Pollution Prevention and Control directive regulates air emissions, water discharges and defines permit 

requirements and best available techniques for pollution control. 

• The national European laws regulate the waste disposal framework and place restrictions on landfilling materials in order 

to reduce contaminated leachate and methane emissions. Prevention, re-use and recycling (material or thermal) are the 

preferred waste management methods. In Austria, Germany and The Netherlands only inert ash or slag from thermal 

recycling and incineration processes may be placed in landfills. 

• In The Netherlands we, together with other paper manufacturers, have signed an agreement with the national government 

to improve environmental management and further limit emissions. 

The countries within which we operate in Europe have all ratified the Kyoto Protocol and we have developed a GHG strategy 

to comply with applicable GHG restrictions and to manage emission reductions cost effectively. Our expenditures related to 

GHG compliance in Europe are not expected to be material. 

In South Africa, requirements under the National Water Act, National Environmental Management Act and the Air Quality Bill 

may result in additional expenditures and/or operational constraints. South Africa is also a signatory of the Kyoto Protocol 

and Sappi is currently identifying and initiating Clean Development Mechanism projects at a number of our South African mills. 

Although we are uncertain as to the ultimate effect on our South African operations, our current assessment of the legislation 

is that any compliance expenditures or operational constraints will not be material to our financial condition. 


173



34. Directors’ remuneration 


Directors are normally remunerated in the currency of the country in which they live or work from. The remuneration is 

translated into US Dollars (the group’s reporting currency) at the average exchange rates prevailing during the reporting year. 

directors’ fees are established in local currencies to reflect market conditions in those countries. 

Non-executive directors’ fees reflect their services as directors and services on various sub-committees on which they serve, 

and the quantum of committee fees depends on whether the director is an ordinary member or a chairman of the committee. 

The extreme volatility of currencies, in particular the Rand/US Dollar exchange rate in the past few years, caused severe 

distortion of the relative fees paid to individual directors. 

Non-executive directors’ fees are proposed by the executive committee, agreed by the compensation committee, recommended 

by the board and approved at the annual general meeting by the shareholders. 

Board Committee Travel 

Director fees fees allowance Total 

US$ 

D C Brink 52,332 42,130 5,200 99,662 

M Feldberg 57,200 49,700 10,400 117,300 

J E Healey 67,600 70,700 15,600 153,900 

D Konar 34,889 57,340 5,200 97,429 

H C Mamsch 87,535 97,041 10,400 194,976 

B Radebe 37,796 9,422 5,200 52,418 

A N R Rudd 74,068 47,530 7,800 129,398 

F A Sonn 34,889 9,422 5,200 49,511 

E van As (1) 84,126 – 5,000 89,126 

K Osar 67,600 23,835 13,000 104,435 

J McKenzie 37,796 8,637 5,200 51,633 

D C Cronje (2) 131,344 – 2,600 133,944 


767,175 415,758 90,800 1,273,733 

(1) Includes board fees received by Mr van As for the period September 2007 to March 2008. Mr van As also received consulting fees of US$16,825 for the same 

period not included in the above. 

(2) Appointed in January 2008. 

174

sappi // 

34. Directors’ remuneration (continued) 

Non-executive directors (continued) 

2007 

Board Committee Travel 

Director fees fees allowance Total 

US$ 

D C Brink 41,817 40,423 5,000 87,240 

M Feldberg 50,000 48,000 12,500 110,500 

J E Healey 50,000 68,000 15,000 133,000 

K de Kluis (3) 16,265 16,265 2,500 35,030 

D Konar 27,878 52,736 5,000 85,614 

H C Mamsch 65,060 93,568 10,000 168,628 

B Radebe 27,878 18,121 5,000 50,999 

A N R Rudd 65,060 27,601 2,500 95,161 

F A Sonn 27,878 9,060 5,000 41,938 

E van As 48,787 – 5,000 53,787 

K Osar (4) 20,835 – 7,500 28,335 

J McKenzie (5) 2,324 – – 2,324 

(3) Retired in December 2006. 

(4) Appointed in May 2007. 

(5) Appointed in September 2007. 

443,782 373,774 75,000 892,556 

Our pay philosophy aims to provide executives with remuneration which allows them to enjoy similar and appropriate 

standards of living and at the same time to create wealth equally no matter where they live and work. 

Whilst the payment of executives in different currencies creates perceived inequities, due attention is given to ensure that 

internal equity exists and is maintained, through comparisons against cost of living indices and the manner in which pay is 

structured in the various countries. 

Bonus and performance related payments are based on corporate and individual performance. Under this, executives may 

be awarded up to 110% of their annual salary if group and personal performance objectives as agreed by the remuneration 

committee are met. Bonuses relate to amounts paid in the current year, but based on the previous year’s performance. 

Average exchange rates for the year concerned are again applied in the tables in converting the currency of payment into 

US Dollars. 


175




Executive directors (1) 2008 

Prior year butions Benefit 

bonuses paid under received 

and Sums pension from 

perfor- paid by and credit 

mance way of medical scheme 

related expense aid share 

Director Salary payments (2) allowance schemes funding Other Total 

US$ 

M R Thompson 299,113 180,552 433 99,688 – – 579,786 

R J Boëttger 669,955 204,705 – 191,327 – – 1,065,987 

969,068 385,257 433 291,015 – – 1,645,773 

(1) Executive directors are paid remuneration packages which aim to be competitive in the countries in which they live and work, and they are generally paid in 

the currency of those countries. 

(2) Bonuses and performance related payments are in respect of the previous year’s performance paid in the current year. 

Contri- 

Contri- 

Prior year butions Benefit 

bonuses paid under received 

and Sums pension from 

perfor- paid by and credit 

mance way of medical scheme 

related expense aid share 

Director Salary payments (2) allowance schemes funding Other Total 

US$ 

W Pfarl (3) 536,552 255,071 2,708 132,087 – 393,688 1,320,106 

M R Thompson 272,354 84,910 448 100,515 – – 458,227 

E van As (4) 696,953 – – – – 146,360 843,313 

R J Boëttger (5) 161,737 – – 46,412 516,248 – 724,397 

2007 

1,667,596 339,981 3,156 279,014 516,248 540,048 3,346,043 

(1) Executive directors are paid remuneration packages which aim to be competitive in the countries in which they live and work, and they are generally paid in 

the currency of those countries. 

(2) Bonuses and performance related payments are in respect of the previous year’s performance paid in the current year. 

(3) Retired June 2007. Mr Pfarl received a pension disbursement benefit of US$346,085 included in other benefits. 

(4) Mr van As received a salary of US$696,953 (ZAR5 million) while acting as CEO. Includes board fees paid to Mr van As for the period September 2006 till 

August 2007 when his executive responsibilities terminated upon the appointment of Mr Boëttger as CEO. Mr van As then resumed his non-executive 

chairman responsibilities. 

(5) Appointed as CEO in July 2007. Mr Boëttger received 35,000 restricted shares which vest on 31 December 2007 included under benefit received from credit 

scheme share funding. A share based expense of US$516,248 was recognised in the 2007 year’s income statement, based on a share-price of ZAR106.00. 

176

sappi // 


Details of directors’ service contracts 

The executive directors have service contracts with notice periods of 2 years or less. These notice periods are in line with 

international norms for executive directors. 

Other than the non-executive chairman, Dr Cronje, none of the other non-executive directors have service contracts with 

the company. 

None of the directors have provisions for pre-determined compensation on termination of their contracts exceeding 2 years’ 

gross remuneration and benefits in kind. 

35. Directors’ interests 

The following table sets out the directors’ interests in the shares in Sappi Limited. For the purpose of this table, directors’ 

interests are those in shares owned either directly or indirectly as well as those shares in respect of which directors have 

vested obligations to purchase shares or repay loans in terms of the Sappi Limited Share Incentive Trust. 


Indirect 

Indirect 

Direct interests interests Direct interests interests 

Vested 

Vested 

Obliga- 

Obligations 

to 

tions to 

purchase 

purchase 

or repay 

or repay 

Director Beneficial loans Beneficial Beneficial loans Beneficial 


D C Brink – – 10,000 – – 10,000 

M Feldberg – – – – – – 

J E Healey – – – – – – 

D Konar – – – – – – 

H C Mamsch – – – – – – 

B Radebe – – – – – – 

A N R Rudd – – – – – – 

F A Sonn – – – – – – 

E van As – – – – – – 

K Osar (1) – – – – – – 

J McKenzie (2) – – – – – – 

D C Cronje (6) – – – – – – 


M R Thompson – 39,900 – – 36,300 – 

R J Boëttger (3) 35,000 – – – – – 

W Pfarl (4) – – – – – – 

E van As (5) – – – 248,000 200,000 316,959 

Total 35,000 39,900 10,000 248,000 236,300 326,959 

(1) Appointed in May 2007. 

(2) Appointed in September 2007. 

(3) Appointed in July 2007. Mr Boëttger received 35,000 restricted shares in 2007 as part of his appointment which vested on 31 December 2007 (See directors 

remuneration for 2007 foot note (6)). 

(4) Retired June 2007. 

(5) Retired August 2007 from executive duties and retired in March 2008 as non-executive chairman. 

(6) Appointed in January 2008. 


177



35. Directors’ interests (continued) 

Directors’ interests in contracts 

The directors have certified that they had no material interest in any significant transaction with either the company or any 

of its subsidiaries. Therefore there is no conflict of interest with regard to directors’ interests in contracts. 

36. Directors’ participation in The Sappi Limited Share Incentive Trust (Scheme) 

and The Sappi Limited Performance Share Incentive Trust (Plan) 

Share options, allocation shares and performance shares 

The following table sets out all share options (whether vested or unvested), all other unvested allocation shares and 

performance shares granted to, and exercised by, each executive director in terms of the Scheme and the Plan during the 

year ended September 2008. These interests are also included in ‘Directors’ interests’ in note 35. Details of share dealings 

are included in the second table. Non-executive directors do not have any allocation shares, share options or performance 

shares. Executive directors who retire have 12 months in which to settle their share options and allocation shares, unless 

extension is granted by the remuneration committee of the board of directors. 

For performance shares there is a formula by which retired executive directors will receive a proportion of any shares which 

may have vested at the end of the four year period. 


Total Total 

R J Boëttger (2) M R Thompson (1) 2008 2007 

Allocated No of Allocated No of No of No of 

price shares price shares shares shares 

Outstanding at September 2007 

Number of shares held 100,000 149,000 249,000 633,000 

Issue 25 R49.00 3,000 

Issue 26 R147.20 15,000 

Issue 27 R112.83 15,000 

Issue 28a R79.25 18,000 

Issue 29 R78.00 18,000 

Performance shares 29 (3) 6,000 


Performance shares 30a (3) 50,000 


Offered and accepted 

Performance shares 32 50,000 40,000 

Paid for 

Number of shares 90,000 

Resignation/Retirement as 

executive director 


Appointment as director 


178

sappi // 


and The Sappi Limited Performance Share Incentive Trust (Plan) (continued) 

Share options, allocation shares and performance shares (continued) 


Total 

Total 

R J Boëttger (2) M R Thompson (1) 2008 2007 

Allocated No of Allocated No of No of No of 

price shares price shares shares shares 

Outstanding at September 2008 

Number of shares held 150,000 189,000 339,000 249,000 

Issue 25 R49.00 3,000 

Issue 26 R147.20 15,000 

Issue 27 R112.83 15,000 

Issue 28a R79.25 18,000 

Issue 29 R78.00 18,000 





Performance shares 32 50,000 40,000 

Expiry dates 

Issue 25 15 Jan 09 

Issue 26 28 Mar 10 

Issue 27 13 Feb 11 

Issue 28a 30 Dec 11 

Issue 29 13 Dec 12 

Performance shares 29 (3) 13 Dec 08 

Performance shares 30 (3) 13 Dec 09 

Performance shares 30a (3) 08 Aug 10 

Performance shares 31a (3) 02 Jul 11 

Performance shares 32 12 Dec 11 12 Dec 11 

Changes in executive directors’ share options, allocation shares and performance shares after year-end. 

(1) Appointed an executive director on 08 August 2006. 

(2) Appointed in July 2007. 

(3) Performance shares are issued when all conditions per Note 30 are met. 


179




and The Sappi Limited Performance Share Incentive Trust (Plan) (continued) 

Share options, allocation shares and performance shares (continued) 

Dealings in the Scheme and the Plan 


None for the current year 

Dealings in the Scheme and the Plan 

for the year ended September 2007 

Market Gains on 

Number value at shares 

of shares Allocation date of paid for 

Director Date paid for paid for price payment US$ (1) 


W Pfarl (2) Option 15 November 2006 50,000 R53.85 R111.19 397,962 

Deferred Sale 15 November 2006 25,000 R49.00 R111.19 215,811 

M R Thompson Deferred Sale 14 December 2006 15,000 R53.85 R115.79 133,004 

Total 90,000 746,777 

(1) Converted from South African Rand to US Dollars at the exchange rates on the date of sale. 

(2) Retired June 2007. 

180

sappi // 

Company auditor’s report 

Independent auditor’s report to the members of Sappi Limited 

The condensed annual financial statements of Sappi Limited set out on pages 182 to 187 have been derived from the annual financial 

statements of the company for the year ended September 2008. We have audited the annual financial statements in accordance 

with International Auditing Standards (IAS). In our report dated 03 December 2008, we expressed an unqualified opinion on the 

annual financial statements from which the condensed financial statements were derived. 

Opinion 

In our opinion, the accompanying condensed financial statements are consistent, in all material respects, with the annual financial 

statements from which they were derived. 

For a better understanding of the scope of our audit and the company’s financial position, the results of its operations and cash flows 

for the period, the condensed financial statements should be read in conjunction with our audit report and the annual financial 

statements from which they were derived. 

Deloitte & Touche 

Per M J Comber 

Partner 


Deloitte & Touche – Registered Auditors 

Buildings 1 and 2, Deloitte Place 

The Woodlands, Woodlands Drive, Woodmead Sandton 

Johannesburg, South Africa 

National Executive: G G Gelink Chief Executive A E Swiegers Chief Operating Officer G M Pinnock Audit D L Kennedy Tax & Legal and Financial Advisory L Geeringh 

Consulting L Bam Corporate Finance C R Beukman Finance T J Brown Clients & Markets N T Mtoba Chairman of the Board 

A full list of partners and directors is available on request. 


181

Condensed Sappi Limited company income statement 


ZAR million Note 2008 2007 

Operating loss 1 (154) (14) 

Income from subsidiaries 2 611 498 

Net finance income 3 5 15 

Profit before taxation 462 499 

Taxation – Current (44) (38) 

– Deferred 61 70 

Profit for the year 445 467 

182

sappi // 

Condensed Sappi Limited company balance sheet 



Assets 


Property, plant and equipment 3 4 

Investments in subsidiaries (Annexure A) 12,319 12,253 

Intercompany receivables (Annexure A) 2,420 2,217 

Loan to Executive Share Purchase Trust 104 109 

Project costs capitalised 85 – 

Deferred tax asset 19 80 

Current assets 41 82 

Cash – 1 

Receivables 5 2 

Intercompany receivables (Annexure A) 36 79 




Ordinary share capital 239 239 

Share premium 6,427 6,427 

Non-distributable reserves 247 18 

Distributable reserves 7,837 7,891 

Non-current liabilities 

Intercompany payables (Annexure A) 30 1 

Current liabilities 211 169 

Trade and other payables 123 61 

Intercompany payables (Annexure A) 75 69 




183

Condensed Sappi Limited company cash flow statement 



Profit before interest and taxation 457 484 

Adjustments: 

Dividends received – pre-acquisition 136 – 

Impairment of investment 113 – 

Subsidiary transactions (123) 157 

Other 13 (24) 

Cash generated from operations 596 617 

Movement in working capital 57 8 

Net finance income 5 15 

Taxation paid 18 (6) 

Dividends paid (499) (525) 

Cash retained from operating activities 177 109 

Fixed asset purchases (1) (1) 

(Increase) decrease in non-current assets (80) 6 

Increase in investments (315) (113) 

Proceeds from share option deliveries 218 – 

Net movement in cash and cash equivalents (1) 1 

Cash and cash equivalents at beginning of year 1 – 

Cash and cash equivalents at end of year – 1 

Condensed Sappi Limited company statement of recognised income and expense 



Profit for the year 445 467 

Total recognised income for the year 445 467 

184

sappi // 

Notes to the condensed Sappi Limited company financial statements 



1. Operating loss 

The operating loss is arrived at after taking into account the items detailed below: 

Depreciation 2 3 

Technical and administrative services paid other than 

to bona fide employees of the company 10 27 

Auditors’ remuneration 35 15 

– fees for audit and related services 8 12 

– fees for other services 5 3 

– fees for acquisition related services* 22 – 

Directors’ remuneration 18 17 

Staff costs 89 79 

Management fees received from subsidiaries 224 253 

Impairment of investment 113 – 

2. Income from subsidiaries 

Dividends received from subsidiaries 611 498 

3. Net finance income 

Interest paid (1) – 

Interest received 15 12 

Net foreign exchange (losses) gains (9) 3 

5 15 

4. Reconciliation of changes in equity 

Number Ordinary Nonof 

ordinary share Share distributable Distributable 

ZAR million shares capital premium reserves reserves Total 

Balance – September 2006 239.1 239 6,427 45 7,949 14,660 

Profit for the year – – – – 467 467 

Dividends – – – – (525) (525) 

Share-based payments – – – (27) – (27) 

Balance – September 2007 239.1 239 6,427 18 7,891 14,575 

Profit for the year – – – – 445 445 

Dividends – – – – (499) (499) 

Share-based payments – – – 229 – 229 

Balance – September 2008 239.1 239 6,427 247 7,837 14,750 

* These costs are included in project costs capitalised. 


185

Notes to the condensed Sappi Limited company financial statements // continued 



5. Commitments 

Revenue commitments 

Operating leases and rentals 

Payable within one year 1 1 

Payable in two to five years 1 2 

2 3 

6. Contingent liabilities 

Guarantees and suretyships 13,099 10,653 

7. Basis of preparation 

The annual financial statements from which these condensed financial statements have been derived have been 

prepared in accordance with the International Financial Reporting Standards (IFRS) as issued by the International 

Accounting Standards Board. 

186

sappi // 

Investments 


Share Effective Book value Loan to Loan from 

capital holding of investment subsidiary subsidiary 

Annexure A 2008 2007 2008 2007 2008 2007 2008 2007 

Investments in subsidiaries ZAR ZAR ZAR ZAR ZAR ZAR 

and joint venture % % million million million million million million 

Set out below are the more 

significant subsidiaries 

and joint ventures or 

those that have a loan 

with Sappi Limited 


Sappi Management 

Services (Pty) Ltd M ZAR100 100 100 – – 456 401 – – 

Sappi Manufacturing 

(Pty) Ltd O ZAR12,026,250 100 100 1,851 1,851 1,357 1,153 – – 

Sappi Share Facilitation 

Company (Pty ) Ltd O ZAR1,000 100 100 – – 607 663 – – 

Usutu Pulp Company Ltd O SZL10,000,000 100 100 – – – – – – 

America 

S.D. Warren Company O USD1,000 100 100 – – – – (35) (17) 

Sappi Cloquet LLC O – (1) 100 100 – – – – – – 

Europe 

Sappi Alfeld GmbH O EUR31,200,000 100 100 – – – – – (2) 

Sappi Austria Produktions 

GmbH and CoKG O EUR35,000 100 100 – – – – – – 

Sappi Deutschland GmbH O EUR25,565 100 100 – – – – – – 

Sappi Ehingen GmbH O EUR20,800,000 100 100 – – – – – – 

Sappi Esus Beteiligungsverwaltungs 

GmbH H EUR1,000,000 100 100 – – – – – – 

Sappi Europe SA O EUR15,130,751 100 100 – – – – (31) (25) 

Sappi Fine Paper plc M GBP50,000 100 100 1 1 – – – – 

Sappi Holding GmbH H EUR72,700 100 100 10,375 10,059 – – (6) (7) 

Sappi International SA F EUR1,200,603,930 100 100 – – 32 3 – – 

Sappi Lanaken NV O EUR51,377,000 100 100 – – – – – – 

Sappi Lanaken Press 

Paper NV O EUR57,179,613 100 100 – – – – – – 

Sappi Maastricht BV O EUR31,992 100 100 – – – – – – 

Sappi Nijmegen BV O EUR59,037 100 100 – – – – – – 

Sappi Papier Holding 

GmbH H&O EUR72,700 100 100 – – 1 74 – – 

Sappi Trading Pulp AG O CHF100,000 100 100 – – – – – (16) 

Sappi UK Ltd O GBP74,020,000 100 100 – – – – – (2) 

Asia 

Jiangxi Chenming Paper 

Co. Ltd JV RMB1,424,160,000 34 100 – – – – – – 

Other 

Brocas Ltd (2) H US$3,385,401 100 100 – 122 – – – – 

Lignin Insurance Co. Ltd (3) F US$656,000 100 100 85 221 3 1 – – 

Employee share 

participation Trusts – – – – (30) – 

Various other companies 7 8 – 1 (3) (1) 

12,319 12,262 2,456 2,296 (105) (70) 

Write down of investment 

in subsidiaries – (9) – – – – 

Holding companies H Management companies M 

Operating companies O Joint venture JV 

Finance companies F 

(1) No issued share capital, only additional paid in capital of US$488 million. 

(2) Impairment of investment. 

(3) Declared a dividend out of pre-acquisition reserves. 

12,319 12,253 2,456 2,296 (105) (70) 


187

Glossary 

General definitions 

bleached pulp – pulp that has been bleached by means of 

chemical additives to make it suitable for fine paper production 

chemical cellulose – highly purified chemical pulp intended 

primarily for conversion into chemical derivatives of cellulose 

and used mainly in the manufacture of viscose staple fibre, 

solvent spin fibre and filament 

chemical pulp – a generic term for pulp made from wood fibre 

that has been produced in a chemical process 

coated fine paper – coated paper made from chemical pulp. 

Also referred to as coated free sheet 

coated papers – papers that contain a layer of coating material 

on one or both sides. The coating materials, consisting of 

pigments and binders, act as a filler to improve the printing 

surface of the paper 

corrugating medium – paperboard made from chemical and 

semi-chemical pulp, or waste paper, that is to be converted to 

a corrugated board by passing it through corrugating cylinders. 

Corrugating medium between layers of linerboard form the board 

from which corrugated boxes are produced 

COSO – the Committee of Sponsoring Organisations of the 

Treadway Commission 

fibre – fibre is generally referred to as pulp in the paper industry. 

Wood is treated chemically or mechanically to separate the fibres 

during the pulping process 

fine paper – paper usually produced from chemical pulp for 

printing and writing purposes and consisting of coated and 

uncoated paper 

FSC – in terms of the Forest Stewardship Council (FSC) scheme, 

there are two types of certification. In order for land to achieve 

FSC endorsement, its forest management practices must 

meet the FSC’s ten principles and other assorted criteria. For 

manufacturers of forest products, including paper manufac turers 

like Sappi, Chain-of-Custody certification involves indepen dent 

verification of the supply chain, which identifies and tracks the 

timber through all stages of the production process from the tree 

farm to the end product 

Greenhouse gases (GHGs) – the GHGs included in the Kyoto 

Protocol are carbon dioxide, methane, nitrous oxide, hydro - 

fluoro carbons, perfluorocarbons and sulphur hexafluoride 

ISO – developed by the International Standardisation Organi - 

sation (ISO), ISO 9000 is a series of standards focused on 

quality management systems, while the ISO 14001 series is 

focused on environmental performance and management 

JSE Limited – the main securities exchange in South Africa, 

previously known as the Johannesburg Stock Exchange 

kraft paper – packaging paper (bleached or unbleached) made 

from kraft pulp 

kraft pulp – chemical wood pulp produced by digesting wood 

by means of the sulphate pulping process 

Kyoto Protocol – a document signed by over 160 countries at 

Kyoto, Japan in December 1997 which commits signatories to 

reducing their emission of greenhouse gases relative to levels 

emitted in 1990 

Lost-Time Injury 

Frequency = number of lost time injuries x 200 000 

Rate (LTIFR) 

exposure hours 

linerboard – the grade of paperboard used for the exterior 

facings of corrugated board. Linerboard is combined with 

corrugating medium by converters to produce corrugated board 

used in boxes 

market pulp – pulp produced for sale on the open market, 

as opposed to that produced for own consumption in an 

integrated mill 

mechanical pulp – pulp produced by means of the mechanical 

grinding or refining of wood or wood chips 

NBSK – Northern Bleached Softwood Kraft pulp. One of the 

main varieties of market pulp, mainly produced from spruce 

trees in Scandinavia, Canada and north eastern USA. The price 

of NBSK is a benchmark widely used in the pulp and paper 

industry for comparative purposes 

newsprint – paper produced for the printing of newspapers 

mainly from mechanical pulp and/or recycled waste paper 

OHSAS – is an international health and safety standard aimed 

at minimising occupational health and safety risks firstly, 

by conducting a variety of analyses and secondly, by setting 

standards 

packaging paper – paper used for packaging purposes 

PEFC – the world’s largest forest certification system, the PEFC 

is focused on promoting sustainable forest management. Using 

multi-stakeholder processes, the organisation develops forest 

management certification standards and schemes which have 

been signed by 37 nations in Europe and other inter-govern - 

mental processes for sustainable forestry management around 

the world 

pulpwood – wood suitable for producing pulp – usually not of 

sufficient standard for saw-milling 

188

sappi // 

release paper – backing paper for self-adhesives and/or paper 

used to impart designs on or to polymers, eg artificial leather 

sackkraft – kraft paper used to produce multiwall paper sacks 

silviculture costs – growing and tending costs of trees in 

forestry operations 

speciality paper – a generic term for a group of papers intended 

for commercial and industrial use such as flexible packaging, 

metallised base paper, coated bag paper, etc 

thermo-mechanical pulp – pulp produced by processing wood 

fibres using heat and mechanical grinding or refining wood or 

wood chips. 

tons – term used in this report to denote a metric ton of 1 000 kg 

uncoated woodfree paper – printing and writing paper made 

from bleached chemical pulp used for general printing, photo - 

copying and stationery, etc. Referred to as uncoated as it does 

not contain a layer of pigment to give it a coated surface 

woodfree paper – paper made from chemical pulp 

General financial definitions 

acquisition date – the date on which control in respect of sub - 

sidiaries, joint control in joint ventures and significant influence 

in associates commences 

associate – an entity, other than a subsidiary or joint venture, 

over which the group has significant influence over financial and 

operating policies 

basic earnings per share – net profit for the year divided by 

the weighted average number of shares in issue during the year 

commissioning date – the date that an item of property, plant 

and equipment, whether acquired or constructed, is brought 

into use 

control – the ability, directly or indirectly, to govern the financial 

and operating policies of an entity so as to obtain economic 

benefit from its activities. When assessing the ability to control 

an entity, the existence and effect of potential voting rights that 

are presently exercisable or convertible are taken into account 

diluted earnings per share – is calculated by assuming 

conversion or exercise of all potentially dilutive shares, share 

options and share awards 

discount rate – the rate used for purposes of determining 

discounted cash flows. This pre-tax interest rate reflects the 

current market assessment of the time value of money. In 

determining the cash flows the risks specific to the asset or 

liability are taken into account in determining those cash flows 

and are not included in determining the discount rate 

disposal date – the date on which control in respect of 

subsidiaries, joint control in joint ventures and significant 

influence in associates ceases 

fair value – the value for which an asset could be exchanged 

or a liability settled in a market related transaction 

financial results – comprise the financial position (assets, 

liabilities and equity), results of operations (revenue and expenses) 

and cash flows of an entity and of the group 

functional currency – the currency of the primary economic 

environment in which the entity operates 

foreign operation – an entity whose activities are based or 

conducted in a country other than that of the reporting entity 

(Sappi Limited) 

group – the group comprises Sappi Limited, its subsidiaries 

and its interest in joint ventures and associates 

joint venture – an economic activity over which the group 

exercises joint control established under a contractual 

arrangement 

operation – a component of the group: 

• that represents a separate major line of business or 

geographical area of operation; and 

• is distinguished separately for financial and operating 

purposes 

presentation currency – the currency in which financial results 

of an entity are presented 

qualifying asset – an asset that necessarily takes a substantial 

period (normally in excess of six months) to get ready for its 

intended use 

recoverable amount – the amount that reflects the greater of 

the net selling price and the value in use that can be attributed 

to an asset as a result of its ongoing use by the entity. In 

determining the value in use, expected future cash flows are 

discounted to their present values using the discount rate 

related party – parties are considered to be related if one party 

directly or indirectly has the ability to control the other party or 

exercise significant influence over the other party in making 

financial and operating decisions or is a member of the key 

management of Sappi Limited 

share-based payment – a transaction in which Sappi Limited 

issues shares or share options to group employees as compen - 

sation for services rendered 

significant influence – the ability, directly or indirectly, to 

participate in, but not exercise control over, the financial and 

operating policy decisions of an entity so as to obtain economic 

benefit from its activities 


189

Glossary // continued 

Non-GAAP financial definitions 

The group believes that it is useful to report these non-GAAP 

measures for the following reasons: 

• these measures are used by the group for internal per - 

formance analysis; 

• the presentation by the group’s reported business segments 

of these measures facilitates comparability with other 

companies in our industry, although the group’s measures 

may not be comparable with similarly titled profit measure - 

ments reported by other companies; and 

• it is useful in connection with discussion with the investment 

analyst community and debt rating agencies 

These non-GAAP measures should not be considered in 

isolation or construed as a substitute for GAAP measures in 

accordance with IFRS 

asset turnover (times) – sales divided by total assets 

average – averages are calculated as the sum of the opening 

and closing balances for the relevant period divided by two 

capital employed – shareholders’ equity plus net debt 

cash interest cover – cash generated by operations divided by 

finance costs less finance revenue 

current asset ratio – current assets divided by current liabilities 

dividend yield – dividends per share, which were declared 

after year end, in US cents divided by the financial year end 

closing prices on the JSE Limited converted to US cents using 

the closing financial year end exchange rate 

earnings yield – headline earnings per share divided by the 

financial year end closing prices on the JSE Limited converted 

to US cents using the closing financial year end exchange rate 

EBITDA excluding special items – earnings before interest (net 

finance costs), tax, depreciation, amortisation and special items 

fellings – the amount charged against the income statement 

representing the standing value of the plantations harvested 

headline earnings – as defined in circular 8/2007 issued by 

the South African Institute of Chartered Accountants, separates 

from earnings all separately identifiable re-measurements. It is 

not necessarily a measure of sustainable earnings. It is a listing 

requirement of the JSE Limited to disclose headline earnings 

per share 

inventory turnover (times) – cost of sales divided by inventory 

on hand at balance sheet date 

net debt – current and non-current interest-bearing borrowings, 

and bank overdraft (net of cash, cash equivalents and shortterm 

deposits) 

net debt to total capitalisation – net debt divided by capital 

employed 

net operating assets – total assets (excluding deferred 

taxation and cash) less current liabilities (excluding interestbearing 

borrowings and overdraft) 

ordinary dividend cover – profit for the period divided by the 

ordinary dividend declared multiplied by the actual number of 

shares in issue at period end 

ordinary shareholders’ interest per share – shareholders’ 

equity divided by the actual number of shares in issue at year end 

price/earnings ratio – the financial year end closing prices on 

the JSE Limited converted to US cents using the closing financial 

year end exchange rate divided by headline earnings per share 

ROE – return on average equity. Profit for the period divided by 

average shareholders’ equity 

ROCE – return on average capital employed. Operating profit 

excluding special items divided by average capital employed 

RONOA – return on average net operating assets. Operating 

profit excluding special items divided by average net operating 

assets 

sales per employee – sales for the year divided by the average 

number of employees 

SG&A – selling, general and administrative expenses 

special items – special items cover those items which 

management believe are material by nature or amount to the 

operating results and require separate disclosure. Such items 

would generally include profit or loss on disposal of property, 

investments and businesses, asset impairments, restructuring 

charges, financial impacts of natural disasters and non-cash 

gains or losses on the price fair value adjustment of plantations 

total market capitalisation – ordinary number of shares in 

issue (excluding treasury shares held by the group) multiplied 

by the financial year end closing prices on the JSE Limited 

converted to US cents using the closing financial year end 

exchange rate 

trade receivables days outstanding (including securitised 

balances) – gross trade receivables, including receivables 

securitised, divided by sales multiplied by the number of days 

in the year 

net assets – total assets less total liabilities 

net asset value per share – net assets divided by the number 

of shares in issue at balance sheet date 

190

sappi // 

Notice to shareholders 

Notice of Annual General Meeting 

THIS DOCUMENT IS IMPORTANT AND 

REQUIRES YOUR IMMEDIATE ATTENTION 

If you are in any doubt as to what action you should take, 

please consult your stockbroker, banker, attorney, accountant 

or other professional advisor immediately. 


(Registration No 1936/008963/06) 

(Sappi) 

The seventy-second annual general meeting of Sappi will 

be held in the Auditorium, ground floor, 48 Ameshoff Street, 

Braamfontein, Johannesburg on Monday, 2 March 2009, at 

15:00. The following business will be transacted and resolutions 

proposed with or without modification. 

1. Annual financial statements: Receive and consider the annual 

financial statements for the year ended September 2008. 

2. Ordinary resolutions numbers 1.1 to 1.4: Re-election of the 

directors retiring by rotation in terms of Sappi’s articles of 

association (see notes below). The board has evaluated the 

performances of each of the directors who are retiring by 

rotation, and recommends and supports the re-election of 

each of them.* 

In the case of Mr David Charles Brink, his re-election will 

be until 31 December 2009, when in terms of the company’s 

practice, he will retire from the board, having reached 

retirement age of 70 years during the course of the year. 

It is intended that all the directors who retire by rotation will 

attend the annual general meeting, either in person or by 

means of videoconferencing. 

Ordinary resolution number 1.1 

“Resolved that Mr David Charles Brink is re-elected as a 

director of Sappi Limited until 31 December 2009.” 


“Resolved that Professor Meyer Feldberg is re-elected as a 

director of Sappi Limited.” 


“Resolved that Mr James Edward Healey is re-elected as a 

director of Sappi Limited.” 


“Resolved that Mr Helmut Claus-Jürgen Mamsch is re-elected 

as a director of Sappi Limited.” 

3. Special resolution number 1: Decrease in authorised 

share capital 

“Resolved that, the authorised ordinary share capital of the 

company be and is reduced from ZAR1,325,000,000 

com prising 1,325,000,000 ordinary shares of ZAR1.00 

each to ZAR725,000,000 comprising 725,000,000 ordinary 

shares of ZAR1.00 each, by the cancellation of 600,000,000 

unissued ordinary shares of ZAR1.00 each, which at the 

time of passing of this resolution, have not been taken up 

or agreed to be taken up by any person.” 

The reason for special resolution number 1, is to reduce 

the authorised share capital of the company by cancelling 

600,000,000 unissued ordinary shares having a par value 

of ZAR1.00 each in the authorised share capital of the 

company which, at the time of passing of this resolution, 

have not been taken up or agreed to be taken up by any 

person. The effect of passing special resolution 1 will be to 

decrease the authorised share capital of the company 

by ZAR600,000,000 by the cancellation of 600,000,000 

ordinary shares having a par value of ZAR1.00 each. 

4. Ordinary resolution number 2: Re-appointment of 

auditors 

The board has evaluated the performance of Deloitte and 

Touche and recommends and supports their re-appointment 

as auditors of Sappi. 

“Resolved that Deloitte and Touche are re-appointed 

as the auditors of Sappi Limited for the year ending 

September 2009.” 

5. Ordinary resolution number 3: Placing of unissued shares 

and treasury shares under the control of the directors 

“Resolved that, subject to the provisions of the Companies 

Act 61 of 1973, as amended and the Listings Requirements 

of the JSE Limited, a total of 25,000,000 ordinary shares in 

Sappi Limited (comprising ordinary shares in the authorised 

but issued share capital of Sappi and/or treasury shares 

owned by one or more subsidiaries of Sappi from time to 

time), be and are hereby placed under the control of the 

directors of Sappi, who are authorised by way of a general 

authority to allot and issue or otherwise dispose of all or 

any of such shares to such person/s on such terms and 

conditions and at such times as the directors of Sappi may 

from time to time in their discretion deem fit.” 

It is recorded that the Listing Requirements (Listing 

Requirements) of the JSE Limited (JSE) currently require, 

inter alia, that a company may only undertake a general 

issue for cash or be generally authorised to use treasury 

shares if: 

* See page 194 for the biographies of the retiring directors proposed for re-election. 


191

Notice to shareholders // continued 

1. authorised to do so by a general authority, which shall 

only be valid until the next annual general meeting of 

the company or for 15 months from the date of passing 

of such resolution, whichever period is the shorter; 

2. such shares are issued or sold, as the case may 

be, to public shareholders (as defined in the Listings 

Requirements) and not to related parties; 

3. such shares do not in any one financial year in the 

aggregate exceed 15% of the company’s issued shares, 

as determined in accordance with paragraph 5.52(c) of 

the Listings Requirements. It is recorded that the shares 

contemplated in ordinary resolution number 3 constitute 

approximately 4.65% of the expected issued share capital 

of Sappi as at 31 December 2008; 

4. the maximum discount at which such shares may be 

issued or sold (as the case may be) is 10% of the 

weighted average trading price of such shares on the 

JSE over the 30 business days prior to the date of 

determination of the issue or sale price, as the case 

may be; and 

5. such general authority is approved by a 75% majority 

of the votes cast in favour of such resolution by all 

equity securities holders present or represented by 

proxy at the general meeting convened to approve 

such resolution. 

The reason for and effect of this ordinary resolution is to 

authorise the board of directors of Sappi to issue 

unissued shares in the authorised but unissued share 

capital of Sappi and to sell treasury shares, thereby 

providing the company with the flexibility to improve its 

liquidity in the current uncertain market conditions, subject 

to a limitation of 25,000,000 shares in the aggregate. 

No issue and/or sale of these shares is contemplated 

at present or will be made which could effectively 

transfer control of Sappi without the prior approval of 

shareholders in general meeting. 

6. Ordinary resolution number 4: Non-executive directors’ fees 

“Resolved that, with effect from 01 October 2008 and until 

otherwise determined by Sappi Limited (Sappi) in general 

meeting, the remuneration of the non-executive directors 

for their services shall be adjusted as follows: 

1. Sappi board fees From To 

Chairperson ZAR1,500,000 pa* ZAR1,650,000 pa* 

* Inclusive of all committee fees. 

Senior independent non-executive director 

ZAR324,000 pa 

ZAR356,000 pa 

Other directors 

If South African resident ZAR216,000 pa ZAR237,500 pa 

If European resident GBP34,000 pa GBP35,700 pa 

If USA resident US$52,000 pa US$54,000 pa 

2. Audit committees 

Group committee 

Chairperson 




Other members 




Regional audit committees 

Chairperson 

If South African resident ZAR28,000 ZAR30,500 

per meeting per meeting 

If European resident GBP4,400 GBP4,600 


If USA resident US$6,500 US$6,750 


3. Human resources committee, 

compensation committee, 

nomination and governance committee 

and any additional committees 

Chairperson From To 




Other members 




4. Additional meeting fees 

Board meetings in excess of five meetings per annum (whether 

attended in person or by teleconference/videoconference) 

From 

To 

If South African resident ZAR21,600 ZAR23,700 


If European resident GBP3,400 GBP3,500 


If USA resident US$5,200 US$5,400 


5. Travel compensation 

For more than US$2,600 US$2,700 

10 flight hours per meeting per meeting 

return 

192

sappi // 

Sappi indicated in the notice to shareholders dated 06 December 

2004 that it planned to review directors’ fees annually in future. 

Ordinary resolution number 4 increases the remuneration 

currently paid to non-executive directors (save for the nonexecutive 

chairperson), and board committee members by 

between approximately 3.2% and 10% per annum depending 

generally on the domicile of the directors and the currency in 

which they are paid, with effect from 01 October 2008. The fees 

were last increased with effect from 01 October 2007 and have 

been reviewed to ensure that Sappi’s fees remain generally 

comparable with those of its peer companies in the various 

countries in which its directors are domiciled. A new nonexecutive 

chairperson was elected during the year. Shareholders 

authorised the board to determine the fee to be paid to the new 

chairperson and the board determined remuneration for the 

new chairperson at the rate of ZAR1,500,000 pa. 

The responsibility of non-executive directors continues to 

increase substantially flowing from legislative, regulatory and 

corporate governance requirements. The proposed fees are 

considered reasonable in the circumstances. 

The practice has been and will continue to be that directors’ and 

board committee fees are paid to non-executive directors only. 

In line with their international responsibilities, directors resident 

in South Africa will be entitled to be paid up to one third of their 

directors’ fees in either United States dollars or British pounds 

sterling. 

7. Ordinary resolution number 5: Signature of documents 

“Resolved that any director of Sappi Limited is authorised 

to sign all such documents and do all such things as may 

be necessary for or incidental to the implementation of the 

resolutions passed at the annual general meeting held on 

02 March 2009 or any adjournment thereof.” 

Proxies 

A shareholder is entitled to appoint one or more proxies 

to attend, speak and on a poll to vote in his stead. A proxy 

need not be a shareholder. For the convenience of share - 

holders, a form of proxy is enclosed, together with a form 

of direction for holders of depository interests. 

The attached form of proxy is only to be completed by a 

shareholder who holds Sappi shares in certificated form or 

has dematerialised his shares (ie has replaced the paper 

share certificates with electronic records of ownership 

under JSE’s electronic settlement system (Strate Limited) 

and is recorded in the sub-register in ‘own name’ demate - 

rialised form (ie a shareholder who has specifically instructed 

his Central Securities Depositary Participant (CSDP) or 

broker to hold his shares in his own name on Sappi’s 

sub-register). 

A shareholder who has dematerialised his shares and 

who is not registered as an ‘own name’ dematerialised 

shareholder and who wishes to: 

– attend the annual general meeting must instruct his CSDP 

or broker to provide him with a letter of representation to 

enable him to attend such meeting; or 

– vote but not to attend the annual general meeting, must 

provide his CSDP or broker with his voting instructions in 

terms of the relevant custody agreement between him 

and his CSDP or broker. 

Such a shareholder must not complete the attached form 

of proxy. 

When authorised to do so, CSDPs or brokers recorded in 

Sappi’s sub-register or their nominees should vote either 

by appointing a duly authorised representative to attend 

and vote at the annual general meeting to be held on 

02 March 2009 or any adjournment thereof or by completing 

the attached form of proxy and returning it to one of the 

addresses indicated on the form of proxy in accordance 

with the instructions thereon. 

Questions 

The board welcomes shareholders to ask questions at the 

Annual General Meeting. In order to facilitate the handling of 

questions at the meeting, shareholders who wish to ask 

questions at the meeting are encouraged to submit their 

questions in writing to the group secretary by 17:00 on Thursday, 

26 February 2009 at: 

7th Floor 

48 Ameshoff Street 

Braamfontein 

Johannesburg 2001 

or 

PO Box 31560 

Braamfontein 

2017 


Secretaries: per D J O’Connor 


Braamfontein, Johannesburg 2001 



193

Notice to shareholders // continued 

Notes 

Directors retiring by rotation who are 

seeking re-election 

David Charles Brink (69) (senior independent director) 

MSc Eng (Mining), DCom (hc), Graduate Diploma 

(Company Direction) (South African citizen) 

Mr Brink was appointed a non-executive director of Sappi 

Limited in March 1994 and in March 2006 he was appointed 

senior independent director. Mr Brink also serves on the boards 

of Steinhoff International Holdings Limited, the Business Trust, 

Absa Bank Limited, Absa Group Limited, the National Business 

Initiative and is vice president of the Institute of Directors in 

South Africa. 

Mr Brink retired from the boards of BHP Billiton Limited and 

BHP Billiton plc in November 2007 after serving on those 

boards and their predecessor companies since 1994. He is 

also a past chief executive officer and chairman of construction 

group Murray & Roberts Holdings Limited. 

Mr Brink turns 70 years of age during the course of 2009. His 

re-appointment to the Sappi board, if approved, will be for nine 

months until 31 December 2009, when in terms of company 

policy, he will retire from the board. 

Meyer Feldberg (66) (independent) 

BA, MBA, PhD (US citizen) 

Professor Feldberg’s career has included teaching and leadership 

positions in the business schools of the universities of Cape 

Town, Northwestern and Tulane. He served as president of 

Illinois Institute of Technology for three years and as dean of 

Columbia Business School for fifteen years. He is currently 

dean emeritus and professor of Leadership at Columbia 

Business School. He is also a senior advisor to Morgan Stanley 

in New York. Professor Feldberg serves on the Advisory Board 

of the British American Business Council and has served on the 

Council of Competitiveness in Washington, DC. In 2001, the 

International Centre in New York honoured Professor Feldberg 

as a distinguished foreign-born American who has made a 

significant contribution to American life. In 2007, Mayor Michael 

Bloomberg appointed him president of New York City Global 

Partners. He is a director of major public companies including 

Macy’s Inc, Revlon Inc, PRIMEDIA Inc and UBS Global 

Asset Management. 

Professor Feldberg was appointed to the board of directors of 

Sappi Limited in March 2002 and is currently chairman of the 

nomination and governance committee and a member of the 

compensation committee. 

James Edward Healey (67) (independent) 

BSc (Public Accounting), Honorary Doctor (Commercial 

Science), Certified Public Accountant (USA), (US citizen) 

Mr Healey joined the Sappi Limited board with effect from July 

2004. He has held various senior financial positions in a career 

spanning 37 years. In 1995, Mr Healey became vice president 

and treasurer of Bestfoods, formerly CPC International Inc. In 

1997, he became executive vice president and chief financial 

officer of Nabisco Holdings Inc, one of the world’s largest snack 

food manufacturers, a position from which he retired at the end 

of 2000. 

Mr Healey is a member of the audit committee of Sappi Limited 

and also a member of the human resources committee. He 

is chairman of the audit committee of Sappi Fine Paper 

North America. 

Helmut Claus-Jürgen Mamsch (64) (independent) 

(German citizen) 

Mr Mamsch studied economics at Deutsche Aussenhandelsund 

Verkehrs-Akademie, Bremen and also received training in 

business administration and shipping in Germany, the UK and 

Belgium. He worked for 20 years in international trade and 

shipping. In 1989, he joined VEBA AG (now E ON AG), Germany’s 

largest utility-based conglomerate. From 1993 to 2000, he 

was a VEBA AG management board member and as from 

1998 responsible for their US electronic businesses and their 

Corporate Strategy and Development. 

In 1997, he joined Logica as a non-executive director and until 

2007 was appointed their deputy chairman. Mr Mamsch also 

serves on the board of Electrocomponents plc and GKN plc. 

Mr Mamsch was appointed as a non-executive director of 

Sappi Limited in January 2004 and is currently a member of 

both the audit committee and the compensation committee of 

Sappi Limited. He is chairman of the audit committee of Sappi 

Fine Paper Europe. 

194

sappi // 

Administration 


Reg No 1936/008963/06 

JSE code: SAP 

ISIN code: ZAE 000006284 

NYSE code: SPP 

LSE code: SAZ 

Group secretary 

Denis O’Connor 

Secretaries 



2001 Braamfontein 

South Africa 

PO Box 31560 

2017 Braamfontein 

South Africa 

Telephone +27 (0)11 407 8111 

Fax +27 (0)11 339 1881 

e-Mail Denis.O’Connor@sappi.com 

Website www.sappi.com 

Transfer secretaries 

South Africa 

Computershare Investor Services (Pty) Limited 

70 Marshall Street 

2001 Johannesburg 

PO Box 61051 

2107 Marshalltown 

Telephone +27 (0)11 370 5000 

Fax +27 (0)11 370 5217 

e-Mail registrar@computershare.co.za 

Transfer secretaries 

Capita Registrars (Jersey) Limited 

12 Castle Street 

St Helier 

Jersey 

JE2 3RT 

Telephone 0871 664 0300 

(from outside the UK: +44 (0)20 8639 3399) 

Fax +44 (0)20 8639 2342 

e-Mail ssd@capitaregistrars.com 

Website www.capitaregistrars.com 

United States ADR Depositary 

The Bank of New York Mellon 

Investor Relations 

PO Box 11258 

Church Street Station 

New York, NY 10286-1258 

Telephone (US only) 1 888 BNYADRS 

Telephone (outside the US) +1 201 680 6825 

e-Mail shrrelations@bnymellon.com 

Website www.bnymellon.com/shareowner 

Corporate affairs 

André Oberholzer – Group Head 

Telephone +27 (0)11 407 8111 

Fax +27 (0)11 403 8236 

e-Mail Andre.Oberholzer@sappi.com 

Investor relations 

Wikus van Zyl – Group Investor Relations Manager 

Telephone +27(0)11 407 8391 

Fax +27(0)11 403 1493 

e-Mail Wikus.van.Zyl@sappi.com 

United Kingdom 

Depository 

Capita IRG Trustees Limited 

The Registry 

34 Beckenham Road 

Beckenham 

Kent, BR3 4TU 

Telephone 0871 664 0300 

(from outside the UK: +44 (0)20 8639 3399) 

Fax +44 (0)20 8639 2342 

e-Mail ssd@capitaregistrars.com 

Website www.capitaregistrars.com 


195

Shareholder’s diary 

Annual general meeting 02 March 2009 

First and third quarter reports released February and July 2009 

Second quarter and half-year report released May 2009 

Financial year end September 2009 

Preliminary results for the fourth quarter and year released, dividend announcement November 2009 

Annual report posted to shareholders December 2009 

196

Proxy form for annual general meeting 


(Registration number 1936/008963/06) 

(Incorporated in the Republic of South Africa) 

(Sappi or the company) 

Issuer Code: SAP JSE Code: SAP ISIN Code: ZAE000006284 

For use by shareholders who – 

– hold shares in certificated form; or 

– hold dematerialised shares (i.e. where the paper share certificates representing the shares have been replaced with electronic records of ownership under the 

electronic settlement and depositary system (Strate Limited) of the JSE Limited) and are recorded in Sappi’s sub-register with ‘own name’ registration) 

(i.e. shareholders who have specifically instructed their Central Securities Depositary Participant (‘CSDP’) to record the holding of their shares in their own name 

in Sappi's sub register). 

If you are unable to attend the seventy-first annual general meeting of the members to be held at 15:00 on Monday, 2 March 2009 in the Auditorium, Ground Floor, 

48 Ameshoff Street, Braamfontein, Johannesburg, 2001, Republic of South Africa, you should complete and return the form of proxy as soon as possible, but in 

any event to be received by no later than 15:00 South African time on Saturday, 28 February 2009, to Sappi’s transfer secretaries, Computershare Investor Services 

(Proprietary) Limited, by way of hand delivery to 70 Marshall Street, Johannesburg, 2001, Republic of South Africa or by way of postal delivery to PO Box 61051, 

Marshalltown, 2107, Republic of South Africa or to Capita IRG Trustees Limited, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU. 

Shareholders who have dematerialised their shares and who do not have ‘own name’ registration who wish to attend the annual general meeting, must instruct 

their CSDP or broker to provide them with the relevant letter of representation to enable them to attend such meeting, or, alternatively, should they wish to vote 

but not to attend the annual general meeting, they must provide their CSDP or broker with their voting instructions in terms of the relevant custody agreement 

entered into between them and the CSDP or broker. Such shareholders must not complete this form of proxy. 

A separate form of direction is attached for completion by holders of depositary Interests with CREST. 

I/We 

of 

being (a) shareholder(s) of Sappi holding 

Sappi shares and entitled to vote at the above-mentioned 

annual general meeting, appoint 

or failing him/her 

or failing him/her 

or failing him/her, the chairman of the meeting as my/our proxy to attend and speak and, on a poll, to vote for me/us on the resolutions to be proposed (with or 

without modification) at the annual general meeting of Sappi to be held at 15:00 on Monday, 2 March 2009 or any adjournment thereof, as follows: 

Ordinary resolution number 1 – Re-election of directors retiring by rotation in terms of Sappi’s articles 

of association* 

Ordinary resolution number 1.1 – Re-election of Mr David Charles Brink as a director of Sappi until 

31 December 2009 

Ordinary resolution number 1.2 – Re-election of Professor Meyer Feldberg as a director of 


Ordinary resolution number 1.3 – Re-election of Mr James Edward Healey as a director of 


Ordinary resolution number 1.4 – Re-election of Mr Helmut Claus-Jürgen Mamsch as a director of 


Ordinary resolution number 2 – Re appointment of Deloitte & Touche as auditors for the year ending 

30 September 2009 

Special resolution number 1 – Decrease in authorised share capital 

Ordinary resolution number 3 – Placing a total of 25,000,000 unissued Sappi shares and/or treasury 

shares (constituting approximately 4.65% of Sappi’s issued share capital) under the control of the directors 

of Sappi with the authority to allot and/or issue and/or otherwise dispose of same in terms of the 

SA Companies Act and the Listings Requirements of the JSE Limited 

Ordinary resolution number 4 – Adjustment of non-executive directors’ fees 

Ordinary resolution number 5 – Authority for directors to sign all documents and do all things necessary 

to implement the above resolutions 


For Against Abstain 

Insert ‘X’ in the appropriate block if you wish to vote all your shares in the same manner. If not, insert the number of votes in the appropriate block. If no indication 

is given, the proxy will vote as he/she thinks fit. 

Signed at 

on 

Assisted by me (where applicable) 

Each shareholder is entitled to appoint one or more proxies (who need not be shareholders of Sappi) to attend, speak, and on a poll, vote in place of that 

shareholder at the annual general meeting or any adjournment thereof. 

* Refer note to Notice of Meeting on page 191. 


197

Notes to proxy 

The form of proxy must only be used by certificated shareholders or shareholders who hold dematerialised shares with ‘own name’ registration. 

Other shareholders are reminded that the onus is on them to communicate with their CSDP or broker. 

Instructions on signing and lodging the annual general meeting proxy form 

1 A deletion of any printed matter (only where a shareholder is allowed to choose between more than one alternative option) and the completion 

of any blank spaces need not be signed or initialled. Any alteration must be signed, not initialled. 

2 The chairman shall be entitled to decline to accept the authority of the signatory – 

2.1 under a power of attorney; or 

2.2 on behalf of a company, 

if the power of attorney or authority has not been lodged at the offices of the company’s transfer secretaries, Computershare Investor Services 

(Proprietary) Limited, 70 Marshall Street, Johannesburg, 2001, Republic of South Africa or posted to PO Box 61051, Marshalltown, 2107, Republic 

of South Africa or lodged at Capita IRG Trustees Limited, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU by 15:00 South African time 

on Saturday, 28 February 2009. 

3 The signatory may insert the name(s) of any person(s) whom the signatory wishes to appoint as his/her proxy in the blank spaces provided for 

that purpose. 

4 When there are joint holders of shares and if more than one of such joint holders is present or represented, the person whose name appears first 

in the register in respect of such shares or his/her proxy, as the case may be, shall alone be entitled to vote in respect thereof. 

5 The completion and lodging of the form of proxy will not preclude the signatory from attending the meeting and speaking and voting in person 

thereat to the exclusion of any proxy appointed in terms hereof should such signatory wish to do so. 

6 Forms of proxy must be lodged with, or posted to, the offices of the company's transfer secretaries, Computershare Investor Services (Proprietary) 

Limited, at 70 Marshall Street, Johannesburg, 2001, Republic of South Africa, (for hand delivery) or PO Box 61051, Marshalltown, 2107, Republic 

of South Africa (for postal delivery) or lodged at the offices of Capita IRG Trustees Limited, The Registry, 34 Beckenham Road, Beckenham, Kent, 

BR3 4TU by not later than 15:00 South African time on Saturday, 28 February 2009. 

7 If the signatory does not indicate in the appropriate place on the face hereof how he/she wishes to vote in respect of a particular resolution, his/her 

proxy shall be entitled to vote as he/she deems fit in respect of that resolution. 

8 The chairman of the annual general meeting may reject any proxy form which is completed other than in accordance with these instructions and 

may accept any proxy form when he is satisfied as to the manner in which a member wishes to vote. 

198

Form of direction for holders of depository interests 


Incorporated in the Republic of South Africa 

Registration number 1936/008963/06 

‘Issuer Company’ 

Form of direction 

Form of direction for completion by holders of Depository Interests representing shares on a one for one basis in the Issuer Company in 

respect of the Seventy First Annual General Meeting of the Issuer Company convened for 15:00 (South African time) on Monday, 

02 March 2009 in the Auditorium, Ground Floor, 48 Ameshoff Street, Braamfontein, Johannesburg, 2001, South Africa. 

I/We (full names in BLOCK LETTERS) 

of (address in BLOCK LETTERS 

being a holder of Depository Interest representing shares in the Issuer Company hereby instruct Capita IRG Trustees Limited, the depository, 

to vote for me/us and on my/our behalf in person or by proxy at the General Meeting of the Issuer Company to be held on the above date 

(and at any adjournment thereof) as directed by an X in the spaces below. 

Please indicate with an ‘X’ in the spaces below how you wish your vote to be cast. If no indication is given, you will be deemed as instructing 

the depository to abstain from voting. 

Ordinary resolution number 1 – Re-election of directors retiring by rotation in terms 

of Sappi’s articles of association* 

Ordinary resolution number 1.1 – Re-election of Mr David Charles Brink as a director 

of Sappi until 31 December 2009 

Ordinary resolution number 1.2 – Re-election of Professor Meyer Feldberg as a director 


Ordinary resolution number 1.3 – Re-election of Mr James Edward Healey as a director 


Ordinary resolution number 1.4 – Re-election of Mr Helmut Claus-Jürgen Mamsch as a 

director of Sappi Limited 


Ordinary resolution number 2 – Re-appointment of Deloitte & Touche as auditors for the 

year ending 30 September 2009 

Ordinary resolution number 3 – Placing a total of 25,000,000 unissued Sappi shares and/or 

treasury shares (constituting approximately 4,65% of Sappi’s issued share capital) under 

the control of the directors of Sappi with the authority to allot and/or issue and/or otherwise 

dispose of same in terms of the SA Companies Act and the Listings Requirements of the 

JSE Limited 

Ordinary resolution number 4 – Adjustment of non executive directors’ fees 

Ordinary resolution number 5 – Authority for directors to sign all documents and do all such 

things necessary to implement the above resolutions 



Signed at on 2008 

* Refer to Notice of Meeting on page 194. 


199

Notes 

1. To be effective, this form of direction and the power of attorney or other authority (if any) under which it is signed, or a notarially or 

otherwise certified copy of such power of authority, must be deposited at Capita Registrars, The Registry, 34 Beckenham Road, 

Beckenham, Ken BR3 4TU not later than 72 hours before the time appointed for holding the meeting. 

2. Any alterations made to this form of direction should be initialled. 

3. In the case of a corporation this form of direction should be given under its Common Seal or under the hand of an officer or attorney 

duly authorised in writing. 

4. Please indicate how you wish your votes to be cast by placing an ‘X’ in the box provided. On receipt of this form duly signed, you will 

be deemed to have authorised Capita IRG Trustees Limited to vote, or to abstain from voting, as per your instructions. 

200

Form of direction for holders of depository interests 


Incorporated in the Republic of South Africa 

Registration number 1936/008963/06 

‘Issuer Company’ 

Form of direction 

Form of direction for completion by holders of Depository Interests representing shares on a one for one basis in the Issuer Company in 

respect of the Seventy First Annual General Meeting of the Issuer Company convened for 15:00 (South African time) on Monday, 

02 March 2009 in the Auditorium, Ground Floor, 48 Ameshoff Street, Braamfontein, Johannesburg, 2001, South Africa. 

I/We (full names in BLOCK LETTERS) 

of (address in BLOCK LETTERS 

being a holder of Depository Interest representing shares in the Issuer Company hereby instruct Capita IRG Trustees Limited, the depository, 

to vote for me/us and on my/our behalf in person or by proxy at the General Meeting of the Issuer Company to be held on the above date 

(and at any adjournment thereof) as directed by an X in the spaces below. 

Please indicate with an ‘X’ in the spaces below how you wish your vote to be cast. If no indication is given, you will be deemed as instructing 

the depository to abstain from voting. 

Ordinary resolution number 1 – Re election of directors retiring by rotation in terms 

of Sappi’s articles of association* 

Ordinary resolution number 1.1 – Re-election of Mr David Charles Brink as a director 

of Sappi until 31 December 2009 

Ordinary resolution number 1.2 – Re-election of Professor Meyer Feldberg as a director 


Ordinary resolution number 1.3 – Re-election of Mr James Edward Healey as a director 


Ordinary resolution number 1.4 – Re-election of Mr Helmut Claus-Jürgen Mamsch as a 

director of Sappi Limited 


Ordinary resolution number 2 – Re appointment of Deloitte & Touche as auditors for the 

year ending 30 September 2009 

Ordinary resolution number 3 – Placing a total of 25,000,000 unissued Sappi shares and/or 

treasury shares (constituting approximately 4,65% of Sappi’s issued share capital) under 

the control of the directors of Sappi with the authority to allot and/or issue and/or otherwise 

dispose of same in terms of the SA Companies Act and the Listings Requirements of the 

JSE Limited 

Ordinary resolution number 4 – Adjustment of non executive directors’ fees 

Ordinary resolution number 5 – Authority for directors to sign all documents and do all such 

things necessary to implement the above resolutions 



Signed at on 2008 

* Refer to Notice of Meeting on page 194. 

// 2008 Annual report

Notes 

1. To be effective, this form of direction and the power of attorney or other authority (if any) under which it is signed, or a notarially or 

otherwise certified copy of such power of authority, must be deposited at Capita Registrars, The Registry, 34 Beckenham Road, 

Beckenham, Ken BR3 4TU not later than 72 hours before the time appointed for holding the meeting. 

2. Any alterations made to this form of direction should be initialled. 

3. In the case of a corporation this form of direction should be given under its Common Seal or under the hand of an officer or 

attorney duly authorised in writing. 

4. Please indicate how you wish your votes to be cast by placing an ‘X’ in the box provided. On receipt of this form duly signed, you 

will be deemed to have authorised Capita IRG Trustees Limited to vote, or to abstain from voting, as per your instructions.

Forward-looking statements 

Certain statements in this report that are neither reported financial results nor other historical information, are forward-looking 

statements, including but not limited to statements that are predictions of or indicate future earnings, savings, synergies, events, 

trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to 

known and unknown risks and uncertainties and can be affected by other factors, that could cause actual results and company plans 

and objectives to differ materially from those expressed or implied in the forward-looking statements (or from past results). Such risks, 

uncertainties and factors include, but are not limited to,risks relating to the acquisition of the coated graphic paper business of M-real 

such as the risk that the acquired business will not be integrated successfully or such integration may be more difficult, 

time-consuming or costly than expected, expected revenue synergies and cost savings from the acquisition may not be fully realised 

or realized within the expected time frame, revenues following the acquisition may be lower than expected, any anticipated benefits 

from the consolidation of the European paper business may not be achieved or the related financings, the highly cyclical nature of 

the pulp and paper industry and the current global economic downturn (and the factors that contribute to such cyclicality, such as 

levels of demand, production capacity, production, input costs including raw material, energy and employee costs, and pricing), 

adverse changes in the markets for the group's products, consequences of substantial leverage, including as a result of adverse 

changes in credit markets that affect our ability to raise capital when needed, changing regulatory requirements, unanticipated 

production disruptions, economic and political conditions in international markets, the impact of investments, acquisitions and 

dispositions (including related financing), any delays, unexpected costs or other problems experienced with integrating acquisitions 

and achieving expected savings and synergies and currency fluctuations. 

The company undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new 

information or future events or circumstances or otherwise. 

We have included in this report an estimate of total synergies from the proposed acquisition of M-real's coated graphic paper 

business and the integration of the acquired business into our existing business. The estimate of synergies that we expect to achieve 

following the completion of the proposed acquisition is based on assumptions which in the view of our management were prepared 

on a reasonable basis, reflect the best currently available estimates and judgments, and present, to the best of our management's 

knowledge and belief, the expected course of action and the expected future financial impact on our performance due to the 

proposed acquisition. However, the assumptions about these expected synergies are inherently uncertain and, though considered 

reasonable by management as of the date of preparation, are subject to a wide variety of significant business, economic and 

competitive risks and uncertainties that could cause actual results to differ materially from those contained in this estimate of synergies. 

There can be no assurance that we will be able to successfully implement the strategic or operational initiatives that are intended, 

or realise the estimated synergies. This synergy estimate is not a profit forecast or a profit estimate and should not be treated as such 

or relied on by shareholders or prospective investors to calculate the likely level of profits or losses for Sappi for fiscal 2009 or beyond. 

www.sappi.com 

This report has been compiled and produced by Sappi Corporate Affairs © 

Sappi House • 48 Ameshoff Street • 2001 Braamfontein • Johannesburg • South Africa

www.sappi.com

2008 Annual report - Sappi

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