Sappi Ltd.
Annual Report 2021

Plain-text annual report

Contents About this report Group overview Our 2021 reporting theme Who we are Where we operate Our strategy and performance How we create value Our business model Letter to stakeholders – Chairman and CEO Q&A with the CEO Creating value by responding strategically Risk management Our key relationships Our performance review Our operating context Sappi and the SDGs Integrating our key material issues Our key material issues Product review Chief Financial Officer’s Report Governance and compensation Our leadership and executive management Corporate governance Remuneration Report Social, Ethics, Transformation and Sustainability (SETS) Committee Report Appendices Five-year review Share statistics Glossary Notice to shareholders Shareholders’ diary Proxy form for the Annual General Meeting Notes to the proxy Administration Forward-looking statements 1 4 5 6 10 16 18 22 28 34 42 64 66 68 70 100 112 134 138 154 174 178 180 182 187 196 197 199 201 202 How to navigate our report Throughout our annual integrated report, the following icons are used to show the connectivity between sections: Referencing Page Online Risk Sappi’s 3Ps Prosperity People Planet Thrive25 strategy Grow our business Drive operational excellence Sustain our financial health Enhance trust Our capitals Human capital Intellectual capital Finance capital Natural capital Social and relationship capital Manufactured capital Sappi and the United Nations (UN) Sustainable Development Goals (SDGs) * * * Sappi Southern Africa (SSA) priority SDGs. This report is printed on Sappi Magno Plus Silk 135 and 350 g/m2. ABOUT THIS REPORT About this report Our annual integrated report for the year ended September 2021 provides an overview of how we create value in terms of our purpose, vision and strategy. The report deals with key opportunities and risks in our markets as well as our performance against fi nancial and non- fi nancial objectives, together with our priorities and expectations for the year ahead. While the report addresses issues pertinent to a broad group of stakeholders, the primary audience is our shareholders. Our global and regional sustainability reports address the wider audience in more detail on key material issues. In addition to our annual integrated report (pages 1 to 177), we have included supporting appendices (pages 178 to 202). Integrated thinking and the 3Ps We understand that the long-term sustainability of our business will only be ensured by delivering sustained value for our stakeholders. In understanding our value-creation process, we take an integrated approach, considering Prosperity, People and Planet (the 3Ps) – an approach that is aligned with the International Integrated Reporting Council’s (IIRC) six capitals model. Prosperity People Planet Natural capital Recognising that our business depends on natural capital, we focus on understanding, managing and mitigating our impacts. Intellectual capital Our technology centres and research and development (R&D) initiatives promote a culture of innovation to support the development of commercially and environmentally sustainable solutions for the company. Financial capital We manage our fi nancial capital, including shareholders’ equity, debt and reinvested capital to maintain a solid balance between growth, profi tability and liquidity. Manufactured capital Our operations require signifi cant investments in manufactured capital. Investing in building, maintaining, operating and improving this infrastructure requires fi nancial, human and intellectual capitals. Human capital We require engaged and productive employees to create value. By creating a safe and healthy workplace for our people in which diversity is encouraged and valued, and providing them with ongoing development opportunities, we enhance productivity and our ability to service global markets. Social and relationship capital Building relationships with our key stakeholders in a spirit of trust and mutual respect enhances both our licence to trade and our competitive advantage, thereby enabling shared value creation. 1 ABOUT THIS REPORT About this report continued Ensuring holistic value creation Value for Sappi is not only about delivering returns to our shareholders, it is also about maximising the value of every resource along our value chain to ensure those returns are sustainable. We recognise that our sphere of infl uence and impact extends beyond our mill gates. Through this lifecycle approach that harnesses the power of the circular economy, we strive to minimise our negative impacts and increase our positive impacts on people and the planet, while securing sustainable profi t margins. We then measure value created, preserved and eroded in terms of our  defi ned, holistic targets, as outlined and set out in the Business model on pages 18 to 21. Scope and boundary The scope of this report includes all our operations (see Where we operate on page that is material, comparable, relevant and complete. The issues and indicators we cover refl ect our signifi cant economic, environmental and social impacts, and those we believe would substantively infl uence the assessments and decisions of investors. 6). We aim to present information Forward-looking statements For important information relating to forward-looking statements, refer to page 200. The materiality of the information presented has been determined on the basis The materiality of the information presented has been determined on the basis The materiality of the information presented has been determined on the basis The materiality of the information presented has been determined on the basis of extensive ongoing engagement with our stakeholders and has been assessed of extensive ongoing engagement with our stakeholders and has been assessed of extensive ongoing engagement with our stakeholders and has been assessed against the backdrop of current business operations, as well as prevailing trends against the backdrop of current business operations, as well as prevailing trends against the backdrop of current business operations, as well as prevailing trends against the backdrop of current business operations, as well as prevailing trends against the backdrop of current business operations, as well as prevailing trends against the backdrop of current business operations, as well as prevailing trends against the backdrop of current business operations, as well as prevailing trends in our industry and the global economy (see How we determine materiality on in our industry and the global economy (see How we determine materiality on in our industry and the global economy (see How we determine materiality on in our industry and the global economy (see How we determine materiality on in our industry and the global economy (see How we determine materiality on in our industry and the global economy (see How we determine materiality on in our industry and the global economy (see How we determine materiality on page 70). In preparing this report, we have tracked environmental fi ndings and research, In preparing this report, we have tracked environmental fi ndings and research, In preparing this report, we have tracked environmental fi ndings and research, In preparing this report, we have tracked environmental fi ndings and research, In preparing this report, we have tracked environmental fi ndings and research, public opinion, employee views and attitudes, the interests and priorities of public opinion, employee views and attitudes, the interests and priorities of public opinion, employee views and attitudes, the interests and priorities of public opinion, employee views and attitudes, the interests and priorities of public opinion, employee views and attitudes, the interests and priorities of environmental and social groups, as well as the activities, profi les environmental and social groups, as well as the activities, profi les environmental and social groups, as well as the activities, profi les environmental and social groups, as well as the activities, profi les and interests of investors, employees, suppliers and customers, and interests of investors, employees, suppliers and customers, and interests of investors, employees, suppliers and customers, and interests of investors, employees, suppliers and customers, communities, governments and regulatory authorities. communities, governments and regulatory authorities. G lobal forces g O p eratin co nte xt U N S D G s Risksand opportunities i a l t e r i t y determination M a O ur sta is s u k e h e o l s d e r r eportingbou bou n n d d a a r r y y Sappi Europe Sappi Southern Africa t e d t e Inte g r a Inte g r a Sappi North America F F i i n a n d aryry n cialreport i n g b u o At Sappi, we take a holistic view of value creation. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 2 ABOUT THIS REPORT We are also assessed in terms of the forest certifi cation systems we use and, in South Africa, our broad-based black economic empowerment (BBBEE) performance is assessed by an external ratings agency. In 2021 Sappi Limited was a constituent of the FTSE/JSE Responsible Investment Index. Collectively, these external assessments and certifi cations, as well as interaction with our stakeholders, give us confi dence that our performance indicators are reliable, accurate and pertinent. The Social, Ethics, Transformation and Sustainability (SETS) Committee is satisfi ed that the sustainability information presented in this report has been provided with a reasonable degree of accuracy. For information on the combined assurance framework relevant to the disclosure in this report, and for the independent auditors’ report, see Group Annual Financial Statements on www.sappi.com/annual-reports. This year’s report does not include summarised fi nancials. However, the full 2021 Sappi Annual Integrated Report with fi nancials is available on www.sappi.com/annual-reports in interactive and PDF format. Board approval The Sappi Limited board acknowledges its responsibility for ensuring the integrity of the annual integrated report and, to the best of its knowledge and belief, the 2021 Sappi Annual Integrated Report addresses all issues material to the group’s ability to create value in the short, medium and long term, and fairly presents the integrated performance of the organisation and its impact. We believe that this report has been prepared in accordance with the International Framework (2021). The report has been prepared in line with best practice and the board has approved the 2021 Sappi Annual Integrated Report on 08 December 2021. Sir Nigel Rudd Chairman Steve Binnie Chief Executive Offi cer (CEO) Our reporting suite Report 2021 Sappi Annual Integrated Report www.sappi.com/annual-reports Frameworks • IIRC's International Framework • Companies Act, No 71 of 2008, as amended (Companies Act) • Johannesburg Stock Exchange (JSE) Listings Requirements • King IV Code on Corporate Governance (King IVTM 1 ) GROUP ANNUAL FINANCIAL STATEMENTS 2021 Sappi Group Annual Financial Statements www.sappi.com/annual-reports Frameworks • International Financial Reporting Standards (IFRS) • Companies Act • JSE Listings Requirements • King IV 2021 Sappi Group Sustainability Report www.sappi.com/sustainability  Frameworks • Global Reporting Initiative (GRI) standards • United Nations Global Compact (UNGC) • UN SDGs For up-to-date information, please refer to our quarterly results announcements and analyst presentations (www.sappi.com/quarterly-reports). 1 Copyright and trademarks are owned by the Institute of Directors in South Africa NPC and all of its rights are reserved. Assurance We obtained external assurance on selected sustainability key performance indicators in our 2021 Sappi Group Sustainability Report. The independent practitioner’s limited assurance report is included in the 2021 Sappi Group Sustainability Report. Our sustainability information is also verifi ed by our internal audit team. Their verifi cation process includes reviewing the procedures applied for collecting and/ or measuring, calculating and validating non-fi nancial data, as well as reviewing reported information and supporting documentation. In addition, most of our key operations undergo external verifi cation including the Eco-Management Audit System in Europe, ISO 50001 energy certifi cation in Europe and South Africa and globally, ISO 45001 environmental certifi cation and ISO 9001 quality certifi cation, as well as OHS 18001 and ISO 45001 health and safety certifi cation. 3 Our 2021 reporting theme The images used throughout this report, from the exquisite hummingbird to the thundering waterfall, from the dainty dandelion to the agile cheetah and iridescent dragonfly, are all very different, but they share certain characteristics, no matter their size: Strength. Power. Vitality. Energy. Over the last five years we have transformed to become a more unified and focused group with investments in growth markets and product categories. Each year we build on our success, adapting to market conditions but always preparing for the next positive wave. We continue to leverage our market-leading positions across numerous categories to deliver real value so that we can further invest in our growth. All qualities which embody our strategic intent and are reflected in our theme of ‘Advance’. Inherent in our Thrive25 strategy is the commitment to advance, whether through improved profits, a more engaged workforce, embedding safety as a core value, securing the trust of our stakeholders, increased financial stability or integrating the UN SDGs and science-based targets as strategic objectives. Equally, the Coronavirus pandemic and Covid-19 required us to advance. To adopt new methods of work; to ensure that we continue to operate while respecting all Covid-19-related guidelines; to respond to the needs of our customers. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 4 Page headingGROUP OVERVIEW GROUP OVERVIEW Who we are Page heading continued Sappi is a leading global provider of everyday materials made from woodfi bre-based renewable resources. As a diversifi ed, innovative and trusted leader focused on sustainable processes and products, we are building a more circular economy by making what we should, not just what we can. Paper capacity per year 5.5 million tons Paper pulp capacity per year 2.5 million tons Our raw material off erings (such as dissolving pulp, wood pulp, biomaterials and timber) and end-use products (packaging and speciality papers, graphic papers, casting and release papers and forestry products) are manufactured from woodfi bre sourced from sustainably managed forests and plantations, in production facilities powered, in many cases, with bio-energy from steam and existing waste streams. Together with our partners, Sappi works to build a thriving world by acting boldly to support the planet, people and prosperity. Dissolving pulp (DP) capacity per year 1.4 million tons Globally we have 12,492 employees(1) 394,000 ha Owned and leased sustainably managed forests in South Africa (1) Includes Corporate and Sappi Trading employees. 5 GROUP OVERVIEW Where we operate Page heading Sappi Trading Sappi Trading operates a network for the sale and distribution of our products outside our core operating regions of North America, Europe and South Africa. Sappi Trading also coordinates our shipping and logistical functions for exports from these regions • Sales offi ces Hong Kong Bogotá Johannesburg México City Nairobi São Paulo Shanghai Sydney • Logistics offi ces Durban T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 6 North America Production facilities 4 Sales offi ces 6 Employees 2,037 Europe Production facilities 10 Sales offi ces 15 Employees Employees 5,531 5,531 South Africa Production facilities 5 Sales offi ces 6 Employees 4,752 GROUP OVERVIEW Sappi North America Mills Products produced Cloquet Mill Dissolving pulp, kraft pulp for own consumption and kraft pulp* Coated woodfree paper Matane Mill Somerset Mill Westbrook Mill High yield hardwood pulp for own consumption and kraft pulp Bleached chemical pulp for own consumption and kraft pulp Coated woodfree and packaging paper Speciality paper; casting and release paper Total Sappi North America Sappi Europe Mills Products produced Capacity(1) (’000 tons) Paper Pulp 370 270 525 340 970 23 1,333 1,165 Capacity(1) (’000 tons) Paper Pulp Bleached chemical pulp for own consumption Speciality paper; flexible packaging paper, paperboard, containerboard, release liner, label paper, functional papers Speciality paper; dye sublimation paper, flexible packaging paper, inkjet paper and label paper Speciality paper; dye sublimation paper, flexible packaging paper, inkjet paper and silicone base paper Bleached chemical pulp for own consumption and kraft pulp Coated woodfree paper and containerboard Bleached chemical pulp for own consumption Coated woodfree paper Bleached mechanical pulp for own consumption Coated mechanical paper Bleached chemi-thermo mechanical pulp for own consumption Coated woodfree paper Coated woodfree paper and paperboard Bleached chemical pulp for own consumption and kraft pulp Coated woodfree paper and uncoated woodfree paper 275 100 60 280 980 750 530 260 220 120 140 250 300 165 145 Alfeld Mill Carmignano Mill Condino Mill Ehingen Mill Gratkorn Mill Kirkniemi Mill Lanaken Mill Maastricht Mill Stockstadt Mill Total Sappi Europe Other operation Rockwell Solutions Coated barrier film and paper Sappi Southern Africa Plantations** Products produced KwaZulu-Natal Mpumalanga Plantations (pulpwood and sawlogs) (tons)*** Plantations (pulpwood and sawlogs) (tons)*** Total Sappi Forests (owned and leased supply) Mills Products produced Lomati Sawmill Ngodwana Mill Stanger Mill Tugela Mill Sappi ReFibre**** Sawn timber (m3) Unbleached chemical pulp for own consumption Mechanical pulp for own consumption Kraft linerboard Newsprint Bleached bagasse pulp for own consumption Office paper and tissue paper Neutral Sulphite Semi Chemical pulp for own consumption Corrugating medium Waste paper collection and recycling for own consumption Total Sappi Paper and Paper Packaging Ngodwana Mill Saiccor Mill***** Dissolving pulp Dissolving pulp Total Dissolving pulp 3,455 1,120 Capacity(1)(cid:797)(cid:11)million m2) 100 Capacity(1) (’000) Hectares Standing tons 159 235 10,526 17,128 394 27,654 Capacity (m3) Capacity (’000 tons) Timber Paper Pulp 93 240 140 110 200 690 210 110 60 155 89 624 255 800 1,055 The stated capacity is for DP, the capacity for kraft pulp is 25% higher. Total Sappi Southern Africa (1) Capacity at maximum continuous run rate per annum. * ** Approximately 136,000 hectares of our land is set aside and maintained by Sappi Forests to conserve the natural habitat and biodiversity found there. *** Plantations include owned and leased areas. **** Sappi ReFibre collects waste paper in the South African market which is used to produce packaging paper. ***** Saiccor Mill is currently commissioning the expansion project which will increase the mill nameplate capacity by 110,000 tons. Once the expansion is 1,679 690 93 complete and taking into account speciality grade production which reduces the run rate, the net capacity will be 890,000 per annum. 7 GROUP OVERVIEW Page heading T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 88 A G I L I T Y Hummingbirds are the trapeze artists of the avian world. They can fly forwards, backwards, even upside down and are also the only vertebrae capable of hovering in place. In addition to being agile, hummingbirds are extraordinarily fast. They have been observed at speeds of nearly 48 kilometres per hour (km/h) in direct flight and over 72 km/h during courtship dives. Adaptability is another hummingbird characteristic. These tiny birds have fewer feathers than other birds, because they need to have an efficient body that is as lightweight as possible in order for the flight aerobics they perform. As the insulation that they get from their feathers is insufficient, at night they go into torpor, a hibernation-like state that allows them to conserve energy by slowing down their metabolism, heartbeat and respiration rate. Furthermore, hummingbirds remember migration routes and every flower they’ve ever visited. They can also figure out how long to wait between visits so the flowers have time to generate more nectar. Inherent in our approach is being agile to stay ahead of market changes, preferences, customer needs and expectations. Page heading continued A G I L I T Y Hummingbirds are the trapeze artists of the avian world. They can fly forwards, backwards, even upside down and are also the only vertebrae capable of hovering in place. In addition to being agile, hummingbirds are extraordinarily fast. They have been observed at speeds of nearly 48 kilometres per hour (km/h) in direct flight and over 72 km/h during courtship dives. Adaptability is another hummingbird characteristic. These tiny birds have fewer feathers than other birds, because they need to have an efficient body that is as lightweight as possible in order for the flight aerobics they perform. As the insulation that they get from their feathers is insufficient, at night they go into torpor, a hibernation-like state that allows them to conserve energy by slowing down their metabolism, heartbeat and respiration rate. Furthermore, hummingbirds remember migration routes and every flower they’ve ever visited. They can also figure out how long to wait between visits so the flowers have time to generate more nectar. Inherent in our approach is being agile to stay ahead of market changes, preferences, customer needs and expectations. 9 GROUP OVERVIEW Our strategy and performance Our strategy Through collaboration and innovation, we will grow profitably, using our strength as a sustainable and diversified global woodfibre group, focused on dissolving pulp (DP), graphic, packaging and speciality papers, and biomaterials. What this means > How we performed in 2021 > • Strengthen our safet(cid:92) first culture • Continuously improve our cost position • Continue to ma(cid:91)imise the benefits of our global(cid:123)footprint • (cid:37)est-in-class production efficiencies • (cid:42)roup efficienc(cid:92), procurement and continuous improvement savings > US$98 million • Volumes improved 8% year-on-year resulting in an improvement in cost per ton • (cid:48)a(cid:91)imised the benefits of (cid:50)neSappi (cid:11)internal alignment) to achieve cost advantages Drive operational excellence Enhance trust Sustain our financial health • Improving our understanding of and proactively partnering with all stakeholders • Driving sustainability solutions • Meeting the changing needs of every Sappi employee • Committed to set science-based decarbonisation targets • Following Task Force on Climate-related Financial Disclosures (TCFD) recommendations • Expanded Supplier Code of Conduct compliance and initiated EcoVadis partnership • Executed Group Engagement Survey • Sappi Southern Africa Forestry was awarded first ever PEFC certification in South Africa • Achieved Level 1 BBBEE in South Africa • Target net debt: EBITDA*(1) ex SI at 2x • Reduce absolute debt level and improve EBITDA • Net debt: EBITDA ex SI at 3.7x • Focused capex on essential projects so as ex SI • Optimise capital management • Continue to monitor bond market for opportunities • Grow DP capacity, matching market demand • Continue to expand and grow packaging and speciality papers in all regions. Commence commercialisation of biotech opportunities • Reduce exposure to declining graphics business • to(cid:123)effectivel(cid:92) manage li(cid:84)uidit(cid:92) and cash flow • Negotiated covenant suspension period until September (cid:21)(cid:19)(cid:21)(cid:20) (cid:115) first measurement (cid:39)ecember(cid:123)(cid:21)(cid:19)(cid:21)(cid:20) • Successfully issued convertible bonds during November 2020 to improve liquidity • Strong cash generation and much improved liquidity • Successfull(cid:92) refinanced our (cid:98)(cid:22)(cid:24)(cid:19) million bonds due (cid:21)(cid:19)(cid:21)(cid:22) with (cid:98)(cid:23)(cid:19)(cid:19) million bonds due (cid:21)(cid:19)(cid:21)(cid:27) at a(cid:123)coupon of (cid:22)(cid:17)(cid:25)(cid:21)(cid:24)(cid:8) • Packaging and specialit(cid:92) contributes (cid:23)(cid:19)(cid:8) of group EBITDA ex SI • Packaging and speciality volumes constituted (cid:21)(cid:24)(cid:8) of (cid:21)(cid:19)(cid:21)(cid:20) sales volumes Increased packaging and speciality volumes y-o-y up 21% vs 2020 • Saiccor e(cid:91)pansion finalised towards the close of(cid:123)(cid:52)(cid:23) F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20)(cid:17) Commissioning and ramp up commenced during (cid:52)(cid:20) F(cid:60)(cid:21)(cid:19)(cid:21)(cid:21) • Strong growth in lignin sales and favourable advancement of other Biotech opportunities Grow our business * Earnings before interest, tax, depreciation and amortisation. (1) EBITDA excluding special items (EBITDA ex SI). T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 10 GROUP OVERVIEW Measuring our progress Guided by our strategy, we measure our progress holistically against our mission, collaborating and partnering with stakeholders as we strive to be a trusted and sustainable organisation with an exciting future in woodfibre. Return on average capital employed (ROCE) (%) Our strategic performance indicators Self-assessment of 2021 performance 2019 2020 1.6 2021 11.5 Thrive25 Link to strategic objectives 5.4 Link to 3Ps 0 2 4 6 8 10 12 Why is this important? ROCE is an important measure that assesses long-term profitabilit(cid:92) b(cid:92) comparing how effectivel(cid:92) assets are performing with how these assets are financed Linked to executive remuneration 2022 objectives Ramp up the additional Saiccor Mill volumes and reduce logistics constraints. Further optimise packaging and specialit(cid:92)(cid:123)papers volumes in all regions(cid:17) (cid:53)estore and improve(cid:123)the graphic papers margins in all regions EBITDA ex SI (US$ million) 2019 Our strategic performance indicators 2019 2020 2021 2020 687 Self-assessment of 2021 performance Thrive25 Link to strategic objectives 378 532 Link to 3Ps 0 200 400 600 800 Why is this important? EBITDA ex SI measures how we performed operationally as a(cid:123)compan(cid:92) Linked to executive remuneration 2022 objectives Focus on ma(cid:91)imising cash generation through efficient cape(cid:91) and working capital management Satisfactory Unsatisfactory Progress to be made/ongoing Grow our business Sustain our financial health Drive operational excellence Enhance trust Prosperity People Planet 11 GROUP OVERVIEW Our strategy and performance continued EBITDA ex SI margin (%) Our strategic performance indicators Self-assessment of 2021 performance 2019 2020 2021 12.0 Thrive25 Link to strategic objectives 8.2 10.1 Link to 3Ps 0 2 4 6 8 10 12 Why is this important? EBITDA ex SI margin is an important and comparable measure of our profitabilit(cid:92) (cid:11)e(cid:91)cluding the impact of financing, accounting treatments or tax implications) against our revenue Sales (US$ million) 2022 objectives Focus on reducing fi(cid:91)ed and variable costs and ma(cid:91)imise pricing 2019 Our strategic performance indicators 2020 Self-assessment of 2021 performance 2019 2020 2021 5,746 Thrive25 Link to strategic objectives 4,609 5,265 Link to 3Ps 0 2,000 4,000 6,000 Why is this important? While not the onl(cid:92) determinant of financial success, sales is a(cid:123)ke(cid:92) measure of demand, customer lo(cid:92)alt(cid:92) and a critical contributor to profit 2022 objectives Continue to grow and optimise packaging and speciality papers to achieve full operations of our paper machine assets. Maximise DP volumes to capacity with increased volumes from Saiccor Mill Net debt (US$ million) Net debt (US$ million) 2020 Our strategic performance indicators Self-assessment of 2021 performance 2019 2020 2021 1,501 Thrive25 Link to strategic objectives 1,957 1,946 Link to 3Ps 0 500 1,000 1,500 2,000 Why is this important? Given the capital-intensive nature of our operations, we need to(cid:123)raise debt to complete significant pro(cid:77)ects that enable our long-term success. Net debt comprises current and non- current interest-bearing borrowings and bank overdrafts (net of(cid:123)cash, cash e(cid:84)uivalents and short-term deposits(cid:12) 2022 objectives During 2022 we are targeting to further reduce net debt T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 12 GROUP OVERVIEW Covenant leverage ratio Our strategic performance indicators Self-assessment of 2021 performance 2019 2020 2021 2.2 Thrive25 Link to strategic objectives 5.2 3.7 Link to 3Ps 0 1 2 3 4 5 6 Why is this important? (cid:55)he net debt to E(cid:37)(cid:44)(cid:55)(cid:39)A e(cid:91) S(cid:44) (cid:11)as defined b(cid:92) our bank covenants(cid:12) ratio measures our abilit(cid:92) to pa(cid:92) off our debt should net debt and EBITDA ex SI remain consistent. EBITDA ex SI focuses on the operating decisions of a business as it looks at profitabilit(cid:92) from core operations before the impact of capital structure Linked to executive remuneration Lost-time injury frequency rate (LTIFR) 2022 objectives With growth in EBITDA ex SI and reduced debt targeting to further reduce the debt ratio to approximately 2x through the cycle through EBITDA ex SI growth and reduced debt 2019 Our strategic performance indicators 2020 0.54 Self-assessment of 2021 performance Thrive25 Link to strategic objectives 2019 2020 2021 0.35 0.48 Link to 3Ps 0,0 0,1 0,2 0,3 0,4 0,5 0,6 Why is this important? LTIFR is an important measure of our business’s safety. We target zero harm and aim to improve LTIFR by at least 10% year-on-year Linked to executive remuneration (cid:44)dentified sustainabilit(cid:92) goal(1) 2022 objectives Achieve zero fatalities and LTIFR (1) For this indicator, we have clear targets for 2025 that we are working towards. See our Group Sustainability Report for more information. Satisfactory Unsatisfactory Progress to be made/ongoing Grow our business Sustain our financial health Drive operational excellence Enhance trust Prosperity People Planet 13 GROUP OVERVIEW Our strategy and performance continued Sustainable engagement (%) Our strategic performance indicators Self-assessment of 2021 performance 2019 2020 Not measured 2021 79 Thrive25 Link to strategic objectives 75.6 Link to 3Ps 0 10 20 30 40 50 60 70 80 Why is this important? We rely on a productive and engaged workforce. Employee engagement has been linked to higher safety performance, lower staff turnover, improve productivit(cid:92) and efficienc(cid:92)(cid:17) Aim to maintain or improve engagement to be above (cid:26)(cid:24)(cid:8) 2022 objectives Sustain and/or improve engagement (cid:44)dentified sustainabilit(cid:92) goal(1) Energy intensity (GJ/adt) 2019 Our strategic performance indicators 2019 2020 2021 2020 22.12 23.71 22.35 0 5 10 15 20 25 Why is this important? Energ(cid:92) intensit(cid:92) is a measure of how efficientl(cid:92) we are operating. By continually improving this metric, we manage costs and lower our impact (cid:44)dentified sustainabilit(cid:92) goal(1) Self-assessment of 2021 performance Thrive25 Link to strategic objectives Link to 3Ps 2022 objectives 21.6 GJ/adt (1) For this indicator, we have clear targets for 2025 that we are working towards. See our Group Sustainability Report for more information. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 14 GROUP OVERVIEW Certified fibre (%) Our strategic performance indicators 2020 Self-assessment of 2021 performance 2019 2020 2021 Thrive25 Link to strategic objectives Link to 3Ps 75 73 77 0 20 40 60 80 Why is this important? We are committed to sourcing woodfibre from forests and timber plantations in a manner that promotes their health and(cid:123)supports communit(cid:92) wellbeing (cid:44)dentified sustainabilit(cid:92) goal(1) 2022 objectives (cid:48)aintain or improve percentage certified fibre (cid:33)(cid:26)(cid:24)(cid:8) (1) For this indicator, we have clear targets for 2025 that we are working towards. See our Group Sustainability Report for more information. Satisfactory Unsatisfactory Progress to be made/ongoing Grow our business Sustain our financial health Drive operational excellence Enhance trust Prosperity People Planet 15 GROUP OVERVIEW How we create value We take an integrated approach to value creation. Guided by our values, our Guided by our values, our six value streams enable the six value streams enable the delivery of our purpose and our Thrive25 strategy strategy Forests Our 100% Forest Stewardship CouncilTM (FSCTM ) and PEFC-certified plantations in South Africa give us a low-cost woodfibre base on which our business depends, and are thus a key pillar of competitive advantage. (FSC-N003159). Our leading-edge tree improvement programmes aim to grow better trees faster, thereby ensuring this advantage is maintained and enhanced. Manufacturing excellence Manufacturing excellence We focus on enhancing machine efficiencies, digitising our processes to make the smart factory a reality, reducing variable costs through new practices in logistics and procurement, as well as implementing go-to-market strategies, which lower the cost of serving our customers and increase customer satisfaction. Our plantations in South Africa are 100% FSC and PEFC-certified Bioproducts We are unlocking the chemistry of trees and meeting the We are unlocking the chemistry of trees and meeting the challenges of a carbon-constrained world by establishing challenges of a carbon-constrained world by establishing a strong position in adjacent businesses including a strong position in adjacent businesses including nanocellulose, sugars and furfural, lignosulphonates, nanocellulose, sugars and furfural, lignosulphonates, biocomposites and bio-energy. Extracting more value from each tree is strengthening our core business model. Machine learning and digitisation accelerating Commercial uptake of Sappi Symbio Our purpose (cid:2)(cid:24)(cid:8)(cid:8)(cid:15)(cid:31)(cid:22)(cid:1)(cid:15)(cid:21)(cid:16)(cid:21)(cid:31)(cid:16)(cid:18)(cid:31)(cid:17)(cid:27)(cid:15)(cid:23)(cid:127)(cid:31)(cid:24)(cid:31) (cid:16)(cid:3)(cid:26)(cid:15)(cid:25)(cid:15)(cid:14)(cid:19)(cid:31)(cid:129)(cid:18)(cid:26)(cid:23)(cid:127)(cid:31)(cid:17)(cid:13)(cid:31)(cid:27)(cid:14)(cid:23)(cid:18)(cid:11)(cid:4)(cid:15)(cid:14)(cid:19)(cid:31) (cid:16)(cid:3)(cid:22)(cid:31)(cid:8)(cid:18)(cid:129)(cid:22)(cid:26)(cid:31)(cid:18)(cid:141)(cid:31)(cid:26)(cid:22)(cid:14)(cid:22)(cid:129)(cid:24)(cid:17)(cid:23)(cid:22)(cid:31) (cid:26)(cid:22)(cid:21)(cid:18)(cid:27)(cid:26)(cid:11)(cid:22)(cid:21)(cid:31)(cid:16)(cid:18)(cid:31)(cid:17)(cid:22)(cid:14)(cid:22)(cid:143)(cid:16)(cid:31)(cid:8)(cid:22)(cid:18)(cid:8)(cid:23)(cid:22)(cid:144)(cid:31) (cid:11)(cid:18)(cid:10)(cid:10)(cid:27)(cid:14)(cid:15)(cid:16)(cid:15)(cid:22)(cid:21)(cid:31)(cid:24)(cid:14)(cid:127)(cid:31)(cid:16)(cid:3)(cid:22)(cid:31)(cid:8)(cid:23)(cid:24)(cid:14)(cid:22)(cid:16)(cid:29) Pulp DP is a truly sustainable raw material. Our customers transform our DP into products that meet the needs of people around the globe every day. Products that enable fashion, household comfort, personal beauty and hygiene, as well as a healthy lifestyle. Commissioning of 110,000 tpa expansion at Saiccor Mill anticipated Q1 FY2022 Packaging and speciality papers Our customers use our packaging and speciality papers to add value to niche markets, enable product differentiation and offer environmentally conscious consumers an alternative to fossil-fuel based packaging. Our focus on innovation helps our customers to meet and anticipate the challenges of changing market dynamics. Sales volumes in this sector increased 21% y-o-y Graphic papers While the digital age has impacted the use of paper, our graphic papers continue to meet the needs of consumers and marketers around the world. They rely on paper for a tactile, emotional experience no other communication medium can replicate. Paper’s haptic qualities enhance marketing and branding M A G M A G M A G We are embracing new thinking and emerging technologies so that every solution we create through our value streams supports our goal of making our products and processes more sustainable. (cid:31)(cid:30)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:25)(cid:24)(cid:23)(cid:27)(cid:22)(cid:21) (cid:31) (cid:5)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:4)(cid:22)(cid:13) (cid:31) (cid:26)(cid:22)(cid:23)(cid:24)(cid:16)(cid:15)(cid:18)(cid:14)(cid:21)(cid:3)(cid:15)(cid:8)(cid:21) (cid:31) (cid:6)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:15)(cid:14)(cid:8)(cid:27)(cid:16)(cid:21) (cid:7)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:25)(cid:24)(cid:23)(cid:27)(cid:22) (cid:21)(cid:16)(cid:26)(cid:22)(cid:24)(cid:10)(cid:21) (cid:31) (cid:9)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:18)(cid:27)(cid:16)(cid:8)(cid:27)(cid:16)(cid:21) (cid:12)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:18)(cid:27)(cid:16)(cid:11)(cid:18)(cid:10)(cid:22)(cid:21) How we do business How we remain relevant As OneSappi, we do business safely, with integrity and courage, making smart decisions that we execute with speed. Ongoing engagement with our stakeholders, conducted in a spirit of trust and mutual respect, based on an understanding of their operating context, enables more tangible business value creation. What we do – our business activities The value streams set out above reflect our belief that it is our responsibility to make the most out of every tree harvested. What we need – the resources and relationships on which we rely Our integrated approach to sustainable development acknowledges that we depend on striking a balance between Prosperity, People and the Planet in order to thrive. We rely on certain inputs to create value. What we produce – our products, services and waste products Our diverse product range is aligned with our focus on using our expertise to help create a sustainable future while meeting the needs of a growing, evolving society. See page 42 See page 18 See above and page 19 See page 19 What we create, preserve or erode – the broader impacts of our business activities our business activities outcomes, we strive to maximise the positive consequences of our value streams in terms of Prosperity, People and Planet. See page 19 (cid:20)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:19)(cid:23)(cid:18)(cid:17)(cid:24)(cid:23) (cid:21)(cid:27)(cid:21)(cid:16)(cid:24)(cid:15)(cid:14)(cid:24)(cid:17)(cid:15)(cid:23)(cid:15)(cid:16)(cid:13)(cid:31)(cid:19)(cid:18)(cid:24)(cid:23)(cid:21) What we are striving for – our long-term, broader outcomes Monitoring and reporting Prosperity, People and Planet Thrive25 vision of being a trusted partner to all our stakeholders. See our 2021 Sappi Group Sustainability Report While we acknowledge that transparently on our ambitious have positive and negative targets aligns with our T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 16 We take an integrated approach to value creation. Guided by our values, our six value streams enable the delivery of our purpose and our Thrive25 strategy Forests Our 100% Forest Stewardship CouncilTM (FSCTM ) and PEFC-certified plantations in South Africa give us a low-cost woodfibre base on which our business depends, and are thus a key pillar of competitive advantage. (FSC-N003159). Our leading-edge tree improvement programmes aim to grow better trees faster, thereby ensuring this advantage is maintained and enhanced. Manufacturing excellence We focus on enhancing machine efficiencies, digitising our processes to make the smart factory a reality, reducing variable costs through new practices in logistics and procurement, as well as implementing go-to-market strategies, which lower the cost of serving our customers and increase customer Our plantations in South Africa are 100% FSC and PEFC-certified satisfaction. Bioproducts We are unlocking the chemistry of trees and meeting the challenges of a carbon-constrained world by establishing a strong position in adjacent businesses including nanocellulose, sugars and furfural, lignosulphonates, biocomposites and bio-energy. Extracting more value from each tree is strengthening our core business model. Machine learning and digitisation accelerating Commercial uptake of Sappi Symbio Our purpose (cid:2)(cid:24)(cid:8)(cid:8)(cid:15)(cid:31)(cid:22)(cid:1)(cid:15)(cid:21)(cid:16)(cid:21)(cid:31)(cid:16)(cid:18)(cid:31)(cid:17)(cid:27)(cid:15)(cid:23)(cid:127)(cid:31)(cid:24)(cid:31) (cid:16)(cid:3)(cid:26)(cid:15)(cid:25)(cid:15)(cid:14)(cid:19)(cid:31)(cid:129)(cid:18)(cid:26)(cid:23)(cid:127)(cid:31)(cid:17)(cid:13)(cid:31)(cid:27)(cid:14)(cid:23)(cid:18)(cid:11)(cid:4)(cid:15)(cid:14)(cid:19)(cid:31) (cid:16)(cid:3)(cid:22)(cid:31)(cid:8)(cid:18)(cid:129)(cid:22)(cid:26)(cid:31)(cid:18)(cid:141)(cid:31)(cid:26)(cid:22)(cid:14)(cid:22)(cid:129)(cid:24)(cid:17)(cid:23)(cid:22)(cid:31) (cid:26)(cid:22)(cid:21)(cid:18)(cid:27)(cid:26)(cid:11)(cid:22)(cid:21)(cid:31)(cid:16)(cid:18)(cid:31)(cid:17)(cid:22)(cid:14)(cid:22)(cid:143)(cid:16)(cid:31)(cid:8)(cid:22)(cid:18)(cid:8)(cid:23)(cid:22)(cid:144)(cid:31) (cid:11)(cid:18)(cid:10)(cid:10)(cid:27)(cid:14)(cid:15)(cid:16)(cid:15)(cid:22)(cid:21)(cid:31)(cid:24)(cid:14)(cid:127)(cid:31)(cid:16)(cid:3)(cid:22)(cid:31)(cid:8)(cid:23)(cid:24)(cid:14)(cid:22)(cid:16)(cid:29) GROUP OVERVIEW Page heading continued Pulp DP is a truly sustainable raw material. Our customers transform our DP into products that meet the needs of people around the globe every day. Products that enable fashion, household comfort, personal beauty and hygiene, as well as a healthy lifestyle. Commissioning of 110,000 tpa expansion at Saiccor Mill anticipated Q1 FY2022 Packaging and speciality papers Our customers use our packaging and speciality papers to add value to niche markets, enable product differentiation and offer environmentally conscious consumers an alternative to fossil-fuel based packaging. Our focus on innovation helps our customers to meet and anticipate the challenges of changing market dynamics. Sales volumes in this sector increased 21% y-o-y Graphic papers While the digital age has impacted the use of paper, our graphic papers continue to meet the needs of consumers and graphic papers continue to meet the needs of consumers and marketers around the world. They rely on paper for a tactile, marketers around the world. They rely on paper for a tactile, emotional experience no other communication medium can replicate. Paper’s haptic qualities enhance marketing and branding M A GM A GM A G M A G M A G (cid:31)(cid:30)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:25)(cid:24)(cid:23)(cid:27)(cid:22)(cid:21) (cid:31) (cid:5)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:4)(cid:22)(cid:13) (cid:31) (cid:26)(cid:22)(cid:23)(cid:24)(cid:16)(cid:15)(cid:18)(cid:14)(cid:21)(cid:3)(cid:15)(cid:8)(cid:21) (cid:31) (cid:6)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:15)(cid:14)(cid:8)(cid:27)(cid:16)(cid:21) (cid:7)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:25)(cid:24)(cid:23)(cid:27)(cid:22) (cid:21)(cid:16)(cid:26)(cid:22)(cid:24)(cid:10)(cid:21) (cid:31) (cid:9)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:18)(cid:27)(cid:16)(cid:8)(cid:27)(cid:16)(cid:21) (cid:12)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:18)(cid:27)(cid:16)(cid:11)(cid:18)(cid:10)(cid:22)(cid:21) How we do business How we remain relevant What we need – What we do – As OneSappi, we do business safely, with integrity and courage, making smart decisions that we execute with speed. Ongoing engagement with our stakeholders, conducted in a spirit of trust and mutual respect, based on an the resources and our business activities relationships on which we rely The value streams set out above reflect our Our integrated approach to belief that it is our sustainable development responsibility to make understanding of their acknowledges that we the most out of every operating context, depend on striking a tree harvested. enables more tangible balance between business value creation. Prosperity, People and the What we produce – our products, services and waste products Our diverse product range is aligned with our focus on using our expertise to help create a sustainable future while meeting the needs of a growing, evolving society. Planet in order to thrive. We rely on certain inputs to create value. See page 42 See page 18 See above and page 19 See page 19 What we create, preserve or erode – the broader impacts of our business activities While we acknowledge that our business activities have positive and negative outcomes, we strive to maximise the positive consequences of our value streams in terms of Prosperity, People and Planet. See page 19 We are embracing new thinking and emerging technologies so that every solution we create through our value streams supports our goal of making our products and processes more sustainable. (cid:20)(cid:29)(cid:31)(cid:28)(cid:27)(cid:26)(cid:31)(cid:19)(cid:23)(cid:18)(cid:17)(cid:24)(cid:23) (cid:21)(cid:27)(cid:21)(cid:16)(cid:24)(cid:15)(cid:14)(cid:24)(cid:17)(cid:15)(cid:23)(cid:15)(cid:16)(cid:13)(cid:31)(cid:19)(cid:18)(cid:24)(cid:23)(cid:21) What we are striving for – our long-term, broader outcomes Monitoring and reporting transparently on our ambitious Prosperity, People and Planet Thrive25 targets aligns with our vision of being a trusted partner to all our stakeholders. See our 2021 Sappi Group Sustainability Report 17 GROUP OVERVIEW Our business model Inputs The resources and relationships we rely on 1 l s a t i p a C Financial Intellectual Manufactured l s a t i p a C Human Social and relationship l s a t i p a C Natural • 19 production facilities across the globe (see page 7) • Debt: US$1,946 million • Equity and liabilities: US$6,186 million • Research and development (R&D) investment: US$43 million • Investment in growth: US$376 million to grow the business • Employees: 12,492 • South African contractor employees: approx. 9,250 contractor employees (average) • Average training spend per employee per region: SEU US$473, SNA US$238, SSA US$671, Sappi Trading US$504 • Ongoing stakeholder engagement • Corporate social responsibility investment: US$3.49 million • Plantations: – 394,000 owned and leased, of which 258,000 is planted – The remainder is managed to conserve the natural habitat and biodiversity found there • Energy purchased: 2,547.29MW • Energy generated on site: 1,934.81MW • Renewable energy 52.44%, of which 66.35% own black liquor • Water extracted: 287.14 million litres in absolute terms, 34.86m3/adt in specifi c terms • Certifi ed fi bre used: 77% T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 18 Our activities Our value streams 2 Outcomes The broader impacts of our business activities 4 Forests Manufacturing excellence Biomaterials Pulp Packaging and speciality papers Graphic papers Outputs Our products, services and waste products 3 Products: • 6.3 million tons of saleable production Waste: • 1.4 million tons of which 332,680 tons (23.3%) is sent to landfi ll Emissions: • 4.3 million tCO2e absolute direct (Scope 1) GHG, in specifi c terms: 0.679 tCO2e/adt Value created Value preserved Value eroded Total assets: US$6,186 million EBITDA: US$532 million, an increase of 41% year-on-year Net debt: down 1% US$64 million paid to governments through taxation Zero fatalities Global average of 48.29 training hours per employee Energy intensity: 22.35 GJ/adt High levels of wood certifi cation result in competitive advantage World-leading tree improvement programmes have led to shorter growth times and enhanced fi bre gain Training of smallholders in SNA and SSA to educate them on more sustainable forestry practices 19 19 GROUP OVERVIEW Actions to enhance outcomes 5 US$1,045 million paid to employees as salaries, wages and other benefits US$154 million paid to lenders as interest Earnings per share (excluding special items): 15 US cents Our high levels of innovation give our customers a competitive edge in global markets New products developed to meet changing customer expectations and market trends Return to profitability • Implemented a series of price increases in our paper businesses to offset rising input costs • Increased investment in R&D to ensure cutting-edge solutions for customers (FY2021: US$43 million, FY2020: US$39 million) • Consolidation and alignment of Global Business Services: sales, supply chain and finance, as well as logistics and manufacturing > • Ongoing diversification of our product portfolio into higher margin segments • Commercialisation of bioproducts gaining traction Productivity: 4 hours worked/adt saleable production Level 1 BBBEE contributor 74.4% skills training, 25.6% compliance training • Continued investment in embedding a safety culture across the group • Focus on entrenching transformation in our South African operations to support inclusive growth • Investment in training and development of our employees, 74.4% allocated to skills training and 25.6% allocated to compliance training • Strong governance and ethical culture reinforced by > the Code of Ethics • Initiated our first campaign to onboard suppliers onto the EcoVadis platform, with the number of suppliers now on this platform accounting for 33% of our total global procurement spend • Formulated a social impact strategy in SSA PEFC certification in SSA DP used for clothing and household textiles, baby wipes and wet wipes – reducing environmental impact Lighter-weight packaging products – reduction in carbon footprint Expanded packaging portfolio offers customers and consumers more sustainable alternatives to fossil-fuel based packaging (plastics) PEFC certification in SSA • Progressed our decarbonisation roadmap in each region • Increased energy self-sufficiency by 6.3% over five years due to focus on reducing purchased energy • GHG emissions offset by carbon sequestration • Continued to adjust our tree breeding strategy to mitigate the impacts of climate change • Made progress in terms of our 2025 biodiversity goal (vegetation assessment on our land) > 20 19 19 GROUP OVERVIEW Our business model continued Examples of our trade-off s The most diffi cult decisions made during the year The sale of the southwestern part of our site at Maastricht Mill in the Netherlands has necessitated a relocation of activities and associated construction. However, the costs thereof will be off set by the proceeds of the sale. Risk Risk 7 Cyclical macro-economic factors 9 Liquidity Balancing employee health and safety with operational continuity A comprehensive Covid-19 action plan enabled us to operate in a safe and uninterrupted manner where demand permitted. Closure of operations because of the civil unrest in KwaZulu-Natal, South Africa in order to mitigate the risks to our operations and our employees negatively impacted EBITDA ex SI. Risk 1 Safety Risk 10 Employee relations Balancing aff orestation and biodiversity At stand level, our plantations have a negative impact on biodiversity. At plantation level, we manage this impact by managing approximately one third of our landholdings for biodiversity. Risk Risk 4 Sustainability expectations 5 Climate change 21 GROUP OVERVIEW Letter to the stakeholders Chairman and Chief Executive Offi cer Operating review The lingering impact of the Covid-19 pandemic including ongoing lockdown measures and global economic volatility continued to dominate in FY2021. An unwavering focus on the implementation of our Thrive25 strategy and commitment to sustainable business operations facilitated a return to profi tability during the year, and the group generated a profi t for the period of US$13 million, which was a substantial improvement compared to the loss of US$135 million for the 2020 fi nancial year. Throughout this unprecedented time, the health and safety of our employees remained paramount. Execution of a comprehensive Covid-19 action plan enabled us to operate in a safe and uninterrupted manner where demand permitted. Working closely with our customers and suppliers we systematically increased activity and output in response to improved market demand. Our support for local communities helped mitigate the impact of the pandemic and the ensuing socio-economic consequences on them. We are very pleased to report there were no work-related fatalities during the year, but regrettably 17 employees succumbed to Covid-19. We recognise the pandemic has a tremendous impact on the mental health of our employees and their families, and our employee-wellbeing programmes and communication campaigns focused on providing emotional support and encouraging vaccination. Our performance with respect to safety across the group was mixed. Sappi Southern Africa achieved an all-time low LTIFR in 2021, however, Sappi North America and Sappi Europe’s safety performance deteriorated relative to 2020. The pleasing progress in Sappi Southern Africa was a result of continuous focus on and integration of programmes such as the “Life Saving Rules”, “Visible Felt Leadership” and Sappi Forest’s “Stop. Think before you act”. In Sappi North America, four of the fi ve sites recorded their best ever safety performance but several slip/trip/fall injuries in the fi rst quarter of the year were responsible for the overall LTIFR deterioration in the region. The issues were successfully addressed through employee engagement and probing of cultural factors as part of the incident investigations and the safety performance in the remainder of the year was back Steve Binnie CEO Sir Nigel Rudd Chairman T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 22 GROUP OVERVIEW in line with previous excellent standards. Sappi Europe’s safety performance was disappointing with the majority of the injuries occurring at three sites. A Instruction Handbook’ covering all aspects of safety from values, tools, management and behaviours was developed and rolled out together with a standardised audit system. The European leadership remain steadfastly committed to zero injuries and a communication campaign emphasising that “nothing is so important it cannot be done safely” is underway. (cid:31) Safety Market demand across Sappi’s major product segments improved steadily during the year as global economic activity resumed. Highlights for the year included the recovery of profitability in the pulp segment driven by buoyant demand and significantly better market prices, combined with an excellent performance of the North American region, which delivered its highest EBITDA ex SI in over a decade. The investments of recent years into packaging and speciality papers, including the Matane Pulp Mill investment, reaped rewards as the segment achieved record profitability and sales volumes increased by 21%. However, profitability of the European business was hindered by strict Covid-19 lockdowns, which suppressed economic recovery across the value chain and spiralling costs. A rapid rebound in global trade following the resumption of economic activity after the first wave of the Covid-19 pandemic amplified existing logistics challenges around the world. Demand for shipping accelerated dramatically as organisations attempted to restock inventories, which led to widespread supply chain constraints including vessel and container shortages, severe port congestion and significant freight rate increases. The logistical disruptions described above severely constrained our export sales in all regions. Furthermore, the high demand for raw materials and commodities, coupled with long lead times, fuelled worldwide inflationary pressures. Consequently, escalating delivery and raw material costs, particularly purchased pulp, chemicals and energy, negatively impacted margins in all product segments. To mitigate the impact of the rising costs we implemented a series of price increases in our paper businesses. DP market conditions rallied strongly from the first quarter on the back of improved apparel retail demand in the US and Asia, which favourably impacted demand for all textile fibres. Low DP and viscose staple fibre (VSF) inventory levels, high paper pulp prices and a weaker US$/Renminbi exchange rate were all factors that further contributed to the positive sentiment in the sector. The market price(1) for hardwood DP surged from a base of US$624 per ton in October 2020 to a peak of US$1,106 per ton in April and closed the year at US$1,000 per ton at the end of September 2021. Sappi customer demand was robust, and EBITDA ex SI for the segment of US$197 million was more than three times that of the prior year. However, the ongoing global supply chain challenges, exacerbated by the impact from the South African civil unrest and a cyber security breach at the Durban port, constrained sales and resulted in a backlog of approximately 100,000 tons at year end which reduced EBITDA ex SI by approximately US$30 million. In addition, once-off events at the South African mills including a labour strike, shortage of oxygen due to Covid-19, an extended annual shut at Saiccor Mill and the civil unrest, which forced Saiccor Mill to close temporarily, significantly reduced production volumes. The project to expand the Saiccor Mill capacity was impacted negatively by Covid-19 lockdowns and associated travel restrictions, which delayed the project schedule. Commissioning of the plant began during the fourth quarter and will be completed in the first quarter of FY2022. The 21% growth in sales volumes for the packaging and speciality papers segment was primarily driven by the successful ramp up of sales volumes from Somerset Mill PM1 in North America. The line ran fully on packaging grades from the third quarter and the focus shifted subsequently to product mix and margin optimisation. Growth in the European packaging and speciality papers sales volumes was hampered by (1) Market price for imported hardwood DP into China issued daily by the CCF Group. weaker demand for certain non- essential luxury product categories and prolonged speciality paper qualifications. Profitability in the European region was also impacted by higher purchased pulp, energy, chemicals and delivery costs. Containerboard demand in South Africa was robust on the back of strong fruit exports. EBITDA ex SI for the segment increased from US$179 million to US$214 million. Global demand for graphic paper grades improved progressively through the course of the year. However, market recovery in Europe lagged that in North America due to stricter lockdowns in the European Union. Capacity closures in North America in combination with constrained imports into the region due to supply chain challenges contributed to a favourable shift in the supply and demand balance and enabled domestic producers to operate at full capacity. Conversely, the lagging European demand recovery necessitated 367,000 tons of graphic paper production curtailment in the European operations. Despite overall graphic papers segment sales volumes increasing 3% compared to the previous year, EBITDA ex SI deteriorated from US$131 million to US$120 million driven primarily by substantial cost inflation in purchased pulp, chemicals, energy and delivery costs. Strategic review Fiscal 2021 was the first year of our Thrive25 strategy. The five-year strategy Thrive25 leverages the power of OneSappi to drive real and sustained value creation. An integral component of the vision is recognition that society in general and our people, in particular, expect us to play a role beyond making and selling. Within this context, we have created a purpose statement as part of our new strategy that articulates our ambition to create a brighter future for the world and our business. Thrive25 purpose statement and The strategy are fully aligned with our business strategy. 23 GROUP OVERVIEW Letter to the stakeholders continued Significant production curtailments were necessary to manage inventories in response to dramatic reductions in sales across all product segments. During FY2021, market demand across Sappi’s major product segments improved progressively as global economic activity resumed, which prompted a shift in the strategic focus to returning the business to profitability and mitigation of supply-chain disruptions and cost inflation. Thrive25 Within the context of ongoing economic uncertainties and the priority to restore the business to profitability, we re-evaluated the timelines of our While the four strategic pillars remain relevant for our five-year vision, our strategic imperative over the next two years is to deleverage the business and reduce absolute debt. strategy. P(cid:75)(cid:68)(cid:86)e(cid:3)(cid:20)(cid:3)(cid:11)(cid:21)(cid:19)(cid:21)(cid:20)-(cid:21)(cid:19)(cid:21)(cid:21)(cid:12)(cid:3)(cid:115)(cid:3) Deleveraging the business The priority in the first phase is to strengthen the balance sheet by reducing debt and maximising cash generation. During this period, we will drive further margin improvement and ensure that all approved capital projects are completed on time and within budget. We will also begin investigating new growth opportunities for the next phase. P(cid:75)(cid:68)(cid:86)e(cid:3)(cid:21)(cid:3)(cid:11)(cid:21)(cid:19)(cid:21)(cid:21)(cid:14)(cid:12)(cid:3)(cid:115)(cid:3)(cid:44)(cid:81)(cid:89)e(cid:86)t(cid:3)(cid:73)(cid:82)r(cid:3) (cid:83)r(cid:82)fit(cid:3)(cid:74)r(cid:82)(cid:90)t(cid:75) During the second phase, we will begin the investment roll out into new growth opportunities, make decisions on larger expansions and conversions and execute our sustainability strategy. Initiatives and actions undertaken in FY2021 to support our strategic objectives are outlined below. Thrive25 Grow our business In the first phase of our strategy, as we deleverage the business, there are no new major capital projects planned. The 2021 focus for growing the business was therefore on completion of the 110,000 ton Saiccor Mill expansion project and growing the packaging and speciality papers volumes from our recently converted assets in Europe and North America. Through collaboration and innovation, we will grow profitably, using our strength as a sustainable and diversified global woodfibre group, focused on DP, graphic papers, packaging and speciality papers, and biomaterials. Thrive25 Our the following four main objectives: strategy encompasses • Grow our business – Committing to core business segments while investing in innovation, growth opportunities, and ongoing customer relationships. • (cid:54)(cid:88)(cid:86)t(cid:68)i(cid:81)(cid:3)(cid:82)(cid:88)r(cid:3)fi(cid:81)(cid:68)(cid:81)ci(cid:68)(cid:79)(cid:3)(cid:75)e(cid:68)(cid:79)t(cid:75)(cid:3)– Reducing and managing our debt, growing EBITDA ex SI, maximising product value, optimising processes globally, and strategically disposing of non-core assets. • (cid:39)ri(cid:89)e(cid:3)(cid:82)(cid:83)er(cid:68)ti(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)e(cid:91)ce(cid:79)(cid:79)e(cid:81)ce(cid:123)– Strengthening our safety-first culture and reducing resource use while enhancing efficiency and making smart data investments. • Enhance trust – Improving our understanding of and proactively partnering with, clients and communities, driving sustainability solutions, and meeting the changing needs of every employee at Sappi. In 2020 the Covid-19 pandemic triggered the deepest global recession in decades as economic activity faltered when governments enforced strict restrictions on movement to curb the transmission of the virus. The subsequent implementation of health and safety protocols and vaccination programmes enabled economic activity to resume. However, the emergence of more transmissible variants of the virus resulted in a series of Covid-19 waves in 2021 which continued to fuel economic uncertainty and volatility as countries moved in and out of lockdown restrictions. The impact of the pandemic on our results in the second half of FY2020 was catastrophic and necessitated a shift in strategic focus to the preservation of liquidity. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 24 GROUP OVERVIEW The Saiccor Mill expansion project was impacted negatively by the Covid-19 pandemic. The ongoing travel restrictions due to Covid-19 prevented original equipment vendors from travelling to South Africa and resulted in significant delays to the project schedule and commissioning timeline. The civil unrest in July 2021 necessitated a complete shutdown of the site and added to the delays. The hot commissioning of the plant began in the fourth quarter and will be completed during the first quarter of FY2022. We expect the ramp up to full operating rate will take a number of months and therefore full cost savings and environmental benefits of the project will likely only be realised from the second half of 2022. We anticipate demand for DP in 2022 will be strong and with pricing significantly above the long-term average, every effort will be made to expedite the ramp-up. The strategic decision taken to reduce exposure to graphic papers through diversification into packaging and speciality papers continued to yield benefits through the year. Sales volumes grew by 21%, and EBITDA ex SI in this segment reached a new record high, contributing 40% of the group EBITDA ex SI (vs 18% in FY2019). The underlying demand for packaging and speciality paper grades remained resilient despite the negative impact of Covid-19 on the demand for non-essential luxury goods. The gratifying growth in sales volumes was primarily driven by the ramp up of the Somerset Mill PM1 conversion in North America, which achieved target run rate during the period. Strong demand for our packaging grades in the US allowed for product mix enhancement and optimisation at both a product and customer level, which facilitated growth in EBITDA ex SI margins in the region. In FY2022, we will continue to optimise margins by shifting into more high-end label and packaging markets while expanding on our base folding carton business. In Europe, packaging and speciality paper sales volumes grew by 10% despite a relatively slower economic recovery from Covid-19 and we expect further growth during FY2022 as retail and consumer activity increases. New product introductions such as our containerboard Fusion Nature range and Parade Label Pro will enable us to further expand our European portfolio of packaging and speciality papers. In South Africa, containerboard demand continues to grow, driven by robust fruit exports, and in FY2022 we will optimise our customer portfolio to focus on supporting the growth in the domestic market. We are committed to reducing our exposure to the graphic paper market and will continue to explore opportunities to utilise our graphic paper assets to produce packaging and speciality paper grades without significant capital investment. Sappi Biotech made pleasing progress in growing lignin and commercialising our Symbio fibre composite and Valida fibrillated cellulose product offerings. In FY2021, commercialisation of Symbio gained traction with uptake by a major automotive manufacturer in the US, while various other brand owners have the product in their pre-commercial qualification phase. Our Valida pilot plant is running at capacity with repeat orders in diverse application fields such as concrete, cosmetics, personal care, paint and coatings, where it is valued as a dispersant, suspension stabiliser and rheology modifier. Our lignin business continued with its expansion trajectory in FY2021 and for the third year in a row, growth exceeded 30%. We have made considerable progress in moving beyond traditional commodity markets such as dust suppression and concrete admixtures to higher value markets. As part of Sappi Biotech’s ongoing strategy to enter adjacent markets, the development of our lignin product for the animal feed industry culminated in the launch of our Sappi Pelletin product in this market with first sales reported in 2020. (cid:54)(cid:88)(cid:86)t(cid:68)i(cid:81)(cid:3)(cid:82)(cid:88)r(cid:3)fi(cid:81)(cid:68)(cid:81)ci(cid:68)(cid:79)(cid:3) health The strategic imperative to deleverage the business was a key focus in the current year. The net debt to EBITDA ex SI leverage ratio decreased from a peak of 6.5 in the second quarter to 3.7 as EBITDA ex SI recovered steadily quarter-on-quarter. The leverage ratio remains significantly above our target of two times, and therefore the imperative for FY2022 remains deleveraging the business and utilising the cash generated in the year to reduce our absolute debt. In 2020 we proactively negotiated the suspension of the measurement of our revolving credit facility (RCF)-linked financial covenants through to September 2021 (with the first measurement due in December 2021) in order to see us through the worst of the Covid-19 impact on our business and financial metrics. In 2021, we negotiated new leverage covenants (net debt: EBITDA ex SI) with our banking group. The leverage covenant for December 2021 is 5.50 and will reduce quarterly to 4.50 in December 2022 and 4.25 in March 2023. The interest coverage covenant will be reinstated at its previous level of 2.50 times. With the leverage ratio of 3.7 at year end, we have sufficient headroom when the covenants are reinstated in December 2021. In the first financial quarter of 2021, Sappi Southern Africa Limited issued five-year convertible bonds with a principal amount of ZAR1.8 billion. Shareholder approval to convert the bonds into ordinary shares of Sappi Limited was received at the AGM on 03 February 2021. The net proceeds from the bonds were used to fund the remaining capital expenditure required for the expansion of the Saiccor Mill. 25 GROUP OVERVIEW Letter to the stakeholders continued During 2021 favourable market conditions provided the group with the opportunity to refinance the €350 million 2023 bonds at par. Strong investor demand provided the opportunity to upsize the replacement 2028 bond to €400 million at a coupon 3.625%. The additional proceeds were used to repay the partly drawn RCF in Europe. We have no significant maturities due before 2026 and we are comfortable with the maturity profile of our debt. Capital expenditure in FY2022 is estimated to be US$395 million and includes approximately US$30 million for completion of the Saiccor Mill expansion, US$80 million for cost optimisation and quality improvement projects and US$75 million for sustainability projects. Drive operational excellence Reducing both variable and fixed costs throughout the business is integral both to maintaining or improving margins and to the sustainability of our operations. This is especially true in commodity businesses where we faced declining demand, such as graphic papers. In the past year, we set ourselves a target of a US$70 million reduction in third-party expenditure compared to 2020 through efficiency and raw material usage improvements as well as delivering savings through various procurement initiatives. We are pleased to report that savings of US$98 million were realised, which helped offset the significant increase in purchased pulp, chemicals and energy costs. In 2022 we are targeting a further US$42 million in variable cost savings. The sustainability capital projects for FY2022 include the conversion of the calcium cooking line at Saiccor Mill to the more sustainable magnesium bisulphite technology as well as decarbonisation investments in Europe to convert boilers at Gratkorn and Kirkniemi Mills from coal to biomass and an electric boiler at Maastricht Mill. This Saiccor Mill calcium conversion will reduce the need for coal-based power generation at the mill, significantly reducing the carbon footprint, and will additionally facilitate considerable variable cost savings. One of the more significant cost and quality optimisation projects for FY2022 is an upgrade of the kraft liner board machine at Ngodwana Mill which will improve the quality of the product and allow the mill to remain competitive against imported grades. The South African containerboard market is growing at a rate of 5% per annum on the back of increasing fruit exports and this is seen as a strategic investment to retain our customer footprint in preparation for further potential expansions in this product segment. The cost and quality capital also includes an allocation for information technology projects which are critical for addressing both the risk and opportunities offered by Industry 4.0 and will support the various advanced analytics projects across all three regions which are focused on improving operating efficiencies. Thrive25 strategy, one of our strategic fundamentals is to ‘enhance trust’. Enhance trust Under our We aim to meet the challenges of a constantly changing business environment by building mutual trust and proactively partnering with employees, clients and communities to drive sustainability solutions and create shared value. Our people strategy focuses on leadership and creating a culture that enhances OneSappi; builds capability for current and future requirements; and strengthens employee engagement. In FY2021 we completed an employee engagement survey, identified areas for improvement and developed appropriate action plans. Values and ethics are critical for driving operational performance and developing stakeholder trust. We place a high premium on adherence to sustainable business practices and ethical behaviour as encapsulated in our Supplier Code of Conduct and in FY2021 we made good progress towards our supplier engagement target. Furthermore, we have partnered with EcoVadis and will utilise their technology platform and methodology to assess the sustainability performance of our suppliers. Thrive25 In January 2021, our South African Forestry division was awarded the first ever Programme for the Endorsement of Forest Certification (PEFC) forest management certificate in South Africa. This achievement indicates that Sappi Southern Africa’s forest management practices meet the requirements for sustainable forest management set out in the PEFC- endorsed standard for South Africa, the Sustainable African Forestry Assurance Scheme (SAFAS). The intense work in collaborating on the development of the SAFAS system will yield significant benefits outside of our own forest certification as there is now potential to make PEFC forest certification accessible to South Africa’s small landowners. This has great promise for ensuring certification not only delivers social and environmental value, but also supports socio-economic and development priorities. Through heightening our focus and ambition on climate action, we seek to increase our contribution to building a resilient, thriving world and have aligned our decarbonisation pathway with climate science. In FY2021 we submitted our 2030 GHG emission reduction target to Science Based Target initiative (SBTi) for validation and also completed assessment of our mill operations and forestry assets following the TCFD recommendations on climate-related disclosure. Thrive25 strategy as we strive to be Sustainability Sustainability forms the foundation of our a trusted, transparent and innovative partner in building a biobased circular Thrive25 economy. The alignment of our sustainability targets with the United Nations Sustainable Development Goals (SDGs) demonstrates our commitment to ending poverty, protecting the planet and ensuring that all people enjoy peace and prosperity. Sappi has always focused on the sustainable management of our operations, on increasing efficiency and maximising value from our sustainable natural resources but as we look to the future, it is clear we have an obligation to play a role beyond making and selling. Working with nature using renewable and sustainable wood to produce circular, biobased products can have a sustainable impact on society and the planet and is the basis of our ambition to build a thriving world by unlocking the power of renewable resources for the benefit of people, communities and the planet. In the past year we made great strides in assessing our risk related to climate T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 26 GROUP OVERVIEW change utilising the recommendations of the TCFD, submitted our GHG emissions reduction target to SBTi for validation and placed increasing focus on managing risk in our supply chains via our Supplier Code of Conduct roll-out and partnership with EcoVadis. Looking forward Strong demand in the global textile and apparel sector coupled with low inventories throughout the value chain and elevated textile fibre prices (cotton, polyester and VSF) are all contributing to our positive outlook for DP in FY2022. Furthermore, growing consumer demand for nonwoven hygiene products and a global shift away from single use plastics creates an opportunity for viscose based cellulosic nonwoven products that drives further positive sentiment for our DP business. However, short-term DP demand in China is impacted by the recent implementation of energy savings regulations imposing curtailments for energy-intensive manufacturing operations, which includes the textile value chain. Consequently, the Chinese DP market price dropped to US$940 per ton in October 2021. However, lower VSF supply and a widening price differential to cotton fuelled a significant rise in VSF pricing, which should be positive for DP pricing. Sappi’s sales volumes are not expected to be impacted by the weaker Chinese market as demand in South-East Asia, Europe, North America and the near East remains strong. The recovery of demand for graphic papers combined with industry capacity closures has tightened the market balance. In North America, ongoing restrictions on imports due to global supply chain disruptions have further contributed to a positive environment in this region. The underlying demand in the packaging and speciality papers segment remains robust in both the North American and South African regions and opportunities for further growth in sales volumes exist in Europe. The scheduled Somerset Mill annual maintenance shut, which includes an extended statutory cold outage, will have an estimated US$22 million impact on profitability in the first quarter. Recent spikes in global energy prices for gas, power and coal are anticipated to have an adverse impact on our first quarter results, principally in Europe. To offset rising costs, we have announced selling price increases across all paper grades. In addition, energy specific surcharges have been implemented for all European shipments from 25 October 2021. Global logistical challenges and vessel shortages are expected to continue through FY2022, which may have an ongoing negative impact on our export sales. It is unlikely that any significant improvement in supply chain reliability will be realised in the first quarter and hence the backlog of 100,000 tons of DP sales volumes will take time to resolve. Capital expenditure in FY2022 is estimated to be US$395 million and includes approximately US$30 million of Saiccor Mill expansion capex, US$80 million for cost optimisation and quality improvement projects and US$75 million for sustainability projects. The first quarter of FY2022 will comprise 14 weeks instead of the typical 13-week quarter. This is in order to adjust our reporting periods closer to the calendar periods and will result in increased sales compared to comparative quarters. Current liquidity headroom in the group remains good, with cash deposits at the end of the financial year of US$366 million and committed revolving credit facilities of approximately US$732 million. The first measurement of our newly negotiated covenants will now take place at the end of December 2021. We remain encouraged by the growing resilience of global economies as the Covid-19 pandemic evolves and the corresponding recovery in underlying demand in all of our product segments. However, the supply chain challenges and the extraordinary cost inflation may affect profitability. In addition, the maintenance shut at Somerset Mill is scheduled for the first quarter and will impact EBITDA ex SI. Taking these factors into account, we anticipate a further improvement in EBITDA ex SI for the first quarter of FY2022 relative to the fourth quarter of FY2021. Appreciation The Covid-19 pandemic continues to impact on our employees, communities, suppliers, customers, funders and shareholders. In these uncertain and difficult times, close relationships, transparency and trust remain the foundation of our collaborative approach to seeking solutions to problems and creating shared value for all of our stakeholders. We thank you for the faith you have shown in us during these challenging times. Thrive25 We are grateful for the support of our customers in all of our different markets, with whom we continue to work together, providing relevant products and services which provide sustainable value. Our employees embraced our strategy and demonstrated incredible resilience and agility. We thank them for their unwavering dedication to our OneSappi vision and adaptation to a new way of working, which allowed us to continue operations under the most difficult circumstances and return the business to profitability. purpose and Our gratitude goes to the board for their continued commitment to the group, their valuable insights and encouragement and for holding us to the highest ethical standards. Mrs Janice Stipp has indicated she will not be making herself available for re-election as an independent non-executive director in 2022. Mrs Stipp was appointed to the board in June 2019 and served on the Audit and Risk Committee. We would like to thank her for the contribution which she has made to the board since her appointment. In conclusion, we value the support which our shareholders have provided as we work to enhance sustainable long-term shareholder returns. We look forward to their participation at the AGM on 09 February 2022. 27 GROUP OVERVIEW Q&A with the CEO “A steadfast focus on operational excellence and innovative problem solving underpinned our FY2021 strategic objective to return the business to profi tability.” Steve Binnie CEO Q1 C(cid:82)(cid:89)id-(cid:20)(cid:28)(cid:3)c(cid:82)(cid:81)ti(cid:81)(cid:88)e(cid:86)(cid:3)t(cid:82)(cid:123)e(cid:89)(cid:82)(cid:79)(cid:89)e(cid:3)(cid:68)(cid:81)d(cid:3) i(cid:86)(cid:123)(cid:79)i(cid:78)e(cid:79)(cid:92)(cid:3)t(cid:82)(cid:123)re(cid:80)(cid:68)i(cid:81)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)teri(cid:68)(cid:79)(cid:3)ri(cid:86)(cid:78)(cid:3) i(cid:81)(cid:123)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:21)(cid:17)(cid:3)(cid:43)(cid:82)(cid:90)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)t(cid:75)e(cid:3)(cid:83)(cid:68)(cid:81)de(cid:80)ic(cid:3) i(cid:80)(cid:83)(cid:68)cted(cid:3)(cid:54)(cid:68)(cid:83)(cid:83)i(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20)(cid:3)(cid:68)(cid:81)d(cid:3)(cid:90)(cid:75)(cid:68)t(cid:3) actions have you taken to mitigate t(cid:75)e(cid:86)e(cid:3)e(cid:428)(cid:3) ect(cid:86)(cid:3)(cid:68)(cid:81)d(cid:3)(cid:69)(cid:88)i(cid:79)d(cid:3)re(cid:86)i(cid:79)ie(cid:81)ce(cid:34) Q2 Logistical challenges created havoc with global supply(cid:3)c(cid:75)(cid:68)i(cid:81)(cid:86)(cid:3)i(cid:81)(cid:123)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20)(cid:3) leading to escalating raw material costs and constraining your export sales. Do you expect these problems t(cid:82)(cid:3)(cid:69)e(cid:3)re(cid:86)(cid:82)(cid:79)(cid:89)ed(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:21)(cid:3)(cid:68)(cid:81)d(cid:3)(cid:90)(cid:75)(cid:68)t(cid:3)i(cid:86)(cid:3) (cid:54)(cid:68)(cid:83)(cid:83)i(cid:3)d(cid:82)i(cid:81)(cid:74)(cid:3)t(cid:82)(cid:3)(cid:80)iti(cid:74)(cid:68)te(cid:3)t(cid:75)e(cid:3)i(cid:80)(cid:83)(cid:68)ct(cid:86)(cid:34)(cid:3) There is no doubt the Covid-19 pandemic dominated our business environment in FY2021. However, we are grateful for the adaptability of our workforce and the resilience of the global economy, which rebounded much faster than we could have anticipated a year ago. Although we are optimistic the worst is behind us, we also recognise there are signifi cant ongoing challenges and risks for our markets and operations due to recurring waves of infection. Our Covid-19 action plan to ensure safe working conditions for all of our employees has been successful and we entrenched a new way of socially distanced working. The roll out of vaccinations across all our operating regions was a major highlight for the year and we encouraged all our employees to vaccinate for their safety and that of their families and colleagues. In South Africa we established vaccination sites at our major operating units and off er vaccination for employees, contractors and their family members. A steadfast focus on operational excellence and innovative problem solving underpinned our FY2021 strategic objective to return the business to profi tability. Market demand across all our major product segments improved progressively during the year as global economic activity resumed and despite the signifi cant headwinds including unprecedented supply chain challenges and cost infl ation, we were able to achieve our objective in the second half of the fi nancial year. The unprecedented logistical issues we faced in the past 12 months began with the economic upheaval of the pandemic. The situation was aggravated by the strength of the economic rebound as lockdowns eased, combined with container and vessel dislocation. In principle there are suffi cient containers and vessels to handle global trading volumes, but the sudden onset of the pandemic stranded large numbers of containers and vessels in the wrong geographical location, thereby substantially reducing availability in several parts of the world. Additionally, ports around the globe struggled with increased shipping volumes and vessel berthing delays, resulting in ports and shipping lines not being able to clear backlogs, which created even more bottlenecks and congestion. Our exports from South Africa were further impacted by signifi cant events including civil unrest and a cyber-attack which exacerbated the existing ineffi ciencies at the Durban Port. But it is not only ocean freight that is a problem. In every region where we operate, domestic transport systems were also under pressure due to surging demand and a shortage of drivers during Covid-19 waves. Consequently, costs for rail/road freight increased considerably. These logistical disruptions contributed to the global surge in infl ation as lower inventories and signifi cantly increased lead times for deliveries of raw materials led to shortages of certain key supplies, which of course drove prices upwards. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 28 GROUP OVERVIEW To mitigate the impact of raw material shortages and cost inflation, we have optimised product recipes to manage usages of constrained input materials, fast-tracked R&D efforts to identify material substitution opportunities and implemented price increases across all our product categories. Despite the challenging shipping environment, we managed to consistently secure space by leveraging our extensive global logistics network and contracts. We also negotiated spot deals where possible to secure additional capacity and engaged directly with senior leaders of our principal shipping lines. These are global logistical issues affecting all industries, so we are not unique in our challenges and there is significant pressure on shipping lines and ports to address the issues. The sheer scale of the problems suggest it will take time to resolve. However, we are seeing encouraging signs of improvement that indicate that the worst is over, and in South Africa, we are working directly with shipping lines to gain access to additional capacity and dedicated vessels and planning more direct routes to expedite delivery of our backlog of DP volumes to our customers. Q3 DP market prices surged well above the long-term average in 2021. Can you explain some of the drivers that were responsible and do you think these high prices are sustainable given the new capacity entering the (cid:80)(cid:68)r(cid:78)et(cid:3)i(cid:81)(cid:3)(cid:21)(cid:19)(cid:21)(cid:21)(cid:18)(cid:21)(cid:19)(cid:21)(cid:22)(cid:34)(cid:3) The impact of Covid-19 on the textile, apparel and fashion industries was extreme as retailers were forced to close down during initial lockdowns, which led to a chain reaction of order cancellation through the entire value chain. Many DP producers, including Sappi, curtailed production and those with swing capacity shifted to market paper pulp production. Some smaller DP producers completely shut operations and furloughed employees. However, as soon as economic activity resumed after the first wave, global retail apparel sales rebounded dramatically. Inventory levels through the entire value chain, which were already at low levels, came under severe pressure as supply chain challenges hindered restocking. With DP capacity reduced due to the temporary closures and lead times for global deliveries at all-time highs, the supply of DP was severely constrained. Additionally, rapidly climbing paper pulp prices incentivised swing producers to continue producing paper pulp which intensified the DP supply shortage. The constrained DP supply, combined with resurgent VSF demand and prices, fuelled the DP market price and we saw a meteoric rise from a low of US$624 per ton in October 2020 to a peak of US$1,106 in April 2021. A weaker US$/Renminbi exchange rate and surging textile fibre prices further supported the DP market price. Gradual restocking of VSF, yarn and grey fabric through the supply chain and resumption of DP production at the temporarily shut mills eased the supply/demand imbalance and both VSF, and consequently DP, prices started to subside from the third quarter of our financial year. At year end the DP price was at US$1,000 per ton, which is still above the long-term historical average. Currently there are short-term challenges in the textile value chain in China due to energy curtailments which are putting pressure on the DP market price. However, the DP demand outside of China remains buoyant and underlying global textile demand is strong. Cotton prices soared in recent months, and the differential between cotton and VSF is the highest in over a decade, which should incentivise yarn producers to shift from cotton to VSF in the coming months. All of these factors create a positive outlook for DP in FY2022 and therefore we are optimistic the elevated DP pricing will continue for some months. Long term, we believe a more sustainable price will be around US$850 per ton. The new DP capacity entering the market in 2022/2023 is from integrated pulp/fibre producers and we expect the pulp to be absorbed into their own fibre production. Globally, retail apparel sales are still below pre-Covid-19 levels, and we anticipate that the combination of value chain restocking and resumption of further textile demand growth will absorb this additional capacity and therefore supply/demand will be balanced as we move through the next two years. Q4 The packaging and specialities segment delivered record sales (cid:89)(cid:82)(cid:79)(cid:88)(cid:80)e(cid:86)(cid:3)(cid:68)(cid:81)d(cid:3)E(cid:37)(cid:44)(cid:55)(cid:39)(cid:36)(cid:3)e(cid:91)(cid:3)(cid:54)(cid:44)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20)(cid:17)(cid:3) (cid:43)(cid:82)(cid:90)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)t(cid:75)i(cid:86)(cid:3)(cid:68)c(cid:75)ie(cid:89)ed(cid:3)(cid:68)(cid:81)d(cid:3)c(cid:68)(cid:81)(cid:3)(cid:90)e(cid:3) expect further growth in this (cid:86)e(cid:74)(cid:80)e(cid:81)t(cid:3)i(cid:81)(cid:3)t(cid:75)e(cid:3)(cid:92)e(cid:68)r(cid:3)(cid:68)(cid:75)e(cid:68)d(cid:34) Our investments of recent years into packaging and speciality papers are bearing fruit. We are particularly pleased with the progress of our Somerset Mill PM1 conversion. The machine can make both coated woodfree and paperboard packaging grades and this hybrid swing capability has worked exceptionally well for us and allowed this machine to run at maximum operating rates as we have ramped up the packaging volumes in the past couple of years. From our second quarter, we achieved our target volumes of packaging grades and the focus is now on optimising the product and customer mix to maximise margins. Within the US we have some additional opportunities to make label grades on our graphic paper machines at Cloquet and on PM2 at Somerset and we will pursue every opportunity to maximise these volumes. In Europe we experienced good growth in our packaging and speciality papers volumes and there is further opportunity for additional containerboard at Ehingen and paperboard at Maastricht in FY2022. We are also exploring opportunities for wet-glue and self-adhesive labelling at Gratkorn alongside existing graphical grades. Robust demand for containerboard in South Africa was supported by buoyant fruit exports. South Africa is the world’s second largest exporter of citrus and fruit exports remain the main contributor to positive agricultural trade balance for the country. The outlook for the agriculture exports sector in South Africa is promising, and there are exciting opportunities to expand our containerboard capacity in the future to meet the growing demand in this segment. 29 GROUP OVERVIEW Q&A with the CEO continued Q5 Graphic paper demand seems to have recovered to pre-Covid-19 levels, but margins are still below the (cid:79)(cid:82)(cid:81)(cid:74)-ter(cid:80)(cid:3)(cid:68)(cid:89)er(cid:68)(cid:74)e(cid:17)(cid:3)(cid:43)(cid:82)(cid:90)(cid:3)d(cid:82)(cid:3)(cid:92)(cid:82)(cid:88)(cid:3)(cid:86)ee(cid:3) demand in this sector developing in F(cid:60)(cid:21)(cid:19)(cid:21)(cid:21)(cid:3)(cid:68)(cid:81)d(cid:3)(cid:90)(cid:75)(cid:68)t(cid:3)(cid:68)cti(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)re(cid:3)(cid:92)(cid:82)(cid:88)(cid:3) t(cid:68)(cid:78)i(cid:81)(cid:74)(cid:3)t(cid:82)(cid:3)i(cid:80)(cid:83)r(cid:82)(cid:89)e(cid:3)(cid:83)r(cid:82)fit(cid:68)(cid:69)i(cid:79)it(cid:92)(cid:34)(cid:3) Q6 ESG seems to be the latest buzz word in the sustainability space. What does ESG mean to Sappi and how are you integrating sustainable business practices into your (cid:82)(cid:83)er(cid:68)ti(cid:82)(cid:81)(cid:86)(cid:34) Pre-Covid-19 the decline in demand for graphic paper was especially noticeable in developed countries, where there has been a clear correlation between reducing paper consumption and economic advancement, driven by digitisation. The Covid-19 pandemic had an immediate and devastating impact on paper demand and accelerated some of the previously existing declining trends. The closure of retail stores and restrictions on travel due to strict lockdowns impacted advertising demand. Additionally, the shift to remote working and virtual meetings led to a significant reduction in office-paper consumption such that in 2020 we were predicting a 20% permanent reduction in graphic paper demand due to Covid-19. Over the last two years, graphic paper producers reacted to the dampened market outlook by taking drastic steps to curtail production. Numerous closures and conversions resulted in 10-20% of the production capacity exiting the market, including our Paper Machine 2 (PM2) at our Stockstadt Mill as well as PM9 and the energy complex at Westbrook Mill. However, the steady recovery of paper demand through 2021 combined with the market capacity closures resulted in a restoration of market balance in Europe and North America as we begin our 2022 financial year. While some of the demand may be temporary restocking, we are encouraged by the fact that globally, economic activity, particularly travel and entertainment, is not yet at pre-Covid-19 levels. We are therefore optimistic about the short-term outlook for the segment. Unfortunately, cost inflation is negatively impacting our margins and we are focusing on operational efficiencies and offsetting rising costs through announced price increases. Longer term, we expect the demand decline to continue at 5-6% per annum. We will endeavour to reduce our cost base through smaller investments in efficiency improvement projects where appropriate and maximise cash generation through FY2022 as we look for further opportunities to diversify into higher- margin packaging grades. Institutional investors are increasingly committing to sustainability as a core driver of financial value. While financial metrics were the primary tools for investment selection in the past, this new wave of socially and environmentally responsible investing requires a completely new framework for evaluation incorporating environmental, social, and governance (ESG) factors into the financial analysis. Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities. We are experiencing a significant increase in investor requests for ESG discussions and there is no doubt these factors are becoming more critical to our shareholders. At Sappi, our commitment to sustainability is based on being a trusted, transparent and innovative partner in building a biobased circular economy and we welcome these ESG engagements as opportunities to share our sustainability journey and values. One of the key challenges we face is that ESG disclosures are not commonly part of mandatory financial reporting and currently there is no standardised approach to the calculation or presentation of different ESG metrics. Various rating firms have developed ESG frameworks which tend to rely on multiple criteria to evaluate each of the individual E, S and G components and provide an overall score for companies. Since most ESG evaluations are based on information that is available in the public domain, the pressure on companies to disclose more and more information is escalating. While we fully support the underlying principles of ESG and the drive for sustainable value creation, we question whether there is a good understanding of the relative merits and limitations of the different metrics. For this reason, we view every opportunity to engage with stakeholders on ESG matters as an opportunity to contexualise our sustainability performance, targets and action plans. We recognise that as an industry that utilises renewable resources, there is both great opportunity and an ethical obligation to reduce adverse impact inherent in our business. Value for Sappi is not only about delivering returns to our shareholders, it is about maximising the value of every resource along our value chain to ensure those returns are sustainable and embedding sustainable business practices and innovation into our overall business. This is the foundation of our strategy. Thrive25 T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 30 31 GROUP OVERVIEW CREATING VALUE BY RESPONDING STRATEGICALLY Page heading O N W A R D S When presented with a dandelion, few people can resist the urge to hold the flower and blow at it to see how far the seeds will travel. It’s the same when presented with a beautiful coffee table book or an impactful piece of print – there is an almost irresistible urge to pick it up, examine it and touch it. Studies have shown that even the simple act of touching objects, like premium packages, brochures and direct mail, can subconsciously increase the perceived value of a brand and its products in the eyes of customers. Touch can make a stronger impact than sight or sound alone. That’s because touch has the power to shift the brain into a deeper level of engagement, one more conducive to building lasting knowledge. In fact, a number of studies have found that communication through physical media, particularly paper, is more likely to lead to knowledge than communication via digital media. The haptics of paper and board, together with our need to touch and feel, have created high-growth, cash-generative niche opportunities for Sappi. We continue to move onwards in terms of paper and paper packaging: Our paperboard packaging product lines are some of the most renowned and valued brands with high-finish premium solutions for cosmetics and perfume, health and beauty care, consumer electronics, confectionery, luxury drinks, food packaging and more. Our packaging brands constitute a great portion of the food packing and labels on shop shelves today. And our graphic papers are used to grab the attention of consumers all over the world. 32 Page heading continued O N W A R D S When presented with a dandelion, few people can resist the urge to hold the flower and blow at it to see how far the seeds will travel. It’s the same when presented with a beautiful coffee table book or an impactful piece of print – there is an almost irresistible urge to pick it up, examine it and touch it. Studies have shown that even the simple act of touching objects, like premium packages, brochures and direct mail, can subconsciously increase the perceived value of a brand and its products in the eyes of customers. Touch can make a stronger impact than sight or sound alone. That’s because touch has the power to shift the brain into a deeper level of engagement, one more conducive to building lasting knowledge. In fact, a number of studies have found that communication through physical media, particularly paper, is more likely to lead to knowledge than communication via digital media. The haptics of paper and board, together with our need to touch and feel, have created high-growth, cash-generative niche opportunities for Sappi. We continue to move onwards in terms of paper and paper packaging: Our paperboard packaging product lines are some of the most renowned and valued brands with high-finish premium solutions for cosmetics and perfume, health and beauty care, consumer electronics, confectionery, luxury drinks, food packaging and more. Our packaging brands constitute a great portion of the food packing and labels on shop shelves today. And our graphic papers are used to grab the attention of consumers all over the world. 33 CREATING VALUE BY RESPONDING STRATEGICALLY CREATING VALUE BY RESPONDING STRATEGICALLY Risk management Our risk management philosophy We have an established culture of managing key risks to our business. We believe effective risk management will safeguard the continuity of our operations and contribute to the achievement of our strategic objectives. Therefore, we ensure that our risk management processes are aligned and compatible with our strategy. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 34 Over the years, we have implemented several processes, resources and structures to ensure (cid:82)(cid:88)r(cid:123)ri(cid:86)(cid:78)(cid:86)(cid:3)(cid:68)re(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)ed(cid:3)(cid:68)de(cid:84)(cid:88)(cid:68)te(cid:79)(cid:92)(cid:3)(cid:68)(cid:81)d(cid:3)e(cid:433)cie(cid:81)t(cid:79)(cid:92)(cid:17)(cid:3) Among these, we have entrenched safety programmes, internal audit reviews, insurance, i(cid:81)(cid:73)(cid:82)r(cid:80)(cid:68)ti(cid:82)(cid:81)(cid:3)tec(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3)(cid:11)(cid:44)(cid:55)(cid:12)(cid:3)(cid:86)ec(cid:88)rit(cid:92)(cid:15)(cid:3)c(cid:82)(cid:80)(cid:83)(cid:79)i(cid:68)(cid:81)ce(cid:3) and governance processes throughout the group, along with quality management and a range of line management interventions. We are also working to implement the recommendations of the Task Force (cid:82)(cid:81)(cid:3)C(cid:79)i(cid:80)(cid:68)te-re(cid:79)(cid:68)ted(cid:3)Fi(cid:81)(cid:68)(cid:81)ci(cid:68)(cid:79)(cid:3)(cid:39)i(cid:86)c(cid:79)(cid:82)(cid:86)(cid:88)re(cid:86)(cid:3)(cid:11)(cid:55)CF(cid:39)(cid:12)(cid:17) Group board of directors Assumes overall responsibility for risk governance Group Audit and Risk Committee Mandated to assist the board in carrying out its risk management responsibilities at group level Line management in each region, business unit and operation Responsible for implementing regional risk management processes Group Internal Audit Provides independent assurance on(cid:123)the risk management process CREATING VALUE BY RESPONDING STRATEGICALLY Risk appetite and tolerance We have a board-approved framework for risk appetite and tolerance. Risk appetite is the total quantum that Sappi wishes to be exposed to on the basis of risk/return trade-offs for one or more desired and expected outcomes. This is the quantum of risk that the board believes will provide an adequate margin of safety within the group’s risk capacity while enabling the achievement of strategic objectives. Risk tolerance is the amount of uncertainty Sappi is prepared to accept. This is the maximum level of loss or reduced earnings that can be absorbed without compromising key objectives, e.g. return on investment. For an analysis of the principal financial risks we are exposed to, refer to note 32 to the Group Annual Financial Statements on www.sappi.com/annual-reports Our 2021 Risk Management Report provides a detailed discussion of the group’s risk factors, and can be accessed on www.sappi.com/annual-reports 6 3 2 (cid:24) (cid:23) 7 8 10 9 1 i n a t r e c t s o m A l e c n e r r u c c o f o d o o h i l e k i L e t o m e R Very low Impact Very high Strength of current mitigations Weak Satisfactory Good Top 10 risks Residual risk ranking 1 2 3 4 5 6 7 8 9 Safety Evolving technologies and consumer preferences Supply chain disruption Sustainability expectations Climate change Cyber security Cyclical macro-economic factors Uncertain and evolving regulatory landscape Liquidity 10 Employee relations 35 CREATING VALUE BY RESPONDING STRATEGICALLY Risk management continued 1 Safety Root cause Due to the nature of our manufacturing facilities and forestry operations, our employees and contractors operate in an inherently dangerous environment. We continue to prioritise their health and safety to ensure the continuity of our business. (2020: 1) Thrive25 strategy objectives impacted Mitigating actions Related material issues 3Ps impacted • Conduct root cause analyses of all major incidents and • Ensuring the safety of our employees fatalities • Drive continuous improvement in safety performance • Ensure compliance with behaviour-based safety (BBS) principles • Host regular training sessions • Approach all transgressions of our safety policies with discipline • Encourage reporting of near-miss incidents • External safety reviews and contractors • Engaging more closely with our employees • Supporting sound labour relations Capitals impacted 2 Evolving technologies and consumer preferences Root cause The advent of new technologies has an unavoidable impact on the way we operate. Similarly, changes in consumer preferences driven by emerging trends in advertising, electronic data transmission and storage, the internet and mobile devices, as well as digital alternatives to traditional paper applications, could materially affect the sustainability of our business. (2020: 3) Thrive25 strategy objectives impacted Mitigating actions Related material issues 3Ps impacted • Improve profitability by implementing restructuring and other cost-saving projects • Enhance productivity • Drive growth in our higher-margin packaging and speciality paper business • Leverage our position in the market to capture growth in the dissolving pulp (DP) market Capitals impacted • Procuring responsibly • Reinforcing Verve (our dissloving pulp brand) as the Fibre of Choice Increasing the sustainability of our products by exploring opportunities in adjacent markets • • Developing and commercialising innovations in addition to adjacent businesses • Sourcing sustainable woodfibre • Prioritising renewable and clean energy • Responding to climate change • Demonstrating agility T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 36 CREATING VALUE BY RESPONDING STRATEGICALLY Page heading continued 3 Supply chain disruption Root cause We depend on a reliable and efficient supply chain to deliver products to our customers within a time frame that meets their expectations. A number of factors, many of which are beyond our control, could disrupt the operation of our supply chain and jeopardise our ability to fulfil our customers’ orders. These factors include inclement weather, natural disasters, transportation interruptions or inefficiencies, port or traffic congestion, labour shortages or disruptions and oil price increases, as well as unrest and pandemics (such as Covid-19). These could impair our ability to supply our customers or maintain an appropriate logistics chain and levels of production and inventory, all of which could adversely affect our reputation, business, results of operations and financial condition. (2020: not ranked) Thrive25 strategy objectives impacted Related material issues • Demonstrating agility • Responding to climate change • Procuring responsibly 3Ps impacted Capitals impacted Mitigating actions • Documented business continuity and Covid-19 plans • Ability to operate via multiple transportation modes • Operational plans to utilise multiple ports for shipments • Ongoing communication with key stakeholders, including government • Alternate modes of shipping • Fine-tuning internal processes to enhance coordination between departments • Negotiating longer lead times 4 Sustainability expectations Root cause The requirements from stakeholders are changing rapidly, challenging Sappi’s ability to keep up to date, exceed or even lead with regard to regulatory, social, product and environmental demands. Our operational impact and environmental footprint need to support and demonstrate our sustainability commitments and actions. (2020: 5) Thrive25 strategy objectives impacted Mitigating actions Related material issues 3Ps impacted • Utilise product certifications • Enhanced health and safety specifications • Promote recyclability • Drive product innovation (including R&D) • Move fast to secure benefit from the high-value niche opportunities created by the ‘paper-for-plastics’ movement • Build on our strong position and commitment to fibre certification • Procuring responsibly • Increasing the sustainability of our products through circular design and adjacent markets • Developing and commercialising innovations in addition to adjacent businesses • Sourcing sustainable woodfibre • Prioritising renewable and clean • Communicate our social and environmental credentials energy Capitals impacted through all media channels • Responding to climate change • Focusing on water stewardship • Accelerating circular business models • Safeguarding and restoring biodiversity 37 CREATING VALUE BY RESPONDING STRATEGICALLY Risk management continued 5 Climate change Root cause Climate change will have an unavoidable effect on our business in the form of transitional, reputational and physical impacts. The latter include the frequency and intensity of forest disturbances such as wildfires and extreme storms. This, in turn, could reduce forest productivity and change the distribution of tree species. The impact of climate change on our supply chain, including the availability of raw materials and the wood supply we need for our operations, may adversely impact our business. (2020:9) Thrive25 strategy objectives impacted Regarding transitional risk, governments around the world are focusing on carbon trading and taxes as a response to climate change and such taxes could impact profitability to an increasing extent in future. Mitigating actions Related material issues 3Ps impacted • Source pulp and woodfibre from a variety of sources and • regions • Invest in fire, pests and disease prevention protocols in South Africa, as well as site species matching to withstand abnormal weather events and reduce our water footprint in this region • Formulate a climate change strategy under the auspices of  our Task Force on Climate-related Financial Disclosure (TCFD) work • Sappi Southern Africa has engaged National Treasury via Paper Manufacturers’ Association of South Africa (PAMSA) to motivate taking into account carbon sequestration by companies that own their own forests when calculating carbon tax Increasing the sustainability of our products through circular design and adjacent markets • Developing and commercialising Capitals impacted innovations in addition to adjacent businesses • Sourcing sustainable woodfibre • Prioritising renewable and clean energy • Responding to climate change • Focusing on water stewardship • Accelerating circular business models • Safeguarding and restoring • Group-wide decarbonisation initiatives are in place biodiversity 6 Cyber security Root cause During the normal course of our business, we make use of our digital platforms to access and transact on confidential customer, employee, financial and commercial information, through our transactional and production systems. We also store, access and share our trade and proprietary information in our databases. These could be vulnerable/susceptible to cyber-attacks. (2020:10) Thrive25 strategy objectives impacted Mitigating actions Related material issue 3Ps impacted • Mitigate against cyber-attacks and information security • Maintaining ethical behaviour and breaches through our multi-layered information technology security programme • Adhere to relevant data protection laws in the jurisdictions where we operate • Provide relevant cyber security training to all our employees • Identify the employees susceptible to social engineering and phishing attacks compliance Capitals impacted T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 38 CREATING VALUE BY RESPONDING STRATEGICALLY Page heading continued 7 Cyclical macro-economic factors Root cause Our business is impacted by cyclical changes in global economic conditions, including fluctuations in exchange rates, periodic supply and demand imbalances, industry capacity and output levels. Global economic turmoil (including that caused by the Covid-19 pandemic) can lead to significant decreases in sales volumes, as well as pressure on our prices in the markets where we operate. We continue to operate in a highly competitive environment. Consolidation in the pulp and paper industry – leading to larger, more focused companies – has become more prevalent. (2020: 2) Thrive25 strategy objectives impacted Mitigating actions Related material issues 3Ps impacted • Monitor the balance between supply and demand • Monitor potential impairment of operating assets • Implement capacity closures as required • Improve efficiencies and reduce costs across the business • Enhance customer service, innovation, and efficient manufacturing and logistics processes • Drive performance to set our businesses apart from competitors • Increase pulp integration • Demonstrating agility • Enhancing efficiency through machine learning and digitisation • Developing and commercialising innovations in addition to adjacent businesses Capitals impacted 8 Uncertain and evolving regulatory landscape Root cause Our business is subject to various regulatory requirements across the regions where we operate, including requirements relating to environmental stewardship, health and safety. Significant changes to applicable laws and regulations – along with instabilities in political, financial and social spheres – could impact our competitiveness and profitability. (2020: 7) Thrive25 strategy objectives impacted Mitigating actions Related material issue 3Ps impacted • Maintaining ethical behaviour and compliance Capitals impacted • Remain up to date on changes to applicable legislation • Ensure compliance with all relevant laws and legislation • Report regularly on compliance to the Group Audit and Risk Committee • Reduce the impact of our operations on the environment, as guided by relevant and recognised programmes • Invest in initiatives aimed at reducing our air emissions, wastewater discharges and waste generation • Monitor potential changes in pollution control laws, including greenhouse gas (GHG) emission requirements, and take action accordingly • Cooperate across regions to apply best practices in sustainability 39 CREATING VALUE BY RESPONDING STRATEGICALLY Risk management continued 9 Liquidity Root cause Our principal sources of liquidity are cash generated from operations and available under our credit facilities, and other debt arrangements. Our ability to generate cash depends mainly on general economic, financial, competitive, market and regulatory factors. Our cash flow from operations may be adversely impacted by a downturn in worldwide economic conditions (including as a result of the effects of the Covid-19 pandemic), which could result in a decline in global demand for our products. (2020: 4) Thrive25 strategy objectives impacted Mitigating actions Related material issues 3Ps impacted • Cost saving initiatives • Re-prioritising various strategic initiatives • Commercial downtime taken to match supply to demand • Deferral of non-critical capex projects • Postponement of scheduled annual maintenance shuts • Demonstrating agility • Enhancing efficiency through machine learning and digitisation • Developing and commercialising innovations in addition to adjacent businesses Capitals impacted 10 Employee relations Root cause The majority of our employees are represented by labour unions and are subject to collective bargaining agreements. These agreements are negotiated and renewed periodically, and any corresponding wage increases or work stoppages could impact our business. The risk of workforce reductions, closures or restructuring remains a reality given the current economic climate. (2020: 8) Thrive25 strategy objectives impacted Mitigating actions Related material issues 3Ps impacted • Interact and engage with union representatives and • Ensuring the safety of our employees organised labour regularly • Build constructive work relationships and contractors • Engaging more closely with our employees • Supporting sound labour relations • Attracting, developing and retaining key skills Capitals impacted T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 40 41 CREATING VALUE BY RESPONDING STRATEGICALLY CREATING VALUE BY RESPONDING STRATEGICALLY Our key relationships One of the strategic fundamentals of our Thrive25 strategy is to enhance trust. This means listening to our stakeholders and responding to their issues and concerns. To do this and to improve our understanding of their needs, we proactively partner with them, challenging the status quo where necessary as we seek to transform the future with innovative, biobased and renewable materials. Employees Unions Customers Communities Industry bodies, related memberships and organised business Shareholders, bondholders and banks Suppliers and contractors Government and regulatory bodies Civil society and media T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 42 Our overarching aim is to collaborate with our stakeholders to make all processes and materials more sustainable and also to leverage cutting-edge thinking that will help them become more successful and contribute to a thriving world. The challenges facing the creation of a thriving world necessitate decisive action. In partnership with our stakeholders, we are thinking and acting more boldly than ever before to come up with real-world solutions to a broad range of challenges. We establish and maintain proactive dialogue with all our stakeholders. In doing so, we recognise that stakeholder needs are dynamic and that we need to be responsive to the evolving stakeholder landscape. In addition to responsiveness, our approach to engagement is based on the principles of inclusivity, materiality, relevance and completeness. We assess the quality of our relationships both informally, as set out on the following pages and formally – through regular employee and customer surveys, community forums and Poverty Greenlight in South Africa. Our stakeholder work is aligned to the governance framework of King IV Code on Corporate Governance (King IV) namely performance and value creation, adequate and effective controls and trust, as well as reputation, legitimacy and ethics. Our membership of the United Nations Global Compact (UNCG) provides further guidance to our stakeholder approach. Trust is not possible without an ethical culture underpinning our everyday activities, which is why we train our employees, customers and suppliers on our Code of Ethics and also promote awareness of the Sappi Hotlines in each region which allow all stakeholders to report breaches of the Code in full confidentiality without fear of reprisal. We regularly review our activities with regard to the Organisation for Economic Co-operation and Development (OECD) Anti-Bribery Convention and the Convention's 2009 Anti-Bribery Recommendation, particularly Section VII of the OECD Guidelines for Multinational Enterprises dealing with Combating Bribery, Bribe Solicitation and Extortion. No issues have been raised regarding Sappi with regards to compliance with the Convention and Guidelines either externally or internally. Read more: Maintaining ethical behaviour and compliance on page 71. Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery. CREATING VALUE BY RESPONDING STRATEGICALLY Employees Self-assessment of quality of relationship: Good Why we engage As we take Sappi into the future based on the clear roadmap entrenched in our Thrive25 strategy, our task is to help our people understand the plan and clear their path to success. Our aim is to unlock the wide-ranging, significant expertise of our people today and tomorrow. In doing so, we secure our exciting future in woodfibre as a business that provides relevant solutions, delivers enhanced value and is a trusted partner to all our stakeholders. Shared priorities Shared priorities Constructive action with regard to Covid-19 Focused wellness and wellbeing Our response Our response As the pandemic and associated lockdown dragged on, we continued to facilitate remote working and a staggered return to our sites. Covid-19 information hubs continued to support our staff, customers and their families, focusing specifically on vaccination-related topics. Read more on page 64 under Our operating context • Wellbeing and wellness programmes are tailored to the • needs of each region. In SSA, our (cid:43)(cid:44)(cid:57)(cid:18)(cid:36)id(cid:86)(cid:3)(cid:83)r(cid:82)(cid:74)r(cid:68)(cid:80)(cid:80)e provides support for employees and contractors. In this region, we also work with government in terms of community health programmes. Shared priorities Involvement in safety Shared priorities Effective recognition programmes Our response Our response • For the second year running, the theme for Global Safety Our recognition programmes include: • Awareness week was ‘I Value Life’. In the light of the Covid-19 pandemic, virtual webinars and e-media were used to convey safety messages to our people. Involving our people in health and safety is part of our collaborative approach to doing business. Health and safety committees are in place at all our operations. Through these committees, our people are consulted about the development/review of policies and procedures and changes that affect workplace safety or health. – – – – In SEU, formal health and safety committees are in place at different levels of the business in line with statutory requirements. All employees are represented by the safety committees. In SNA, all unions have the opportunity to participate in joint management/worker safety committees. In SSA, (including Sappi Limited), health and safety representatives are elected from non-supervisory staff. In line with legislation, there is one representative for every 50 workers. Sappi Trading does not have formal joint management worker health and safety committees due to the small size of the offices, but there are appointed safety officers. Sappi Limited • Technical Innovation Awards • CEO Award for Excellence SEU • Annual Coryphaena Award SNA • TOUTS Recognition Awards – in FY2021 employees generated over 2,400 TOUTS • Periodic regional President’s Awards SSA • Excellence in Achievement Awards • Annual safety awards • Annual regional CEO Awards Sappi Trading • SMART Awards Read more about safety: Ensuring the safety of 80. (cid:82)(cid:88)r(cid:123)e(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)ee(cid:86)(cid:3)(cid:68)(cid:81)d(cid:3)c(cid:82)(cid:81)tr(cid:68)ct(cid:82)r(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:68)(cid:74)e(cid:3) 43 CREATING VALUE BY RESPONDING STRATEGICALLY Our key relationships continued Employees continued Shared priorities Shared priorities Connection with Sappi’s strategic goals and high levels of engagement Encourage employee volunteerism through initiatives Our response Our response We conduct engagement surveys every second year, with the most recent taking place this year. In 2021 we selected a new survey provider. Their service offering includes a much-improved participant experience, significant granularity in reporting as well as fast turnaround times in obtaining the results. The timespan for results reduced from three months to one month. In addition, the engagement categories in the new survey are more defined and specific than in the previous survey. Read more: Engaging more closely with our employees on page 82. SEU: Support of various local education, cultural and environmental projects based on annual requests and identified needs. SNA: Through the Employee Ideas that Matter initiative, we provide grants to employees to benefit non-profit organisations they are most passionate about. The winners share US$25,000 in corporate giving to support their selected causes. SSA: Employee wellbeing committees at each mill support local community projects as well as Mandela Day. Shared priorities Shared priorities Training and development that benefits Sappi and our employees Understanding of Sappi’s commitment to sustainability which underpins our strategy Our response Our response Globally, each employee benefited from 48.3 hours of training. Training spend per region was: SEU: US$473, SNA: US$238, SSA: US$671, Sappi Trading: US$504. SEU • The Leadership Talent Strategy and Sappi Leadership Academy develop a leadership pipeline. • The Apprenticeship Programme and Graduate Trainee Programme source talent. SNA • Education programmes are supported at targeted colleges and universities as are programmes to encourage study in fields relevant to our operations, including scholarship programmes and internships. • We provide support for the University of Minnesota Sustainable Forests Education Cooperative which offers continuing education opportunities to forestry and natural resource professionals in a broad range of fields. • Sappi Learning, a Cornerstone-based system, is a training and development tool offering new ways of engaging employees in personal development planning, with access to a whole library of online training content, including Udemy training modules. SSA • The Sappi Leadership Academy prepares future leaders. • Apprenticeships, Engineers in Training and Foresters in Training programmes build our human capital for the future. • The Regional Employment Equity and Learning Committee ensures that we meet our legislative obligation to consult as placed on us by the Employment Equity Act and Skills Development Act. The committee meets at least twice a year. Globally, targeted internal publications and social media campaigns linked to global days like Global Ethics Day, World Environment Day (https://www.youtube.com/ watch?v=Bx7EQuoX8OM) and the International Day of Biodiversity (https://www.youtube.com/ watch?v=JNyMmRRPJMc) enhance understanding of the sustainability landscape in general as well as our actions to ensure that we play an active role in driving responsibility within this landscape, in particular. SEU has established the Blue Couch series, featuring video interviews on new products, innovations, sustainability and more. SNA runs an active Sustainability Ambassador programme which promotes understanding and awareness of sustainability-related issues. SSA continues to operate Ask Alex, an initiative whereby employees can pose questions to our CEO. Opportunities for value creation • Alignment with our strategic direction enables our people to contribute more positively to the business as well as their personal and career development • By building our human capital base, we establish a base of technical skills needed both by Sappi and by the industry • A diverse workforce enhances our ability to service global markets and promotes a culture of inclusivity • An increased commitment to safet(cid:92) delivers benefits at personal, team and operational levels • By establishing an ethical culture where corporate citizenship is promoted, we ensure the ongoing viability of(cid:123)our business, enhance reputation and become an employer of choice Challenges for value creation • Recruitment and retention of key skills • Loss of institutional memory as older employees retire T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 44 CREATING VALUE BY RESPONDING STRATEGICALLY Supporting communities on Mandela Day Sappi Southern Africa rallies to the call to #ServeLikeMadiba in July every year by encouraging our staff to give generously of their time in the week around former President Nelson Mandela’s birthday. In 2021 we adjusted our activities due to the realities of Covid-19 restrictions and the impact of social unrest. One of our biggest benefi ciaries this year was the Nelson Mandela Children’s Hospital – the fi rst dedicated children’s hospital in Gauteng – which received a donation of branded blankets, Typek A4 paper, and hand sanitiser. They responded by saying: “Thank you Sappi for #servinglikemadiba by donating two years’ worth of paper! Together with sanitiser, blankets and water for the children at our Nelson Mandela Children’s Hospital.” Staying in Gauteng, our head offi ce staff partnered with the Helen Joseph Hospital, a teaching hospital affi liated with the University of Witwatersrand's Medical School, to donate a much-needed specialised fridge for storing Covid-19 vaccines and other medication at the optimum temperature. They commented: “The shortening of time saved in rushing to and from other areas to fetch medication will help all patients facing an emergency and will keep our medication requiring refrigeration safe and eff ective.” In KwaZulu-Natal (KZN), our Sappi Forests personnel donated 90 packs of baby nappies to the Salvation Army’s Joseph Baynes Children’s Home in Pietermaritzburg. The staff who received these were delighted and commented: “Christmas came early for us this year! When you have 30 children aged under two you use a lot of nappies every day. Your generous donation was just so amazing and will go a long way to keep our little ones dry and comfortable. We thank you for blessing us with this kind donation. In the uncertain times we live, people like you make our jobs just so much easier.” Elsewhere in KZN, several of our neighbouring forestry communities in the KZN Midlands were supplied essential nutritional porridge packs. Sappi Forests joined forces with Savithi Trading Company, one of its contractor partners to distribute 1,500 kg of porridge. A further 3,000 kg of the porridge was distributed by our teams of foresters and community relations personnel, who worked closely with the Department of Social Development to identify and distribute the porridge to the child-headed households in our operational areas near KwaMbonambi, inland near Ixopo and Bulwer and in the vicinity of Greytown and surrounds. In the communities of Umkomaas, Mandeni and Stanger surrounding our three mills in KZN, our employees contributed to food parcels which were distributed by local NGOs to people who had been aff ected with food shortage, exacerbated by the disruption of supply chains resulting from the unrest. Donations were also made by staff from around the country to assist communities who had been left destitute by the civil unrest. At our Mpumalanga operations, we teamed up with members of the Ngodwana Integrated Community Forum and arranged an Early Childhood Development (ECD) Outreach programme, donating blankets and goodie bags to the children of Empilweni Day Care and Woodhouse Day Care centres. In Barberton, the children at the St John’s Care Centre each received a care parcel containing toiletries and a soft toy, while the Centre received Typek offi ce paper, as did the nine Penreach ECDs that we support in the Emjindini Township. 45 CREATING VALUE BY RESPONDING STRATEGICALLY Our key relationships continued Unions Self-assessment of quality of relationship: Fair Why we engage In 2021, globally, 56.43% of our workforce was unionised, with 71.53% belonging to a bargaining unit. A workplace where people feel they have been heard and in which they can make a meaningful contribution, promotes productivity and stability. Accordingly, it makes sound business sense to maintain constructive relationships with our employees and their representatives. We do so in a spirit of mutual respect and understanding. Shared priorities Freedom of association, collective bargaining and disciplined behaviour Shared priorities Safety and wellness initiatives Our response The health and safety committees at all our operations provide a forum for consultation about the development/ review of policies and procedures and changes that affect workplace safety or health. Wellness programmes include fitness and medical screening programmes, as well as psychological and financial support. Our response Sappi endorses the principles of fair labour practice as entrenched in the United Nations Global Compact and (cid:56)(cid:81)i(cid:89)er(cid:86)(cid:68)(cid:79)(cid:3)(cid:39)ec(cid:79)(cid:68)r(cid:68)ti(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:43)(cid:88)(cid:80)(cid:68)(cid:81)(cid:3)(cid:53)i(cid:74)(cid:75)t(cid:86). At a minimum, we conform to and often exceed labour legislation requirements in countries in which we operate. Protecting the right to freedom of association and collective bargaining is fundamental to the manner in which we do business. We engage extensively with representative trade unions. Discussions range from remuneration issues, to training and development, health and safety and organisational changes. Given the complex labour situation in South Africa, we have established a number of structures to enhance ongoing positive engagement with union leadership. This is facilitated by structures such as the National Partnership Forum which includes senior members of management and senior union leaders who hold regular meetings where business, safety and union challenges are discussed. Disciplined behaviour is essential for individual wellbeing, and to achieve our group goals and objectives. In each region, disciplinary codes ensure appropriate procedures are applied consistently, while grievance policies entrench the rights of employees, including the right to raise a grievance without fear of victimisation, the right to seek guidance and assistance from a member of the human resources department or their representative at any time and the right to appeal to a higher authority, without prejudice. Read more: Supporting sound labour relations page 83. UNGC Principle 3: Businesses should uphold freedom of association and the effective recognition of the right to collective bargaining. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 46 CREATING VALUE BY RESPONDING STRATEGICALLY Shared priorities Shared priorities Remuneration, working hours and other conditions of service Resolving grievances, engaging on strategy Our response Our labour standards ensure that our remuneration practices are fair, with compensation levels set to reflect competitive market practices and internal equity as well as company and individual performance. In rural areas, forest products companies like Sappi are often the only, or major, employers which makes the local population very dependent on the company and which could, in turn, lead to exploitative behaviour and an indirect form of forced labour. Against this backdrop, in all three regions, labour is sourced on the open market, we pay market-related wages in line with or above local legislation and ensure that working hours are fair. UNGC Principle 4: The elimination of all forms of forced and compulsory labour. Our response • Well-established grievance channels, disciplinary procedures and whistleblower protocols provide a non-retributory framework. • We regularly engage with unions on economic conditions, market dynamics and growth plans. Opportunities for value creation • Good employee/management relations enable us to resolve new and difficult labour issues as the(cid:92) develop(cid:17) • When employees understand strategic direction and operating context, they are more likely to be more committed to Sappi, leading to a more stable labour force and higher levels of productivity. Challenges for value creation • Multi-union landscapes, particularly in North America and South Africa, add to complexities in the labour environment. • Unrealistic expectations about wages increases, particularly in light of the ongoing Covid-19 pandemic. 47 CREATING VALUE BY RESPONDING STRATEGICALLY Our key relationships continued Customers Self-assessment of quality of relationships: Excellent Why we engage The more closely we engage and collaborate with our customers, the more likely we are to understand and respond to their evolving needs by offering relevant solutions in the form of sustainable, practical products and services. This partnership approach builds the loyalty and long-term relationships that enable us to thrive. Through our continued focus on innovating paper and packaging solutions, pulp and biomaterials, we remain committed to partnerships with customers who are increasingly focused on the social and environmental credentials of our products. Survey after survey confirms that consumers want to be greener in their purchasing decisions. We are committed to having a positive impact across the entire value chain by embracing the circular economy, and using sustainable materials based on certified wood and replacing fossil-based chemistry. We are also committed to working on new technologies that support transformation in Sappi and across our value chain partners to reduce CO2 emissions and contribute to the UN SDGs. Shared priorities Enhanced service levels Our response In SEU, we entered into a partnership with Shippeo which offers ‘predictive visibility’ of supply chain transportation. This enhances the customer experience by providing a reliable estimate of when an order will arrive with the customer as well as a faster response to customer inquiries on goods in transit. Proactive sharing of the live delivery status with customers ensures early warnings are given on potential delivery delays. This move enables us to measure and manage carrier performance in real-time, as well as benefit from faster and more efficient information exchange and communication between customer service, logistics and carrier teams. Insights drawn from resulting data also help to drive continuous improvement of operational processes. Shared priorities New or enhanced products that meet rapidly changing market demand Biotech We achieved commercialisation of Symbio, our biocomposite product, and are moving ahead with our furfural plant at Saiccor Mill. Casting and release Ultracast Viva® release paper won the Green Product Award 2021 jury prize in the fashion category. This award programme recognises companies and start-ups that have distinguished themselves by their sustainable practices and product results. Ultracast Viva is a first-of-its-kind product made specifically for high-fidelity PVC, PU, semi-PU and solvent-free casting systems that are used in the manufacturing of coated fabrics. Our response R&D Consumers have become increasingly aware of social and environmental issues and are looking to us for help in this regard. Against this backdrop, our Innovation and Sustainability department enables us to put sustainability at the heart of everything we produce, enhances our understanding of our customers’ current and future needs and means we can meet and anticipate those needs. Where relevant, we will conduct R&D and develop products to suit customers’ specific needs. Read more: Developing and commercialising innovations i(cid:81)(cid:123)(cid:68)dditi(cid:82)(cid:81)(cid:3)t(cid:82)(cid:3)(cid:68)d(cid:77)(cid:68)ce(cid:81)t(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86)e(cid:86)(cid:15)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:68)(cid:74)e(cid:3) 78. Verve We partnered with Birla Cellulose, one of the leading viscose manufacturers in the textile value chain, to provide a forest-to- garment traceability solution for 22 global brand owners. We are also an advisory partner in the development of the Textile Exchange biodiversity module. Read more: Reinforcing Verve as the Fibre of Choice, on page 74. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 48 CREATING VALUE BY RESPONDING STRATEGICALLY Shared priorities Information and campaigns to promote print as a communication medium and encourage the use of packaging Our response • We continue to participate in industry initiatives like TwoSides. – – • We also participate in a number of tradeshows including: Luxe Pack in Monaco where we showcased our high-quality paperboard product Algro Design and our new, upmarket Fusion Nature Plus virgin fibre liner. FachPack in Germany where we presented our innovative high-barrier papers with integrated heat-sealing capability, together with an uncoated, bright white virgin-fibre liner for corrugated board applications and paper carrier bags, a non-wet- strength, wet-glue label paper and new papers in the flexible packaging sector. SEU • Shortly after year end, for the second year running, Sappi will be joining other leading organisations and brands to sponsor a Europe-wide hackathon bringing together small teams of start-ups, scale-ups, industry enthusiasts and students to brainstorm innovative solutions to issues facing the graphic papers sector. This year’s hackathon will tackle multiple challenges in six main categories exploring the overall theme: “The graphic communication enterprise of the future. How to future-proof our industry?” SNA • Launched a Sustainable Alternatives Campaign that included a video, a new addition to Sappi’s website and social posts demonstrating how Sappi is partnering with other businesses to be pioneers in more sustainable alternatives. The campaign shows the many ways we can enable brands and businesses to meet their sustainability promises by committing to using renewable resource-based materials in their products and packaging. Details can be found at sappi.com/promise. • Hosted a series of webinars designed to promote the intersection between print and packaging with digital marketing. Topics included the persuasive role of packaging, direct mail and how interactivity, customisation and innovative printing technologies and special effects leverage the unique power of print to expand brand presence, grow sales, and build a bridge between online and offline marketing. Opportunities for value creation • Meet customer needs for products with an enhanced environmental profile Innovate to align with evolving market trends Increase awareness of the importance of sustainability • • • Promote our customers’ own sustainability journeys • Keep abreast of market developments • Showcase our products and promote the Sappi brand. Challenges for value creation • Confusion about responsible forest management and the sustainable commercial use of forests and plantations with deforestation and lack of understanding about the manner in which the forests and plantations from which we source woodfibre help mitigate global warming • Promoting understanding of decarbonisation across the value chain. Shared priorities Information about the fibre sourcing and production processes behind our brands Our response • Customers generally approach us for information about the fibre sourcing and production processes behind our brands, including carbon footprint. In response to these requests, in all regions we compile wood origin declarations and publish Paper Profiles or similar data and information sheets for our papers. We also respond to many questionnaires from our customers including on our CO2 reduction plans and performance. In SNA, we hold Customer Council meetings and have developed our own eQ GHG emissions calculator that quantifies the amount of emissions associated with a customer order and how those emissions compare against the industry average. • We also publish fibre sourcing declarations on sappi.com for all mills. • At the request of our customers, in all three regions, we participate in EcoVadis and hold a platinum rating for all three regions. • Regions also engage with suppliers through sustainability summits and individual meetings. • We also publish FAQs covering topics like climate change, as well as forest and energy certification. Shared priorities Technical information Our response SEU • A series of technical brochures is available on our website sappipapers.com/resources/technical-brochures • The Sappi&You online knowledge platform for graphic papers • The PSP site to provide targeted information on packaging and speciality papers (www.sappi-psp.com) • The graphic papers site provides targeted information on paper and print-based communication (www.sappipapers.com) SNA • The POP site is aimed at marketers, creatives, designers and printers looking to innovate in their categories (www.sappipops.com) • Sappi etc is an educational platform for designers and printers (www.sappi.com/sappietc) SSA • Our paper and paper pulp product offerings are supported by strong technical teams at each mill and the technology centre in Tshwane 49 CREATING VALUE BY RESPONDING STRATEGICALLY Our key relationships continued Digital and paper: a powerful combination Printed electronics are decidedly on the move. Radio-frequency identifi cation (RFID) is no longer a niche technology. It is already being used to great eff ect in many areas of everyday life: in our passports, ID cards and travel cards, clothes, library books and much more. The vast scale and intricacy of the RFID market also off ers new opportunities for the printing industry. With this in mind, ISBC, an international company focused on the development of unique RFID and Internet of Things (IoT) products has developed and presented to the market an innovative product: ISBC® RFID Paper. The product is sheet-fed and made with Sappi’s 100% fi bre-based Swiss Matt speciality paper, used mostly as an inkjet paper for large-format printing. RFID chips are embedded into the paper sheets causing no eff ect over the paper surface which remains fl at and smooth. Opportunities for value creation • Enhanced licence to operate and thrive • Promoting socio-economic development which could, in the long term, lead to increased demand for our products • Initiation of real social mobilisation and change for the better • Closer integration with local development plans from the authorities. Challenges for value creation • Community expectations for jobs and service delivery. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 50 CREATING VALUE BY RESPONDING STRATEGICALLY Communities Self-assessment of quality of relationships: Fair to good and steadily improving Why we engage Recognising that we are part of the communities beyond our fence lines and that their prosperity and wellbeing are linked to our own, we strive to make a purpose-driven, meaningful contribution towards the wellbeing and development of our neighbouring communities. We work to create positive social impact by jointly identifying and leveraging opportunities, thereby demonstrating our commitment to transparency and collaboration. Community engagement meetings take various formats in our mills in the regions where they operate. These range from broad liaison forums for business, local government and communities, to legally mandated environmental forums that form part of the licensing conditions of mills. In South Africa, there are local farmer and community forums related to our forestry communities. In response to the Covid-19 pandemic, we refocused our response to and investment in the communities close to our areas of operation. Shared priorities Community support including employment, job creation, business opportunities, economic and social impacts/contributions and community support Our response SEU • Employees are encouraged to nominate and participate in local community projects and events. • At a local community level, our focus is to add to the wellbeing, safety and health of our communities. We support various local schools, sports and hobby clubs, forest products industry students, local safety and environmental organisations and local charities. SNA • Each site has a group focusing on community connections to channel local support. • Education programmes are supported at targeted colleges and universities as are programmes to encourage study in fi elds relevant to our operations. • We provide fi nancial support to several non-profi t conservation organisations to support regional biologist positions, landowner and community outreach activities, advocacy eff orts, etc. Examples include funding and in-kind support for elementary and secondary school fi eld days, community forestry workshops, landowner outreach projects in cooperation with state agencies and industry associations, billboards promoting Sappi's private lands forestry programme and private landowner management assistance. • The Idea that Matter (ITM) programme continues to recognise and support designers who support good causes. Since 1999 the programme has funded over 500 non-profi t projects and has contributed nearly US$14 million to a wide range of causes around the world that use design as a positive force in society. Given our focus during the past year on responding to the Coronavirus pandemic, the ITM programme was suspended. It has been reformatted and relaunched for 2022 to align with the UN SDGs encouraging applicants to use design to address global challenges. • The Employee Ideas that Matter programme provides direct funding to the non-profi t organisations about which our employees are most passionate. SSA • Community support has been bolstered by the creation of a dedicated multi-disciplinary team comprising the Enterprise and Supplier Development (ESD) team, the Human Resources team and the Corporate Citizenship team. This structure has been rolled out at each mill site and is referred to as the Community Management Committee (CMC). The purpose of the CMC is to identify shared value opportunities which help identify and support local entrepreneurs as well as to promote the sourcing of goods and services from local suppliers where possible. The CMC also report on the employment of locals and ensures investment in communities addresses specifi c needs. The CMC at all times aims to collaborate with government, NGOs and the private sector for scale. • Given South Africa’s signifi cant development needs, the bulk of community support is allocated to this region. Support is directed to education, environment and socio-economic development, based on helping communities help themselves. Initiatives include: – – – Sappi Khulisa, our enterprise development scheme for emerging timber farmers The Abashintshi Youth programme Education throughout the education value chain, including ECD; Khulisa Ulwazi, our training centres for small growers and two training centres for local unemployed youth at the Saiccor and Ngodwana Mills Support for local tourism through our mountain-biking and trail running sponsorships and promoting recreational riding on Sappi land. – Read more about our ESD work in particular: Creating a positive social impact with communities, on page 86. 51 CREATING VALUE BY RESPONDING STRATEGICALLY Our key relationships continued Collaborating to support the endangered Pepper-bark tree Our operations are deeply seated within the traditional communities of South Africa and we are committed to developing and improving the resilience of the communities and environment in which we operate. One such example is the partnership between our Shaw Forestry Research Centre and local research institutes to restore the endangered Pepper-bark tree (Warburgia Salutaris) which is widely used in traditional medicine for primary health needs like the common cold. This tree is endangered due to unsustainable bark harvesting. The Pepper-bark tree was previously widespread but is currently found growing in small pockets in nature reserves and is under constant surveillance. It was a challenge to cultivate this species due to a pest that damages the seed and due to the presence of aromatic oils in the cuttings. In 2014, we joined a project, launched by SANParks, the Agricultural Research Council and South African National Biodiversity Institute (SANBI) and used in-house skills in cutting production to propagate the Pepper-bark tree. The project has been a major success with Sappi also assisting in the distribution of approximately 40,000 Pepper-bark seedlings and cuttings to rural communities, at no cost. The fi nancial impact of the project is intangible but invaluable: the programme of work has led to the discovery that the Pepper-bark tree can be harvested sustainably as the medicinal properties of the highly prized bark is also abundant in the twigs and leaves. This has led to an educational outreach programme with traditional healers and community members. A working group partnership has also established a gene bank and seed orchards and will coordinate the Pepper-bark conservation project. Sappi has also provided the Pepper-bark trees to neighbouring countries, like eSwatini via the eSwatini Traditional Healers Association and to Zimbabwe in partnership with Botanic Gardens Conservation International. Due to the success of the programme, the South African government has asked Sappi to consider adopting further endangered species for re-establishment. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 52 CREATING VALUE BY RESPONDING STRATEGICALLY Industry bodies, related memberships and organised business Self-assessment of quality of relationships: Good Why we engage We engage with industry bodies and business believing that together, we are better equipped to meet the needs of a growing and changing society. Our focus is on using our expertise and our networks to help create a more sustainable future. Accordingly, we partner with industry and business bodies to provide input on issues and regulations that affect and are relevant to our businesses and industries. We also support and partner with industry initiatives aimed at promoting the use of our products and the overall sustainability of our industry. One of our longest relationships is with the UNGC, to which we have been a signatory since 2008. We work to implement the UNGC’s 10 principles, all of which align with the UN SDGs. Under our emphasises partnership and collaboration we have been focusing more intensively on working closely and more often with those who share both our values and commitment to our industry. strategy which Thrive25 Shared priorities Decarbonisation and net zero Our response In FY2021, we continued our work on the (cid:54)cie(cid:81)ce(cid:3)(cid:37)(cid:68)(cid:86)ed(cid:3)(cid:55)(cid:68)r(cid:74)et(cid:86)(cid:3)i(cid:81)iti(cid:68)ti(cid:89)e(cid:3)(cid:11)(cid:54)(cid:37)(cid:55)i(cid:12) in line with our group-wide decarbonisation strategy and expect our science-based targets to be approved by the SBTi in FY2022. We also became a project member of the WBCSD Forest Solutions Group’s Forest sector net zero roadmap project (July 2021-July 2022). In SNA, we renewed our commitment to the SmartWay® Transport Partnership, an innovative collaboration between the U.S. Environmental Protection Agency and industry. The partnership provides a framework to assess the environmental and energy efficiency of goods movement supply chains and benchmark overall performance. Shared priorities Biodiversity Our response In 2021, we joined the Circ(cid:88)(cid:79)(cid:68)r(cid:3)(cid:37)i(cid:82)ec(cid:82)(cid:81)(cid:82)(cid:80)(cid:92)(cid:3)(cid:36)(cid:79)(cid:79)i(cid:68)(cid:81)ce(cid:3)(cid:11)C(cid:37)(cid:36)(cid:12), a new global movement which puts nature at the heart of the global circular bioeconomy. Established by His Royal Highness the Prince of Wales under his Sustainable Markets Initiative in 2020, the CBA connects the dots between investors, companies, local communities, governmental and non-governmental organisations to advance the circular bioeconomy – while also restoring biodiversity. At this stage, the focus on biodiversity in the textile industry – as with many others – is nascent. The Textile Exchange has developed a biodiversity module and associated Index to prepare the fashion industry for action. Sappi was an advisory partner in the module development. The module is going through an initial pilot phase to track the level of engagement and effort that companies are starting to make in terms of biodiversity. The biodiversity module will support and develop alongside the science-based targets network in order to reinforce consistency in language, frameworks and measurements. Additionally, use of this module and its future iterations will help companies prepare for stakeholder (including investor) questions around nature-related risk. In SNA we have conducted training for wood procurement teams on biodiversity involving local, state and regional experts from state government agencies. In SSA we have seven declared nature reserves on our landholdings in the Mpumalanga and KwaZulu-Natal provinces. These proclaimed nature reserves are part of South Africa’s Biodiversity Stewardship Programme managed by the SANBI and are based on partnerships between landowners, provincial conservation authorities and NGOs, in order to secure biodiversity. The sites are declared where important biodiversity or ecosystem services have been identified. 53 CREATING VALUE BY RESPONDING STRATEGICALLY Our key relationships continued Industry bodies, related memberships and organised business continued Shared priorities Issues that affect the sustainability of our industry and initiatives that promote sustainability, awareness and understanding Our response Global As a member of the Sustainable Apparel Coalition (SAC), we have contributed both data and resources to support the (cid:43)i(cid:74)(cid:74)(cid:3)(cid:44)(cid:81)de(cid:91), which measures sustainability performance and drives supply chain transparency and decision-making to improve efficiency and sustainability impact. Our Cloquet Mill in North America was assessed for environmental issues in FY2020 and Saiccor Mill in South Africa conducted a self-assessment for social issues in FY2021. Both mills achieved good scores. SEU We continued our active participation in the 4Evergreen Alliance which we joined last year. Membership is now at 80 organisations and includes a growing number of brand owners and fast-moving consumer goods companies. A strategy taskforce is working to shape the workplan for 2022 and beyond. The Circularity by Design Guidelines have been drafted and will likely be the first technical output from the alliance to be published. The Forests Dialogue (TFD) leads multi-stakeholder dialogue processes among key stakeholders, to overcome conflict and spur collaborative action on the highest priority issues facing the world’s forests. TFD convened a series of dialogues on Climate Positive Forest Products during 2021. SNA We host supplier sustainability summits to discuss issues related to sustainability and we hold numerous one-on-one meetings with suppliers to discuss specific issues related to sustainability. Shared priorities Regulatory issues Our response Global There is growing interest in determining how biogenic emissions are reported throughout the value chain. We are actively involved in one of the GHG protocols’ working groups to contribute to the formulation of the (cid:42)(cid:43)(cid:42)(cid:3)Pr(cid:82)t(cid:82)c(cid:82)(cid:79)(cid:3)(cid:82)(cid:81)(cid:3)(cid:47)(cid:68)(cid:81)d(cid:3) Sector and Removals Guidance. SEU The EU Taxonomy is a classification system providing definitions on which economic activities can be considered environmentally sustainable and which will shape sustainable finance in the future. A series of documents containing proposed criteria for different Industrial activities were open for public consultation, including the draft forestry criteria, as well as criteria for manufacturing of food products and beverages, including food packaging. Together with other industry members, we provided comment. We provided input during the formation of the EU Single Use Plastic Guidelines and continue to engage on the EU Forests strategy. SNA We continue to provide Lacey Act training for staff and have improved our documentation regarding fibre sourcing declarations. In the USA, E(cid:91)te(cid:81)ded(cid:3)Pr(cid:82)d(cid:88)cer(cid:3)(cid:53)e(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)i(cid:69)i(cid:79)it(cid:92)(cid:3)(cid:11)EP(cid:53)(cid:12) legislative activity focuses on packaging materials. The biggest impact of such legislation is likely to be increased costs to our customers and possible mandates for greater recycled content which could disadvantage and add costs to Sappi products. As both our Somerset and Westbrook Mills are located in the State of Maine, we will continue to monitor the Maine regulatory development process and engage as draft proposals emerge, presently slated for late 2022. We are also actively participating with our trade association, American Forests and Paper Association, in steering their positions to be one that seeks to participate in the regulatory development process. SSA The SA Government launched its EPR programme during 2021. It outlines a new approach to waste management for paper, packaging and some single use products, lighting and electrical and electronic equipment. The aim is to divert waste from landfills and increase recovery, recycling and reuse of materials. Sappi is a member of the Fibre Circle, the producer responsibility organisation created for the South Africa paper and paper packaging sector. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 54 CREATING VALUE BY RESPONDING STRATEGICALLY Shared priorities Shared priorities Enhanced forestry management Combatting deforestation Our response Our response SNA We continued our ongoing participation in Emerald Ash Borer surveys and other pest /pathogen/invasive species quarantines and studies. We continued to monitor the FSC-US Forest Management Standard Revisions. We have been engaging with land managers, industry associations, peer companies, customers and FSC to raise awareness and concern regarding these changes during the review and commenting periods. Sappi chaired the National Fibre Sourcing Standards Revision Taskgroup of the Sustainable Forestry (cid:44)(cid:81)iti(cid:68)ti(cid:89)e(cid:139)(cid:3)(cid:11)(cid:54)F(cid:44)(cid:139)(cid:12). We continue to work closely with private land owners through our stumpage programme. SSA A milestone was reached when we were awarded the first-ever Programme for the Endorsement of Forest Certific(cid:68)ti(cid:82)(cid:81)(cid:3)(cid:11)PEFC(cid:12) forest management certificate in the country. The certification will now enable Sappi to offer PEFC-certified wood from its plantations in South Africa, giving further assurance to Sappi’s local and global customers that the wood raw material originates from responsibly managed forests. This is in addition to the longstanding certification that Sappi holds for its 394,000 hectares with the Forest Stewardship Council (FSC). Sappi Forests is involved in an initiative to make DNA fi(cid:81)(cid:74)er(cid:83)ri(cid:81)ti(cid:81)(cid:74)(cid:3)tec(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92) (developed through collaboration with the Forest Molecular Genetics programme) available to small growers and farmers. This will allow growers to determine clonal identity of their material obtained from Sappi nurseries and will be provided through government funding. This is an example of providing access to technology developed through Sappi input and funding together with other South African companies. In conjunction with the University of Pretoria, Sappi Forests conducted a pilot study to determine if Near Infrared (cid:53)e(cid:432)ecti(cid:82)(cid:81)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)i(cid:86)(cid:3)could be used to classify susceptible eucalypt hybrids against the pathogen Chrysoporthe austroafricana, a fungal pathogen that causes the development of stem cankers on susceptible trees. The next step will be to verify the model independently and then deploy it operationally. It will be a useful tool to identify hybrids to maintain high purity in nurseries rapidly and cost-effectively. We believe that creating value in standing forests is one of the best ways to combat deforestation in the long term. Engagement with participants along the supply chain from the forests to the customers is active, and Sappi advocates for the importance of sustainable forest management practices, and forest certification as assurance of the supply chain integrity. We are an active member of FSC International’s Northern and Southern economic chambers and we are a PEFC International Stakeholder member. We participate to promote and expand forest certification and to ensure that the systems continuously develop themselves to sustain the integrity and robustness of certified supply chains. We support the recent initiatives of the EU to propose new measures to minimise risks of products causing deforestation to enter the EU market, and share the view that such measures should focus on the real drivers of commodity-induced deforestation, namely conversion of forests to agricultural land. Shared priorities Ensuring the integrity of natural resources like water Our response Sappi Southern Africa has partnered with WWF South Africa to proactively manage water resources in the uMkhomazi catchment in which our Saiccor Mill is situated. A key component of the partnership is multi-stakeholder engagement in the catchment. The project has four focus areas, namely: • Improved water governance through multi-stakeholder engagement • Enhanced estuary management and downstream water-use efficiency • Alien invasive clearing and wetland rehabilitation • Capacity development of local communities in natural resource management. Opportunities for value creation • Address complex topics • Develop sustainable, transparent supply chains • Maintain and expand markets for our products • Enhance understanding of our social and environmental credentials (cid:44)nfluence polic(cid:92) and regulations • • Promote dialogue. Challenges for value creation • High costs and allocation of human resources required for certain industry memberships. 55 CREATING VALUE BY RESPONDING STRATEGICALLY Our key relationships continued Industry bodies, related memberships and organised business continued Our membership of industry associations • University of Maine Paper Surface Science Consortia • University of Minnesota Sustainable Forests Education Cooperative SSA • Birdlife SA • Business Unity South Africa • Fibre Processing and Manufacturing Skills Education and Training Authority • Forestry South Africa • Forest Stewardship Council (FSC) • National Business Initiative (NBI) • Manufacturing Circle • Packaging SA • PAMSA • Recycle Paper ZA • Shared Value Initiative Africa • SANBI • Local chambers of commerce and industry • World Wide Fund for Nature South Africa (WWF-SA) Sappi Forests • Biological Control of Eucalypt Pests • Biorenewable Deployment Consortium • CAMCORE • Eucalypt Pest and Pathogen Working Group • Forestry and Agricultural Biotechnology Institute • Forest Molecular Genetic Programme • Institute for Commercial Forestry Research • South African Institute of Forestry • The Tree Protection Co-operative Programme – founding member Sappi Limited • Business Leadership South Africa • Cambridge Institute for Sustainability Leadership • CEO Initiative (South Africa) • CBA • Ethics Institute (South Africa) • International Stakeholder member of the Programme for the Endorsement of Forest Certifi cation (PEFC)1 • Technical Association of the Pulp and Paper Industry • Paris Pledge for Action • SAC • Textile Exchange • UNGC • WBCSD Forest Solutions Group’s Forest sector net zero roadmap initiative (project member) SEU • Biobased Industries Consortium • BioChem Europe • CELAB: Towards a Circular Economy for Labels • CEFLEX: A circular economy for fl exible packaging • Ligninclub • 4Evergreen Alliance • Confederation of European Paper Industries • Eurograph • European Joint Undertaking on Biobased Industries • Print Power • The Alliance of Energy-Intensive Industries • The Forests Dialogue SNA • Alliance for Pulp & Paper Technology Innovation • American BioFuels Association • American Forests and Paper Association (AF&PA) • Dovetail Partners • Forests in Focus • Forest Products Working Group • Forest Stewardship Council (FSC) • Paper and Paper Packaging Board • Sustainable Packaging Coalition • SFI 1 PEFC logo licence code: PEFC/01-44-43. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 56 CREATING VALUE BY RESPONDING STRATEGICALLY Shareholders, bondholders and banks Self-assessment of quality of relationships: Good to excellent Why we engage Our aim is to provide investors (shareholders and bondholders), analysts as well as fi nancial institutions with transparent, timely, relevant communication that provides them with an understanding of our industry, sets out the manner in which we hope to achieve our growth ambitions and facilitates informed decisions. Shared priorities Understanding Sappi’s strategy Return on investment Transparent information about risks, opportunities and environmental, social and governance (ESG) performance, in particular the impact of climate change on strategic and fi nancial decisions Ability to generate suffi cient cash fl ows to fund our business and service our debt Our response • Our investor relations department engages with shareholders and analysts on an ongoing basis • Our Chairman and CEO engage with shareholders on relevant issues. We conduct ad hoc mill visits and roadshows, and issue announcements through the Johannesburg Stock Exchange (JSE) – Stock Exchange News Service (SENS), in the press and on our website (see www.sappi.com/SENS) and sustainability reports (see www.sappi.com/sustainability) and participate in the Annual General Meeting (AGM) as well as the four quarterly fi nancial results briefi ngs . We publish our annual integrated report (see www.sappi.com/annual-reports) on the group website. Shareholders and analysts can attend • We engage with various ratings agencies, particularly in terms of ESG performance. Recognising the importance of climate change in a fi nancial context, we are incorporating the recommendations of the TCFD into our decision-making processes (discussed further under Responding to climate change on page 91) • We participate in the CDP Climate and CDP Forests (https://www.cdp.net.en projects every year, making our submissions publicly available • Our Chief Financial Offi cer and Head of Treasury engage with bondholders, banks and rating agencies on the performance of the company. A key point of discussion was our strong recovery in FY2021 and our return to profi tability • At the end of FY2020, in response to the impact of Covid-19, we agreed an extension of the covenant suspension period applicable to our debt facilities fi nancial covenants until September 2021 with the fi rst measurement due again at the end of December 2021 Opportunities for value creation • Understanding of and commitment to our strategic direction • Enhanced reputation • (cid:42)reater investment confi dence • Broader licence to invest. Challenges for value creation • Slow post-Covid-19 economic recovery • Uncertainty about upcoming environmental regulations. 57 CREATING VALUE BY RESPONDING STRATEGICALLY Our key relationships continued Suppliers and contractors Self-assessment of quality of relationship: Good Why we engage We aim to establish mutually respectful relationships with our suppliers and encourage them to share our approach to using woodfibre not only for business profit but also for generational prosperity; investing in and searching for innovative ways to leave the planet better than we found it and making a purpose-driven and meaningful contribution towards the wellbeing and development of employees and communities. We want to build long-term value partnerships, based on the importance of suppliers to a sustainable supply chain. Shared priorities Robust safety procedures and a strong culture of safety Our response Given our focus on zero harm in the workplace, we work with our contractors to ensure that they follow Sappi’s safety systems and regard their safety as just as important as that of our own people. In South Africa, Sappi Forests continues to work closely with contractors and their workers to implement the innovative Stop and Think Before You Act safety initiative. Shared priorities Transparency into the value chain Our response In 2021, we announced a collaboration with EcoVadis to assess the sustainability performance of our suppliers through proactive ratings and evaluations using EcoVadis’ methodology. Under the EcoVadis banner, we have been submitting our own sustainability performance to our customers for many years now. Globally, our procurement team made progress in assessing suppliers against our Supplier Code of Conduct: SEU: 67% of total procurement spend covered; SNA: 53% and SSA 44%. This averages out, on a global basis, to 59% of total procurement spend. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 58 CREATING VALUE BY RESPONDING STRATEGICALLY Shared priorities Security of fibre supply Certification Income generation and job creation Our response SEU: In Europe, we procure wood through well-established wood sourcing companies in Europe (Metsä Forest in Finland, proNARO in Germany, Sapin in Belgium and Papierholz in Austria) all of which operate with an established pool of forest owners and wood suppliers. SNA: The Sappi Maine Forestry Programme and the Sappi Lake States Private Forestry Programme, staffed by SNA foresters, offer a wide range of services to landowners including contracting with experienced loggers and providing plans to enhance wildlife habitat and forest health. We work directly with landowners, loggers and suppliers to encourage sustainable forest management and provide markets for woodfibre material from harvesting and stand improvement activities. We continue to evaluate, promote and support smallholder certification options where feasible, thereby adding value to both the landowner and marketplace. Procurement practices extend far beyond avoiding controversial sources by requiring the promotion of biodiversity, logger training, forest research, landowner and community outreach, and implementation of best management practices for soil and water conservation, as evidenced by our conformance to the SFI Fibre Sourcing Standard. During the year we hosted a Supplier Sustainability Summit and held pulp supplier sustainability meetings. SSA: Qualified extension officers provide growers in our Sappi Khulisa enterprise development scheme with ongoing growing advice and practical assistance. We have established a training centre, Khulisa Ulwazi, for Khulisa growers. The objective is to develop growers’ and contractors’ skills so that they can conduct silviculture operations economically and to a high standard. Training material has been developed in conjunction with the Institute of Natural Resources and covers areas like entrepreneurship, fire management, harvesting planning, leadership and management development, as well as safety. The Sappi team is partnering with other institutions such as Cedara Agricultural College, to provide the growers with the tools to expand their farming activities so that they can have additional sources of income. This is crucial for timber farmers who must wait years between timber harvests for a return on their investment. At the end of September 2021, Sappi was involved in 40,697 land reform projects, helping beneficiaries to manage approximately 8,151 hectares of land. Many of these properties previously belonged to commercial farmers who had supply agreements with Sappi. For many of the land claims in which we have been involved, and where there has been a change in ownership, we continue to buy the timber and help to manage those plantations The high cost of certification has been an issue for small growers which we have helped to overcome by offering a group certification scheme. In 2021 there were 42 members in the scheme with plantations totalling 41,000 ha. Members delivered 269,000 tons of woodfibre and receive a bonus per ton for certified material delivered. In addition, we actively contributed to the development of the Sustainable African Forestry Assurance Scheme (SAFAS). The PEFC-endorsed SAFAS now offers affordable forest certification solutions and thus market access especially for the country’s smallholders. In South Africa and in Africa altogether, the amount of certified forests is still very low (less than 2%), so this type of work is ground-breaking, and can really make a difference in enhancing sustainable forest management in Africa and thus improve both the level of forestry and also the level of livelihoods. Improved supplier relations Opportunities for value creation • • Better understanding of the requirements of the Sappi group • E(cid:91)panded basket of certified fibre • Support for local economic development • Support for emerging supplier/contractor development. Challenges for value creation • Securit(cid:92) of woodfibre suppl(cid:92) • Ensuring that SMMEs have the right social and environmental procedures in place. 59 CREATING VALUE BY RESPONDING STRATEGICALLY Our key relationships continued Government and regulatory bodies Self-assessment of quality of relationship: Good Why we engage We engage with government departments and regulatory bodies to provide input into issues and regulations that affect our industry. We also engage with regional and local governments and local authorities to obtain support for our operations, show how our activities contribute to local economic and social development and identify issues where we can work together for our mutual benefit. Shared priorities The social and economic benefits of our industry nationally as well as at a local level Increased investment Energy issues in general and in particular government moves on carbon taxation The impact of increased regulations on business Enhancing sustainable forest management and land use Our response • • • In SEU, we are actively working in a number of forest-sector collaborations to ensure a thriving forest bioeconomy remains an integral part of the EU Green Deal. Through sustainable forest management practices, responsible sourcing, efficient use of resources and manufacturing innovation, the sector provides fibre-based and low-carbon solutions and products and thus boosts the transition into a circular economy In SNA, we engage in forest management planning processes as a stakeholder during public comment processes. In the Lake States (Michigan, Minnesota and Wisconsin) we are involved in the Minnesota Forest Resources Council and various sub- committees In SSA, through Forestry SA, we participated in the Presidentially led Private Public Growth Initiative in the compilation of the Forestry Sector Master Plan. This has been approved by Parliament and aims to drive sustainable forestry industry, updated regulation and improved collaboration in integrated risk management as well as R&D. Opportunities for value creation • Promote understanding of issues and challenges as well as the strategic value of our industry • Help create a more receptive regulatory and policy environment. Challenges for value creation • Policies which take neither our high use of biobased energy into account, nor recognise the important carbon sequestration role pla(cid:92)ed b(cid:92) the sustainabl(cid:92) managed forests and plantations from which we source woodfibre • Uncertainty about regulatory developments, for example: carbon tax • Administrative delays. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 60 CREATING VALUE BY RESPONDING STRATEGICALLY Civil society and media Self-assessment of quality of relationships: Good Why we engage We maintain an open relationship with the media, believing that an informed media is better able to serve public reporting and debate on any issue. We engage with civil society organisations on issues of mutual interest and belong to key organisations relevant to our operations. We engage with various civil society groups on our societal and development impact. Globally we interact and engage with a wide range of non-governmental organisations, especially through our participation with forest certification systems (FSC, PEFC and SFI). We leverage these platforms to actively contribute to the growth of forest certification worldwide and collaborate with diverse stakeholders. Shared priorities Business developments The future of our industry Our impacts on our communities Protecting the environment Developing the bioeconomy Our response • Join key credible organisations as members • Develop personal relationships and engage continually • Provide support to and sponsorship for key organisations on issues of mutual interest SEU: We are actively involved in TFD Steering Committee and provide annual sponsorship to the organisation, so that it can continue to convene diverse stakeholders for dialogue and build solutions to address challenges impacting forests globally. SNA: We support the Dovetail Partners which works to promote bat habitat conservation efforts in the state and the University of Minnesota Sustainable Forests Education Cooperative. We also participate in the Minnesota Forest Resources Council. SSA: In terms of civil society, our forestry operations belong to a number of fire associations, given that fire is a key risk on our plantations. We have established a project which coordinated efforts to re-establish the Warburgia salutaris (Pepper-bark tree) in communities and the wild. Read more: see our 2021 Group Sustainability Report at www.sappi.com. Opportunities for value creation • • Encourage civil society to share our sustainability and Inform and educate media Thrive25 vision through positive actions. Challenges for value creation • Misunderstanding of our environmental impacts. 61 B L O S S O M In mythology, the beautiful, delicate dragonfly symbolises change, transformation and adaptability. This change is said to be about understanding the deeper meaning of life, with the dragonfly’s scurrying flight across water representing an act of going beyond what’s on the surface to look into the deeper implications of life. Looking beyond – and deeper – is reflected in our Thrive25 sustainability strategy which incorporates our belief that to continue thriving as a global business, we must create long-term value for all stakeholders by supporting a low-carbon circular economy through relevant products from sustainable woodfibre. Our strategy also recognises that we must understand the forces that heavily impact our lives and work. Dragonflies have huge compound eyes with thousands of lenses and photoreceptors sensitive to different wavelengths of light, each bringing in information about the insect's surroundings. In other words, they have near-360- degree vision. Which is why they’re able to go after their prey – butterflies, moths, bees and flies – with such accuracy. At Sappi, we understand that by widening our scope to the broader ecosystem and a wide range of stakeholders, we can identify uncertainty and opportunity beyond our periphery of vision. We leverage insights into our operating context and patterns from our data, stay ahead of nascent technologies and draw on the acumen of our people, to embrace change and create innovative solutions that are relevant to all our stakeholders. 62 B L O S S O M In mythology, the beautiful, delicate dragonfly symbolises change, transformation and adaptability. This change is said to be about understanding the deeper meaning of life, with the dragonfly’s scurrying flight across water representing an act of going beyond what’s on the surface to look into the deeper implications of life. Looking beyond – and deeper – is reflected in our Thrive25 sustainability strategy which incorporates our belief that to continue thriving as a global business, we must create long-term value for all stakeholders by supporting a low-carbon circular economy through relevant products from sustainable woodfibre. Our strategy also recognises that we must understand the forces that heavily impact our lives and work. Dragonflies have huge compound eyes with thousands of lenses and photoreceptors sensitive to different wavelengths of light, each bringing in information about the insect's surroundings. In other words, they have near-360- degree vision. Which is why they’re able to go after their prey – butterflies, moths, bees and flies – with such accuracy. At Sappi, we understand that by widening our scope to the broader ecosystem and a wide range of stakeholders, we can identify uncertainty and opportunity beyond our periphery of vision. We leverage insights into our operating context and patterns from our data, stay ahead of nascent technologies and draw on the acumen of our people, to embrace change and create innovative solutions that are relevant to all our stakeholders. 63 OUR PERFORMANCE REVIEW OUR PERFORMANCE REVIEW OUR PERFORMANCE REVIEW Our operating context Our external operating environment presents risks and opportunities, impacts our ability to generate value and informs our response to our stakeholders as well as our approach to material matters. The ongoing Covid-19 pandemic Social unrest and need Social unrest and need Context Context The pandemic and associated lockdowns continued through most of FY2021 across the world. Our response With safety as our core value and top priority, we continued to emphasise the importance of safety protocols. As at year end, just over 1,600 members of our workforce of 12,492 people had been infected, with numbers peaking in December 2020 and January 2021. We embarked on an extensive awareness campaign to encourage people to get vaccinated. In South Africa, where the roll out was slow, we introduced on-site vaccination stations from the beginning of August for employees, their families and for contractors. In each region where we operate, we responded to the needs of society by donating funds and supplies. Halfway through 2021, South Africa was engulfed by the worst unrest and mass violence since the end of apartheid, triggered by ex-President Jacob Zuma’s imprisonment for contempt of court. Described as an insurrection targeting the country’s economy and infrastructure, the root causes go far deeper to ongoing lack of service delivery, the economic and social fall outs of Covid-19, endemic corruption and the fact that almost half of South Africa’s adult population of 35 million live below the breadline. While there was no material damage to any of our plants as a result of the civil unrest, work at our three mills in KwaZulu-Natal and associated logistical supply chains was halted at the height of the unrest. We incurred a permanent loss of sales volumes of about 28,000 tons of dissolving pulp (DP) and 7,000 tons of paper. Our response While we deplore the violence and regret the loss of sales volumes, working as closely with the communities surrounding our operations as we do, we understand and empathise with the underlying root causes. We cannot fulfi l the functions of government; nevertheless, we have intensifi ed our focus on working with communities to help resolve their challenges. Our work to uplift the communities around us began as far back as 1983 when we launched our fl agship enterprise and supplier development (ESD) programme, Sappi Khulisa (previously known as Project Grow). The total area currently managed under this programme, which encompasses individual and community tree farming, is 34,755 hectares. In 2021, under this programme, 225,509 tons of timber (2020: 284,038 tons) worth some ZAR207 million (2020: ZAR232 million) was delivered to our operations. Since 1995, a total volume of 4,731,488 tons to the value of ZAR2.9 billion has been purchased from small growers under this programme. Our ESD strategy, fi rst initiated in 2018, has gathered sustained momentum. With the ESD strategy now embedded in the business and commitment and support at all levels of the organisation, we have seen positive improvement in stakeholder and community relations. Sappi SA has successfully integrated a total of 145 small and medium enterprises (SMEs) into the value chain. These businesses account for procurement spend of over US$9.4 million, exceeding the set annual target by US$2.45 million. In addition to the ESD spend fi gures, 587 jobs were sustained by the active local SMEs. In addition, our Community Management Committees at each mill site continue to provide support to communities. (See page 51 for further details.) In 2021, we partnered with the National Business Institute (NBI) to develop a small business development hub within the Ilembe District in KwaZulu-Natal, where both Tugela and Stanger Mills operate. Sappi’s community members will benefi t from this partnership. The Sappi Skills Centres at our Saiccor and Ngodwana Mills train both Sappi employees and unemployed youth both for employment and for starting new businesses. The centres produced fabric face masks for internal use during lockdown and have expanded to making workwear and other items. During the year, we also concluded two community engagement agreements at the above mills which commit both ourselves and our communities to work together in driving shared value for mutual benefi t. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 64 Intensifi ed focus on climate change and Intensifi ed focus on climate change and social issues Banning single use Banning single use plastics Context Just before our year end, the fi rst-ever global Ministerial Conference on marine litter and plastic pollution took place, with nations across the world moving to ban single use plastics. Our response The ban on single use plastics represents an opportunity for Sappi in that our packaging products are based on renewable, rather than petroleum-based, resources. The move to ban single use plastics is in line with the principles of the circular economy to which we are committed and with our commitment to creating responsibly sourced and sustainable solutions as viable alternatives to fossil-based products. Thrive25 Context The spotlight on climate change has been intensifying, given the extreme weather events that took place in FY2021: fl oods in Germany and China; fi res in Canada, California and Greece; rain, rather than snow falling in Greenland and a ‘heat dome’ along the Pacifi c northwest coast in the USA and Canada, among others. The Deloitte Global 2021 Millennial and Gen Z survey* highlights the importance of social change and accountability for these sectors of the population. As consumers, these sectors of the population often stop or initiate relationships based on how companies treat the environment, protect personal data and position themselves on social and political issues. Our response Consumers are already aware of the need for less carbon intensive products. However, as they are exposed to the extreme weather events just described, we expect this focus to gather momentum, accelerated by the increased purchasing power of Millennials and Gen Z-ers for whom environmental principles are just as important as social ones. We have an advantage in that our manufacturing process begins with sustainably harvested, renewable forest resources and we operate according to circular economy principles. We can off er a broad range of products that meet the needs of eco-conscious consumers. Our ability to off er more environmentally friendly papers with barrier coatings was enhanced by our 2017 acquisition of Rockwell Solutions. In terms of social considerations, we facilitate social and economic wellbeing by using labour drawn from local communities, and the services of small and medium enterprises situated in the areas around plantations and production facilities. * www.deloitte.com/global/en/pages/about-deloitte/articles/millennialservey.html. We expect to see the global forces identifi ed under our Thrive25 strategy to continue until at least 2025. Set out on these pages are specifi c issues that arose in 2021. 65 OUR PERFORMANCE REVIEW Sappi and the SDGs “While we strongly subscribe to the principle of profi t with purpose, we have a responsibility to our shareholders and our overarching purpose is to generate strong fi nancial returns.” Tracy Wessels Sappi Limited Group Head Investor Relations and Sustainability (cid:52)(cid:9)(cid:36)(cid:3)(cid:90)it(cid:75)(cid:3)(cid:55)r(cid:68)c(cid:92)(cid:3)(cid:58)e(cid:86)(cid:86)e(cid:79)(cid:86)(cid:15)(cid:3)(cid:54)(cid:68)(cid:83)(cid:83)i(cid:3)(cid:47)i(cid:80)ited(cid:3)(cid:42)r(cid:82)(cid:88)(cid:83)(cid:3)(cid:43)e(cid:68)d(cid:3)(cid:44)(cid:81)(cid:89)e(cid:86)t(cid:82)r(cid:3)(cid:53)e(cid:79)(cid:68)ti(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)d(cid:3)(cid:54)(cid:88)(cid:86)t(cid:68)i(cid:81)(cid:68)(cid:69)i(cid:79)it(cid:92) Dr Tracy Wessels headed up the Centre of Excellence for dissolving pulp at the Sappi Saiccor Mill for several years and is now Sappi Group Head Investor Relations and Sustainability. There are few people who understand the full potential of what trees have to off er better than Tracy, who has dedicated the majority of the last 20 years of her career at Sappi in progressively more senior roles in research and development (R&D). Q1 What has made the biggest i(cid:80)(cid:83)re(cid:86)(cid:86)i(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:92)(cid:82)(cid:88)(cid:3)i(cid:81)(cid:3)(cid:92)(cid:82)(cid:88)r(cid:3)(cid:81)e(cid:90)(cid:3)r(cid:82)(cid:79)e(cid:34) Q2 (cid:43)(cid:82)(cid:90)(cid:3)(cid:90)ere(cid:3)(cid:54)(cid:68)(cid:83)(cid:83)i(cid:111)(cid:86)(cid:3)(cid:83)ri(cid:82)rit(cid:92)(cid:3)(cid:54)(cid:39)(cid:42)(cid:86)(cid:3) (cid:86)e(cid:79)ected(cid:34) While my previous role focused on the entire value chain, from the beginning of the DP production process all the way through to the end user, my new role is more multi-faceted. That is because I have greater oversight over more functions within the various value streams across the business. Within each of these value streams and functions, what has struck me is the manner in which sustainability is entrenched throughout the everyday aspects of our business. I’ve also realised the extent to which our commitment to the Sustainable Development Goals (SDGs) is taking traction. SDG17: Partnership for the Goals is evident at board level, with the Chairman of our SETS Committee having been appointed as the deputy chairperson of the Presidential Climate Commission, chaired by South African President Cyril Ramaphosa. It extends to SDG15: Life on Land, whereby we are steadily increasing the amount of certifi ed fi bre supplied to our mills (FY2021: 76%, FY2020: 73%) and in South Africa, in alignment with SDG1: No Poverty, with the work our ESD department is doing (described in further detail on page of this report. 64 Of course, there is much more evidence throughout Sappi, at every level. We prioritised certain SDGs not because they were the easiest to align with, nor because they made for the best optics. We debated them, weighed up the business case for each SDG and selected those that had the most relevance for our business before establishing an agenda and targets for each priority SDG. We also looked at interdependencies. While these signifi cant interdependencies between all the SDGs, some are more profound than others – for example SDG7: Renewable and Clean Energy and SDG13: Climate Action are very strongly linked. Q3 So you are saying that there is a commercial case for implementing the UN SDGs, that doing so is not (cid:82)(cid:81)(cid:79)(cid:92)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)t(cid:3)t(cid:75)e(cid:3)(cid:82)(cid:83)tic(cid:86)(cid:34) There is defi nitely a commercial case! While we strongly subscribe to the principle of profi t with purpose, we have a responsibility to our shareholders and our overarching purpose is to generate strong fi nancial returns. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 66 OUR PERFORMANCE REVIEW converting the calcium line to magnesium. This will lead to a significant reduction in the fossil fuel energy requirements and increase our renewable energy usage in line with our commitment to SDG7: Affordable and Clean Energy and SDG13: Climate Action. We are being smart by investing in best practice safety programmes in alignment with SDG8: Decent Work and Economic Growth: Not only do we have a duty of care to all those working at, or visiting, our operations, but safety also impacts profitability and reputation and can play a role in recruitment and retention. We are also being smart in our shared-value approach to business, which means that communities close to our operations benefit from our extensive socio-economic development programmes. Q5 (cid:36)re(cid:3)(cid:92)(cid:82)(cid:88)(cid:3)(cid:86)(cid:68)ti(cid:86)fied(cid:3)(cid:90)it(cid:75)(cid:3)(cid:54)(cid:68)(cid:83)(cid:83)i(cid:111)(cid:86)(cid:3) progress towards your SDG-related Thrive25 targets on a regional and (cid:74)r(cid:82)(cid:88)(cid:83)(cid:3)(cid:79)e(cid:89)e(cid:79)(cid:34) Progress towards our targets while uneven, has generally been positive. Targets are tracked and presented at our quarterly Group Sustainable Development Council meetings, so we have a good understanding throughout the year of how we are doing. I am confident that we will achieve these stretch targets within the time frame. Even more important are the actions that have been put in place to achieve these targets and that they are helping to embed the SDGs into our DNA. These actions provide real, tangible evidence of our commitment to the SDGs and help us to identify problems and opportunities for future growth. They are also an important framework in achieving our purpose of contributing to a thriving Sappi and a thriving world. Thrive25 strategy To give the most obvious example: Our states that we exist to build a thriving world by unlocking the power of renewable resources: Clearly, we cannot achieve this if there are no renewable resources – primarily trees, in our case. We rely on healthy ecosystems to produce renewable woodfibre which is beneficiated into a range of products. That is why aligning with SDG15: Life on Land makes sound business sense and why we work so hard to enhance sound forestry management practices – both on our own landholdings and on those from which we source woodfibre. The key is balancing short-term financial returns with longer-term viability. Let’s say we had the opportunity to buy cheap, non-renewable energy. We could decide to ignore the environmental consequences and just focus on the bottom line. As energy costs currently represent 8.2% of cost of sales, the financial impact could be very positive in the short term. In the longer term, this move could have far-reaching repercussions, particularly as we are transparent about our energy and emissions profiles. Customers generally approach us for information about the fibre sourcing and production processes behind our brands, including carbon footprint. In response to these requests, in all regions we publish Paper Profiles and/or information sheets for our papers. We also respond to many questionnaires from our customers that collect data on our carbon reduction plans and performance. In SNA, we have developed our own GHG emissions calculator that quantifies the amount of emissions associated with a customer order and how those emissions compare against the industry average. In the hypothetical situation where we would choose to focus only on the bottom line, not only would we experience loss of market share and suffer reputational damage, we would also incur the costs of trying to attract new customers, with research indicating that it costs five time as much to attract new customers as it does to retain existing ones(1). Q4 Is implementing the SDGs only (cid:83)(cid:82)(cid:86)(cid:86)i(cid:69)(cid:79)e(cid:3)(cid:90)it(cid:75)(cid:3)(cid:79)(cid:68)r(cid:74)e(cid:3)c(cid:68)(cid:83)it(cid:68)(cid:79)(cid:3)(cid:82)(cid:88)t(cid:79)(cid:68)(cid:92)(cid:86)(cid:34) The SDGs are transformative and disruptive, and these processes often involve significant financial investment. In Sappi’s case, we have a particular challenge in that our infrastructure is highly capital intensive and it is not possible to transform overnight. We overcome this by being smart – in line with one of our core values. We are being smart in terms of our Saiccor Mill expansion project, which will not only add shareholder value by increasing DP capacity by 110,000 tpa, but also incorporates the installation of a new recovery boiler and (1) https://www.forbes.com/sites/jiawertz/2018/09/12/dont-spend-5-times-more-attracting-new-customers-nurture-the-existing-ones/?sh=7aba9045a8e0. 67 Integrating our key material issues Cyber security Uncertain and evolving regulatory landscape Employee relations Evolving technologies and consumer preferences Supply chain disruption Risk Sustainability expectations Maintaining ethical behaviour and compliance Procuring responsibly Key material issue Workplace culture Responsible procurement Stakeholder issue Global forces The move towards a circular economy Climate change continuing to impact businesses and reshape societies Resource scarcity and growing concern for natural capital Rising social inequality Continued erosion of trust in business, coupled with increasing social activism The links between our stakeholder issues, key material issues, risks and global forces shaping our world Risk Risk Safety Employee relations Safety Sustainability expectations Employee relations Safety Cyclical macro- economic factors Employee relations Employee relations Sustainability expectations Cyclical macro- economic factors Ensuring the safety of our employees and contractors Safety as a core value Engaging more closely with our employees Supporting sound labour relations Attracting, developing and retaining key skills Creating a positive social impact in our communities Key material issue Connection to, and understanding of, our business and strategic direction Fair, equitable, safe workplace Training and development Remuneration Social responsibility and social inequity Diversity and inclusion Community upliftment Jobs Stakeholder issue T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 68 Changing consumer and employee profiles Globalisation and high levels of connectivity The rapid pace of technological innovation, including artificial intelligence (AI) Growing populations with increasing rates of urbanisation Risk Supply chain Cyclical macro- economic factors Liquidity Sustainability expectations Climate change Liquidity Evolving technologies and consumer preferences Cyber security Evolving technologies and consumer preferences Climate change Liquidity Evolving technologies and consumer preferences Sustainability expectations Climate change Key material issue Demonstrating Reinforcing Verve as agility the Fibre of Choice Enhancing efficiency through machine learning and digitisation Increasing the sustainability of our products through circular design and adjacent markets Developing and commercialising innovations in addition to adjacent businesses Stakeholder issue Return on investment Products based on renewable resources Moving away from a linear, to a circular, model of production Reduced environmental impact New or enhanced products that meet rapidly changing market demand Responsible consumption Evolving technologies and consumer preferences Supply chain disruption Sustainability expectations Climate change Evolving technologies and consumer preferences Sustainability expectations Evolving technologies and consumer preferences Sustainability expectations Evolving technologies and consumer preferences Sustainability expectations Evolving technologies and consumer preferences Sustainability expectations Climate change Climate change Climate change Climate change Sustainability expectations Climate change Key material issue Sourcing sustainable woodfibre Prioritising Responding to renewable and climate change clean energy Focusing on water stewardship Accelerating circular business models Safeguarding and restoring biodiversity Stakeholder issue Global GHG emissions Reduction of fossil fuel usage Global warming Water quality and quantity Resource scarcity Biodiversity loss OUR PERFORMANCE REVIEW Uncertain and evolving regulatory Supply chain disruption Risk Cyber security landscape Employee relations Evolving technologies and consumer preferences Sustainability expectations Risk Supply chain Cyclical macro- economic factors Liquidity Sustainability expectations Climate change Liquidity Evolving technologies and consumer preferences Cyber security Evolving technologies and consumer preferences Climate change Liquidity Evolving technologies and consumer preferences Sustainability expectations Climate change Maintaining ethical behaviour and compliance Procuring responsibly Key material issue Key material issue Demonstrating agility Reinforcing Verve as the Fibre of Choice Enhancing efficiency through machine learning and digitisation Increasing the sustainability of our products through circular design and adjacent markets Developing and commercialising innovations in addition to adjacent businesses Workplace culture Responsible procurement Stakeholder issue Stakeholder issue Return on investment Products based on renewable resources New or enhanced products that meet rapidly changing market demand Responsible consumption Moving away from a linear, to a circular, model of production Reduced environmental impact Safety Employee relations Safety Sustainability expectations Employee relations Safety Cyclical macro- economic factors Employee relations Employee relations Risk Sustainability expectations Cyclical macro- economic factors Ensuring the safety of our employees and contractors Safety as a core value Engaging more closely with our employees Supporting sound labour relations Attracting, developing and retaining key skills Creating a positive social impact in our communities Key material issue Connection to, and understanding of, our business and strategic direction equitable, Fair, safe workplace Training and development Remuneration Social responsibility and social inequity Diversity and inclusion Community upliftment Jobs Stakeholder issue Risk Evolving technologies and consumer preferences Supply chain disruption Sustainability expectations Climate change Evolving technologies and consumer preferences Sustainability expectations Evolving technologies and consumer preferences Sustainability expectations Evolving technologies and consumer preferences Sustainability expectations Evolving technologies and consumer preferences Sustainability expectations Climate change Climate change Climate change Climate change Sustainability expectations Climate change Key material issue Sourcing sustainable woodfibre Prioritising renewable and clean energy Responding to climate change Focusing on water stewardship Accelerating circular business models Safeguarding and restoring biodiversity Stakeholder issue Global GHG emissions Reduction of fossil fuel usage Global warming Water quality and quantity Resource scarcity Biodiversity loss 69 Global forces The move towards a circular economy Climate change continuing to impact businesses and reshape societies Resource scarcity and growing concern for natural capital Rising social inequality Continued erosion of trust in business, coupled with increasing social activism The links between our stakeholder issues, key material issues, risks and global forces shaping our world Changing consumer and employee profiles Globalisation and high levels of connectivity The rapid pace of technological innovation, including artificial intelligence (AI) Growing populations with increasing rates of urbanisation OUR PERFORMANCE REVIEW Our key material issues The issues set out on the following pages are those that we believe underpin our strategic risks and opportunities and have the highest potential impact – negative and positive – on stakeholder value. Further information on each of these issues can be found in our 2021 Sappi Group Sustainability Report available at www.sappi.com   How we determine materiality 1. Define stakeholder value, map stakeholder issues, as well as local and global trends Regulatory and reporting guidelines are mapped against stakeholder issues, as well as trends and developments in our external operating environment. 2. Identify regulatory and reporting issues and consider risks Step 1 We take various stakeholder guidelines into account including those set out in terms of the UN SDGs, the Global Reporting Initiative (GRI), the IIRC and the King Code of Governance™ for South Africa 2016; as well as ratings agencies such as ISS-OEKOM, MSCI and the FTSE4Good Index Series. 3. Evaluate issues through the lens of materiality How relevant is each issue to our business? How does each issue impact our ability to create value in the short, medium and long term? 4. Review and prioritise issues Step 2 Step 3 Step 4 How do our key material issues align with our the global forces shaping that strategy? Thrive25 strategy and How do they link to risk, our priority UN SDGs and developments in our operating context? T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 70 OUR PERFORMANCE REVIEW OUR PERFORMANCE REVIEW Principles Maintaining ethical behaviour and compliance Why it’s material Given that our reputation as an ethical company is key to our ability to unlock further growth opportunities, ethics constitutes the foundation of our business. Values and ethics are not only critical in maintaining a licence to operate but also for developing stakeholder trust and for driving performance. Recognising that our reputation is largely determined by the ethical behaviour of our employees and representatives, we place a high premium on adherence to ethical behaviour as encapsulated in our Code of Ethics. This is a practical tool to guide our directors, management, employees and other stakeholders as to what constitutes ethical behaviour whilst complying with the various laws, regulations and policies applicable to Sappi. (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals The global forces shaping our Thrive25 strategy • Continued erosion of trust in business, coupled with increasing social activism 6 8 10 Cyber security Uncertain and evolving regulatory landscape Employee relations (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) In line with our emphasis on ethical behaviour, a comprehensive training programme in 2021 covered the following topics: • Anti-fraud and corruption (relevant new employees in all regions) • Code of Ethics online training refresher course (all regions) • Competition Law (relevant new employees in all regions and a refresher course for South Africa, Europe and Sappi Trading) • Environmental Law training (relevant new employees in all regions) • Occupational Health and Safety compliance (relevant new employees in all regions) • The Protection of Personal Information Act (POPIA) online training (South Africa) These training initiatives – incorporating relevant and practical examples – have been implemented to inculcate the correct ethical behaviour and responses and to avoid a tick box approach to ethics. Privacy in the workplace training to employees was prioritised in the year under review due to the recent enactment of POPIA in South Africa. Privacy is a constitutionally protected right and accordingly, is an ethical imperative for Sappi. To this end, Sappi’s POPIA Information Officers have been appointed, trained and registered with the applicable regulator and the required privacy policies and procedures are in place. Sappi continues to provide avenues to employees to communicate breaches or apparent breaches of the code either through the telephonic ethics hotline or via e-mail to Ethics@sappi.com. All complaints are registered and investigated by Sappi’s internal audit team which are then reported into Sappi’s Audit and Risk Committee on a quarterly basis. (Further details on page 148 of this report.) Opportunities for value creation Fraud, including bribery and corruption awareness is critical at a time when organisations around the world lose an estimated (cid:24)(cid:8)(1) of their annual revenues to fraud. By working together as OneSappi to combat fraud and ensure ethical outcomes, we can significantl(cid:92) enhance our abilit(cid:92) to produce positive economic and social outcomes and enhance our overall competitive advantage. (1) https://www.fraudweek.com. 71 OUR PERFORMANCE REVIEW Our key material issues continued Principles continued Procuring responsibly Why it’s material Worldwide, we have over 16,000 suppliers and it’s important that they understand – and abide by – our values and ethical standards(cid:17) (cid:55)his is important from both a moral and reputational perspective, particularl(cid:92) given the intensified global focus on(cid:123)responsible suppl(cid:92) chains(cid:17) (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals 2 3 4 Evolving technologies and consumer preferences Supply chain disruption Sustainability expectations The global forces shaping our Thrive25 strategy • Resource scarcity and growing concern for natural capital • Continued erosion of trust in business, coupled with increasing social activism (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) During the year, we initiated our first campaign to onboard suppliers onto EcoVadis. Approximately 100 priority suppliers were contracted directly and invited to share an EcoVadis scorecard. By the end of the year, 90 suppliers were sharing their scorecards with us and another 19 were in progress to disclose on the platform. This equates to 33% of Sappi’s global procurement spend. Our suppliers’ scorecards enable us to evaluate their performance actively, as well as identify risk and priority areas where further improvements are needed. The EcoVadis methodology focuses on 21 sustainability criteria that are grouped into four themes: Environment, Labour and Human Rights, Ethics and Sustainable Procurement. These criteria are aligned with international sustainability standards such as the 10 Principles of the UNGC, the International Labour Organization conventions, the Global Reporting Initiative (GRI) standards and the ISO 26000 standard. We also continued the roll out of our Supplier Code of Conduct and made good progress against our target of 80% of procurement spend with declared compliance with our code of conduct by 2025. In SEU, 67% of total spend was covered by agreements into which the provisions of the code are embedded, 53% in SNA and 44% in SSA. Thrive25 Opportunities for value creation By working collaboratively with our suppliers to promote and maintain responsible environmental, social and governance (ESG) practices, we enhance their understanding of our requirements, thereby helping to realise our vision of a thriving world. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 72 OUR PERFORMANCE REVIEW Prosperity Demonstrating agility Why it’s material One of the key lessons of the Covid-19 pandemic has been the need for agility. In seeking to grow our business and sustain our financial health, we have had to be agile in response to an operating environment which is constantl(cid:92) changing(cid:17) (cid:37)eing fle(cid:91)ible underpins our abilit(cid:92) to achieve our vision of being a sustainable business with an e(cid:91)citing future in woodfibre that provides relevant solutions, delivers enhanced value and is a trusted partner to all our stakeholders. (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals 3 7 9 Supply chain disruption Cyclical macro- eco nomic factors Liquidity The global forces shaping our Thrive25 strategy • Changing consumer and employee profiles • Growing populations with increasing rates of urbanisation (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) In Europe we have agreed to sell the south-western part of our site at Maastricht Mill in the Netherlands. The sale has had no negative impact on employment at the mill. Given the decline in market demand for graphic paper, approximately three years ago the mill began to transition into the manufacturing of luxury packaging board. As this activity mainly takes place on the north side of the company site, the southwestern part is therefore less intensively used and was eligible for sale. We will relocate our activities currently taking place on the sold land to the remaining Sappi site. Proceeds of the sale will be used to improve internal logistics and additionally improve the sustainability of our production processes. In North America we are selling our hydroelectric assets on the Presumpscot River in Maine to Dichotomy Power LLC, pending satisfactory completion of regulatory and other approvals. The move will enhance our focus on our core competencies and is consistent with our permanent shut of PM9 and major components of the energy complex at our Westbrook Mill. The sale will allow us to redeploy resources to further develop our growing businesses. The deal is expected to close by the end of calendar 2021 subject to regulatory and other approvals. In South Africa, the delays in completion and commissioning of our Saiccor Mill expansion project highlight the need for agility. In 2020, we were forced to declare force majeure on the project which then ceased construction. In 2021, construction was further delayed by the social unrest halfway through the year, as well as ongoing Covid-19 travel restrictions which meant certain essential service providers could not enter the country. Commissioning of the plant began in Q4 FY2021 and will be completed in Q1 FY2022. In this region, we are positioning Tugela Mill for further growth by increasing production of neutral sulphite semi chemical pulp by approximately 15,000 tons per annum in response to the anticipated increase in packaging demand. This will enable us to concomitantly increase production of Ultraflute Plus (fluting containerboard), used primarily for fruit exports. It will also partially fill the gap created by the closure of LignoTech South Africa at Saiccor Mill in 2020. Opportunities for value creation In focusing on cost containment, we recognise that the graphic sector of the market is in decline. However, our graphics assets are cash generative. In recent years, our strategy has been, rather than closing or disposing of those assets, to try and convert them into higher margin segments like packaging. We see the big push for paper-based solutions for packing purposes as a strong opportunity on which we will continue to capitalise. 73 OUR PERFORMANCE REVIEW Our key material issues continued Prosperity continued Reinforcing Verve as the Fibre of Choice Thrive25 Why it’s material Under our strategy, one of Sappi’s key drivers is to grow DP capacity and develop our Verve brand as the industry standard. This is based on our belief that as global textile demand grows, driven by population growth, fashion and rising wealth in developing economies, the need to develop more climate-friendl(cid:92) solutions, derived from renewable materials that(cid:123)are not fossil-fuel based, will drive increasing market share for viscose, which is derived from DP. Hawkins Wright(1) reported a(cid:123)rebound in global (cid:39)P shipments of (cid:20)(cid:25)(cid:8) for the first si(cid:91) months of calendar (cid:21)(cid:19)(cid:21)(cid:20) and are e(cid:91)pecting growth of (cid:20)(cid:23)(cid:8) for the remainder of the (cid:92)ear(cid:17) (cid:50)ur growth ambitions are underpinned by our focus on sustainability (including the aspect of traceability) which, we believe, will become increasingly important as a ke(cid:92) differentiator and determinate in defining value for our customers and for Sappi(cid:17) (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals 4 5 9 Sustainability expectations Climate change Liquidity (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) The global forces shaping our Thrive25 strategy • Changing consumer and employee profiles • Growing populations with increasing rates of urbanisation Partnering for a forest-to-garment traceability solution While fashion brand owners want to understand their climate related sourcing risks and opportunities for wood-based fibres, it’s estimated that only 5% of them are able to trace their raw materials to origin of feedstock through the entire value chain. In FY2021, Sappi Verve (DP) partnered with Birla Cellulose, one of the leading viscose manufacturers in the textile value chain, to provide a forest-to-garment traceability solution for 22 global brand owners. This was made possible with the use of Birla’s pioneering ‘Green Track’ blockchain technology, coupled with Sappi’s comprehensive database on wood origin for its DP operations in South Africa and the US. Traceable and transparent supply chains are key to providing brand owners and consumers with the assurance and confidence that their products originate from sustainable and renewable sources of wood, free from deforestation, where biodiversity is promoted and where customary, traditional and civil rights of people are upheld. Our collaboration with Birla enables sustainability- focused consumers, brand owners and retailers to make more informed buying decisions. The efforts were recognised by our inclusion in the Forbes Magazine ’Blockchain 50 List of 2021‘ which features companies that lead in employing distributed ledger technology and have revenue or a valuation of at least US$1 billion. P(cid:68)rt(cid:81)eri(cid:81)(cid:74)(cid:3)t(cid:82)(cid:3)de(cid:79)i(cid:89)er(cid:3)(cid:82)(cid:81)(cid:3)t(cid:75)e(cid:3)(cid:55)e(cid:91)ti(cid:79)e(cid:3)E(cid:91)c(cid:75)(cid:68)(cid:81)(cid:74)e(cid:3)C(cid:79)i(cid:80)(cid:68)te(cid:14)(cid:3) strategy The Textile Exchange (TE) launched their Climate+ Strategy in 2019, with a goal to reduce GHG emissions in the textile value chain by 45% by 2030, while addressing other climate-related impact areas, like water, biodiversity and soil health. To accelerate progress towards the Climate+ objective and to drive collective action, Sappi was one of 40 global brands that participated in a discussion with the Climate Board. The latter was appointed by the TE to uncover industry best practice in terms of reducing GHG emissions. Sappi is also a member of the TE man-made cellulosic fibre roundtable and climate sub-committee, working with other industry leaders to assess how forestry, pulp and fibre production can contribute to meeting the 2030 Climate+ goal. We are an advisory partner in the development of the TE biodiversity module – containing good practice standards – and have participated in the pilot launch of the Biodiversity Benchmark and Index. The Biodiversity Benchmark will enable companies to understand their impacts and dependencies on nature in their materials sourcing strategies, chart a pathway to delivering positive biodiversity outcomes, and benchmark their progress. The tool is aimed at supporting and is being developed alongside the Science Based Targets Network in order to reinforce consistency in language, frameworks and measurements. Additionally, use of this module and its future iterations will help companies prepare for stakeholders’ – including investors’ – questions pertaining to nature-related risk. Partnering to measure the sustainability performance of our DP operations The Higg Facility Environment Module (Higg FEM) and the Facility Labour and Social Module are part of the Higg Index suite of tools developed by the Sustainable Apparel Coalition to enable the apparel industry to measure their sustainability performance and drive supply chain transparency and decision making. By standardising the process of measuring supply chain impacts in the textile industry, the index helps suppliers, manufacturers, brands, and retailers to evaluate materials, products, facilities, and processes based on environmental performance, social labour practices, and product design choices. It is utilised by over 250 brands and manufacturers. The FEM and FSLM were used to measure environmental and social performance as well as to identify opportunities for improvement at Sappi Verve’s operations in South Africa and North America. Cloquet Mill conducted a Higg FEM verification audit with an SAC-appointed auditor and received an excellent score. Furthermore, Saiccor Mill completed a Higg FSLM self-assessment which also resulted in a high score. We believe this to be significant, particularly in light of the poor reputation of the textile value chain in certain parts of the world. (1) Hawkins Wright: The outlook for dissolving pulp: Demand, supply, costs and prices, September 2021. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 74 Opportunities for value creation • The European Union’s Single-Use Plastics Directive aims to combat environmental problems caused by single-use plastic products. This presents an opportunity for viscose fibre (and hence DP), which is considered a natural polymer, to substitute part of the 500,000 tons of petroleum based fibres that are used globally each year to produce single-use wipes. • One of our key Verve customers has requested a mill trial for DP produced from recycled textiles. Against this backdrop and in line with our commitment to the circular economy, we are exploring opportunities for local and international partnerships in the textile recycling space. We have identified a high potential South African start-up company with whom to collaborate. Initial discussions have highlighted numerous opportunities for engagement, including the option to progress Sappi SA’s social impact strategy as well as the potential for raw material security. 75 OUR PERFORMANCE REVIEW OUR PERFORMANCE REVIEW Our key material issues continued Prosperity continued Enhancing efficiency through machine learning and digitisation Why it’s material Data is as an important asset to help optimise operations, create superior customer experiences and disruptive new business models. Advanced Analytics provide deeper, more advanced insight into patterns, trends, and themes that may be hidden within data. This allows businesses to understand their customers on a deeper level, predict future outcomes, reduce risk and enhance competitive edge. (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals 2 6 Evolving technologies and consumer preferences Cyber security The global forces shaping our Thrive25 strategy • Globalisation and high levels of connectivity • The rapid pace of technological innovation, including AI (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) Our data driven culture and machine learning continued to be enabled by our Advanced Analytics team, who collaborate very closely with the business units. All Advanced Analytics’ projects and innovation initiatives are defined, prioritised and managed by the business units and are subsequently developed and supported by the Advanced Analytics team, with a strong focus on enablement. Beginning in 2019, our digital transformation journey started small, with different geographies tackling digital transformation projects individually. Every plant team utilised their own set of data tools for analytics, tracking production and other digitisation efforts. This experimentation process, together with insights from these individual projects, set the roadmap for our Industry 4.0 journey. The aim was to identify/develop a data analytics platform that could hold all our data, enable the setting of enterprise-wide governance and standards and empower domain experts with data science tools. Drawing on the efforts of our different teams enabled us to build a comprehensive Proof of Concept for an Industrial Internet of Things platform with cloud and edge solutions. We finalised this with the help of multiple vendors. Key to our AI journey has been the development of digital twins – a virtual model of a process, semi-finished or finished product which transforms data from different production systems, formats, and time series into a usable database. While some plants had existing digital twins from previous projects, we set an ambitious goal to build approximately 165 digital twins across 18 mills by 2022. Accordingly, with the help of a vendor, we are now employing a templatised digital twin framework which makes it easier for us to capture and distil knowledge from internal teams. This framework makes it possible for Sappi to have greater autonomy as we grow, change and make new discoveries. It also makes it considerably easier to scale our solutions to other facilities. While digital twins make it easy to update data and gain access to the right information, they do require resources or internal leaders to ensure data integrity, which is key to ensuring credibility and momentum when scaling a solution to other production lines, factories, or geographies. To meet this need, we have now created a new global department dedicated to the training, development and support of Advanced Analytics within Sappi to ensure our teams are enabled and invested. The combination of dedicated training and suitable software means that Sappi's data integrators now have the necessary skills to build and maintain any digital twin for their manufacturing processes which can then be leveraged by teams from all over the world. Root cause analysis at Saiccor Mill Our use of root cause analysis (RCA) at Saiccor Mill highlights the effectiveness of our Advanced Anal(cid:92)tics tools(cid:17) (cid:50)ne of the challenges we have faced at the mill is inconsistent cooking liquor quality. To overcome this issue, we have developed a predictive model for liquor quality (soft sensor) together with an automated RCA, whereby whenever our predictions move out of a certain band, we start running a short range (hours) and long range (three days) RCA automatically. A report is generated and sent to the operators and production managers which recommends a target setting range and thus enables more proactive correction of the process(cid:17) Processes are not static(cid:30) the(cid:92) fluctuate and the operating windows can shift based on equipment conditions and efficiencies(cid:17) (cid:55)he predictive modelling helps us to take these shifts into account, so we have become more dynamic in our targeting of process settings. Opportunities for value creation (cid:47)ooking forward, advanced anal(cid:92)tics will pla(cid:92) a ke(cid:92) role in delivering the digital strateg(cid:92) over the ne(cid:91)t five (cid:92)ears(cid:17) We have identified advanced anal(cid:92)tics initiatives across different business functions, which has been included in the digital roadmap that will deliver value to Sappi and our stakeholders. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 76 OUR PERFORMANCE REVIEW Increasing the sustainability of our products through circular design and adjacent markets Why it’s material In line with our commitment to a thriving world, we believe it is our responsibility to obtain the maximum value from every tree used in our production process(cid:17) (cid:50)ur clear advantages in diversification, global scale, and local e(cid:91)pertise are helping us to achieve this(cid:17) (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals 2 5 9 Evolving technologies and consumer preferences Climate change Liquidity (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) Sappi Symbio is a natural fibre composite material combining high-quality cellulose from renewable, forestry certified woodpulp in a polymer matrix. Benefits include weight reduction in the application combined with a natural look: soft, warm touch; high rigidity and low density. Symbio aligns with our drive to make everyday materials more sustainable. In FY2021, commercialisation of this product gained considerable traction with uptake by a major automotive manufacturer in the United States for use in centre consoles, instrument and door panels, as well as cable trays, among others. In addition, various other brand owners have the product in their pre-commercial qualification phase. Symbio application in household and consumer goods is also under development. Now that we have commercial uptake of Symbio, we are focusing on optimisation of the business model to grow offtake and unlock further capacity for scale-up, including: • Increasing the percentage of cellulose to make the product even more sustainable. • Simplifying manufacturing and lowering cost. • Developing Symbio composites with renewable polymers such as polylactic acid which could replace polypropylene to further improve the product’s sustainability value proposition. In terms of our (cid:57)(cid:68)(cid:79)id(cid:68)(cid:3)fi(cid:69)ri(cid:79)(cid:79)(cid:68)ted(cid:3)ce(cid:79)(cid:79)(cid:88)(cid:79)(cid:82)(cid:86)e, our pilot plant is running at capacity with repeat orders in diverse application fields such as concrete, cosmetics, personal care, paint and coatings, where it is valued as a dispersant, suspension stabiliser and rheology modifier. In addition, Valida is commercialised in wound care applications, with one of the advantages cited being reduced frequency of dressing changes. We are moving ahead with our furfural pilot plant at Saiccor Mill. The plant, which uses the co-product of the DP process – xylan hemicellulose sugars – to create furfural, is scheduled for commissioning in the first half of calendar 2022. Established and future market uses for furfural include resins, solvents and as a sustainable platform chemical for the production of a variety of derivatives to replace oil-based chemicals. Pending successful results from the pilot plant and a viable business case, the intention is to build a commercial furfural plant at the mill. The global forces shaping our Thrive25 strategy • The move towards a circular economy • Climate change continuing to impact businesses and reshape societies • Resource scarcity and growing concern for natural capital In the xylose field we continue to monitor and assess market opportunities. Our lignin business continued with its expansion trajectory in FY2021 and for the third year in a row, growth exceeded 30%. We have made considerable progress in moving beyond traditional commodity markets such as dust suppression and concrete admixtures to higher value markets. We have, for example, entered the oil well drilling, ceramics, carbon black and agrochemical markets. Our lignin products are used in resin applications for the production of particleboard, in particular Oriented Strand Board to improve the product’s safety features and reduce use of isocyanate and potentially also other oil-based chemicals such as phenol. In addition, together with a technology partner, we are working to test lignin-based intermediates as a substitute for oil-based alternatives in foams in a wide variety of applications where thermal performance, moisture resistance, fire retardancy and structural strength are key performance criteria. As part of Sappi Biotech’s ongoing strategy to enter adjacent markets, the development of our lignin product for the animal feed industry culminated in the launch of our Sappi Pelletin product in this market with first sales reported in 2020. Pelletin is a natural glue which binds the feed ingredients and additives together to produce cost-effective compound feed pellets with enhanced durability and strength. The anti-caking and dispersing properties of lignin promote mixing uniformity and homogenous blending, while reduced friction offers lower equipment wear and energy costs. The next generation of animal feed products focus on value beyond pellet binding into functionalities that will aid the drive to find alternatives to antibiotic growth promoters with natural prebiotic and probiotic additives, together with mycotoxin binders. Specialist studies in partnership with industry specialists have been initiated to determine whether our natural lignin-based products offer improved animal gut health and performance. Opportunities for value creation Frost can have a catastrophic impact on many agricultural crops around the world. To date, farmers have used wind machines and/ or heaters to mitigate this risk. In conjunction with a leading university, we have successfully demonstrated that Valida can effectivel(cid:92) protect susceptible plant buds from frost damage(cid:17) (cid:44)n addition, we have also obtained a grant from P(cid:22)(cid:49)ano, a public- private partnership aimed at the rapid commercialisation of cellulosic nanomaterials, to further develop this avenue of usage. 77 OUR PERFORMANCE REVIEW Our key material issues continued Prosperity continued Developing and commercialising innovations in addition to adjacent businesses Why it’s material Without critical thinking, new products and improved processes, we cannot succeed in a highly competitive industry and world. Thrive25 Accordingly, innovation is embedded in our DNA and in our strategy which reinforces a culture whereby our people challenge conventional thinking with new ideas and solutions which contribute to a more sustainable world and add practical value to Sappi, our customers and societ(cid:92)(cid:17) We make ongoing investments into (cid:53)(cid:9)(cid:39) (cid:11)(cid:56)S(cid:7)(cid:23)(cid:22) million in F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20)(cid:12) and promote a culture of innovation through the annual (cid:55)echnical (cid:44)nnovation Awards (cid:11)(cid:55)(cid:44)A(cid:12)(cid:17) (cid:55)he combined five-(cid:92)ear net present value for the eight finalists in the most recent TIA is approximately US$60 million with an estimated annual EBITDA ex SI of US$9 million. (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals 2 4 5 Evolving technologies and consumer preferences Sustainability expectations Climate change The global forces shaping our Thrive25 strategy • The move towards a circular economy • Climate change continuing to impact businesses and reshape societies • Resource scarcity and growing concern for natural capital (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) Sustainable food packaging solutions Flexible packaging is essential to protect foods from air and moisture during transportation and storage. Traditionally, heat- sealing laminates comprising paper and a polyethylene (PE) sealing layer have been the standard materials to keep food unspoiled and fresh. However, this kind of flexible packaging requires the additional converting step of applying a PE layer to the paper. Generally, these synthetic polymer coated paper products are neither recyclable nor compostable. To address our clients’ needs for sustainable alternatives, we developed Sappi Seal. While not new, this product is included here as it was the overall winner of the most recent Sappi TIA. Sappi Seal is a paper-based packaging solution with an integrated sealable layer. The integrated barrier eliminates the need to apply any other PE extrusion coatings. Designed to be heat sealable and moisture resistant, Sappi Seal is the first paper-based solution with dispersion technology competing with extrusion/lamination in the market. (cid:54)(cid:68)(cid:83)(cid:83)i(cid:3)(cid:42)(cid:88)(cid:68)rd(cid:3)(cid:42)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:49)(cid:68)t(cid:88)re(cid:3)(cid:23)-(cid:50)(cid:43)(cid:42) is another paper product offering a safe, sustainable alternative to laminate constructions in food packaging. It is a one-side coated glossy paper with functional high barrier coating and heat sealability that is suitable for both food and non-food applications. The product incorporates a new base paper architecture, modified coating recipes and a unique drying process. We have filed a patent application for the latter. The packaging can be heat sealed without the need for additional sealants because of its unique barrier coating. The product is safe to use for direct food contact and protects the contents from oxygen, water vapour, grease and mineral oil. Its integrated barrier ensures a long shelf life of the end product, an essential food packaging requirement. Furthermore, Guard Gloss fulfils the high market demands for excellent printability and good converting performance. Introducing new dye sublimation papers In FY2021 we introduced Transjet Tacky Industrial, a coated dye sublimation paper for digital transfer printing, specially developed for high-speed inkjet printing on highly elastic textiles. The paper is first printed with the desired image or pattern which is then transferred to the elastic polyester fabric by means of heat and pressure. Transjet Tacky Industrial has a high ink load capacity so the print can be better accentuated due to strong colour saturation. The design remains clearly visible when the fabric is stretched to its maximum, which is particularly beneficial for sportswear. We also added Basejet uncoated dye sublimation paper to our portfolio, thereby providing an additional solution for the digital printing of fashion and home textiles in consistent print quality. Both Transjet Tacky Industrial and Basejet are FSC-certified. E(cid:91)(cid:83)(cid:68)(cid:81)di(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:83)(cid:82)rt(cid:73)(cid:82)(cid:79)i(cid:82)(cid:3)(cid:82)(cid:73)(cid:3)(cid:79)(cid:68)(cid:69)e(cid:79)(cid:3)(cid:83)(cid:68)(cid:83)er(cid:123)(cid:86)(cid:82)(cid:79)(cid:88)ti(cid:82)(cid:81)(cid:86) We expanded our portfolio of label paper solutions with the Parade Label Pro non-wet-strength wet-glue label paper, targeted at the beverage, food and consumer goods sectors. The paper is suitable for a wide range of applications, such as labels for disposable bottles, food and non-food containers, as well as wrappers for a wide variety of products. It is distinguished by a glossy, single-side double-coated quality with a very smooth surface and a high degree of whiteness – ideally suited for outstanding printing and finishing results. (cid:48)eeti(cid:81)(cid:74)(cid:3)t(cid:75)e(cid:3)(cid:81)eed(cid:3)(cid:73)(cid:82)r(cid:3)(cid:83)(cid:68)c(cid:78)(cid:68)(cid:74)i(cid:81)(cid:74)(cid:3)(cid:90)it(cid:75)(cid:3)(cid:68)(cid:123)(cid:81)(cid:68)t(cid:88)r(cid:68)(cid:79)(cid:3)(cid:79)(cid:82)(cid:82)(cid:78)(cid:3)(cid:68)(cid:81)d(cid:3)(cid:73)ee(cid:79) Driven in part by the booming ecommerce business, demand for corrugated board packaging has been increasing rapidly. In response, we launched Fusion Nature Plus, a complement to our well-established Fusion Topliner. The former is an uncoated, fully bleached recyclable virgin fibre liner with excellent printability in flexographic, digital and offset printing. The product’s high whiteness, brilliant colour reproduction and consistently high quality make it a good choice for corrugated or solid board packaging where a bright white appearance is required for topliner, inner liner and fluting – and for ensuring an exceptional unpacking experience for the customer. It can be used in a wide number of applications, from pharmaceutical to food packaging. Moreover, given its strength properties, as well as an appealing look and feel, the new virgin fibre liner is also ideally suited for producing paper carrier bags. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 78 Ultracast Viva’s® green credentials recognised In April 2021, our Ultracast Viva release paper won the Green Product Award 2021 jury prize in the fashion category. The award programme recognises companies and start-ups that have distinguished themselves by their sustainable practices and product results. Over a thousand applicants from 51 countries were screened for this year's nomination. An industry breakthrough, Viva is the first premium high- fidelity casting paper compatible with solvent-free systems. This textured release paper is now the new standard for high-fidelity polyvinyl chloride, polyurethane (PU), semi-PU and solvent-free casting systems for high quality coated fabrics and textured materials. There is a global movement to limit or eliminate solvent-based casting systems to reduce chemical waste and pollution. Ultracast Viva is the answer for customers dedicated to using sustainable alternatives. Opportunities for value creation In 2022, we will be introducing new functional paper barrier coating technology at our speciality mill in Alfeld, Germany. Expanding the use of our proprietary barrier coating technology underpins our drive to maintain our leading position in barrier coated paper as well the commitment we have with our customers in developing innovative future-focused packaging solutions which contribute toward a sustainable future. The demand for paper and paperboard packaging continues to rise as consumers become increasingly mindful of the impact their buying choices have on the environment. We are committed to supporting our customers in going beyond traditional film and foil-based material solutions and growing our product ranges to meet the demands of our ever-changing world. Working directly with brand owners we aim to create future-oriented circular solutions in line with growing collective global responsibilities. Our 2017 acquisition of Rockwell Solutions has deepened our barrier paper manufacturing knowledge. Adding barrier coater capacity at Alfeld Mill further upscales our capabilities, bringing the combination of paper, dispersion and coating technology to more customers. Through this initiative we will continue to challenge the conventional packaging industry with new ideas and solutions in order to make it easier for the world and the planet to follow a circular-economy strategy. We expect to begin commissioning new products at the Alfeld Mill from mid-2022. 79 OUR PERFORMANCE REVIEW OUR PERFORMANCE REVIEW Our key material issues continued People Ensuring the safety of our employees and contractors Why it’s material Safet(cid:92) is not onl(cid:92) a moral imperative, it is also an issue that affects productivit(cid:92) and hence, value add to all our stakeholders(cid:17) (cid:50)ur approach to safety, a core value, is based on the principles of Project Zero – zero fatalities and zero injuries. In addition to addressing ha(cid:93)ards in the workplace b(cid:92) means of the (cid:50)(cid:43)SAS (cid:20)(cid:27)(cid:19)(cid:19)(cid:20) and (cid:44)S(cid:50) (cid:23)(cid:24)(cid:19)(cid:19)(cid:20) related s(cid:92)stems in place at all our pulp and paper mills, we also address ‘at risk behaviour’ of our employees through a behaviour-based safety (BBS) system. (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals The global forces shaping our Thrive25 strategy • Continued erosion of trust in business, coupled with increasing social activism On a positive note, Injury Indices (II) for both own employee and contractors showed an improvement over the past year and the five preceding years. Sappi Europe had a disappointing year with a LTIFR of 0.78 which was a deterioration from the previous year’s 0.59. On a positive note, contractor LTIFR showed continued improvement from previous years. A safety communication campaign is underway to bring more attention to frequent injuries and reinforce the fact that nothing is so important than it cannot be done safely. Sappi North America completed FY2021 with a LTIFR for own employees of 0.33 compared with best ever of 0.20 in FY2020. As in the previous year, there were no contractor LTIs – an excellent achievement. Safety performance in Sappi Southern Africa was highly satisfactory, with the best ever LTIFR for own employees at 0.29. The previous best ever achieved was 0.41 in 2020. Looking forward, regions will continue to encourage the reporting of near misses and non-lost time injuries (NLTIs) and ongoing improvements in safety suggestion schemes. We remain committed to reducing the impact of injuries on our workforce. By involving all personnel, sharing information, and managing risk in accordance with accepted best practice, we will aim to reduce the occurrence and severity of accidents and NLTIs. 1 10 Safety Employee relations (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) Covid-19 The year was dominated by the Covid-19 pandemic with all operations and sites continuing with the required sanitising and hygiene protocols, social distancing, self-declaration health check requirements with ongoing engagement and communications for the necessity of self-awareness at work and at home. While the pandemic appears to have heightened safety awareness and reinforced safe attitudes and behaviours, complacency remains a risk. We have made a concerted effort to encourage our people to vaccinate through ongoing communication campaigns and, in South Africa, we have set up vaccinations stations at our operational sites to enable access to our people, their families and our contractors. Occupational safety In 2021 we were delighted to achieve our primary goal of zero fatalities. This can be attributed to consistent messaging around Project Zero and the ‘I Value Life’ safety campaign, including the maturing Stop. Think before you Act journey in Sappi Forests. Our continuous sharing of incidents, near misses and best practices across the group has also played a key role, as has the online Sappi Learning annual performance enablement objective setting. This included a required statement of each person’s commitment together with ‘walk the talk’ leadership behaviour demonstration examples. In terms of group safety performance, LTIFR for both own employees and contractors declined slightly from the previous year but has shown steady improvement over the past six years. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 80 Comment: We calculate LTIFR by dividing the product of lost-time injuries and a group-wide standard for man hours by the unit’s man hours, ie LTIFR = LTI * 200,000/unit’s actual man hours. As from this year, we have excluded LTIs that result in light duty from the calculations. Comment: The theme for Global Safety Awareness Week continued with ‘I Value Life’ – aligned with personal commitment to your own and your colleague’s life. Group LTIFR 1 7 0 . 0.80 0.60 0.40 0.20 0 2014 ● 1 7 0 . 6 5 0 . 9 5 0 . 8 5 0 . 5 5 0 . 8 3 0 . 1 4 0 . 4 3 0 . 4 3 0 . 6 3 0 . 1 4 0 . 3 4 0 . 8 4 0 . 9 2 0 . 1 3 0 . 2015 2016 2017 2018 2019 2020 2021 100 80 60 40 20 0 Sappi LTIFR (lhs) ● Contractor LTIFR (lhs) Sappi II (rhs) Contractor II (rhs) Global Safety Awareness Week 14 - 18 June 2021 Taking care of our well-being Being responsible Caring for each other Making safe informed decisions I value life means Protecting life Always behaving safely Always putting safety fi rst “As OneSappi, we do business safely with integrity and courage, making smart decisions that we execute with speed.” I value life Opportunities for value creation Currently, safety of own employees is included in our management incentive schemes. In FY2022, this will be expanded to include contractors, highlighting our view that contractor safety is as important as that of our own employees. 81 OUR PERFORMANCE REVIEW OUR PERFORMANCE REVIEW Our key material issues continued People continued Engaging more closely with our employees Why it’s material When emplo(cid:92)ees are engaged, their discretionar(cid:92) effort goes up(cid:17) When leaders and managers channel that energ(cid:92) and effort in the right direction, business and personal outcomes are positively impacted. Recognising that our people are our greatest lever for achieving our purpose, we conduct employee engagement surveys every second year. Input in previous surveys has shaped programmes and initiatives that have significantl(cid:92) improved the wa(cid:92) we work(cid:17) Thrive25 (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals 1 4 10 Safety Sustainability expectations Employee relations The global forces shaping our Thrive25 strategy • Continued erosion of trust in business, coupled with increasing social activism • Changing consumer and employee profiles • Globalisation and high levels of connectivity (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) We appointed a new service provider to conduct our most recent employee engagement survey. Permanent employees in all regions were given the opportunity to participate in the survey which was made available in Dutch, English, Finnish, French (Quebec), German, isiZulu and Italian. The key issues covered were: • Manager and senior manager relationships • Inter-departmental relationships • Company potential and strategy • Ethics • Safety. In the new survey, the following definitions were used for engagement levels: • Engaged: Engaged employees consistently exceed expectations. They are energised and passionate about their work, leading them to exert discretionary effort to drive organisational performance. • Almost Engaged: Employees who sometimes exceed expectations and are generally passionate about their work. • At times they exert discretionary effort to help achieve organisational goals. (cid:44)(cid:81)di(cid:428)ere(cid:81)t(cid:29) Employees who are satisfied and comfortable are generally able to meet minimum expectations. They see their work as ʽjust a job’, prioritising their needs before organisational goals. • Disengaged: Employees who usually fail to meet minimum expectations, putting in time rather than effort. They have little interest in their jobs and often display negative attitudes. Globally, participation in the 2021 survey was 84%, with the following regional levels: 81% (SEU), 66% (SNA), 96% (SSA) and 100% (Sappi Trading). The survey tool provides a priority matrix that overlays the Sappi results with the factors that have the highest impact on engagement levels. Using the matrix, we have established areas of improvement for each region. On a global level these include senior manager relationships, department relationships, manager relationships, together with learning and development. Opportunities for value creation A central action tracker has been developed which enables our human resources colleagues to update the status of action items for their internal clients on a monthly basis. Comprehensive business unit-level reporting takes place quarterly and a summary of the themes and progress are provided to the senior leadership team twice annually. In addition, the close-out of engagement action items has now been included in the performance objectives of each line manager and supervisor across the business. In addition, through the new service provider, we are able to run interim pulse surveys in targeted areas. Once interventions are complete, these interim surveys will be used to measure the impact and capacitate local human resources teams to react faster to support the business through required improvements. (cid:55)hese actions will not onl(cid:92) affirm that the voices of our people are important, but will also help give us greater clarit(cid:92) as we work to demonstrate added value in line with Thrive25 . T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 82 OUR PERFORMANCE REVIEW Supporting sound labour relations Why it’s material Sound labour relations are important for business continuity. We are committed to fostering positive stakeholder relationships and believe that effective communication is essential to sound labour relations, enhanced emplo(cid:92)ee engagement and ultimatel(cid:92), overall business success. We continue to endorse the principles of fair labour practice as entrenched in the UNGC and the Universal Declaration of Human Rights. At a minimum, we conform to and often exceed, the labour legislation requirements in countries in which we operate. Sappi promotes freedom of association and engages extensively with representative trade unions. Globally, approximately (cid:24)(cid:25)(cid:17)(cid:23)(cid:22)(cid:8) of our workforce is unionised, with (cid:26)(cid:20)(cid:17)(cid:24)(cid:22)(cid:8) belonging to a bargaining unit(cid:17) (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals 1 7 10 Safety Cyclical macro- economic factors Employee relations (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) We continued to enjoy relatively positive industrial relations with trade unions at all manufacturing sites and forests plantations across the group in the year under review. Overall, FY2021 was again characterised by very tough collective bargaining process given the continued impact of Covid-19 and global economic conditions. Community engagement continued to be another key focus area, especially in South Africa as the country experienced an unprecedented wave of community unrest largely in the Gauteng and KwaZulu-Natal provinces. In SEU, 62% of employees are members of a union, and 87% of employees fall within a bargaining unit. We engage with various unions in each country where we operate and Collective Labour Agreements are in place at all mills with the exception of Carmignano and Condino Mills in Italy and Lanaken Mill in Belgium. In SNA, 65.2% of employees are members of a union, with 64.9% belonging to a bargaining unit. SNA has 12 collective bargaining The global forces shaping our Thrive25 strategy • Continued erosion of trust in business, coupled with increasing social activism • Changing consumer and employee profiles agreements with its hourly employees across various categories of work. Union representation in SSA declined slightly to 50%. The region continues to recognise two trade unions, namely, the Chemical Energy, Pulp, Printing, Wood and Allied Workers Union – the majority union across all mills and forestry – and the United Association of South Africa. However, we also continue to engage with other trade unions that are substantively represented in some of our operations, but not currently fully recognised. These are the Association of Mining and Construction Union organising at Lomati Sawmill in Barberton as well as the National Union of Metal Workers of South Africa, organising at our Ngodwana and Tugela Mills. In SSA, 59% employees fall within the scope of the bargaining unit. Collective bargaining in SSA was concluded well ahead of the deadline for implementation, in both the pulp and paper and forestry sectors. Opportunities for value creation In order to improve labour/management relationships across all operations, SSA has developed and adopted a roadmap facilitated b(cid:92) an independent Senior Commissioner(cid:17) (cid:55)he ke(cid:92) elements of the roadmap include a specific review of the (cid:49)ational Partnership Forum (including senior members of management and senior union leaders who hold regular meeting where business, safety and union challenges are discussed), business unit engagement structures, communication with employees and capacity building for union officials(cid:17) Work is alread(cid:92) underwa(cid:92) in various task teams consisting of management and labour representatives to develop and implement action plans. 83 OUR PERFORMANCE REVIEW Our key material issues continued People continued Attracting, developing and retaining key skills Why it’s material Our employee value proposition whereby we seek to add value to our people and our business is based on making a purpose- driven and meaningful contribution towards the wellbeing and development of our employees and our communities. This in turn is(cid:123)based on sourcing talent strategicall(cid:92) and retaining it, accelerating development, providing performance feedback and creating development opportunities. Skills are the backbone of our success. (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals 10 Employee relations Our additional SSA priority SDGs The global forces shaping our Thrive25 strategy • Continued erosion of trust in business, coupled with increasing social activism • Globalisation and high levels of connectivity • Changing consumer and employee profiles packaging and speciality paper groups was also implemented. We also expanded our curriculum-based training system using the Convergence platform – workforce training and compliance management software that offers a single platform from which to deliver training programmes – at Somerset Mill for both hourly employees and entry level engineers. In addition, we expanded Cloquet Mill’s supervisor training module, provided introductory production training at the same mill and introduced new supervisor training at Somerset Mill. Westbrook Mill continued with multi-craft training to move to a single craft shop. In Sappi Southern Africa there was a concerted effort for mill foremen and superintendents to complete the safety and performance improvement programme called Lean on Me. A total of 403 employees across the mills are currently enrolled in the programme and are completing a combined average of 1,500 online courses, classrooms and practical assignments on a monthly basis. The region refreshed the content of the Manager in Training and LeadX – a leadership development programme targeting future heads of department – programmes with the new leadership culture requirements from deployed this content to new groups of participants. We also continued to utilise online Pulp and Paper training from Convergence to improve awareness of key processes and competence in the mills. Thrive25 and Training in Sappi Trading was varied, ranging from leadership training for senior managers in Hong Kong, to Portuguese language courses in Mexico. (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) We are committed to implementing a consistent approach to learning that is linked to talent management, succession and the improvement of skills and productivity across our business. Our primary aim is to increase and improve our employees’ productive output and shorten the time to competence. As can be seen from the table detailing training hours, our training focus is on the lower levels of the organisation. Globally, all employees undergo Code of Ethics and safety training. However, each region has targeted learning and development programmes focused on meeting its own particular needs. Some of the regional initiatives are set out below. In Sappi Europe, we continued with implementation of the Cornerstone learning, talent and performance management systems which automates and improves processes around performance reviews, goal management, competency management and development planning. The region continued with the three to four-year apprentice vocational training programme implemented initially at our four German-speaking mills, now also in operation in Finland and Belgium. This involves approximately 240 apprentices and is helping to build a technical skills pool that will be used to replace staff going on retirement over the next three to four years. In Sappi North America, the internship programmes at Sappi’s three US mills are helping to create a pipeline for entry level talent, specifically engineers and some functional positions to offset the losses associated with the ongoing wave of retirements. Targeted salesforce training for the graphics and T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 84 OUR PERFORMANCE REVIEW Training hours per region in 2021: all employees No grade Unskilled 25.19 117.63 320.86 65.35 – – 28.96 28.96 SEU SNA SSA Total Semi- skilled 5.03 19.17 40.75 39.41 Skilled technical and junior management Professional and middle management Senior management Top management 7.28 29.78 37.59 31.68 15.17 33.86 26.50 23.33 14.07 18.25 10.88 14.07 8.86 9.33 3.36 6.61 Total 22.74 85.10 63.65 48.29 Opportunities for value creation South Africa has a critical need for technical and artisan skills. We continued to focus on technical development through a combination of technical online training and specialised classrooms – our partnership with the Southern African Institute of Welding for accredited welding training at Saiccor Mill is an example. Another milestone was the attainment of full apprentice and trade test accreditation at the Skills Centre at (cid:49)godwana (cid:48)ill(cid:17) (cid:55)he first phase training for apprentices from Stanger and Saiccor (cid:48)ills was completed at the (cid:49)godwana Skills Centre, with further benefit gained from local Sappi-owned accommodation ad(cid:77)acent to the centre. The cost savings from the accommodation are being used to provide further training. By contributing to technical competency levels in South Africa, we are ensuring a pipeline of skills which meets our needs while creating positive social impact and contributing to the wellbeing of our communities. 85 OUR PERFORMANCE REVIEW Our key material issues continued People continued Creating a positive social impact in our communities commitment to being a trusted partner, we work to promote shared value and create positive social impact Why it’s material Thrive25 In line with our beyond the fence lines of our mills and plantations. Our aim is to create positive, meaningful and sustainable systems change for the benefit of our communities, particularl(cid:92) for those at a disadvantage as a result of comple(cid:91), long-term s(cid:92)stemic issues(cid:17) (cid:44)n doing so, we foster positive community relationships, enhance our reputation, become a more attractive employer and secure our licence to operate – and thrive. (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals Our additional SSA priority SDGs 4 7 Sustainability expectations Cyclical macro- economic factors The global forces shaping our Thrive25 strategy • Rising social inequality • Continued erosion of trust in business, coupled with increasing social activism (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) Our corporate citizenship initiatives and programmes are in line with, and supportive of, our business strategy and are developed with input from key stakeholder groups. They are also being matched against our UN SDG commitments. Our support is focused on our employees, our customers and the communities where we have an impact. We have prioritised community support projects with a particular focus on education, environment, health and welfare. Our preference is for multi-year programmes which create sustained impact in our communities. The majority of spend is allocated to South Africa, given the development needs of the country. Each region has its own programmes which are detailed extensively in our Group Sustainability Report, available at www.sappi.com In FY2021, the Covid-19 global pandemic continued to dominate the business and social landscapes. We adjusted our regular corporate citizenship programmes to meet community needs. We responded swiftly to protect the safety of our employees and communities as well as to address the negative economic and social impacts, including the provision of personel protective equipment, sanitiser, food parcels and other localised support. During the year Sappi joined the Circular Bioeconomy Alliance (CBA), a voluntary organisation working to accelerate the transition to a circular bioeconomy through tangible local activities, such as Sappi’s own Project Khulisa tree grower scheme. In Europe the previously established Covid Hardship Fund continued to receive contributions from staff, and it made donations to the WHO Covid-19 Solidarity Response Fund. In North America the Ideas that Matter (ITM) grant programme, which was suspended for 2020 due to the focus on our Covid-19 response, was revised and relaunched. As from 2021 designers from around the world will be able to submit ideas that include paper packaging projects in addition to print and digital communications projects, aligned with at least one of the 17 UN SDGs. Submissions should show how print design can improve the lives of others. An amount of US$250,000 has been made available for ITM grants. In South Africa a review of support programmes led to the adoption of a new Social Impact Strategy for SSA which will inform planning for the corporate citizenship programme from FY2022 onwards. The strategy will ensure that disparate current initiatives are reworked into a single coherent framework enhancing our strategic approach to local communities and national and local government. Sappi Southern Africa partnered with the National Business Initiative to establish a small business development hub within the Ilembe District in KwaZulu-Natal, where Sappi’s Tugela and Stanger Mills are located. During FY2021 Sappi Southern Africa formally joined the Shared Value Africa Initiative. The move aligns with our corporate purpose and our new approach to social impact. The membership enables us to collaborate and partner on mutually beneficial business relationships with likeminded organisations with values and principles that focus on creating economic value and value for society – Profit with Purpose. Spend in 2021 Sappi Europe Sappi North America Sappi Southern Africa 2021 €100,000 US$145,100 ZAR48 million Note: The figure for SNA is much lower than in previous years because we suspended our longstanding ITM programme (spend: US$250,000) for FY2021. The grant programme has been revised and relaunched for 2022. Opportunities for value creation (cid:44)n South Africa we anticipate that the newl(cid:92) adopted social impact strateg(cid:92) will enable us to leverage our financial commitment, enhance the efficac(cid:92) of our programmes and promote greater levels of collaboration(cid:17) T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 86 OUR PERFORMANCE REVIEW Planet Sourcing sustainable woodfibre Why it’s material Healthy, resilient forests are the foundation of our business. Sustainable forest management can maintain or enhance forest carbon stocks and sinks, while wood products store carbon and act as substitutes for emissions-intensive materials. Responsibly managed forests play an important role in mitigating climate change, and we are determined to be part of the solution to this challenge b(cid:92) acting as a custodian of land and forests(cid:17) We believe that robust, internationall(cid:92) recognised and third-part(cid:92) verified forest certification s(cid:92)stems are effective tools for promoting sustainable consumption and production, as well as combating deforestation and illegal logging through proof of legality and responsible practices. Accordingl(cid:92), we strive to increase the amount of certified fibre supplied to our mills and prioritise responsible management on our plantations in South Africa. As sustainably managed forests are more productive, by doing so we ensure a sustainable supply of woodfibre(cid:17) (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals 2 3 4 5 Evolving technologies and consumer preferences Supply chain disruption Sustainability expectations Climate change The global forces shaping our Thrive25 strategy • Climate change continuing to impact businesses and reshape societies • Resource scarcity and growing concern for natural capital (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) Promoting responsible forestry All Sappi’s mills in Europe, United States, and Canada are both Programme for the Endorsement of Forest Certification (PEFC) and Forest Stewardship Council (FSC), and in the United States also Sustainable Forestry Initiative (SFI) Chain of Custody (CoC) certified. Sappi’s own tree plantations in South Africa are both PEFC and FSC-certified. The mills in South Africa are FSC CoC-certified and will achieve PEFC CoC certification soon. This approach enables us to offer a wide product portfolio of certified products, and gives us full traceability of purchased wood-based raw material. In so doing, we hope to drive responsible production and consumption patterns and demand for wood-based products originating from certified forests. In 2021, 77% (2020: 73%) of all the wood-based raw material supplied to Sappi’s mills originated from FSC or PEFC (incl. SFI) certified forests. In Europe, North America and South Africa, the share of certified woodfibre supplied in 2021 was respectively: 87% (2020: 80%), 57% (2020: 55%), and 85% (2020: 83%). Much of the woodfibre we use is dual certified. In 2020 and 2021, the CoC processes were extended to new products such as Valida fibrillated cellulose, as well as Symbio composite materials combining cellulose from wood and thermoplastics. We engage with wood and pulp suppliers to promote and increase the share of certified forests and wood, and actively participate in the development of FSC, PEFC and SFI systems. In South Africa, we operate a FSC group scheme, which offers FSC certification for 42 private members with 41,000 ha of land as at the end of FY2021. We offer growers in this scheme a premium for certified timber, thereby encouraging them to invest in sustainable management practices. In the United States, the Sappi Maine Forestry Programme and the Sappi Lake State Private Forest Programme assist forest landowners to meet their objectives for managing their woodland. Sappi’s trained foresters are able to develop a forest management plan geared to the interests of the landowner including wildlife management and aesthetics, marketing of timber to generate maximum return and providing an extensive network of environmental and marketing resources. In South Africa, qualified extension officers provide growers in our Sappi Khulisa enterprise development scheme with ongoing growing advice and practical assistance. E(cid:81)(cid:86)(cid:88)ri(cid:81)(cid:74)(cid:3)(cid:86)ec(cid:88)rit(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)fi(cid:69)re(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:79)(cid:92) Sappi Forests enhances our fibre base in South Africa through leading-edge tree improvement programmes which aim to produce high-quality wood with the required pulping characteristics, increase yield per hectare and mitigate against pests and diseases. In South Africa, 56% of our plantations can be classified as having high site sensitivity. Sappi has developed a site sensitivity risk map that includes various site risks (slope, erodibility, soil depth, soil organic carbon content, soil texture, etc). Specific management operational guidelines have been or are being developed based on the different site sensitivity classes. Silvicultural practices on these sites are reviewed and changed to use practices like mulching to mitigate site impacts. 87 OUR PERFORMANCE REVIEW Our key material issues continued Planet continued Sappi and the fi rst ever PEFC forest management certifi cate in South Africa (cid:44)n earl(cid:92) (cid:21)(cid:19)(cid:21)(cid:20), Sappi was awarded the fi rst ever PEFC forest management certifi cate in South Africa. This achievement validates that Sappi’s forest management practices in South Africa meet the requirements for sustainable forest management set out in the PEFC-endorsed standard for the region – Sustainable African Forestry Assurance Scheme (SAFAS). (cid:55)he certifi cation will enable Sappi to off er PEFC- certifi ed wood from our plantations in South Africa, giving further assurance to Sappi’s local and global customers that the wood raw material originates from responsibly managed forests. This is in addition to the longstanding FSC certifi cation that we hold for all our plantations in South Africa. The potential of SAFAS in South Africa is that it incorporates cutting-edge, innovative and eff ective approaches to also make forest certifi cation more accessible to South Africa(cid:111)s small landowners. We believe that this has great promise for ensuring certifi cation that not onl(cid:92) delivers social and environmental values, but also supports socio-economic and development priorities. What makes PEFC- endorsed national forest certifi cation systems, such as the SAFAS, so relevant is that they are locally developed and owned, and that they respect the country’s operational and cultural conditions. This is important because it ensures that the advantages of certifi cation are accessible to all forest owners, with a particular emphasis on smallholders. Ben Gunneberg PEFC International, CEO and Secretary General Committed to zero deforestation (cid:50)ur commitment to (cid:93)ero deforestation means knowing the source of woodfi bre(cid:30) ensuring that suppliers implement practices to promptl(cid:92) regenerate forests post-harvest, which is re(cid:84)uired under the global forest certifi cation standards that we are committed to upholding. It also means implementing our Supplier Code of Conduct to assess supply-chain, ethical and legal risk continually; and not sourcing from suppliers associated with deforestation. Opportunities for value creation Traditional tree breeding is a relatively slow process. Our adaptation strategy to mitigate the impacts of environmental change, is to select and produce the most optimally suited hybrid varieties for each climatic zone through our Sappi Forests’ tree breeding programme. Our tree breeding division has a target of developing a hybrid varietal solution for all our sites by (cid:21)(cid:19)(cid:21)(cid:24)(cid:17) We are also making use of genetic tools, like (cid:39)(cid:49)A fi ngerprinting, to enhance and accelerate our breeding and selection process(cid:17) (cid:44)n addition, as(cid:123)pine and eucal(cid:92)pt h(cid:92)brids are more successfull(cid:92) propagated through rooted cuttings rather than seed, a strategy is being rolled out to meet future requirements. In addition to the recent construction of Clan Nursery and the rebuild of the Ngodwana Nursery, we plan to upgrade Richmond Nursery in 2023 to enable the production of additional hybrid cuttings in addition to seedlings. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 88 OUR PERFORMANCE REVIEW Prioritising renewable and clean energy Why it’s material This issue is inextricably linked to mitigating greenhouse gas emissions in order to address climate change. Decarbonisation strategies involve the replacement of fossil-based fuels with either renewable or clean energy sources. Evolving legislation supporting ambitious decarbonisation targets within the regions in which we operate and sell our products, together with increasing consumer awareness of the need for low carbon products are informing our decarbonisation strategy. So too, is our responsibility to contribute to a thriving world. (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals 2 4 5 Evolving technologies and consumer preferences Sustainability expectations Climate change The global forces shaping our Thrive25 strategy • Climate change continuing to impact businesses and reshape societies (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) In FY2021, 52.3% of the energy we used was renewable, mostly from own black liquor. The global drive for decarbonisation is manifested in each region where we operate. It includes developments such as the European Green Deal, the American Energy Innovation Act and in South Africa, the Renewable Energy Independent Power Producer programme and the carbon tax implemented in 2019. We have increased our focus on energy efficiency measures and low-carbon initiatives. Ngodwana Energy, our biomass-based project at Ngodwana Mill in which we have a 30% stake, has now been commissioned. In addition, construction of our fuel rod project which uses biomass, lignosulphonate and coal slurry to manufacture fuel rods to replace coal and anthracite, is complete. Burning these fuel rods has a far lower environmental impact than coal or anthracite. Setting emission reduction targets Recognising the role that industry needs to fulfil to be part of the solution in responding to climate change, Sappi has been placing increased strategic focus on decarbonisation. Each region has established decarbonisation plans and our mills are heavily invested in implementing projects like the Saiccor Mill expansion project, as well as analysing and preparing projects, plans and pathways to further reduce emissions. We initiated our Science Based Targets initiative (SBTi) target validation process in June 2021 and expect validation to be complete in FY2022. Related to climate action, in FY2020, we made a global commitment to a 17% reduction in specific GHG emissions (Scope 1 and 2 combined) by 2025 – aligned with a well below 2°C pathway. This is the first time that we have established a groupwide GHG emissions reduction target. Carbon pricing Carbon pricing influences business decisions and company strategy and is used in our capital project assessments and expenditure at all our operations, as well as in our energy budget processes. We use differentiated shadow pricing where the internal price on carbon varies per region because there are different requirements and objectives in different regions. Decisions on capital projects now take into account the carbon impact. Additionally, aligning with our global SBTi decarbonisation target, in 2022 we will set up a task team to establish a global carbon pricing standard/metric to ensure that decarbonisation capital is optimised on a global basis. While meeting regional Renewable energy (%) legislative decarbonisation targets is our first priority in order to maintain our licences to operate, we recognise that a more holistic approach is required to ensure the greatest returns on our decarbonisation capital expenditure as we strive to reduce our global carbon footprint. Using a high level of renewable energy In some instances, Somerset (North America), Alfeld, Ehingen, Stockstadt, Gratkorn and Maastricht Mills (Europe) and Ngodwana Mill (South Africa), excess energy is generated which is sold back into the power grid. This energy is used for district heating in the vicinity of Sappi’s plants and for export into the public grid. Emissions are avoided by using renewable fuel energy sources instead of fossil fuel sources. In addition, emissions are avoided by power self-sufficiency instead of purchased power from an external power supplier with higher emissions than self-produced power. 100 80 60 40 20 0 . 3 9 7 . 3 8 7 . 1 9 7 . 1 7 7 . 7 0 8 . 6 2 4 . 3 8 3 . 3 9 3 . 6 9 3 . 1 9 3 . 7 2 4 . 6 3 4 . 1 4 4 . 6 7 4 . 4 3 4 . 3 2 5 . 3 0 5 . 6 1 5 . 0 3 5 . 3 2 5 SEU SNA SSA Global ● 2017 ● 2018 ● 2019 ● 2020 ● 2021 89 OUR PERFORMANCE REVIEW Our key material issues continued Planet continued SEU’s decarbonisation roadmap The European Union (EU) Green Deal aims to lead the world in achieving climate neutrality. With the adoption of the European Climate Law, together with the tabling of a suite of legislative proposals within the Fit for 55 legislative package, 2021 was an unprecedented year for policy reform. The EU’s transition towards a climate neutral economy is ambitious and the forest sector is well positioned to play a leading role. For SEU, this legislation has affi rmed our decarbonisation investments and accelerated our progress in 2021 and beyond. Sappi’s decarbonisation plan in Europe (cid:50)ur European (cid:21)(cid:19)(cid:21)(cid:20)-(cid:21)(cid:19)(cid:21)(cid:24) decarbonisation plan(cid:123)includes over (cid:27)(cid:19) proposed pro(cid:77)ects for implementation that should contribute to our(cid:123)regional (cid:21)(cid:19)(cid:21)(cid:24) target to reduce specifi c greenhouse gas emissions b(cid:92) (cid:21)(cid:24)(cid:8)(cid:17) (cid:55)he(cid:123)plan(cid:111)s(cid:123)main priorities include(cid:29) • Exiting coal and increasing the share of(cid:123)renewable energ(cid:92) • Sourcing green electricity • (cid:44)ncreasing eco-eff ectiveness to reduce energ(cid:92)(cid:123)consumption(cid:17) Latest investment decisions In 2021, major investments were approved for three of the four key projects outlined in our decarbonisation plan. One of these projects at Kirkniemi Mill in Lohja, Finland enables a switch in(cid:123)energ(cid:92) sourcing to renewable bio-energ(cid:92)(cid:17) With this investment the mill’s direct fossil greenhouse gas emissions will reduce by approximately 90%, which is e(cid:84)uivalent to (cid:21)(cid:22)(cid:19),(cid:19)(cid:19)(cid:19) tons of(cid:123)carbon dioxide annually. The project, set for completion in early 2023, will contribute signifi cantl(cid:92) to SE(cid:56)(cid:111)s decarbonisation roadmap by exiting coal at one of our last facilities partially using this fuel type. Biomass will then be used in (cid:46)irkniemi(cid:111)s multi-fuel boiler, built in (cid:21)(cid:19)(cid:20)(cid:24)(cid:17) The investment will establish the equipment needed to receive, store and handle woody biomass like the bark, sawdust and wood chips used for energy production. By using these biomass types for energy production, we derive further value from this forest resource. Project advancements at Gratkorn Mill (cid:55)he fi rst ma(cid:77)or pro(cid:77)ect initiated within our decarbonisation plan was the complete modernisation of boiler 11 at Gratkorn Mill. Approved in 2020, the investment into state-of- the-art technology makes the shift to a multi-fuel boiler in two phases, with the end goal of only using sustainable and renewable fuels. This project was initiated in mid-2021 and in early August the last coal was fi red onsite(cid:17) Running from August 2021 through early 2022, the project envisages full refurbishment of the boiler, as well as equipping it with modern technologies, systems and installations to handle new fuel types and meet progressive environmental standards. The rebuild will enable the mill to eventually reduce carbon emissions by 30%. In addition, the chosen technology for the project will additionally allow us to reduce dust and nitrous oxide (NOx) emissions, further improving our impact on air quality. Scope 2 reductions in Germany In addition to our focus on Scope 1 emission reductions, in (cid:21)(cid:19)(cid:21)(cid:20), (cid:24)(cid:19)(cid:8) of the electricit(cid:92) purchased at our three mills in Germany was green. This helped to contribute directly to the specifi c carbon emission reductions we realised in 2021. Opportunities for value creation (cid:44)n (cid:21)(cid:19)(cid:21)(cid:19) we established the (cid:20)(cid:17)(cid:24) Future Energ(cid:92) (cid:55)echnologies (cid:9) (cid:39)ecarbonisation cluster, tasked with e(cid:91)ploring and developing novel technologies for fuel shift and deep decarbonisation in terms of Scope 1 and 2 emissions. This aligns with our commitment to decarbonising our operations in the decades ahead to (cid:21)(cid:19)(cid:24)(cid:19) (cid:115) with specifi c targets defi ned in our science-based targets(cid:17) (cid:55)he initial part of our decarbonisation journey will largely involve the deployment of known technology such as biomass boilers – but we cannot achieve net zero with today’s technology. Accordingly, the cluster’s role is to identify, assess and champion new and emerging technologies which will be fundamental to meeting our net zero aspirations. The cluster has a particular focus on scanning or developing the future and new technologies required to dramatically reduce energy requirements in pulp and papermaking processes and energy supplies. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 90 OUR PERFORMANCE REVIEW Responding to climate change Why it’s material The Sixth Assessment Report conducted by the Intergovernmental Panel on Climate Change (IPCC) concludes that “Human-induced climate change is alread(cid:92) affecting man(cid:92) weather and climate e(cid:91)tremes in ever(cid:92) region across the globe(cid:17) Evidence of observed changes in extremes such as heatwaves, heavy precipitation, droughts and tropical cyclones and, in particular, their attribution to human influence, has strengthened since A(cid:53)(cid:24)(cid:17)(cid:113)(1) Accordingl(cid:92), we have identified climate change as a top (cid:20)(cid:19) risk that underpins all four ke(cid:92) fundamentals of our business strateg(cid:92)(cid:17) Responding to climate change in a meaningful manner is not only key to our business success, it is also important for the greater good of our communities, stakeholders and our customers. There is clear alignment between our response to climate change and how it directl(cid:92) links with five of the seven (cid:56)(cid:49) S(cid:39)(cid:42)s that we have prioritised at global level(cid:17) (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals 2 4 5 Evolving technologies and consumer preferences Sustainability expectations Climate change The global forces shaping our Thrive25 strategy • Climate change continuing to impact businesses and reshape societies (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) We continue to develop our climate strategy and have made significant progress in developing our near-term plans to mitigate our greenhouse gas emissions with the identification of key projects that will decarbonise our operational impact over the next five years. documented past climatic events, costs and mitigation strategies in order to understand the physical and transitional risk more fully. We made very good progress in assessing how we can embed the consideration of climate change in our current risk register methods, thereby improving our overall approach to risk. We also made significant progress in assessing our resiliency to the physical risk and transitional risks and opportunities of climate change as framed by the Task Force on Climate-related Financial Disclosures (TCFD). Within the context of the TCFD, in the past year we focused on our primary assets. This included 18 of our mills covering all three regions, as well as all our plantations in South Africa. Over 60 employees participated in the initiative. Leveraging the operational risk teams from each region, they (cid:54)(cid:83)ecific(cid:3)(cid:42)(cid:43)(cid:42)(cid:3)(cid:11)(cid:54)c(cid:82)(cid:83)e(cid:3)(cid:20)(cid:3)(cid:68)(cid:81)d(cid:3)(cid:21)(cid:12)(cid:3)e(cid:80)i(cid:86)(cid:86)i(cid:82)(cid:81)(cid:86)(cid:3)(kg CO2e/adt) We worked with outside consultancy, S&P Global and the Global Change Institute (GCI) at the University of the Witwatersrand (WITS), to help us establish long-term climate change trends and implications to 2050, primarily for South Africa. Due to the nature of our operations – in other words, capital intensive assets that are not easily relocated – we adopted a conservative view on physical climate projections, aligning with Representative Concentration Pathway (RCP) 8.5. 2 000 1 500 1 000 500 0 . 1 4 5 3 8 1 . 8 4 6 6 7 1 . 0 5 8 0 7 1 . 7 5 9 9 7 1 . 3 1 8 4 7 1 . 0 6 8 1 4 . 0 5 1 3 4 . 9 5 1 8 3 . 7 9 6 0 4 . 2 3 7 1 3 . 1 0 5 5 6 . 9 9 1 8 6 . 3 4 9 9 6 . 7 2 1 2 7 . 8 1 7 3 6 . 0 7 6 1 9 . 9 7 6 1 9 . 5 4 3 8 8 . 2 3 6 0 9 . 4 9 0 4 8 SEU SNA SSA Global ● 2017 ● 2018 ● 2019 ● 2020 ● 2021 Comment: (cid:42)loball(cid:92), specific Scope (cid:20)(cid:123)and (cid:21) emissions have declined by 8.3% over five (cid:92)ears(cid:17) (1) https://www.ipcc.ch/report/ar6/wg1/ 91 OUR PERFORMANCE REVIEW Our key material issues continued Planet continued Responding to climate change continued (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) Mitigating chronic physical risks Our most vulnerable assets to physical climate change are our plantations in South Africa. Our scientists have developed a high level of expertise in assessing physical climate change impacts. Their knowledge is supplemented by our strong partnership with the WITS GCI. A preliminary climate change investigation conducted by Sappi Forests’ scientists indicated that chronic physical risks are our key risk mitigation focus. One of the ways in which we mitigate physical risks is through continuous assessment of the health of our growing stock. This is measured through continuous evaluation of trees with emphasis on growth rate, age, utilisation efficiency. Annual measurement programmes using a pre-harvest measurement of 20,000 hectares per annum (8%), as well as an airborne laser scan of all the plantations conducted every second year together with analysis of growth trends and drivers from, for example, permanent sample plot programmes and actual versus planned yields per compartment are used to continuously adjust the annual cut and detect emerging problems. C(cid:79)i(cid:80)(cid:68)te(cid:3)(cid:80)(cid:82)de(cid:79)(cid:79)i(cid:81)(cid:74)(cid:3)i(cid:81)(cid:3)(cid:54)(cid:82)(cid:88)t(cid:75)(cid:123)(cid:36)(cid:73)ric(cid:68) We continued our work on a project with other industry members and the WITS GCI in South Africa. Phase 1, which began in 2020, involved the generation of raster climate surfaces for the entire forestry domain of South Africa, at 8 km resolution, with monthly time resolution, for the years 2020, 2030 and 2040 to 2100. Global Climate Models were regionally downscaled using a conformal-cubic atmospheric model. Raster climate surface data for the entire forestry domain of South Africa, at 9 x 11 km resolution, with monthly and daily time steps from 1961 to 2100 was supplied. Each dataset contained 17 climatic variables as set out below. Summarised data was shared with S&P Global Trucost and used in quantifying our global climate risks for TCFD reporting. The 17 climatic variables regionally downscaled by WITS GCI 1 24-hour accumulated rainfall (mm) 10 number of low fire-danger days per year 2 maximum temperature 11 number of medium fire-danger days per year 3 minimum temperature 12 number of high fire-danger days per year 4 average temperature 13 number of very high fire-danger days per year 5 maximum relative humidity (%) 14 number of extreme fire-danger days per year 6 minimum relative humidity (%) 15 KB drought index 7 8 9 wind speed at 10 m (m/s) 16 number of heat-wave days per year number of very hot days per year 17 number of very cold days per year number of extreme rainfall days per year In terms of Phase 2, a proposal has been made for further support to the WITS GCI to continue climate modelling activities and develop downscaled products (possibly using two or more future scenarios such as RCP 4.5 and RCP 8.5) while simultaneously maintaining underlying climate projections; to enhance knowledge and insight on impacts of climate change specific to forestry and to develop human capacity for the generation and interpretation of regional downscaled climate surfaces. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 92 Opportunities for value creation Sappi’s tree breeding programme has seen an important shift from planting pure species to more productive, better adapted and more pest and disease resistant hybrids of both hardwood and softwood trees grown in our plantations in South Africa. This change in strategy is being driven by the need to respond more rapidly to the combined challenges of increased globalisation and changing weather patterns (driven by climate change) that are resulting in significant increases in pest and diseases in the tree crop. Sappi Forests’ tree breeding programme is producing and selecting the most optimally suited hybrid varieties for each climatic zone, with a target of developing a hybrid varietal solution for all Sappi sites by 2025. The benefit of developing new hybrids is that breeders can additively combine the benefits from two or more species and develop varieties that have improved fibre yield and wood quality as well as better disease/pest tolerance. Tree improvement is aimed at increasing pulp yield per hectare by testing various species and hybrids across Sappi’s diverse landholdings. As well as growth improvements, trees are bred for superior wood properties and resistance to biotic and abiotic threats including frost, drought, pests and diseases. 93 OUR PERFORMANCE REVIEW OUR PERFORMANCE REVIEW Our key material issues continued Planet continued Focusing on water stewardship Why it’s material Water is essential for the health of the forests and plantations from which we source woodfibre(cid:17) (cid:44)n addition, pulp and paper operations are highly dependent on the use and responsible management of water resources. Water is used in all major process stages, including raw materials preparation (wood chip washing), pulp cooking, washing and screening, and paper machines (pulp slurry dilution and fabric showers). Water is also used for process cooling, materials transport, equipment cleaning, general facilities operations, and to generate steam for use in processes and onsite power generation and various other purposes. Against this backdrop, responsible water stewardship is essential for Sappi and for a thriving world. (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals 2 4 5 Evolving technologies and consumer preferences Sustainability expectations Climate change Our additional SSA priority SDGs The global forces shaping our Thrive25 strategy • Climate change continuing to impact businesses and reshape societies (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) Collaborating for water stewardship We have finalised a Water Stewardship agreement with the World Wide Fund for Nature South Africa (WWF-SA), aimed at improving water security in the uMkhomazi catchment area. With our significant manufacturing and forestry footprint in this catchment area, which forms part of the Southern Drakensberg Strategic Water Source Area in KwaZulu-Natal, it makes sense for us to focus our collaborative efforts here, where our Saiccor Mill and 42,000 ha of our forestry land is situated. The catchment also serves commercial farmers, subsistence farmers and domestic users in dispersed settlements across the area. To meet the future needs of all users, sufficient water at an acceptable level of assurance and quality must be secured. We believe that this can only be achieved through multi-stakeholder collaboration across the landscape. To help coordinate and facilitate the approach, we have launched a two-year project with WWF-SA to engage local communities, civil organisations, leadership and regulatory authorities in dialogue and cooperation focused on water stewardship. This collaborative approach is an extension of an innovative structure, known as the Integrated Community Forum, which we pioneered and through which we engage with local adjacent communities. Improved water governance through multi-stakeholder engagement The multi-stakeholder engagement will provide a platform for open dialogue regarding water resources in the catchment and will concentrate on four main focus areas to improve water security in the uMkhomazi, namely: • • Water-use efficiency • Removal of alien invasive plants and wetland rehabilitation • Capacity development of local communities in natural resource management. Thrive25 The World Resources Institute has categorised South Africa as being characterised by medium/high water stress(1), while a publication issued by UN Water puts the country in the medium risk category.(2) Water stress is defined as freshwater withdrawn as a proportion of available freshwater resources. Use of the WRI’s Aqueduct tool(3) which goes into a level of granular detail, indicates that two of our mills are in areas of low/medium risk, two in an area classified as medium/high risk and one in an area of high risk. Our decision to targets in South Africa was based on stakeholders’ general perception that the country is facing establish water-related extremely high levels of water stress. This is based on devastating droughts in recent years and on the fact that South Africa’s rainfall, at 490 mm per year, is half the world average. targets in South Africa Thrive25 (1) https://www.wri.org/insights/17-countries-home-one-quarter-worlds-population-face-extremely-high-water-stress. (2) https://www.unwater.org/publications/summary-progress-update-2021-sdg-6-water-and-sanitation-for-all/. (3) https://www.wri.org/aqueduct. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 94 OUR PERFORMANCE REVIEW (cid:54)(cid:83)ecific(cid:3)(cid:83)r(cid:82)ce(cid:86)(cid:86)(cid:3)(cid:90)(cid:68)ter(cid:3)e(cid:91)tr(cid:68)cted(cid:3)(m3/adt) Comment: (cid:60)ear on (cid:92)ear, specific process water extracted decreased b(cid:92)(cid:123)(cid:25)(cid:8)(cid:17) 50 40 30 20 10 0 4 5 9 2 . 8 8 6 2 . 3 1 6 2 . 3 2 3 2 . 7 9 3 2 . 6 7 7 4 . 7 4 6 4 . 4 2 2 4 . 5 2 0 4 . 0 8 7 3 . 9 1 6 4 . 3 1 5 4 . 1 3 4 4 . 1 0 5 4 . 7 1 6 4 . 8 1 4 3 . 9 4 4 3 . 1 5 4 3 . 9 0 7 3 . 6 8 4 3 . SEU SNA SSA Global ● 2017 ● 2018 ● 2019 ● 2020 ● 2021 Opportunities for value creation The interconnected nature of the UN SDGs is clearly highlighted by the impact of climate change on water. The Water Stewardship(cid:123)pro(cid:77)ect with WWF-SA will not onl(cid:92) impact on SDG6: Clean Water and Sanitation, but also on SDG1: No Poverty, which(cid:123)is one of Sappi SA(cid:111)s additional priorit(cid:92) targets(cid:17) (cid:55)he opportunit(cid:92) for green (cid:77)obs through the partnership(cid:111)s focus on alien invasive plant clearing is also full(cid:92) aligned with Sappi(cid:111)s commitment to ES(cid:39) that promotes(cid:123)sustainable livelihoods through capacit(cid:92) building of small and medium enterprises(cid:17) (cid:11)(cid:39)escribed in further detail(cid:123)on page (cid:25)(cid:23) of this report(cid:12) 95 OUR PERFORMANCE REVIEW Our key material issues continued Planet continued Accelerating circular business models Why it’s material Circular thinking such as we practise at Sappi goes be(cid:92)ond mere waste beneficiation(cid:17) We approach our environmental impact from a holistic perspective grounded in life-cycle thinking, from procurement of raw materials and energy through manufacturing, use and the ne(cid:91)t life of our products(cid:17) (cid:55)he benefits of this approach align with our purpose of contributing to a thriving world, one with less waste, lower costs and reduced environmental impact. (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals 2 4 5 Evolving technologies and consumer preferences Sustainability expectations Climate change The global forces shaping our Thrive25 strategy • The move towards a circular economy • Climate change continuing to impact businesses and reshape societies • Resource scarcity and growing concern for natural capital (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) In keeping with our focus on circular economy principles, we are working to increase our use of renewable energy and eliminate waste through superior product and process design. As an example, we increased the percentage of solid waste beneficiated from 65.65% in 2017 to 76.62% - an increase of 16.7% over five years. Other developments, including our ongoing progress in adjacent markets and collaboration in a textile recycling project, together with new products, are detailed on pages report. 75 and 77 respectively of this (cid:37)e(cid:81)efici(cid:68)(cid:79)(cid:3)(cid:88)(cid:86)e(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:82)(cid:79)id(cid:3)(cid:90)(cid:68)(cid:86)te(cid:3)(%) 100 80 60 40 20 0 9 5 7 8 . 6 8 6 8 . 3 2 6 8 . 8 8 7 8 . . 6 4 8 8 6 2 8 8 . 4 0 6 8 . . 5 9 7 7 6 9 8 7 . . 8 8 7 7 . 2 6 6 7 6 0 5 7 . . 4 5 1 7 8 6 1 7 . . 5 6 5 6 5 9 9 6 . . 3 8 5 6 1 9 8 5 . 8 9 3 5 . 8 1 9 3 . SEU SNA SSA Global ● 2017 ● 2018 ● 2019 ● 2020 ● 2021 T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 96 Recognition for our circular project in North America In FY2021, in North America, we were a recipient of the Leadership in Sustainability – Water Award from the American Forest & Paper Association (AF&PA) as part of its Better Practices, Better Planet 2020 Sustainability Awards programme. We were recognised for our ‘Caustic Reclaim and Reuse’ project at Somerset Mill, Maine. The project reduces the volume of purchased chemicals required to meet the mill's boiler flue-gas desulphurisation (FGD) environmental goals, as well as offset the acid usage in its onsite waste treatment plant. Somerset Mill operates a large steam plant and utilises demineralised water as a main makeup water source for its recovery boiler and two multi-fuel power boilers. This project repurposes a large source of spent caustic from the demineraliser regeneration operation to meet FGD goals, as well as offsets purchased acid usage in our onsite waste water treatment plant as a consequence of the spent caustic utilisation. The project significantly reduces overall caustic purchases as well as acid usage for effluent treatment. The reclaimed caustic concentration to the wet industrial scrubber is significantly lower than the concentration of fresh caustic. Accordingly, not only is the spent caustic reclaimed from the sewer, but so is the water that dilutes it to the lower concentration. This added reclaimed water in turn reduces the fresh water demand to meet the FGD scrubber evaporation requirements by 45,425 litres per day. The process can be replicated at other mills which can reduce chemical demand by reusing demineralised regeneration caustic, thereby improving both environmental footprint and the bottom line. Opportunities for value creation In the year under review we joined the CBA which was established by His Royal Highness, the Prince of Wales, under his Sustainable Markets Initiative in 2020. The alliance aims to accelerate the transition to a circular bioeconomy that is climate neutral, inclusive and prospers in harmony with nature, by providing knowledge-informed support and a learning and networking platform. It connects the dots between investors, companies, local communities, governmental and non-governmental organisations to advance the circular bioeconomy – while also restoring biodiversity. Current activities include forest landscape restoration and agroforestry projects in Africa, South America and Asia. While our membership is still in its early days, we believe that collaboration with the alliance and leveraging our agroforestry knowledge gained through our Sappi Khulisa programme will present significant opportunities going forward. 97 OUR PERFORMANCE REVIEW OUR PERFORMANCE REVIEW Our key material issues continued Planet continued Safeguarding and restoring biodiversity Why it’s material Experts concur that connected, diverse and extensive ecosystems can help stabilise the climate and will have a better chance of thriving in a world permanently altered by rising emissions. Stable, resilient ecosystems are important to Sappi given that our primary input, woodfibre is a renewable natural resource and depends on ecos(cid:92)stem services such as health(cid:92) soils, clean water, pollination and a stable climate. Safeguarding and restoring biodiversity is important for our business, our stakeholders and the planet. (cid:43)(cid:82)(cid:90)(cid:3)t(cid:75)i(cid:86)(cid:3)i(cid:86)(cid:86)(cid:88)e(cid:3)(cid:79)i(cid:81)(cid:78)(cid:86)(cid:3)t(cid:82)(cid:3)(cid:82)t(cid:75)er(cid:3)(cid:68)(cid:86)(cid:83)ect(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)r(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86) Our global priority SDGs Our top 10 risks Our strategic fundamentals 4 5 Sustainability expectations Climate change The global forces shaping our Thrive25 strategy • The move towards a circular economy • Climate change continuing to impact businesses and reshape societies • Resource scarcity and growing concern for natural capital The issues-based risk assessment complements draft targets that have already been identified. In general, four hazards were identified as high risks: • Soil erosion and sedimentation • Stream flow reduction • Ecosystem modification (caused by the spread of plantation species off our land) Invasion by alien species such as wattle, lantana and bugweed which we do not grow. • Thrive25 Mapping vegetation One of the pillars of Sappi’s strategy is that we will act as a custodian of land and forests. In alignment with this, we identify, monitor and manage Important Conservation Areas (ICAs) on our landholdings in South Africa. In FY2020, we reported that we had made progress in biodiversity target by terms of our addressing our first biodiversity objective underpinning this task. This involved understanding what types of vegetation are present on our plantations, as well as their conservation value, thereby enabling the compilation of appropriate management plans for implementation. Thrive25 Assessing Important Conservation Areas In FY2021, we completed the assessment of ICAs for all our plantations in Mpumalanga. ICAs are areas that are important at the local level and are classified using a systematic conservation planning approach. Criteria used include the presence of both plant and animal red data species, the threat status of the ecosystem, the size, connectedness, condition and aesthetic and recreational value of the area. The ICA assessment is currently in progress for our plantations in KwaZulu-Natal. Approximately 160 sites on Sappi-owned land are currently classified as ICAs, adding up to about 39,500 ha of a diverse range of habitats including grasslands, wetlands and riverine areas and natural forest patches. Thrive25 , Sappi Forests has Plantations are now required to identify three projects from the list of ICAs that can be actioned over the next few years to improve scores from the baseline condition assessment. To assist in moving towards achieving the 10% biodiversity improvement envisaged by developed an ICA projects template to ensure that the progress of the projects can be measured in a standardised manner. Based on the findings of the initial assessment of each area, suggestions for improvement can range from increased weed control to attain a maintenance status, improvements in sub-standard crossings to improve stream flow and reduce sedimentation, and the prevention of overgrazing and frequent burning of important grasslands. (cid:46)e(cid:92)(cid:3)de(cid:89)e(cid:79)(cid:82)(cid:83)(cid:80)e(cid:81)t(cid:86)(cid:3)i(cid:81)(cid:3)F(cid:60)(cid:21)(cid:19)(cid:21)(cid:20) Implementing a Biodiversity Strategy and Action Plan The development of a Biodiversity Strategy and Action Plan (BSAP) for Sappi Forests was initiated in November 2020. The BSAP refers to the UN SDGs, the South African National Biodiversity Strategy and Action Plan, and the South African National Biodiversity Institute (SANBI) biodiversity targets. The seven steps which form the framework for the development of the strategy are aligned with the stakeholder requirements of the Textile Exchange Biodiversity Module. Guidance from the Science Based Targets Network has also been used as reference. The latter aims to transform economic systems and protect the global commons – air, water, land, biodiversity and oceans. A key component of the strategy is to undertake a biodiversity risk assessment. There are two components to the risk assessment: a spatial assessment and an issues-based risk assessment. The spatial component of this assessment involves identifying high conservation values on our plantations. This is a certification requirement and, drawing on past knowledge and more recent methodologies, assessments of critical biodiversity areas and vegetation types present on Sappi land have been completed for both provinces. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 98 Opportunities for value creation We see promising opportunities for value creation by working with a broad range of stakeholders on biodiversity- and forestry- related issues, including the following: • In collaboration with Meat Naturally and other stakeholders (Zikhali community and the traditional authority), we are working on the uMhlathuze Grazing Project which involves the communities bordering our Mooiplaas plantation. It is proposed that an association will be formed by the community to run the project and that eco-rangers from the community will be trained to herd and manage the cattle. With the community’s buy-in, the project will mitigate the negative impacts associated with overgrazing and indiscriminate fires which are a risk to Sappi plantations. Positive benefits include grassland restoration to be measured by veld condition assessments, improved community relations and enhanced regional economic development. • Under the auspices of Forestry South Africa (FSA), we are participating in a Farmers’ Guideline Working Group. Steps have been taken to determine material and methods for developing environmental guidelines such as burning (residue management) and weeding specifically for farmers. • Again under the auspices of FSA, we are chairing a Soil Conservation Working Group, established due to increasing concerns related to soil loss, sedimentation in streams from forestry operations and operational procedures that exacerbate this problem. This is in collaboration with various industry representatives in the Environmental Management Committee of FSA, soil and forestry specialists, both independent and based at the University of Stellenbosch. 99 OUR PERFORMANCE REVIEW OUR PERFORMANCE REVIEW Product review Pulp Our renowned dissolving and kraft pulps provide a sustainable, versatile approach, to creating a better tomorrow. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 100 Our dissolving pulp (DP) brand, Verve, creates renewable alternatives for raw material feedstock to renewable alternatives for raw material feedstock to textiles, pharmaceuticals, foodstuff s, and more. 101 OUR PERFORMANCE REVIEW Product review continued Product review continued Pulp* We continue to invest in all three of our world-class production sites – further entrenching our leadership position as a trusted source for responsible and sustainable DP.” Our pulp segment predominantly comprises two product categories, namely, DP and high-yield pulp (HYP). Occasionally, excess kraft pulp produced at Cloquet Mill, Somerset Mill and Ngodwana Mill is sold externally and included in the Pulp segment. Our Verve brand, is a significant player in the DP market. With capacity of 1.4 million tons per annum and 17% share of the DP market, Verve is a truly sustainable brand. From textiles to pharmaceuticals and food applications, Sappi has the expertise, technology and the track record to meet almost any challenge from these DP market segments. DP is a highly purified form of cellulose extracted from sustainably grown and responsibly managed trees using unique cellulose chemistry technology. The majority of DP is consumed to make textiles, such as viscose and lyocell, where DP is converted to viscose and lyocell staple fibres. From there, the fibre is spun into yarns and ultimately woven into textiles, providing naturally soft and breathable fabrics which are smooth to the touch, hold colour and drape well. The fibres produced from DP also act as good blend partners in fabric with cotton and polyester. Man-made cellulosic fibre, however, far exceeds cotton and polyester when it comes to sustainability. What consumers want are goods that are renewable, biodegradable and have superior resource efficiency. This is where man-made cellulosic fibres differentiate themselves versus the alternatives. Viscose staple fibre (VSF) is the most prominent of the man-made cellulosic fibres, and accounts for approximately 73% of global DP demand. VSF is most commonly used in fashion, home and decorating textiles as well as non- woven applications such as the fibre component in face masks, health and hygiene clothing and sanitation. Verve DP provides both the quality and the sustainability assurance into this major market segment. Lyocell represents the next generation of man-made cellulosic fibres. With its sustainable DP raw material, reduced chemical processing and closed loop systems, Lyocell continues to be the most sustainable wood- based cellulosic fibre. Our commitment to and investment in sustainability shows in that approximately 60% of the world’s Lyocell fibre is manufactured from DP produced at Sappi’s DP manufacturing sites. DP can also be processed into products that are used in food and beverages, health and hygiene, wrapping and packaging, pharmaceuticals and many more applications that touch our daily lives. * In the prior report this segment was listed as Dissolving Pulp. Demand for DP used in textiles, particularly viscose and lyocell fibres, is expected to continue to grow post the Covid-19 pandemic. Based on the growth rate in the overall textile market, driven by factors such as population growth, rising urbanisation, wealth T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 102 OUR PERFORMANCE REVIEW and the shift towards more comfortable, environmentally friendly natural fi bres, we expect long-term growth in demand to be between 4% to 6% per annum for DP. Market prices for DP are infl uenced by VSF and other textile market dynamics, paper pulp market pricing which infl uences swing mills, as well as general macro-economic uncertainties pertaining to the ongoing US/China trade dispute and US$/RMB exchange rates fl uctuations. Sappi’s Matane Mill, located in Quebec, Canada, has the capacity to produce 270,000 tons of HYP. Approximately 40% of Matane’s pulp production is consumed internally within our packaging business, thereby increasing the pulp integration. The higher levels of pulp integration lowers our cost of pulp, reduces its volatility on earnings through the pulp cycle and provides certainty of supply. External HYP sales to third parties are included in the Pulp segment. The pulp produced at Matane Mill is a high-quality, high-yield pulp made from either Aspen or Maple hardwood. Sappi Matane Aspen pulp is a high-yield fi bre with good bulk, excellent brightness and exceptional drainage. It is ideal for the manufacturing of tissue grades as well as graphic paper grades. Sappi Matane Maple is a high-yield pulp with superior bulk and drainage properties, as well as excellent opacity and formation. It is an excellent fi bre for the manufacturing of paperboard and linerboard products as well as speciality papers, tissue and towelling. In FY2021, the Pulp segment made up 18% of Sappi’s sales. This fi gure includes HYP from Matane Mill and kraft pulp produced at Ngodwana Mill. A severe second wave of Covid-19 infections in South Africa necessitated a prioritisation of oxygen supplies into the health care sector. Consequent restrictions on the procurement and transport of oxygen to the South African mills resulted in a temporary curtailment of DP production at the Ngodwana Mill, resulting in the mill producing a few thousand tons of kraft pulp in the second quarter. Our markets in 2021 and outlook for 2022 DP market conditions rallied strongly from the fi rst quarter on the back of improved apparel retail demand in the US and Asia, which favourably impacted demand for all textile fi bres. Low DP and VSF inventory levels, high paper pulp prices and a weaker US$/Renminbi exchange rate were all factors that further contributed to the positive sentiment in the sector. The market price(1) for hardwood DP surged from a base of US$624 per ton in October 2020 to a peak of US$1,106 per ton in April 2021 and closed the year at the end of September 2021 at US$1,000 per ton. Buoyant demand and signifi cantly better market prices resulted in EBITDA ex SI for the year being substantially higher than the prior year. EBITDA ex SI margins for this segment improved from approximately 8% to 21% as a result of the higher US$ prices, slightly off set by a stronger ZAR/US Dollar exchange rate, which impacts our South African operations. Segment volumes decreased 6%, or 79,000 tons compared to last year. The ongoing global supply chain challenges, exacerbated by the impact from the South African civil unrest and a cyber security breach at the Durban port, constrained sales resulting in a backlog of 100,000 tons at year end which reduced EBITDA ex SI by approximately US$30 million. In addition, once off events at the South African mills including a labour strike, shortage of oxygen due to Covid-19, an extended annual shut at Saiccor Mill and civil unrest, which forced Saiccor Mill to close temporarily, signifi cantly reduced production volumes. Construction work at our 110,000 ton expansion project at Saiccor Mill was impacted negatively by Covid-19 lockdowns and associated travel restrictions, which delayed the project schedule. Commissioning of the plant began during the fourth quarter and additional production will commence in the fi rst quarter of the 2022 fi nancial year. The project is additionally expected to yield long-term safety, effi ciency and reliability improvements. This investment is a key part of our strategic vision as we expand into fast-growing, higher-margin segments. Overall market conditions for DP continue to be strong. However, short-term demand in China is impacted by the recent implementation of energy savings regulations which impose �1� Market price for imported hardwood DP into China issued daily by the CCF group. curtailments for energy intensive manufacturing operations across the country. The textile value chain in China has been negatively impacted thereby reducing VSF production and DP demand. Consequently, DP market prices dropped to US$940 per ton in October 2021. The lower VSF supply and a widening price diff erential to cotton fuelled a signifi cant rise in VSF pricing, which should be positive for DP pricing. Sappi’s sales volumes are not expected to be impacted by the weaker Chinese DP demand as we see, in contrast to China, DP demand in South-East Asia, Europe, North America and the near East remains strong. Global logistical challenges and vessel shortages are expected to continue through FY2022, which may have an ongoing negative impact on our export sales. It is unlikely that any signifi cant improvement in supply chain reliability will be realised in the fi rst quarter and hence the backlog of 100,000 tons of DP sales volumes will take time to resolve. We aim to remain focused on meeting and exceeding the needs of our customers. We will continue to capitalise on our competitive advantages: our world-class and sustainably managed plantations, our geographic positioning and our sterling reputation as a reliable partner, to bring our customers sustainable products that create shared value for everyone. Matane Mill volumes have been fully sold out with strong Asian demand off setting any weakness we have experienced in other markets. Our focus remains on meeting our own growing need for high-quality high- yield pulp for our packaging and speciality papers businesses in Europe and North America, as well as external sales to third parties. Pulp segment made up(cid:123) 18% of Sappi’s sales in F(cid:60)(cid:21)(cid:20) 103 Packaging and  speciality papers Developing and delivering innovative, sustainable solutions is at the heart of our philosophy. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 104 We off er a broad range of paper based sustainable solutions as an alternative to fossil fuel-based, non- renewable packaging in many of our product segments. 105 OUR PERFORMANCE REVIEW Product review continued Packaging and speciality papers Innovative packaging and speciality paper products and services with a commitment to sustainability and a circular economy. Working closely with brand owners, converters, printers, designers and communications agencies, we pride ourselves in being a reliable and global business partner”. Legislative changes and growing consumer pressure are forcing brands to re-think their packaging choices. Governments, retailers, brand owners and their consumers are demanding paper-based packaging solutions that are biodegradable, recyclable, compostable and provide the functionality of plastic-based materials. We estimate that the increasing demand for more sustainable and environmentally friendly packaging solutions will lead to demand growth of 3-6% per year globally, across the spectrum of our products. Sappi’s evolution within this segment is supported by the suitability of our technically advanced and efficient paper machines for conversion to packaging grades that require a variety of surface treatments or coatings for functionality. Ahead of commissioning conversion projects, we carefully analysed our assets, specifically their production capabilities and cost of production, the cost to serve customers, demand growth and competitive threats. We chose only those projects where we believed we held a significant advantage. We have made progress in growing our business with a compelling value proposition, a propensity for innovation, and a superlative service record. We aim to create solutions that solve our customers' most critical challenges, helping them grow their sales, lower costs, improve their sustainability metrics and minimise their risk. We work in partnerships based on trust and respect. For that reason, we place great value on reliability. Our well-maintained assets, financial stability, global availability and consistent premium quality are vital to our customers. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 106 In FY2021, 30% of Sappi’s sales were packaging and speciality papers, up from 27% last year. Sappi off ers products and solutions in many diff erent product categories including: Flexible packaging: innovative paper-based solutions with integrated functionalities such as barrier technology from water, oxygen and grease as well as sealing properties are suitable for various applications, notably in packaging for food as well as non-food markets. Label papers and self-adhesives: label papers are used for both wet glue and wet strength labels processes in the beverage, food and packaging applications. Our clay coated kraft and glassine release liners provide solutions not only for labels but applications such as self-adhesive tapes, medical and industrial applications. Containerboard: includes liners and fl uting, for corrugated boxes. Sappi’s products are found in applications like consumer packaging, shelf-ready packaging and transport packaging for agricultural and industrial uses. Paperboard: high-quality coated boards for use in luxury packaging applications that require functionality and superior graphics across a range of market segments, including health and beauty, confectionery, premium beverages and food packaging. Casting and release papers: used by suppliers to the fashion, textile, automobile and laminate industries. Our papers serve as moulds to impart textures on other surfaces, ranging from decorative laminates and synthetic leather to engineered fi lms and rubber. Dye sublimation papers: for digital transfer printing with water-based dye sublimation inks. Designed for the transfer of an image onto various materials, such as apparel, outdoor advertising and home textiles. OUR PERFORMANCE REVIEW Digital imaging papers: for large format inkjet printing. Posters, for indoor/outdoor applications and technical printing in the construction industry (CAD/Engineering). Tissue paper: used for bathroom tissue, kitchen towels, serviettes and medical and industrial wipes. We manufacture at sites throughout Europe, North America and South Africa, ensuring scale-based effi ciencies and security of supply. Globally, we are well positioned to support and benefi t from the paper for plastic packaging movement. For example, in 2019, the European Union introduced new rules to reduce marine litter by banning certain single-use plastic items, alongside a measure which holds those plastic producers responsible for the cost of cleaning these items from European beaches. The industry will also be given incentives to develop less-polluting alternatives for these products. With this comprehensive product range on three continents, R&D centres in each region, sharing best practices and collaborating with customers to develop new solutions, our customers can expect reliability of supply from a broad geographic footprint, and a leader in innovation within the sector. Our markets in 2021 and outlook for 2022 The highlight of the year for this business segment was the achievement of record profi tability as Covid-19 lockdowns eased and global economic activity resumed. Volumes were 21% higher than last year which was primarily driven by the successful was primarily driven by the successful ramp-up of sales volumes from Somerset Mill PM1 in North America. The line ran paperboard at the investment target levels from the second quarter and the focus shifted to product mix and margin optimisation. Containerboard demand in South Africa was robust on the back of strong fruit exports which contributed to sales for the segment increasing 26% year on year. Growth in the European packaging and speciality paper sales volumes was hampered by weaker demand for certain non- essential luxury product categories and prolonged speciality paper qualifi cations, however, certain packaging grades within this segment did grow. Profi tability in the European region was also impacted by higher purchased pulp, energy, chemicals and delivery costs resulting in EBITDA ex SI margins for the segment decreasing from 14.1% last year to 13.6% in fi scal 2021. This business segment has proven to be resilient in diffi cult economic circumstances and supports our strategy to diversify the product portfolio into higher margin and growing segments. We believe we will achieve additional volume growth in 2022, aided by the shift from plastics to paper in various packaging and speciality paper categories. We expect continued success from our conversion projects which were completed in 2018. Customer qualifi cations and trial-runs of our new products prove we are capable of developing innovative and quality products on which our customers can depend. Packaging Packaging and speciality and speciality papers made up(cid:123) papers made up(cid:123) 30 30% of Sappi’s sales of Sappi’s sales in F(cid:60)(cid:21)(cid:20) in F(cid:60)(cid:21)(cid:20) 107 Graphic papers Our wide range of versatile surfaces and superior papers make any project outstanding T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 108 108 Create impactful brand experiences with our brilliant, high-performing range of graphic papers. 109 OUR PERFORMANCE REVIEW Product review continued Product review continued Graphic papers When companies build brands, picking the right paper can mean the difference between creating something average and something memorable.” At Sappi, we understand this difference and use our expertise to develop a variety of graphic papers designed to meet specific needs, whether a high-end product with the extra wow factor, a comprehensive solution that caters to numerous requirements or a paper that is more budget friendly. We at Sappi deliver, so that brands can have a more memorable impact. Our markets in 2021 and outlook for 2022 Global demand for graphic papers has generally been in secular decline. The outbreak of Covid-19 in the prior year led to a significant decline in graphic paper usage across the globe, however, as Covid-19 lockdowns eased and economic activity resumed, global demand for graphic paper grades progressively improved through the course of the year. Market recovery in Europe lagged North America due to stricter lockdowns in the European Union. Capacity closures in North America, in combination with constrained imports into the region due to supply chain challenges, contributed to a favourable shift in the supply and demand balance and enabled domestic producers to operate at full capacity. Our strategy remains to reduce our exposure to graphic markets and align this business over time with market demand. To this end, in 2017 and 2018, we converted various paper machines within our portfolio from graphic paper to packaging and speciality paper grades, where demand is growing worldwide and in 2020 closed two paper machines. Our focus is on maximising the segment’s significant cash flow generation, continuously improving our cost position, and optimising the utilisation of our best-in-class production assets. In our fiscal 2021, industry statistics show volume declines of approximately 14% relative to the prior year for European coated woodfree and coated mechanical papers largely as a result of the severe impact of the Covid-19 pandemic related lockdowns and the economic after-effect on the industry. Our graphic papers segment volumes increased 3% relative to the prior year but was 83% of fiscal 2019. The lagging European demand recovery necessitated 367,000 tons of graphic papers production curtailment in our European operations. Average prices realised were 3% up relative to 2020, however, EBITDA ex SI deteriorated from US$131 million to US$120 million, driven primarily by substantial cost inflation in purchased pulp, chemicals, energy and delivery costs. Our EBITDA ex SI margin declined relative to last year, T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 110 OUR PERFORMANCE REVIEW OUR PERFORMANCE REVIEW from 5.1% to 4.4%, due to rising input costs in combination with a lag in selling price increases. woodfree paper increased by approximately 1% with Sappi gaining market share. with limited growth coming from emerging markets. In 2022, we expect to sell higher volumes of graphic paper as the recovery of demand combined with industry capacity closures has tightened the market balance. In North America, ongoing restrictions on imports due to global supply chain disruptions have contributed to a positive environment in this region. Recent spikes in global energy prices for gas, power and coal are anticipated to have an adverse impact on our fi rst quarter results, principally in Europe. To off set rising costs, we have announced selling price increases across all paper grades. In addition, energy specifi c surcharges have been implemented for all European shipments from 25 October 2021. In FY2021, 52% of Sappi’s sales were from the graphic papers segment. The four major grades of graphic paper are discussed below: Coated woodfree paper Printers and publishers use coated woodfree paper for a variety of marketing promotions including brochures, catalogues, calendars, corporate reports, direct mail, books and magazines. Coated woodfree paper provides a smooth and uniform surface for optimal print fi delity. We manufacture coated woodfree paper in our North American and European businesses but sell to customers all over the world. Coated woodfree paper products are sold through large paper merchants, as well as directly to commercial printers. Demand trends: Global advertising expenditure is forecast to grow, but the share of that spend relative to print is expected to decline. However, we believe there will always be a place for paper within the marketing mix. Globally, demand for coated woodfree paper is forecast to decline from approximately 21 million tons in 2019 to approximately 16 million tons by 2024. Sales: Sappi’s sales volumes for coated woodfree paper increased 6% from last year and sales were 8% higher, largely due to a recovery in demand, as Covid-19 lockdowns eased, and global economic activity resumed. Globally, demand for coated Coated mechanical paper Coated mechanical paper is primarily used in magazines, catalogues, newspaper inserts and other advertising materials. Sappi’s coated mechanical paper sales all come from our European business. Customers for this paper are typically large web printers, publishing houses, retailers and cataloguers. Demand trends: Demand for coated mechanical paper is more closely linked to that of demand for magazines. Readership, subscriptions, circulation, pagination and advertising revenue per page continue to decrease in larger markets as consumers opt for digital formats. Sales: Sappi’s sales from coated mechanical paper were 3% lower than last year, as we took market-related downtime in response to poor demand. Volumes were approximately 1% lower than the prior period. This year, the global market contracted by approximately 1% relative to the prior year. Uncoated woodfree paper Uncoated woodfree paper is used for letterheads, business stationery, photocopy paper, books, brochures, envelopes, pamphlets and magazines. Sappi manufactures and sells uncoated woodfree paper in our European and South African businesses. Our main customers in this sector are paper merchants, commercial printers and retailers. Demand trends: Demand for uncoated woodfree paper is not expected to decline over the next several years, Sales: Our sales from uncoated woodfree paper were 1% higher than last year, largely as a result of the resumption of global economic activity as Covid-19 lockdowns eased. Globally, demand increased by approximately 1% in the current fi nancial year. Newsprint paper Newsprint is manufactured from mechanical and bleached chemical pulp, with uses including the printing of newspapers and advertising inserts. We manufacture and sell newsprint from our South African business. Demand trends: Demand for newsprint is principally derived from newspaper circulation and overall retail advertising. Newspaper readership is declining around the world. This industry segment was hard hit by the Covid-19 pandemic with an estimated drop in demand of approximately 6% during the current year and an estimated decline of 3% to 6% annually through to 2025. Publishers are consolidating, while some titles have closed. Pockets of growth exist in advertising-fi nanced daily newspapers typically found in large metropolitan cities. Sales: Newsprint volumes continue to be impacted by the negative impacts of Covid-19 on the economy, however, no production curtailment was necessary in the current fi nancial year. Our volumes and sales were above the prior year by approximately 21% and 24%, respectively. Globally, newsprint demand declined 6% versus 2020. Graphic papers segment made up(cid:123) 52% of Sappi’s sales in F(cid:60)(cid:21)(cid:20) 111 OUR PERFORMANCE REVIEW Chief Financial Offi cer’s Report “We are targeting reductions in both our absolute GHG emissions and emission intensity and in the past year we have committed to setting a science- based target for our emissions reduction initiatives.” Glen Pearce Chief Financial (cid:50)ffi cer (cid:11)CF(cid:50)(cid:12) Section 1 Financial highlights US$ million 2021 2020 % change Sales EBITDA excluding special items Operating profi t excluding special items Profi t (loss) for the year EBITDA excluding special items to sales % Operating profi t excluding special items to sales % Operating profi t excluding special items to capital employed (ROCE) % Net cash (utilised) generated Net debt Basic earnings per share (US cents) 5,265 532 203 13 10.1% 4,609 378 57 (135) 8.2% 3.9% 1.2% 5.4% 29 1,946 2 1.6% (257) 1,957 (25) 14 41 256 nm n/a n/a n/a nm (1) nm The ubiquitous uncertainties of the global economic recovery from the pandemic made for diffi cult forecasting during fi scal 2021. Supply chain optimisation, working capital and liquidity management were focus areas throughout the year as we considered the impact of the various forecasting outcomes. There was an initial emphasis on securing liquidity due to the unpredictable speed of the recovery. The group issued convertible bonds, refi nanced our 2023 bonds, increased our revolving credit facilities and extended our covenant holiday to alleviate liquidity concerns. The demand recovery in the majority of our markets exceeded expectations and pressured supply chain processes. We experienced challenges at opposite extremes with excessive stocks due to logistic problems in some regions and low inventories as demand exceeded available capacity in other regions. Commodity prices increased sharply during the year causing our variable costs per ton to increase from US$431/ton in Q1 to US$483/ton in Q4. Selling prices increased by US$61/ton to US$752/ton during the fi nal quarter, more than recovering the increased costs and resulting in Q4 EBITDA ex SI margins improving to 12% (8% during Q1). Net fi nance costs of US$134 million included the revaluation of a derivative liability of US$31 million and costs associated with the refi nancing of the 2023 bonds of US$3 million. Excluding the above items, fi nance costs of US$100 million were in T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 112 Section 1 Financial highlights continued OUR PERFORMANCE REVIEW line with expectations. The US$1 million tax recovery is mainly due to investment allowances received from the Saiccor Mill expansion project. Profit for the year was US$13 million (LY loss = US$135 million) and earnings per share excluding special items increased from a loss of US5 cents to an earnings of US15 cents. The directors have considered it prudent to temporarily halt dividends until such time as market conditions improve. Cash generated for the year of US$29 million includes capital expenditure of US$374 million. Segment reporting Our reporting is based on the geographical location of our businesses, ie Europe, North America and South Africa. The selected product line information is reviewed by our Executive Committee in addition to the geographical basis upon which the group is managed. This additional information is presented in this report to assist our stakeholders in obtaining a complete understanding of our business. Exchange rates and their impact on the group’s results The group reports its results in US Dollar and, as such, the main foreign exchange rates used in the preparation of the financial statements were: Income statement average rates Balance sheet closing rates 2021 2020 2021 2020 EUR1 = US$ US$1 = ZAR 1.1955 14.8505 1.1195 16.2265 1.1716 14.9659 1.1632 17.1311 Two of our three geographic business units (Europe and South Africa) have home or ‘functional’ currencies of Euro and ZAR respectively. The results and cash flows of these two non-US Dollar units are translated into US Dollar at the average exchange rate for the reporting period in order to arrive at the consolidated US Dollar results and cash flows. When exchange rates differ from one period to the next, the impact of translation from the functional currency to reporting currency can be significant. 113 OUR PERFORMANCE REVIEW Chief Financial Officer’s Report continued Section 2 Financial performance The discussion in this section focuses on the group financial performance in(cid:123)(cid:21)(cid:19)(cid:21)(cid:20) compared with (cid:21)(cid:19)(cid:21)(cid:19)(cid:17) A(cid:123)detailed discussion, in local currencies, of each of our three operating regions follows in Section 3. Income statement Our group financial results can be summarised as follows: Metric tons ’000 Sales volume US$ million Sales revenue Variable manufacturing and delivery costs Fixed costs Sundry items(1) Operating profit excluding special items Special items Operating profit Net finance costs Taxation 2021 7,339 5,265 (3,238) (1,777) (47) 203 (57) 146 (134) 1 2020 % change 6,788 8 4,609 (2,838) (1,673) (41) 57 (95) (38) (88) (9) 14 14 6 15 256 n/a nm 52 nm nm Net profit EPS excluding special items (US cents) nm (1) Sundry items include all income and costs not directly related to manufacturing operations such as debtor securitisation costs, commissions paid and received and results of equity accounted investments. (135) (5) 13 15 Sales volume In 2021, sales volume increased by 551,000 tons compared with 2020. The regional and product segment contributions to sales volume are shown below: Sales volume Metric tons ’000 North America Europe South Africa Group Pulp Packaging and speciality papers Graphic papers Forestry 2021 1,685 2,817 2,837 7,339 1,236 1,464 3,200 1,439 2020 % change 1,516 2,698 2,574 6,788 1,315 1,209 3,096 1,168 11 4 10 8 (6) 21 3 23 Pulp volumes were down 6% for the year, limited by global logistics challenges, civil unrest and production problems at our South African operations. Customer demand was strong throughout the year and approximately 100,000 tons were delayed into the next fiscal as a result of these challenges. Packaging and speciality papers segment volume growth was experienced in all our regions as the conversion projects in North America and Europe started to take full effect. Graphic papers volumes improved steadily during the year with the recovery in Europe lagging North America due to stricter lockdowns in the European Union. Significant capacity closures in both markets assisted with improving capacity utilisation in the remaining operating facilities. The European operations nevertheless recorded 367,000 tons of commercial downtime for the year. Capacity utilisation improved to an average of 84% for the group as improved packaging and speciality papers and graphic paper markets assisted us in taking less production downtime during the year. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 114 OUR PERFORMANCE REVIEW Sales volume to capacity North America Europe South Africa Group 2021 % 2020 % Section 2 Financial performance continued 94 82 80 84 85 73 81 78 Sales revenue Sales revenue increased by 14% from US$4.6 billion in 2020 to US$5.3 billion in 2021. Selling price and mix improvements resulted in sales revenue improving by US$395 million. Consolidated volumes were up on last year as discussed above resulting in sales revenue improving by US$88 million. The weaker US Dollar resulted in a positive US$173 million conversion impact. Variable and delivery costs Variable and delivery costs increased by US$400 million from 2020. The volume increase of 8% contributed to the bulk of the increase. Delivery costs per ton increased as a result of global supply chain challenges while fibre and chemical costs followed general commodity increases as global markets recovered from the low pricing experienced during the pandemic. The net pulp purchases and sales of the Sappi group is detailed in the graph below. Sappi group pulp balance (US$ million) Net pulp sales 573 174 252 800 600 400 200 0 (200) (400) (600) (495) Europe North America South Africa Global The table below reflects the breakdown of variable and delivery costs by type. Variable manufacturing and delivery costs US$ million 2021 2020 % change Wood Energy Chemicals Pulp and other Delivery Group 573 437 784 958 486 561 352 679 851 395 3,238 2,838 2 24 15 13 23 14 115 OUR PERFORMANCE REVIEW Chief Financial Officer’s Report continued Fixed costs Fixed costs increased by US$105 million from fiscal 2020. Furloughing, government subsidies and salary sacrifices recorded during 2020 were not repeated in 2021 resulting in personnel costs increasing by 12%. Similarly, maintenance work delayed during the height of the pandemic in 2020 was resumed during 2021. The reduction in ‘Other’ is mainly a credit to inventory movement as a result of a stock build. The stronger ZAR and EUR resulted in an increase in US Dollar costs (US$76 million). Excluding the currency impact fixed costs increased by US$28 million. Details of the make-up of fixed costs are provided in the table below. Fixed costs US$ million Personnel Maintenance Depreciation Other Group 2021 1,077 240 319 141 1,777 2020 % change 959 217 313 184 1,673 12 11 2 (23) 6 EBITDA and operating profit excluding special items EBITDA excluding special items increased to US$532 million, 41% higher than the previous year. Operating profit excluding special items increased from US$57 million last year to US$203 million in 2021. The EBITDA ex SI bridge reflected in the graph below shows the impact on profitability from lower sales volumes and selling prices offset by reduced variable and fixed costs. Reconciliation of EBITDA excluding special items: 2021 compared to 2020(1) (US$ million) Sales revenue Variable and delivery costs Fixed costs 1 200 1 000 800 600 400 200 0 88 378 173 (286) 395 (114) (28) 2 (76) 532 FY2020 EBITDA ex SI Sales volume Price and mix Currency conversion Variable and delivery costs Currency conversion Fixed costs Currency conversion Other FY2021 EBITDA ex SI (1) All variances were calculated excluding Sappi Forestry. (2) ‘Current conversion’ reflects translation and transactional effect on consolidation. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 116 OUR PERFORMANCE REVIEW The tables below detail the EBITDA and operating profit excluding special items of the business for both 2021 and 2020 and the margins of each. Section 2 Financial performance continued EBITDA excluding special items by region US$ million 2021 2020 North America Europe South Africa Corporate and other Group EBITDA ex SI margin by region (%) 20 15 10 5 0 . 4 2 1 7 5 . 2 6 . 8 3 . 209 94 228 1 532 79 143 151 5 378 . 6 9 1 . 4 5 1 . 1 0 1 2 8 . North America ● ● 2020 2021 Europe South Africa Sappi group EBITDA excluding special items by product category US$ million 2021 2020 Pulp Packaging and speciality papers Graphic papers Other Group 197 214 120 1 532 63 179 131 5 378 (cid:50)(cid:83)er(cid:68)ti(cid:81)(cid:74)(cid:3)(cid:83)r(cid:82)fit(cid:3)e(cid:91)c(cid:79)(cid:88)di(cid:81)(cid:74)(cid:3)(cid:86)(cid:83)eci(cid:68)(cid:79)(cid:3)ite(cid:80)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)re(cid:74)i(cid:82)(cid:81) US$ million 2021 2020 North America Europe South Africa Corporate and other Group 105 (52) 151 (1) 203 (27) 8 75 1 57 117 OUR PERFORMANCE REVIEW Chief Financial Officer’s Report continued Section 2 Financial performance continued Operating profit margin by region (%) 20 15 10 0 (5) 2 6 . ) 0 2 ( . 4 0 . ) 1 2 ( . . 0 3 1 . 7 7 2 1 . . 9 3 North America ● ● 2020 2021 Europe South Africa Sappi group (cid:50)(cid:83)er(cid:68)ti(cid:81)(cid:74)(cid:3)(cid:83)r(cid:82)fit(cid:3)e(cid:91)c(cid:79)(cid:88)di(cid:81)(cid:74)(cid:3)(cid:86)(cid:83)eci(cid:68)(cid:79)(cid:3)ite(cid:80)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:83)r(cid:82)d(cid:88)ct(cid:3)c(cid:68)te(cid:74)(cid:82)r(cid:92) US$ million 2021 2020 Pulp Packaging and speciality papers Graphic papers Other Group 127 109 (32) (1) 203 (2) 88 (30) 1 57 In the chart below, 77% of the group’s EBITDA ex SI originates from growing markets in the pulp and packaging and speciality papers segments. The graphic papers segment, which contributes 23% of the EBITDA ex SI remains an important strategic component of our business. EBITDA excluding special items by product 2021: US$ 532 million ● ● ● Pulp (US$197 million) Packaging and speciality papers (US$214 million) Graphic papers (US$120 million) For information regarding the financial performance of the regions, please refer to Section 3 of this report. Key operating targets Our financial targets and performance against the key operating targets are dealt with in the Letter to Shareholders section. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 118 OUR PERFORMANCE REVIEW Special items Special items consist of those items which management believe are material, by nature or amount, to the results for the year and require separate disclosure. A breakdown of special items for 2021 and 2020 is reflected in the table below: Section 2 Financial performance continued (cid:54)(cid:83)eci(cid:68)(cid:79)(cid:3)ite(cid:80)(cid:86)(cid:3)(cid:115)(cid:3)(cid:74)(cid:68)i(cid:81)(cid:3)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12) US$ million Plantation price fair value adjustment Acquisition costs Net restructuring provisions Profit (loss) on disposal and written off assets Net asset (impairment) reversals Equity accounted investees impairments Insurance recoveries Fire, flood, storm and other events Total 2021 2020 (13) – (2) 1 (15) (4) (1) (23) (57) 20 (6) (34) 1 (15) (19) – (42) (95) The net impact of special items in 2021 was US$57 million. The major components are described below: • A negative non-cash US$13 million plantation price fair value adjustment was recognised following decreases to the market price of timber. • Asset impairments of US$7 million were recorded against our Lomati Sawmill and the change to the PM2 newsprint machine at Ngodwana Mill, US$12 million against our mechanical coated cash-generating unit and US$4 million against the Forestry First equity investment. A gain on remeasurement of US$4 million was recorded on our held-for-sale assets. • Fire, flood, storm and other events includes fire and turbine damage at the Alfeld and Maastricht Mills of US$7 million, flood damage at Matane Mill of US$4 million, provision for environment claims of US$4 million, strike related costs in South Africa of US$3 million and fire and hail damaged timber of US$2 million. Net finance costs US$ million Finance costs Finance income Net foreign exchange gains Net fair loss on financial instruments Total 2021 2020 112 (8) (1) 31 134 93 (5) – – 88 Finance costs of US$134 million were higher than the prior year primarily due to the non-cash fair value adjustments arising from revaluation of the conversion rights for the Sappi Southern Africa Limited’s US$123 million (R1.8 billion) convertible bond issued in the first quarter and refinancing costs in the second quarter for the new 2028 bonds. 119 OUR PERFORMANCE REVIEW Chief Financial Officer’s Report continued Section 2 Financial performance continued Taxation A regional breakdown of the tax charge is provided below. US$ million Europe North America South Africa Total Profit (loss) before tax Tax (charge) relief Effective tax rate % (145) 77 80 12 7 (2) (4) 7 5 5 4 (8) The difference between the effective and statutory tax rates of the European entities is mainly due to non-valued losses carried forward in Belgium, Netherlands, Finland and Austria. In North America, effective and statutory tax rates differ predominantly due to non-valued losses carried forward in the United States of America. The South African effective tax rate is mainly as a result of special and normal tax allowances relating to the Saiccor Mill expansion. Net profit, earnings per share and dividends After taking into account net finance costs and taxation, our net profit and earnings per share for 2021, with comparatives for 2020, were as follows: US$ million 2021 2020 Operating profit Net finance costs Profit (loss) before taxation Taxation Profit (loss) for the period Weighted average number of shares is issue (millions) Basic earnings per share (US cents) 146 134 12 (1) 13 549.7 2 (38) 88 (126) 9 (135) 545.5 (25) The directors have elected not to declare a dividend and temporarily halt dividends until such time as market conditions improve. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 120 OUR PERFORMANCE REVIEW Section 3 (cid:37)e(cid:79)(cid:82)(cid:90)(cid:3)(cid:90)e(cid:3)di(cid:86)c(cid:88)(cid:86)(cid:86)(cid:3)t(cid:75)e(cid:3)(cid:83)er(cid:73)(cid:82)r(cid:80)(cid:68)(cid:81)ce(cid:3)(cid:82)(cid:73)(cid:3)t(cid:75)e(cid:3)re(cid:74)i(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:69)(cid:88)(cid:86)i(cid:81)e(cid:86)(cid:86)e(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)e(cid:123)di(cid:86)c(cid:88)(cid:86)(cid:86)i(cid:82)(cid:81)(cid:3)i(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)ed(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)er(cid:73)(cid:82)r(cid:80)(cid:68)(cid:81)ce(cid:3) in local currencies as we believe this facilitates a better understanding of the revenue and costs in the European and South African operations. North America Metric tons ’000 Sales volume Pulp Packaging and speciality papers Graphic papers 2021 1,685 453 485 747 2020 % change 1,516 453 330 733 11 – 47 2 US$ million 2021 US$ million 2020 % change US$ per ton 2021 US$ per ton 2020 % change Sales Variable manufacturing and delivery costs Contribution Fixed costs Sundry items and consolidation entries Operating profit excluding special items EBITDA excluding special items 1,688 (1,122) 566 (535) 74 105 209 1.385 (968) 417 (508) 64 (27) 79 22 16 36 5 16 nm 165 1,002 (666) 336 (318) 44 62 124 914 (639) 275 (335) 42 (18) 52 10 4 22 (5) 5 nm 138 The North American business recorded its best result in over 10 years. Volumes in the packaging and speciality papers segment increased by 47% as the region improved the mix of products on the converted paper machine at Somerset Mill. The substantial reduction of capacity in the North American graphic papers market combined with logistics challenges on imported graphic paper products created tight market conditions and the opportunity to increase selling prices and restore margins in that segment. The region also benefited from a recovery in DP selling prices resulting in overall EBITDA ex SI margins improving from 6% in 2020 to 12% in 2021. The integration of the Matane Mill systems and procedures were successfully completed during the year. Europe Metric tons ’000 Sales volume Packaging and speciality papers Graphic papers 2021 2,817 525 2,292 2020 % change 2,698 478 2,220 4 10 3 € million 2021 € million 2020 % change € per ton 2021 € per ton 2020 % change Sales Variable manufacturing and delivery costs 2,090 (1,350) 2,067 (1,268) Contribution Fixed costs Sundry items and consolidation entries Operating profit excluding special items EBITDA excluding special items 740 (702) (82) (44) 78 799 (722) (70) 7 128 1 6 (7) (3) 17 nm nm 724 (479) 263 (249) (30) (16) 28 766 (470) 296 (268) (25) 3 47 (3) 2 (11) (7) 20 nm (40) The European region struggled to reverse the downward selling price trend which had started during the last quarter of the previous fiscal. Selling prices remained at low levels for the first three quarters of the current fiscal and recovered during the last quarter. There was a strong recovery in volumes with packaging and speciality papers volumes increasing by 10%. Logistics challenges hampered a volume recovery in the graphics markets as container availability limited export volumes. The fourth quarter graphic papers volumes were, however, 37% up on the same quarter last year as supply chain restrictions eased. Variable costs, in particular purchased pulp, increased substantially during the year resulting in margin squeeze. The region managed to offset the reduced contribution by reducing fixed costs by 3%. The European operations were nevertheless forced to take 376,000 tons of production downtime during the year. EBITDA ex SI margins reduced from 6% to 4% as a consequence. 121 OUR PERFORMANCE REVIEW Chief Financial Officer’s Report continued Section 3 continued South Africa* Metric tons ’000 Sales volume* Pulp Packaging and speciality papers Graphic papers Sales* Variable manufacturing and delivery costs Contribution Fixed costs Sundry items and consolidation entries Operating profit excluding special items EBITDA excluding special items * Excludes Forestry. ZAR million 2021 ZAR million 2020 % change 16,083 (9,995) 6,088 (5,985) 2,139 2,242 3,386 14,928 (9,460) 5,468 (5,809) 1,558 1,217 2,450 8 6 11 3 37 84 38 2021 1,398 784 459 155 ZAR per ton 2021 11,504 (7,149) 4,355 (4,281) 1,530 1,604 2,422 2020 % change (1) (9) 15 6 1,406 861 399 146 ZAR per ton 2020 % change 10,617 (6,728) 3,889 (4,132) 1,190 866 1,743 8 6 12 4 38 85 39 The missed opportunities in the South African region dented the good year-on-year recovery. Net selling prices of DP increased 15% from the historic lows of the previous year while packaging selling prices remained in line with the previous year. Despite the strong market demand for all the region’s products, sales volumes were restricted by civil unrest, production problems and logistics challenges. DP sales volumes of 82,000 tons were delayed into the following fiscal due to unavailability of ocean freight vessels. Vessel scarcity resulted in delivery costs increasing 6% during the year. Variable costs, predominantly energy and chemicals, increased by 6% during the year as well. Commissioning of the Saiccor Mill expansion project began during the fourth quarter and additional production will commence in the first quarter of fiscal 2022. Fixed costs were restricted to an increase of 3% despite personnel cost increases matching inflationary increases of 5%. As a consequence of the above, EBITDA ex SI margins increased from 16% in the previous year to 21% The region’s capital expenditure focused on increasing DP capacity during the year. Major sensitivities Some of the more important factors which impact the group’s EBITDA excluding special items, based on current anticipated revenue and cost levels, are summarised in the table below: Sensitivities Net selling prices Dissolving pulp prices Variable costs Sales volume Fixed costs Paper pulp price Oil price ZAR/US$ (weakening) Euro/US$ (weakening) Europe € million North America US$ million South Africa ZAR million Translation impact* US$ million Group US$ million 25 – 15 8 7 6 3 – (2) 18 3 9 7 5 1 – – (3) 233 158 120 96 57 6 – 83 – – – – – – – – (2) 63 14 34 23 16 8 3 3 (11) (16) Change 1% US$10 1% 1% 1% US$10 US$1 10 cents 10 cents * Based on currency impact on translation of EBITDA ex SI. The table demonstrates that EBITDA excluding special items is most sensitive to changes in the selling prices of our products. The calculation of the impact of these sensitivities assumes all other factors remain constant and does not consider potential management interventions to mitigate negative impacts or enhance benefits. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 122 OUR PERFORMANCE REVIEW In the table below, we present the group’s cash flow statement for 2021 and 2020 in a summarised format: Section 4 C(cid:68)(cid:86)(cid:75)(cid:3)(cid:432)(cid:82)(cid:90) US$ million 2021 2020 Operating profit excluding special items Depreciation and amortisation EBITDA excluding special items Contributions to post-employment benefits Other non-cash items Cash generated from operations Movement in working capital Net finance costs Taxation Dividend paid Capital expenditure Net proceeds on disposal of assets Acquisition Other Net cash generated (utilised) 203 329 532 (49) (11) 472 39 (102) (2) – (374) 4 – (8) 29 57 321 378 (40) (15) 323 65 (102) (26) – (351) 1 (160) (7) (257) Net cash generated for the financial year was US$29 million (FY2020: US$257 million utilised). The improvement in cash generation reflects the recovery from the impact of Covid-19 relative to the comparative year. A reduction in net working capital requirements was achieved despite the supply chain challenges which resulted in increased stock holding. Good management of accounts receivables and payables contributed to the reduced requirement. The increased capital expenditure includes the majority of the Saiccor Mill expansion spend. (cid:44)(cid:81)(cid:89)e(cid:86)t(cid:80)e(cid:81)t(cid:3)i(cid:81)(cid:3)fi(cid:91)ed(cid:3)(cid:68)(cid:86)(cid:86)et(cid:86)(cid:3)(cid:89)er(cid:86)(cid:88)(cid:86)(cid:3)de(cid:83)reci(cid:68)ti(cid:82)(cid:81)(cid:3)(US$ million) 1 4 5 1 7 4 7 5 3 4 7 3 1 5 3 600 500 400 300 200 100 0 2017 ● Cash flow capex 2018 2019 2020 2021 Depreciation 123 OUR PERFORMANCE REVIEW Chief Financial Officer’s Report continued Section 5 Balance sheet Summarised balance sheet US$ million Property, plant and equipment Right-of-use assets Plantations Net working capital Other assets Net post-employment liabilities Other liabilities Employment of capital Equity Net debt Capital employed 2021 3,325 110 477 403 364 (197) (566) 3,916 1,970 1,946 3,916 2020 3,103 101 419 441 296 (306) (465) 3,589 1,632 1,957 3,589 Sappi has 19 production facilities in 10 countries, capable of producing approximately 3.9 million tons of pulp and 5.5 million tons of paper. For more information on our mills, their production capacities and products, please refer to the Where we operate section. During 2021, capital expenditure for property, plant and equipment was US$374 million. The capacity replacement value of property, plant and equipment for insurance purposes has been assessed at approximately US$22 billion. Property, plant and equipment The cost and depreciation related to our property are set out in the table below. Book value of property, plant and equipment US$ million Cost Accumulated depreciation and impairment Net book value 2021 9,908 6,583 3,325 2020 9,346 6,243 3,103 The group incurred capital expenditure of US$374 million during the year. This was largely offset by depreciation of US$289 million while the weaker US Dollar resulted in foreign currency translation gains of US$160 million. Plantations We regard ownership of our plantations in South Africa as a key strategic resource as it provides access to low cost fibre for pulp production and ensures continuity of supply on an important raw material input source. The South African region has access to approximately 394,000 hectares of land of which approximately 258,000 hectares are planted with pine and eucalyptus. These plantations provide approximately 67% of the wood requirements for our South African mills. During the year, there were market price increases coupled with higher average fair value rates. These increases were offset by the rising cost of fuel and an increase in the discount rate. As we manage our plantations on a sustainable basis, the growth for the year was offset by timber felled during the year. Our plantations are valued on the balance sheet at fair value less the estimated costs of delivery, including harvesting and transport costs. In notes 2.3.4 and 11 to the financial statements, we provide more detail on our accounting policies for plantations, how we manage our plantations as well as the major assumptions used in the calculation of fair value. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 124 OUR PERFORMANCE REVIEW Working capital The component parts of our working capital at the 2021 and 2020 fiscal year ends are shown in the table below: Section 5 Balance sheet continued Net working capital US$ million Inventories Trade and other receivables Trade and other payables and provisions Net working capital 2021 841 703 (1,141) 403 2020 673 584 (816) 441 Optimising working capital remains a key focus area for us and appropriate targets are incorporated into the management incentive schemes for all businesses. The working capital investment is seasonal and typically peaks during the third quarter of each financial year. Net working capital decreased to US$403 million in 2021 from US$441 million in 2020. The material movements in working capital are discussed below: • Inventories increased by US$168 million, caused mainly by increased inventory levels and an unfavourable currency translation impact of US$25 million. • Receivables increased by US$119 million following higher net selling prices and increased volumes in the fourth quarter combined with an unfavourable currency translation impact of US$7 million. • Payables increased by US$325 million largely due to increases in trade payables on higher sales volumes, increases in bonus accruals and accruals for rebates and a favourable currency translation impact of US$40 million. Post-employment liabilities We operate various defined benefit pension/lump sum plans, post-employment healthcare subsidies and other employee benefits in the various countries in which we operate. A summary of defined benefit assets and liabilities (pension and post-employment healthcare subsidies) is as follows: Defined benefit liabilities US$ million Defined benefit obligation Fair value of plan assets Net balance sheet liability Cash contributions to defined benefit plans/subsidies Income statement charge (credit) to profit or loss 2021 (1,523) 1,329 (194) 50 28 2020 (1,600) 1,294 (306) 36 25 16 Cash contributions deemed ‘catch-up’* * ‘Catch-up’ is cash contributions paid to defined benefit plans in excess of current service cost. 30 Gross liabilities from all our plans reduced by US$77 million from US$1,600 million to US$1,523 million over the year. The main cause of the reduction was due to an increase in discount rates in regions where we hold significant liabilities. Fair value of plan assets rose by US$35 million from US$1,294 million to US$1,329 million over the year due to favourable investment returns of assets in our funded plans from outperforming bonds. Included in the net balance sheet liability above is a net loss of US$2 million resulting from movements of local results relative to the reporting currency. 125 OUR PERFORMANCE REVIEW Chief Financial Officer’s Report continued Section 5 continued The decrease in liabilities, coupled with the increase in assets, contributed to a reduction in the overall net liability by US$112 million from US$306 million to US$194 million over the year. A reconciliation of the movement in the balance sheet over the year is shown graphically below and disclosed in more detail in note 28 of the annual financial statements. (cid:54)(cid:68)(cid:83)(cid:83)i(cid:3)(cid:47)i(cid:80)ited(cid:3)defi(cid:81)ed(cid:3)(cid:69)e(cid:81)efit(cid:3)(cid:83)e(cid:81)(cid:86)i(cid:82)(cid:81)(cid:86)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)ce(cid:3)(cid:86)(cid:75)eet(cid:3)(cid:80)(cid:82)(cid:89)e(cid:80)e(cid:81)t(cid:3)(US$ million) 150 100 50 0 (50) (100) (150) (200) (250) – Acquisition (203) 2020 net liability (22) Pension charge – (91) 87 47 Employer contributions paid Actuarial gains Translation effect 2021 net liability Sappi Limited post-retirement medical aid subsidy balance sheet movement (US$ million) 20 0 (20) (40) (60) (80) (100) (120) (103) (6) 3 5 (2) (103) – 2020 net liability Pension charge Employer contributions paid Actuarial gains Translation effect 2021 net liability Equity Year-on-year, equity increased by US$338 million to US$1,970 million as summarised below: Equity reconciliation US$ million Equity as at September 2020 Profit for the year Dividend paid Actuarial gains Issue of shares Convertible bond – equity portion Share-based movements Movement in hedging reserves Foreign currency movements Equity as at September 2021 2021 1,632 13 – 90 26 39 8 (2) 164 1,970 The group realised a profit for the year of US$13 million and recorded actuarial gains of US$90 million. Convertible bonds were issued during the first quarter and subsequent to shareholder approval the equity portion of the convertible bond of US$39 million was reclassified to equity. During the fourth quarter holders of the convertible bonds elected to convert, and shares to the value of US$26 million were issued. Share-based payments of US$8 million and foreign currency movements of US$164 million accounted for the remainder of the movement during the year. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 126 OUR PERFORMANCE REVIEW Debt Debt is a major source of funding for the group. In the management of debt, we focus on net debt, which is the sum of current and non-current interest-bearing borrowings and bank overdrafts, net of cash and cash equivalents. Debt funding structure The Sappi group principally takes up debt in two legal entities. Sappi Southern Africa Limited issues debt in the local South African market for its own funding requirements and Sappi Papier Holding GmbH (SPH), which is Sappi’s international holding company, issues debt in the international money and capital markets to fund our non-South African businesses. SPH’s long-term debt is supported by a Sappi Limited guarantee and the fi nancial covenants on certain of its debt agreements are based on the ratios of the consolidated Sappi Limited group. The covenants applicable to the debt of these two entities and their respective credit ratings are discussed on page 130. The diagram below depicts our debt funding structure. Sappi Limited Guarantee* Sappi Limited Sappi Southern Africa (SSA) South African debt Sappi Papier Holding (SPH) Non-South African debt Sappi Europe Sappi North America Sappi Trading * Sappi Limited provides guarantees for long-term non-South African debt. 127 OUR PERFORMANCE REVIEW Chief Financial Officer’s Report continued Section 5 Balance sheet continued Below we highlight the main financing activities that occurred during the year: • In November 2020 Sappi Southern Africa placed a new seven-year Convertible Bond, with an interest coupon of 5.25% and a conversion share price of ZAR33.1636, a premium of 32.5% of the share price at the time of bond placement. • SPH’s securitisation programme of €330 million matured in January 2022 and was extended to January 2024 during the fiscal year. • SPH’s EUR350 million 2023 public bond was refinanced and upsized in March 2021, with a new EUR400 million 2028 bond at a coupon of 3.625%. Structure of net debt and liquidity We consider the group liquidity position to be sufficient, with cash holdings of US$366 million at financial year end, and US$732 million of unutilised committed revolving credit facilities. The structure of our net debt at September 2021 and 2020 is summarised below: US$ million Long-term debt Senior unsecured debt Securitisation funding IFRS 16 Leases* Less: Short-term portion Net short-term debt/(cash) Overdrafts, revolving credit facility (RCF) and short-term loans Short-term portion of long-term debt Less: cash 2021 2,157 1,769 337 119 (67) (211) 88 67 (366) 2020 1,942 1,649 256 105 (69) 15 225 69 (279) Net debt 1,946 1,957 * IFRS 16 accounting standard adopted from fiscal 2020. Movement in net debt The movement of our net debt from fiscal 2020 to fiscal 2021 is summarised in the table below: Net debt at September 2020 Increase of IFRS 16 Leases Net impact of SSA Convertible Bond Net cash generated in 2021 Currency translation, fair value and other non-cash adjustments Net debt at September 2021 US$ million 1,957 34 (48) (29) 32 1,946 T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 128 OUR PERFORMANCE REVIEW Group debt profile We show the major components and maturities of our net debt at September 2021 below. These are split between our debt in South Africa and our debt outside South Africa. Amount US$ million Interest rates (local currencies) 6.00% 6.20% 9.25% 5.25% 1.70% 1.70% Various 2.30% 4.10% 1.50% 0.30% 4.00% 3.63% 7.50% 20 72 100 89 281 (156) 125 126 210 120 134 102 87 68 469 527 221 (33) 2,031 (210) 1,821 1,946 South Africa Short-term notes SSA07 Public bond SAA08 Public bond Convertible bond Gross debt less cash Net South African debt Non-South African Securitisation (US$) Securitisation (EUR) IFRS 16 Leases OeKB term loan 1 OeKB term loan 2 (CAD) OeKB term loan 2 (EUR) Other bank debt (EUR) 2028 Public bonds (EUR) 2026 Public bonds (EUR) 2032 Bonds (US$) IFRS adjustments Gross debt less cash Net non-South African debt Net group debt Fixed/ variable Variable Fixed Fixed Fixed Variable Variable Mixed Fixed Fixed Fixed Variable Fixed Fixed Fixed Maturity (Sappi fiscal years) 2022 2023 2024 2025 Thereafter 20 (156) (136) 24 21 15 12 68 (210) (70) (206) 72 100 89 72 100 0 89 126 210 18 91 15 12 20 21 15 12 14 15 12 44 44 37 469 527 (33) 68 140 473 574 40 40 1,309 1,398 The majority of our non-South African long-term debt is guaranteed by Sappi Limited, the group holding company. A diagram of the debt maturity profile for Sappi fiscal years is shown below: (cid:39)e(cid:69)t(cid:3)(cid:80)(cid:68)t(cid:88)rit(cid:92)(cid:3)(cid:83)r(cid:82)fi(cid:79)e(cid:3)(US$ million) 20 0 (20) (40) (60) (80) (100) (120) 7 3 3 9 1 1 0 0 1 8 6 8 04 2 2 7 8 4 4 5 5 9 8 7 2 7 2 6 9 4 (91) 1 2 2 0 – 1 years 1 – 2 years 2 – 3 years 3 – 4 years 4 – 5 years 5 – 6 years 6 – 7 years 7 – 8 years >8 years ● Short-term ● RCF ● Securitisation ● SSA ● SPH term debt * Excludes IFRS 16 lease with an average time to maturity of approximately four years. 129 OUR PERFORMANCE REVIEW Chief Financial Officer’s Report continued Section 5 Balance sheet continued Covenants Non-South African covenants Financial covenants apply to US$322 million of our non-South African bank debt, the €525 million Revolving Credit Facility and the non-South African securitisation facility. In view of the uncertainty due to Covid-19 the banking group agreed in 2020 to suspend the measurement of financial covenants until September 2021. This suspension is subject to normal conditions for this kind of assistance and included no dividend payments, maximum capex spending limits, a minimum liquidity requirement and no M&A activity without prior bank approval. Covenant measurement will commence again with effect from the December 2021 quarter. The covenants applicable from December 2021 are described below and are calculated on a rolling last four quarter basis and must be met at the end of each quarter. • Ratio of group net debt to EBITDA ex SI: December 2021 March 2022 June 2022 September 2022 to December 2022 5.50 5.25 4.75 4.50 March 2023 4.25 • Ratio of group EBITDA ex SI to net interest expense should not be less than 2.50-to-1. South African covenants Separate covenants also apply to the Revolving Credit Facility of our Southern African business. These covenants are calculated on a rolling last four quarter basis and require that at the end of March and September each year, with regard to Sappi Southern Africa Limited and its subsidiaries: • the ratio of net debt to equity at the end of March and September is not greater than 65%; and • the ratio of EBITDA ex SI to net interest paid is not less than 2.5-to-1. Below we show that for the year ended September 2021 the South African financial covenants were comfortably met. South African covenants Net debt to equity EBITDA ex SI to net interest 2021 9.15% 8.14 Covenant <65% >2.50 In addition to the financial covenants referred to above, our bonds and certain of our bank facilities contain customary affirmative and negative covenants restricting, among other things, the granting of security, incurrence of debt, the provision of loans and guarantees, mergers and disposals and certain restricted payments. As regards dividend payments, in terms of the international bond indentures, any cash dividends paid may not exceed 50% of net profit excluding special items after tax and certain other adjustments, calculated on a cumulative basis. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 130 OUR PERFORMANCE REVIEW Credit ratings Global Credit Ratings: South African national scale rating Sappi Southern Africa Limited: AA (za)/A1+(za)/Stable Outlook (June 2021) Moody’s Sappi Corporate Family Rating: Ba2/NP/Negative Outlook (December 2020) SPH Debt Rating: • 2028/2026 Bonds: Ba2/Negative Outlook (December 2020) • 2032 Bonds: B1/Negative Outlook (December 2020) S&P Global Ratings Corporate Credit Rating: BB-/B/Stable Outlook (September 2020) SPH Debt Rating: • 2026/2028/2032 Bonds: BB- Stable Outlook (September 2020) Section 6 Share price performance Sappi share price – September 2019 to September 2021 60 50 40 30 20 10 0 9 1 0 2 r e b m e t p e S 9 1 0 2 r e b m e c e D 0 2 0 2 h c r a M 0 2 0 2 e n u J 0 2 0 2 r e b m e t p e S 0 2 0 2 r e b m e c e D 1 2 0 2 h c r a M 1 2 0 2 e n u J 1 2 0 2 r e b m e t p e S Conclusion Demand recovery post the peak of the pandemic exceeded expectations and contributed to an improved liquidity situation at year end. Gearing ratios remain high and the near-term focus will be on strengthening the balance sheet but matching that with delayed maintenance capital expenditure. Additionally, Science Based Targets will require committed capital expenditure and managing cash flows with commitments will be the challenge. Logistics challenges are expected to persist in the year ahead placing strain on the management of working capital. Finished goods inventory levels and the availability of raw materials to service increased demand levels will require additional focus. The sharp increase in variable costs has emphasised the commitment to driving operational excellence in order to restore margins to sustainable levels. The four key fundamentals of our the subsequent recovery. The short-term focus will be to strengthen the balance sheet by reducing debt and maximising cash generation. The medium to longer-term strategy will be to invest in growth opportunities and achieve our sustainability goals. strategy are sufficiently flexible to accommodate the intervention of the pandemic and Thrive25 GT Pearce Chief Financial (cid:50)fficer 08 December 2021 131 V E L O C I T Y The cheetah’s light, streamlined body makes it well-suited to short, explosive bursts of speed, rapid acceleration and executing extreme changes in direction while moving at high speed. Contrary to the common belief that cheetahs – known to be the fastest land animal – hunt by simply chasing their prey at high speeds, they are in fact extremely strategic. They don’t randomly sprint towards anything, but wait until the timing is right, varying their speed during the chase. Speed and smartness are attributes that resonate with us at Sappi, given that ‘making smart decisions which we execute with speed’ are among our core values. Under our Thrive25 strategy, we foster a safety-first culture, using collaboration and the power of partnerships to respond to changes in our environment, moving Sappi forward and deliver value to our customers. 132 V E L O C I T Y The cheetah’s light, streamlined body makes it well-suited to short, explosive bursts of speed, rapid acceleration and executing extreme changes in direction while moving at high speed. Contrary to the common belief that cheetahs – known to be the fastest land animal – hunt by simply chasing their prey at high speeds, they are in fact extremely strategic. They don’t randomly sprint towards anything, but wait until the timing is right, varying their speed during the chase. Speed and smartness are attributes that resonate with us at Sappi, given that ‘making smart decisions which we execute with speed’ are among our core values. Under our Thrive25 strategy, we foster a safety-first culture, using collaboration and the power of partnerships to respond to changes in our environment, moving Sappi forward and deliver value to our customers. 133 GOVERNANCE AND COMPENSATION Our leadership and executive management Non-executive directors Sir Nigel Rudd (74) Brian Richard Beamish (Brian) (64) Michael Anthony Fallon (Mike) (63) James Michael Lopez (Jim) (62) Nkateko Peter Mageza (Peter) (66) Independent Chairman Independent Independent Independent Independent (cid:52)ualifi cations(cid:29) DL, Chartered Accountant (cid:52)ualifi cations(cid:29) BSc (Mech Eng): HBS PMD (cid:52)ualifi cations(cid:29) BSc Hons (First Class) (cid:52)ualifi cations(cid:29) BA (Economics) Nationality: British Appointed: April 2006 Skills, expertise and experience: Sir Nigel Rudd has held various senior management and board positions in a career spanning more than 35 years. He founded Williams plc in 1982, one of the largest industrial holding companies in the United Kingdom (UK). Sir Nigel Rudd brings his expertise in fi nance, management, governance and leadership to the Sappi board. * Nationality: British and South African Appointed: March 2019 Skills, expertise and experience: Mr Beamish, a qualifi ed mechanical engineer, brings more than 40 years’ experience in management, business and leadership in capital intensive industries to the board. Nationality: British Nationality: American Appointed: September 2011 Appointed: March 2019 Skills, expertise and experience: Skills, expertise and experience: Mr Fallon brings management and leadership experience that extends across a wide range of functions from research and development (R&D), human resources, fi nance, plant management, sales and marketing and supply chain to general management, including mergers and acquisitions. Mr Lopez brings his experience as the former President and Chief Executive Offi cer (CEO) of Tembec Inc (2006 – 2017) a manufacturer of lumber, pulp, paper/ paperboard and speciality cellulose and a global leader in sustainable forest management practices. * (cid:52)ualifi cations(cid:29) FCCA (UK) Nationality: South African Appointed: January 2010 Skills, expertise and experience: Mr Mageza brings his knowledge and experience having held senior executive positions across a wide range of industries. * Average age 2021 (%) Independence 2021 (%) Tenure 2021 (%) Diversity 2021 (%) 8 17 17 17 58 25 33 58 42 83 42 ● ● 40s 50s ● ● 60s 70s ● ● Independent non-executives Executives ● ● ● Zero to three years Three to 10 years Over 10 years ● ● Diverse Other T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 134 GOVERNANCE AND COMPENSATION Zola Nwabisa Malinga (43) Independent Dr Bonakele Mehlomakulu (Boni) (48) Mohammed Valli Moosa (Valli) (64) Independent Robertus Johannes Antonius Maria Renders (Rob Jan) (68) (cid:52)ualifi cations(cid:29) BCom, CA(SA) Independent Nationality: South African Appointed: October 2018 Skills, expertise and experience: Ms Malinga has extensive experience in investment banking, corporate fi nance and real estate, having held senior roles at various fi nancial institutions. She is also the founder and Executive Director of Jade Capital Partners, a women- owned investment holding company. (cid:52)ualifi cations(cid:29) PhD (Chemical Engineering) (cid:52)ualifi cations(cid:29) BSc (Mathematics and Physics) Nationality: South African Nationality: South African Appointed: August 2010 Appointed: March 2017 Skills, expertise and experience: With a PhD in chemical engineering, Dr Mehlomakulu has experience and expertise in innovation policy, management and leadership. Skills, expertise and experience: Mr Moosa has held numerous leadership positions across business, government, politics and civil society in South Africa and internationally. Mr Moosa has expertise in fi nance, general business and mining and is an international expert on sustainable development and climate change. * Independent (cid:52)ualifi cations(cid:29) MSc (Mechanical Engineering), MDP Nationality: Dutch Appointed: October 2015 Skills, expertise and experience: Mr Renders currently serves as a business consultant and independent director and brings to the board his extensive experience in governance and leadership as well as operational expertise in manufacturing and packaging internationally. Janice Elaine Stipp (Janice) (62) Independent (cid:52)ualifi cations(cid:29) BA (Accounting), MBA Nationality: American Appointed: June 2019 Skills, expertise and experience: Ms Stipp brings with her a wealth of experience in leadership, fi nance and treasury to the Sappi board. Sappi board committee memberships: Audit and Risk Committee Human Resources and Compensation Committee Nomination and Governance Committee Social, Ethics, Transformation and Sustainability (SETS) Committee * Committee Chairman 135 GOVERNANCE AND COMPENSATION Our leadership and executive management continued Executive directors Executive management Stephen Robert Binnie (Steve) (54) Glen Thomas Pearce (58) Marco Eikelenboom (54) Michael George Haws (Mike) (58) Chief Executive Officer Chief Financial Officer (cid:52)ualifi cations(cid:29) BCom, BAcc, CA(SA), MBA (cid:52)ualifi cations(cid:29) BCom, BCom Hons, CA(SA) Nationality: British Nationality: South African Appointed: September 2012 Appointed: June 1997 Skills, expertise and experience: Skills, expertise and experience: Mr Binnie was appointed CEO of Sappi Limited in July 2014 and brings extensive experience in fi nancial management, leadership, corporate activity and strategy to the role. Mr Pearce joined Sappi Limited in June 1997 and was promoted to CFO and Executive Director of Sappi Limited in July 2014. Mr Pearce has extensive fi nancial management experience, both locally and abroad. Chief Executive Officer of Sappi Europe (cid:52)ualifi cations(cid:29) MS (Business Economics) Appointed: September 1992 Skills, expertise and experience: Mr Eikelenboom was appointed CEO of Sappi Europe on 01 April 2021. Mr Eikelenboom was previously Vice President Marketing and Sales for Graphic Papers and was integral in the successful restructure and refocus of Sappi’s European operations. President and Chief Executive Officer of Sappi North America (cid:52)ualifi cations(cid:29) BSc Paper Science and Engineering Appointed: January 2012 Skills, expertise and experience: Mr Haws brings his extensive industry leadership and strategy experience to the business. Mr Haws was integral to the development and execution of Sappi’s 2020Vision and the investments made in North America to grow the dissolving pulp and packaging and speciality papers businesses. Alexander van Coller Thiel (Alex) (60) Chief Executive Officer of Sappi Southern Africa (cid:52)ualifi cations(cid:29) BSc (Mechanical Engineering), MBA (Financial Management and Information Technology) Appointed: December 1989 Skills, expertise and experience: Mr Thiel has a long history with Sappi. His experience and expertise includes marketing, logistics, procurement, strategy and operations across Europe and Southern Africa. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 136 GOVERNANCE AND COMPENSATION Fergus Conan Salvador Marupen (Fergus) (56) Mohamed Iqbal Mansoor (54) Gary Roy Bowles (61) Group Head Human Resources Executive Vice President of Sappi Dissolving Pulp (cid:52)ualifi cations(cid:29) BA Hons (Psychology), BEd (Education Management), MBA (Stellenbosch), LCOR (Stanford University) Appointed: March 2015 Skills, expertise and experience: Mr Marupen’s experience across a variety of industries in South Africa enables him to off er insight into human resources, governance and management, among many other fi elds. (cid:52)ualifi cations(cid:29) BSc (Chemistry and Mathematics), BSc Hons (Chemistry), MBA Appointed: August 1991 Skills, expertise and experience: Mr Mansoor’s expertise includes contract negotiation and management, supply chain management, strategic planning, sales management, key account management, dissolving pulp, international logistics and technical application support. Group Head Technology (cid:52)ualifi cations(cid:29) BSc (Electrical Engineering), GCC, PR Eng, PMD, EDP Appointed: November 1990 Skills, expertise and experience: Mr Bowles brings more than 30 years of experience with Sappi as well as expertise in engineering, research, manufacturing, project execution, operational and risk management to his role. Maarten van Hoven (48) Group Head Strategy and Legal (cid:52)ualifi cations(cid:29) BProc, LLM (International Business Law) Appointed: December 2011 Skills, expertise and experience: As an admitted attorney of the High Court in South Africa, Mr van Hoven brings expertise in corporate, commercial and competition law, in the private and public sectors, as well as experience in mergers and acquisitions. 137 GOVERNANCE AND COMPENSATION Corporate governance Sappi is committed to the highest standards of corporate governance, which form the foundation for the long-term sustainability of our company and creation of value for our stakeholders. 100% Overall committee attendance rate Good governance at Sappi contributes to living our values through enhanced accountability, a transparent and ethical culture, strong risk management, a focus on eff ective control of the business, legitimacy and good performance. Governance is one of our key enablers to unlocking and protecting value, as we optimise the use of our capitals, address our key risks while taking advantage of exciting opportunities (refer to page  34 Risk management), while minimising the negative impacts of trade-off s that have to be made, as set out in the presentation of Our key material issues on page  70. The group endorses the recommendations contained in the King Code of Governance™ for South Africa 2016 (King IV) and applies the various principles in the achievement of good governance outcomes. An application register of how Sappi applies the King IV principles is provided on the group’s website (www.sappi.com). The group is listed on the JSE Limited and complies in all material respects with the JSE Listings Requirements, regulations and codes. The board of directors The basis for good governance at Sappi is laid out in the board charter, which sets out the division of responsibilities between the board and executive management. The board creates and protects sustainable value by collectively determining strategies, approving major policies and plans, taking responsibility for risk management, and providing oversight as well as monitoring, to help to ensure accountability. The board is satisfi ed that it has fulfi lled its responsibilities in accordance with its charter for the reporting period. For further information about the board and the board charter please refer to www.sappi.com. The Sappi board and diversity Sappi operates globally and across a variety of markets, jurisdictions and cultures, requiring a diverse mix of experience, skills, gender, age and backgrounds. It is important that our board composition refl ects this diversity, both in a South African context as well as globally. Diversity gives Sappi access to an increased range of talent, which helps to provide insight into the needs and motivations of a broader stakeholder base. Board experience (%) Sappi’s board members have experience across multiple industries and leadership roles 100 80 60 40 20 0 100 67 50 50 42 42 33 58 50 33 Sustain- ability HR and transform- ation Global, multi- national M&A Finance, accounting and banking Forestry, pulp, paper and packaging Manufacturing, industrial and mining CFO roles Chairman roles CEO/ executive director roles Directors’ independence (%) Directors’ ages (%) Diversity (%) Directors’ tenure (as at year end %) 17 8 17 Average 60 years’ old 17 83 58 58 42 25 33 Average seven years 42 ● ● Independent non-executives Executives ● ● 40s 50s ● ● 60s 70s ● ● Diverse (female or ethnically diverse) Other ● ● ● ● Zero to three years Three to 10 years Over 10 years T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 138 GOVERNANCE AND COMPENSATION The composition of the board and attendance at board meetings and board committee meetings is set out in the table below for the year ended September 2021: Appointed (cid:11)(cid:53)etiri(cid:81)(cid:74)(cid:12) from board Name Independent non-executives Board Board committees (cid:43)(cid:88)(cid:80)(cid:68)(cid:81)(cid:3) Resources and Compensation Nomination and Governance SETS AGM % attendance during tenure Audit and Risk BR Beamish MA Fallon JM Lopez NP Mageza ZN Malinga B Mehlomakulu MV Moosa RJAM Renders Sir Nigel Rudd JE Stipp Executives SR Binnie (CEO) GT Pearce (CFO) Lead director   Committee member (present)   Chairman   Ex officio   Absent   By invitation   100 100 100 100 100 100 100 100 100 100 100 100 Strategic focus areas In addition to the standard items on the board’s agenda, the 2021 focus areas included: • Review of progress in actioning the Thrive25 strategic plan – – • Deep dives into the following topics: strategic reduction in exposure to graphic paper and growth of packaging and speciality papers business in Sappi North America, and Sappi Europe shipping and supply chain challenges due to the Covid-19 pandemic, impacting on containers and vessels, and the Suez Canal bottleneck dissolving pulp business, including the Saiccor Mill expansion project Sappi Southern Africa paper business and asset strategy Sappi Biotech business review external overviews of global and regional economies and related developments – – – – • Long-term debt refinancing and covenants and covenant waiver period renegotiation • Review of risks and opportunities related to carbon emissions, the reduction of Sappi’s carbon footprint and climate change, in line with the Task Force on Climate-related Finance Disclosure (TCFD) recommendations, and the link to Sappi’s targets development under the Science Based Target initiatives (SBTis), as well as Sappi’s environmental, social and governance (ESG) disclosures • Sappi Southern Africa transformation and succession planning, training and development • Review of mill shuts and the project management process • Review of regional market peculiarities, performance, opportunities and challenges • Feedback on action points from the employee engagement survey • A review of the Code of Ethics and related policies, including the anti-trust policy • A review of cyber security risks and management’s mitigation actions All the top risks as well as emerging risks have been focused on by the board during 2021. The following specific areas will be added to the board’s agenda in 2022: • Oversight of progress in achieving Thrive25 the strategic plan • The revised approach for reviewing the risks facing the group, including risk appetite and tolerance will be operationalised at board and executive management levels • Project management and oversight for large capital projects • Promoting and enabling innovation • Commercialisation of Biotech • Consideration of additional cost improvement areas • Increased focus on the responsibility of the board in responding to climate change • Effective stakeholder engagement within the context of remuneration equity 139 GOVERNANCE AND COMPENSATION Corporate governance continued Induction and training of directors Following appointment to the board, directors receive induction and all directors receive training tailored to their individual needs, when required. Stakeholder communication The board is responsible for presenting a balanced and understandable assessment of the group’s position in reporting to stakeholders. The group’s reporting addresses material matters of signifi cant interest and is based on principles of openness and substance over form. The reporting includes information on key trade-off s that have to be made. Various policies have been developed to guide engagement with Sappi’s stakeholders such as the Group Stakeholder Engagement policy and Group Corporate Citizenship policy on www.sappi.com/policies. addressing Alternate Dispute Resolution (ADR) and relevant ADR clauses are generally included in contracts with customers and suppliers. There have been no requests for information for the period under review in terms of the Promotion of Access to Information Act (South African legislation). Sappi has a policy Refer to Our key relationships on page  42 for more information. Sappi board and management committees Board and management committees have been established and are discussed from pages  141 to 147. Board of directors • Strategic leadership and guidance • The board delegates certain oversight responsibilities to board committees • Ultimate oversight, accountability and responsibility • The board assigns responsibilities for management of the group to the CEO Sappi’s board committees create and maintain sustainable value by focusing on these key areas: Audit and Risk Committee Nomination and Governance Committee Human Resources and Compensation Committee Social Ethics, Transformation and Sustainability Committee • Financial and sustainability • Board size, composition systems and reporting and diversity • Risk management • Compliance and ethics • Combined assurance • • Internal and external audit Information technology (IT) governance • Selection and recruitment of directors • Evaluation of board performance • Corporate governance developments • Directors’ remuneration • Succession planning • Remuneration policy • Incentive schemes • Labour and industrial relations management • Group corporate citizenship • Ethics • Environment • Safety • Broad-based black economic empowerment Executive Committee • Executive directors (CEO and CFO) • Other senior executives • Execute strategic decisions approved by the board Disclosure Committee Control and Assurance Committee (CAC) Accounting Standards Committee Treasury Committee Taxation Committee Global Business Systems Council Group Risk Management Committee IT Steering Committee Project Steering Committees Sustainability Councils Global Brand Council Technical Committees Management committees T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 140 GOVERNANCE AND COMPENSATION Board committees The board has established committees to assist it to discharge its duties. The committees operate within written terms of reference set by the board. NP Mageza Chairman Membership details at September 2021: • NP Mageza • RJAM Renders • ZN Malinga • JE Stipp • B Mehlomakulu The Audit and Risk Committee confi rms that it has received and considered suffi cient and relevant information to fulfi l its duties, as set out in the Audit and Risk Committee Report. The external and internal auditors attended Audit and Risk Committee meetings and had unrestricted access to the committee and Chairman. The external and internal auditors met privately with the Audit and Risk Committee during 2021. Mr NP Mageza is the Chairman and designated fi nancial expert of the Audit and Risk Committee. The committee is satisfi ed that it has fulfi lled its responsibilities as set out in its terms of reference. Audit and Risk Committee Key roles and responsibilities The Audit and Risk Committee consists of fi ve independent, non-executive directors. The committee assists the board in discharging its duties with oversight of: • Safeguarding and effi cient use of assets • The risk management function, including a special focus on the presentation and evaluation of risk appetite, tolerance, key risk indicators and risk trends Information and technology risks, related controls and governance. This included the increasing threats of cyber-attacks and security in the operational technology area • 100% Overall committee attendance rate • Non-fi nancial risks and controls, through a combined assurance model • Operation of adequate systems and control processes • The integrity of fi nancial information and the preparing of accurate fi nancial reports in compliance with applicable regulations and accounting standards • The certifi cation process implemented by management to support the CEO and CFO confi rmation of the fairness of the annual fi nancial statements and the system of internal control over fi nancial reporting, required by section 3.84(k) of the JSE Limited Listings Requirements (refer the directors’ approval in the (cid:21)(cid:19)(cid:21)(cid:20)(cid:123)(cid:42)r(cid:82)(cid:88)(cid:83)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)Fi(cid:81)(cid:68)(cid:81)ci(cid:68)(cid:79)(cid:3)(cid:54)t(cid:68)te(cid:80)e(cid:81)t(cid:86)). This included consideration of the evaluation report, including identifi ed control defi ciencies and management’s remedial actions, as well as compensating measures and assurance from other sources in the combined assurance framework • The quality and transparency of sustainability information included in the annual integrated report • Compliance with the group’s Code of Ethics and external regulatory requirements • The external auditors’ qualifi cations, experience, independence and performance • The performance of the internal audit function, this included review of the results of the Internal Quality Assurance Review performed during 2021 • The performance of the fi nance function • Taxation policies, congruent with responsible corporate citizenship • An internal review of the committee’s operating eff ectiveness and performance every two years by way of an assessment with feedback being provided to the board Strategic focus areas The Audit and Risk Committee helped to create and protect value by providing oversight and guidance for a wide range of topics, including the following areas related to Sappi’s strategy: • Governance and risk aspects of projects to accelerate the group’s ability to take advantage of opportunities in higher margin growth segments, such as in dissolving pulp, packaging and speciality papers, the biotech and renewable energy fi elds • Cyber security incidents impacting on specifi c outsourced service suppliers • Business continuity arrangements, including logistics and supply chain • The establishment of a CAC, which makes use of combined assurance to focus on risks facing the group • Regulatory compliance with global privacy legislation, such as the Protection of Personal Information Act and General Data Protection Regulation • A revised approach to providing an overview of risks, including a new method of determining risk appetite and tolerance per risk Areas of oversight for the committee in 2022 will be: • Operationalising of the revised approach developed for the risk framework, combined assurance and oversight of risks • Revised reporting for ESG matters and procedures for fi nancial reporting attestations • The new whistleblower hotline • The impact of the Covid-19 tail on the business and feedback on business recovery, liquidity, credit risks and fi nancial reporting • Emerging IT risks • Capital, IT, and business projects governance For more information refer to the Audit and Risk Committee Report in our Annual Financial Statements on www.sappi.com/annual-reports. Stakeholders Risks The Audit and Risk Committee has helped to create and protect value for the following stakeholders: employees, customers, shareholders and regulators. Refer to Our key relationships on page  42 for further details. The Audit and Risk Committee has focused on all of the top 10 risks: 1 2 3 4 5 6 7 8 9 10 Safety Evolving technologies and consumer preferences Supply chain disruption context and competitive industry Sustainability expectations Climate change Cyber security Cyclical macro-economic factors Uncertain and evolving regulatory landscape Liquidity Employee relations For further details refer to Risk management on page  34. 141 GOVERNANCE AND COMPENSATION Corporate governance continued Sir N Rudd Chairman Membership details at September 2021: • Sir Nigel Rudd • MV Moosa • MA Fallon Nomination and Governance Committee Key roles and responsibilities The Nomination and Governance Committee consists of three independent directors. The committee considers the leadership and governance requirements of the company including a succession plan for the board. The committee identifi es and nominates suitable candidates for appointment to the board in line with Sappi’s policy on the promotion of gender and race diversity at board level, for board and shareholders’ approval. The committee considers the independence of candidates as well as directors. The committee makes recommendations on corporate governance practices and disclosures, and reviews compliance with corporate governance requirements. The committee has oversight of appraising the performance of the board and all the board committees. The results of this process and recommended improvements are communicated to the chairman of each committee and the board. The committee reviewed and approved a policy on broader diversity at board level. The functioning and performance of Sappi’s board and board committees were assessed internally in 2021 and it was established that the board and board committees functioned well, but that the directors would benefi t from additional deep dives into specifi c topics. This has been implemented. 100% Overall committee attendance rate Strategic focus areas The Nomination and Governance Committee helped to protect value by providing oversight and guidance in 2021 over: • Corporate governance • Tone at the top • Succession plans for senior executives and the board with a focus on board composition • Assessment of the board and board committee performance • Rotation and replacement of directors • Reviewed the Sappi Limited directors’ shareholdings and dealings in securities • Oversight of the appointment of replacements for direct reports to the CEO A focus area for 2022 will be executive succession planning and board committee chairmanships and memberships. The committee is satisfi ed that it has fulfi lled its responsibilities as set out in its terms of reference. Stakeholders Risks The Nomination and Governance Committee has helped to protect value primarily for the following stakeholders: shareholders and regulators. The Nomination and Governance Committee focused on governance, independence, and composition of the board, board committees and executive management positions to eff ectively address all material risks facing the company including all the top 10 risks. Refer to Our key relationships on page  42 for further details. For further details refer to Risk management on page  34. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 142 GOVERNANCE AND COMPENSATION Human Resources and Compensation Committee MA Fallon Chairman Membership details at September 2021: • MA Fallon • NP Mageza • RJAM Renders • BR Beamish Key roles and responsibilities The Human Resources and Compensation Committee consists of fi ve independent directors. The responsibilities of the Human Resources and Compensation Committee are, among others, to provide oversight of the group’s human capital, 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 the CEO and management. The committee ensures that the compensation philosophy and practices of the group, including the CEO’s strategy and performance goals. It reviews and performance objectives, are aligned to the group’s agrees the various compensation programmes, and, in particular, the compensation of executive directors and senior executives as well as employee benefi ts. It also reviews and agrees to executive proposals on the compensation of non-executive directors for approval by the board and ultimately by shareholders. The committee is updated on the Industrial Relations climate, training initiatives and engagement survey results and action items. 100% Overall committee attendance rate Thrive25 Strategic focus areas The 2020 report was supported at the Annual General Meeting (AGM) on 03 February 2021 with a vote of 96,6% on the remuneration policy and 95.7% on the implementation report. This has been a signifi cant endorsement by the shareholders in relation to our ongoing commitment to good governance and disclosure. Apart from its normal annual workplan, the key focus for the committee was on the following: • Implementation of return on capital employed (ROCE) as a measure in our short-term incentive plan from 2022, replacing working capital Implementation of a voluntary minimum shareholding requirement for all prescribed offi cers to be achieved by December 2025 • • Disclosure of the vested Performance Share Plan (PSP) award as part of the total remuneration in line with best practice • ESG targets are included in the personal objectives of all senior managers • Discussion on the King IV guidance paper on eff ective stakeholder engagement • Oversight on key succession transitions across all regions, and • A bespoke benchmark on non-executive directors’ fees The strategic focus areas for the committee in 2022: • Key activities for the committee in 2022 will be, inter alia, the approval of the remuneration and bonuses for executive directors and senior management • Oversee the implementation of the human resources • In addition to the annual work plan as approved by the committee, the chairman of the committee and senior executives from Sappi will, if required, also be visiting key shareholders to discuss issues of mutual concern Thrive25 plan The committee is satisfi ed that it has fulfi lled its responsibilities as set out in its terms of reference. For more information refer to the Remuneration Report on page  154. Stakeholders Risks The Human Resources and Compensation Committee has helped to protect value primarily for the following stakeholders: employees, shareholders and regulators. 42 and to the Remuneration Refer to Our key relationships on page  Report on page  details. 154 for further The Human Resources and Compensation Committee has focused on the following of the top 10 risks: 1 2 4 5 6 7 8 10 Safety Evolving technologies and consumer preferences Sustainability expectations Climate change Cyber security Cyclical macro-economic factors Uncertain and evolving regulatory landscape Employee relations For further details refer to Risk management on page  34. 143 GOVERNANCE AND COMPENSATION Corporate governance continued MV Moosa Chairman Membership details at September 2021: • MV Moosa • SR Binnie • B Mehlomakulu • BR Beamish • JM Lopez Social, Ethics, Transformation and Sustainability (SETS) Committee Key roles and responsibilities The SETS Committee comprises four independent non-executive directors, and the CEO. A 100% attendance record was achieved by board committee members for 2021. Other executive and group management committee members attend SETS Committee meetings by invitation. It should be noted that a number of other non-executive directors attend SETS Committee meetings ex-offi cio. The chairmen of the Audit and Risk Committee and SETS Committee attend each other’s committee meetings to avoid unnecessary repetition of discussions. 100% Overall committee attendance rate The committee's mandate is to oversee the group’s sustainability strategies, ethics management, good corporate citizenship, labour and employment practices, as well as its contribution to social and economic development and, with regards to the group’s South African subsidiaries, the strategic business priority of transformation. The SETS Committee is supported by the Global Sustainability Council as well as by regional sustainability committees in dealing with day-to-day sustainability issues and helping to develop and entrench related initiatives in the business. Strategic focus areas In 2021 the committee provided oversight of: • Sappi’s social and economic development standing (United Nations Global Compact and the Organization for Economic Co-operation and Development) • Safety initiatives • Progress on developing a group-wide approach for the TCFD • The development and approval of science based targets for the group • External assurance on lost-time injury frequency rate (LTIFR) and Scope 1 and Scope 2 emissions data as well as environmental impact analyses for major investment projects • Trade-off s between: – – Productivity and safety advantages of mechanisation and the social and human capital implications Financial and natural capitals relating to the use of coal versus other renewable energy fuels for our heating requirements. This included further reductions in the group’s carbon footprint • Sappi Southern Africa’s performance against the applicable Broad-based Black Economic Empowerment (BBBEE) Legislation, the EE Act and the Forestry Charter, including unfair discrimination and equality policy • Other ESG focus areas The committee is satisfi ed that it has fulfi lled its responsibilities as set out in its terms of reference. Implementation of science-based targets and a climate change strategy The committee will provide oversight of the following strategic business areas in 2022 • TCFD developments • • Progress towards biodiversity improvement goal • Production effi ciencies and events • Consideration of feedback about the changes in the safety culture at operating units • Improved stakeholder engagement, making use of media developments and opportunities For more information refer to the SETS Report and to Our global sustainability goals at www.sappi.com. Stakeholders Risks The SETS Committee has a broad spread of stakeholders for which it helps to protect (or create) value: suppliers, customers, employees, regulators, shareholders and society. The SETS Committee has focused on the following of the top 10 risks: 1 2 3 4 5 7 8 10 Safety Evolving technologies and consumer preferences Supply chain disruption Sustainability expectations Climate change Cyclical macro-economic factors Uncertain and evolving regulatory landscape Employee relations Refer to Our key relationships on page  42 for further details. For further details refer to Risk management on page  34. For more information on sustainability at Sappi refer to the SETS Committee report on page  a summary of the group’s sustainability initiatives at www.sappi.com. 174 and for T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 144 GOVERNANCE AND COMPENSATION Management committees The board assigns responsibility for the day-to-day management of the group to the CEO. To assist the CEO in discharging his duties, a number of management committees have been formed. Some of these committees also provide support for specific board committees. The management committees are key components of Sappi’s second line of defence and assurance. Refer to page  149 for additional details of Sappi’s approach to risk, controls and assurance. Executive Committee Disclosure Committee Treasury Committee Taxation Committee Project Steering Committees Technical Committees Group Risk Management Committee > > > > > > > This committee comprises executive directors and senior management from Sappi Limited as well as the CE(cid:50)s of the three main regional business operations, and the pulp business(cid:17) (cid:55)he(cid:123)CE(cid:50) 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 regarding strategic, operational, financial, governance, sustainabilit(cid:92), social and risk processes(cid:17) (cid:55)he e(cid:91)ecutive committee meets at least five times per annum(cid:17) The Disclosure Committee comprises members of the executive committee and senior management from various disciplines(cid:17) (cid:44)ts ob(cid:77)ective is to review and discuss financial and other information prepared for public release. It is the ultimate decision-making body, apart from the board, with regards to disclosure. (cid:55)he (cid:55)reasur(cid:92) Committee meets monthl(cid:92) to assess financial risks on treasur(cid:92)-related matters(cid:17) Specific focus areas in (cid:21)(cid:19)(cid:21)(cid:20) related to ensuring sufficient group li(cid:84)uidit(cid:92) during the ongoing Covid-(cid:20)(cid:28) pandemic, arranging suitable financing for the remaining cape(cid:91) of the Saiccor (cid:48)ill pro(cid:77)ect, refinancing the (cid:56)S(cid:7)(cid:22)(cid:24)(cid:19)(cid:123)million (cid:21)(cid:19)(cid:21)(cid:22) bond and negotiating new financial covenants(cid:17) (cid:46)e(cid:92)(cid:123)focus areas in (cid:21)(cid:19)(cid:21)(cid:21) will be the renewal of the (cid:98)(cid:24)(cid:21)(cid:24) million and (cid:53)(cid:20)(cid:17)(cid:27) billion revolving credit facilities, including renegotiation of financial covenants and the introduction of sustainability key performance indicators to the facilities. The Taxation Committee meets monthly to discuss and address global taxation matters. The main focus areas of the committee for 2021 included: • Tax accounting and reporting • Tax compliance including transfer pricing and basic earnings per share reporting • Tax audits and international mitigation measures to avoid double taxation • New tax legislation These topics will continue to receive oversight from the committee in 2022. For key strategic projects, steering committees are established to oversee successful execution of(cid:123)the(cid:123)pro(cid:77)ect(cid:17) (cid:55)he (cid:55)echnical Committees focus on global technical alignment, performance and efficienc(cid:92) measurement as well as new product development. The committee is known as the Group Risk Management Team (GRMT) and is mandated by the board to establish, coordinate and drive the risk management process throughout Sappi. It has established a risk management s(cid:92)stem to identif(cid:92) and manage significant risks(cid:17) (cid:55)he(cid:123)(cid:42)(cid:53)(cid:48)(cid:55) reports regularl(cid:92) on risks to the Audit and Risk Committee and the board. Risk management software is used to support and report upon the risk management process. During 2021 key initiatives included operationalisation of the group’s risk appetite and tolerance framework, a dashboard summarising group risks and trends. (cid:44)n(cid:123)(cid:21)(cid:19)(cid:21)(cid:21)(cid:123)the (cid:42)(cid:53)(cid:48)(cid:55) will(cid:123)review polic(cid:92), procedures and assurance, to address business continuit(cid:92) risk(cid:17) 145 GOVERNANCE AND COMPENSATION Corporate governance continued Control and Assurance Committee IT Steering Committee The CAC is supported by the internal control function and multi-disciplinary combined assurance workgroups (cid:11)CAWs(cid:12) and provides regular oversight and guidance to the(cid:123)business on internal controls and combined assurance for financial, strategic and operational risks(cid:17) (cid:55)he committee is accountable to the GRMT and the Audit and Risk Committee. > The IT Steering Committee, assisted operationally by the Group IT Committee, promotes IT governance throughout the group and is the highest authority responsible for this aspect of Sappi’s business, apart from the board. The committee has a charter approved by the Audit and Risk Committee and the board. An IT governance framework has been developed and IT feedback reports are presented to the Audit and Risk Committee and the board. Sappi IT has implemented a standardised approach to IT risk management through a group-wide risk framework supported by the use of risk management software. The committee has helped to create value for shareholders in 2021 by its oversight of: • A Sappi IT security spend benchmarking exercise, and the development of a framework to further evaluate third-party IT security risks • The development of a global operational technology (OT) security methodology and • The integration of the Matane Pulp Mill’s IT system into Sappi’s SAP system • (cid:55)he preparation for ma(cid:77)or (cid:44)(cid:55) pro(cid:77)ects including S(cid:23) (cid:43)A(cid:49)A, S(cid:92)nerg(cid:92) (cid:11)(cid:48)ES(cid:12) and Pelati (cid:11)Sales, suppl(cid:92) chain and finance harmonisation(cid:12), Simun(cid:92)e, and the (cid:39)igital Strateg(cid:92) and governance • (cid:50)(cid:22)(cid:25)(cid:24) email securit(cid:92), which was enhanced and an email securit(cid:92) gatewa(cid:92) was deplo(cid:92)ed • Expansion of the group security function with further security resource capacity scheduled for 2022, > making use of a cyber skills incubator (cid:44)S(cid:50) (cid:21)(cid:26)(cid:19)(cid:19)(cid:20) certification preparation Oversight by the committee will continue in 2022 for these IT initiatives, as well as: • The due diligence for a cloud-based disaster recovery strategy • Execution of the Digital Strategy and governance, via a global digital council • Deployment of the global OT security methodology to the three largest mills in the group • Pen testing with Insider threat assessment • • Establishment of a global (cid:21)(cid:23)(cid:18)(cid:26) Securit(cid:92) (cid:50)perations Centre • Business continuity and cyber recovery vault • Adoption of a dedicated emergency communications platform for cyber emergencies • Formalisation of data classification framework and control technolog(cid:92) • Third-party risk management implementation • Centralisation of endpoint security, additional email security hardening, and a cloud security framework • Global vulnerability management Global Business Systems Council > This council meets monthly to provide direction for strategic business improvement projects, in particular, (cid:50)neSappi harmonisation initiatives, and effective use of resources(cid:17) T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 146 GOVERNANCE AND COMPENSATION The Sappi Group Sustainability Council leads on all sustainability related policies and practices and provides support to the SETS Committee. Members meet quarterly to report progress against sustainability goals and key initiatives, share best practices, and exchange information on emerging issues. Members review regional information for various disclosure mechanisms, including the CDP’s climate change and forests programmes and the annual Group Sustainability Report. Sustainability Council > Key focus areas for 2021 included: • Oversite and review of the • Sappi’s climate change strategy and action plans including: sustainability targets Thrive25 – – – Alignment of Sappi(cid:111)s decarbonisation roadmap with the Science (cid:37)ased (cid:55)argets initiative(cid:123)(cid:11)S(cid:37)(cid:55)i(cid:12) Assessment, and improvement, of our resiliency to risks and opportunities posed by climate change, as framed by the Task Force on Climate-related Financial Disclosures (TCFD) Integration of decarbonisation and sustainability metrics in capital investment procedures • Sustainable procurement roll out of EcoVadis to our top suppliers • Social impact strategy for South Africa • Identifying collaboration opportunities to further Sappi’s sustainability objectives and leverage Sappi expertise to contribute to the Sustainable Development Goals (SGDs) Brand Council This council coordinates Sappi’s brand communication programme, monitors brand performance and ensures effective brand management to enhance Sappi(cid:111)s reputation(cid:17) > 147 GOVERNANCE AND COMPENSATION Corporate governance continued Ensuring leadership through ethics and integrity Sappi is committed to doing business the right way. Trust is created by operating from a commonly accepted set of values, enhancing and protecting our reputation. We require our directors and employees to act with integrity, to be courageous, to make smart decisions and to execute with speed, in all transactions and in their dealings with all business partners and stakeholders. Our values underpin the group’s Code of Ethics and commit the group and its employees to sound business practices and compliance with applicable legislation, which help to promote legitimacy. All new employees receive training on the Code of Ethics and related topics, such anti bribery and corruption and anti-competitive practices, as part of onboarding. Refresher training was provided to all employees on the Code of Ethics in 2021. A group Supplier Code of Conduct has been developed to help ensure that Sappi’s values and ethical standards are clearly understood and supported by all our suppliers, their fi rst-tier suppliers and other stakeholders. Actions are taken against employees and suppliers who do not abide by the spirit and provisions of our code. This includes termination of contractual arrangements, and criminal actions. The programme is designed to increase awareness of, and enhance compliance with, applicable legislation is in place. The group compliance offi cer reports twice per annum to the Audit and Risk Committee. Sappi’s legal compliance programme has been boosted by: • The implementation of legal compliance software including Exclaim for Sappi Southern Africa, GEORG Compliance Management for the German mills, and Policy Passport for Group policies and procedures. • The provision of online training to employees across the group on relevant core legal compliance topics. • The use of software tools and the related training and online learning is helping to create and protect value primarily for employees, customers, shareholders and regulators. Refer to www.sappi.com for the Code of Ethics. Code of Ethics Legal compliance programme Insider trading The company has a code of conduct for dealing in company securities and follows the JSE Limited Listings Requirements in this regard. For further information refer to the Insider trading section of the Code of Ethics which can be found at www.sappi.com. Confl ict of interests The group has a policy that obliges all employees to disclose any interest in contracts or business dealings with Sappi to assess any possible confl ict of interest. The policy also dictates that directors and senior offi cers of the group directors and senior offi cers of the group must disclose any interest in contracts as well must disclose any interest in contracts as well as other appointments to assess any confl ict of interest that may aff ect their fi duciary duties. During the year under review, apart from that disclosed in the fi nancial statements, none of the directors had a signifi cant interest in any material contract or arrangement entered into by the company or its subsidiaries. For more information on how Sappi addresses confl ict of interest please refer to the Preventing fraud and corruption section of the Code of Ethics at  www.sappi.com. Reporting on compliance and ethics concerns Sappi employees and stakeholders can report any potential illegal or non-compliant behaviour they observe directly to senior management, internal audit or legal counsel, or alternatively, report anonymously, via telephone or an online form. Whistle-blower ‘hotlines’ have been implemented in all the regions in which the group operates. The hotline service, operated by independent service providers, enables all stakeholders to anonymously report environmental, safety, ethics, accounting, auditing, control issues or other concerns. Retaliation against whistle-blowers is not tolerated. The follow-up on all reported matters is coordinated either by legal counsel or internal audit and reported to the Audit and Risk Committee. The majority of calls and ethics reports received related to the Southern African region. Please refer to the whistle-blower hotline and ethics report graphs for information on the number of hotline calls per 1,000 employees, the categories of hotline calls and ethics reports, and the outcome of the investigations. The hotline report rates, categories of reports and outcomes of cases broadly align with international whistle-blower benchmark data. For more information, refer to the Reporting and whistle-blowing section of the Code of Ethics, at www.sappi.com T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 148 GOVERNANCE AND COMPENSATION Hotline report rate per 1,000 employees per annum 1 3 . . 4 3 . 0 3 . 3 4 9 3 . 5.0 4.0 3.0 2.0 1.0 0 2017 2018 2019 2020 2021 ● Report rate per 1 000 employees Hotline and ethics cases by category (%) 12% 13% 100 80 60 40 20 0 ● 54% 34% 2017 Corruption, fraud and theft 14% 41% 20% 37% 45% 43% 6% 59% 35% 2019 2020 2021 Employment related matters ● Environment, health, safety and other 39% 48% 2018 ● Hotline and ethics case outcomes (%) 2% 6% 44% 48% 100 80 60 40 20 0 2% 7% 61% 30% 7% 45% 4% 45% 48% 51% 2017 2018 2019 2020 7% 63% 30% 2021 ● ● Cleared, no action or unresolved ● Criminal charges Termination ● Disciplined, counselled or other management action Financial statements The directors are responsible for overseeing the preparation and final approval of the group annual financial statements, in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board. The group’s results are reviewed prior to submission to the board, as follows: • All quarterly results – by the Disclosure Committee as well as the Audit and Risk Committee, and • Interim and final results – by external audit. Risk, controls and assurance at Sappi Risks facing the group are identified, evaluated and managed by implementing risk mitigations, such as insurance, strategic actions or specific internal controls. Sappi maintains a robust framework of risks and controls which assists in the application of the King IV guidelines and the achievement of governance outcomes by helping to: create an ethical culture; establishing effective control; and promoting legitimacy, all of which help Sappi and its stakeholders to benefit from good performance. The framework includes controls addressing our material matters, by focusing on the main drivers of Sappi and comprises both financial and non-financial controls, which support the achievement of our strategy, within our risk appetite and tolerance levels, across the economic, social and environmental context in which the organisation operates as well as each of the six capitals set out in the IIRC’s model. More information on these capitals and Integrated thinking in the context of Sappi’s sustainable business model can be found in (cid:50)(cid:88)r(cid:123)(cid:54)tr(cid:68)te(cid:74)(cid:92)(cid:3)(cid:68)(cid:81)d(cid:3) Performance on page   10, as well as Our global sustainability (cid:74)(cid:82)(cid:68)(cid:79)(cid:86)(cid:123)at www.sappi.com. The group’s internal controls and systems are designed in accordance with the COSO control framework to support the achievement of the group’s objectives including strategic, operational and financial performance goals, effective and efficient use of resources, safeguarding assets against material loss, integrity and reliability of internal and external financial and non-financial reporting, and compliance with applicable laws and regulations. Sappi operates a combined assurance framework, which aims to optimise the assurance coverage obtained from management, internal assurance providers and external assurance providers, on the risk areas affecting the group. Combined assurance is overseen by the CAC. The committee and its CAWs provide holistic feedback to the GRMT and Audit and Risk Committee on the state of controls and the quality and coverage of assurance from the various assurance providers 149 GOVERNANCE AND COMPENSATION Corporate governance continued across Sappi’s three lines of assurance. The workgroups focused the following risk topics: capital projects management, cyber security risks, human resources risks and maintenance risks, in 2021. In Financial Year 2022 the CAWs will assist the CAC to create and protect value by undertaking reviews of combined assurance, risks and controls relating to taxation and business continuity, as well as developing the risk and control framework particularly in the legal compliance, product safety and IT security areas. First line of assurance Second line of assurance Third line of assurance Oversight by the board Risk areas and value drivers, capitals Governance, risk, and controls – general (core business cycles) Strategy and vision, competition and markets, socio-political Financial, tax and treasury Business management operations supported by appropriate controls and systems Monitoring and oversight functions > Independent assurance provided by external audit, internal audit and other assurance providers > Control and Assurance Committee management self-assessments Internal audit E(cid:91)ec(cid:88)ti(cid:89)e(cid:3)C(cid:82)(cid:80)(cid:80)ittee(cid:15)(cid:3)(cid:42)r(cid:82)(cid:88)(cid:83)(cid:3)(cid:43)e(cid:68)d(cid:3) Strategy, Global Business Council, Control and Assurance Committee, management self-assessments Internal audit Board and sub-board committees > Audit and Risk Committee Nomination and Governance Committee Control and assurance, accounting standards, taxation, treasury and Disclosure Committees, management self-assessments KPMG, tax authorities, internal audit Audit and Risk Committee Legal and compliance Legal compliance programme, Group Compliance Manager Legal compliance audits, internal audit IT Day-to-day risk management activity Established risk and control environment IT Steering Committee, group IT governance functions, management self-assessments KPMG, ISA 3402s, penetration testing, internal audit Audit and Risk, (cid:54)E(cid:55)(cid:54)(cid:15)(cid:3)(cid:43)(cid:88)(cid:80)(cid:68)(cid:81)(cid:3) Resources and Compensation Committees Audit and Risk Committee Planet, environment, natural capital Executive, corporate and regional lead teams Sustainability councils, E(cid:81)(cid:89)ir(cid:82)(cid:81)(cid:80)e(cid:81)t(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)d(cid:3)E(cid:81)er(cid:74)(cid:92)(cid:3)(cid:11)E(cid:23)(cid:12)(cid:3) Global Cluster, GRMT ISO 14001, FSC, PEFC, EMAS, KPMG, EcoVadis SETS Committee Corporate and regional business functions, eg sales, finance, IT, human resources, purchasing Business units, eg forestry, mills, sales offices Business unit operations, eg production, engineering, controlling, materials management Ethics People, human resource and transformation Research and development, intellectual property Manufacturing, supply chain management, quality, forestry Stakeholders, communication, reputation, society Safety T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 150 Government reviews e(cid:80)i(cid:86)(cid:86)i(cid:82)(cid:81)(cid:86)(cid:3)e(cid:434)(cid:88)e(cid:81)t(cid:3)etc(cid:15)(cid:3) internal audit Internal audit Group Compliance Manager, et(cid:75)ic(cid:86)(cid:123)(cid:86)(cid:88)r(cid:89)e(cid:92)(cid:86)(cid:15)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)e(cid:80)e(cid:81)t(cid:3) self-assessments (cid:42)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3)(cid:43)(cid:88)(cid:80)(cid:68)(cid:81)(cid:3)(cid:53)e(cid:86)(cid:82)(cid:88)rce(cid:3) C(cid:82)(cid:80)(cid:80)ittee(cid:15)(cid:3)re(cid:74)i(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:79)(cid:68)(cid:69)(cid:82)(cid:88)r(cid:123)(cid:73)(cid:82)r(cid:88)(cid:80)(cid:86)(cid:15)(cid:3) employee engagement surveys, management self-assessments BBBEE audits, internal audit Group technical cluster, management self-assessments ISO 17025, internal audit Technical clusters and platforms, regional safety, health, environment and quality audits, supplier audits, management self-assessments ISO 9001, ISO 50001, FSC PEFC, SFI, Matrix, internal audit (cid:42)r(cid:82)(cid:88)(cid:83)(cid:3)c(cid:82)r(cid:83)(cid:82)r(cid:68)te(cid:3)(cid:68)(cid:428)(cid:68)ir(cid:86)(cid:15)(cid:3) sustainability and investor relations functions Internal audit SETS Committee, Audit and Risk Committee Audit and Risk, (cid:54)E(cid:55)(cid:54)(cid:15)(cid:3)(cid:43)(cid:88)(cid:80)(cid:68)(cid:81)(cid:3) Resources and Compensation Committees SETS Committee SETS Committee SETS Committee Group and regional risk management teams, safety audits (cid:50)(cid:43)(cid:54)(cid:36)(cid:54)(cid:3)(cid:20)(cid:27)(cid:19)(cid:19)(cid:19)(cid:15)(cid:3)(cid:44)(cid:54)(cid:50)(cid:3)(cid:21)(cid:21)(cid:19)(cid:19)(cid:19)(cid:3) regulatory inspections, internal audit SETS Committee GOVERNANCE AND COMPENSATION A key element of combined assurance at Sappi is derived from the annual control self-assessments completed by control owners, which helps to protect value for stakeholders by providing management and the board with assurance on the state of controls throughout the group. The remediation of control gaps identified through this process is monitored by management, relevant committees, auditors and the board. The Audit and Risk Committee advises the board on the state of risk management and controls, as well as assurance, in Sappi’s operating environment. This information is used as the basis for the board’s review, sign-off and reporting to stakeholders, via the annual integrated report and annual financial statements, on risk management and the effectiveness of internal controls and assurance within Sappi. As part of combined assurance in respect of reported information, Sappi has obtained assurance on the data in the annual integrated report from the following sources: • Financial data is independently audited by KPMG • External sustainability assurance was obtained from KPMG in 2021 for Scope 1 and 2 emissions information as well as specific safety information • Specific planet (environment) related processes are subject to review by third parties during the year. Certain local environmental and safety reporting is subject to audit by local regulators • Reviews of sustainability information have been undertaken by central technical management and internal audit. Internal audit The group has an effective, suitably resourced, risk-based internal audit department. The department operates in terms of a specific charter from the Audit and Risk Committee and independently appraises the adequacy and effectiveness of the group’s governance, risk management, systems, internal controls and accounting records. Internal audit coordinates combined assurance and reports the findings to local and divisional management, the external auditors, and the Audit and Risk Committee. The head of internal audit reports to the Audit and Risk Committee, meets with board members, has direct access to executive management and is invited to attend certain management meetings. The role of internal audit at Sappi is set out in the following diagram: Internal audit value proposition Capitals Stakeholders Thrive25 strategic objective • Board, Audit and Risk Committee • Management • Employees • Other (eg communities, business partners) Governance, risk and opportunity management, controls: (cid:114)(cid:797)Strategic(cid:798)(cid:114)(cid:797)(cid:50)perational(cid:798)(cid:114)(cid:797)Compliance(cid:798)(cid:114)(cid:797)(cid:53)eporting Support Internal audit activities Support Advisory and assistance • Forensic, hotline and ethics management • Projects, new business processes • Governance, risk, controls consulting • King IV, governance disclosures • Ad hoc management requests, secondments Internal control support (risk and control • framework, self-assessments, segregation of duties, workgroups) (cid:36)(cid:86)(cid:86)(cid:88)r(cid:68)(cid:81)ce(cid:3)(cid:11)ri(cid:86)(cid:78)(cid:3)(cid:69)(cid:68)(cid:86)ed(cid:12) • Financial processes and systems • Business processes and systems • Operational and strategic risks IT, GCC, security, operations • • Ethics, risk, legal compliance • Sustainability data • Combined assurance • Annual opinion Sustainability OneSappi Collaborate and innovate Digital and Analytics Strategy (cid:53)efi(cid:81)e(cid:3) operating model Core principles Integrity Competence and due professional care Objective and independent Aligned with strategies, risks and objectives Appropriately positioned and resourced Commercialise new products Quality and continuous improvement E(cid:428)ecti(cid:89)e(cid:3) communication Risk-based assurance Insightful, future-focused and proactive Promotes improvement 151 GOVERNANCE AND COMPENSATION Corporate governance continued During 2021, apart from the ongoing focus on financial controls, internal audit helped to create and protect value for Sappi and our stakeholders by completing reviews in support of the following strategic objectives: • Achieve cost advantages: procurement audits, advisory services to the global business systems projects (Requisition to Pay, Sales Order to Cash, implementation of Robotics Process Automation) • Rationalising declining businesses: Undertaken project management reviews for business optimisation projects • Accelerate growth in high margin products: Integration and control onboarding reviews of Matane Mill. Assurance reviews of the Saiccor Mill expansion project in SSA and Project Horse for the packaging and speciality papers business in Sappi Europe. The coverage plan for 2021 was substantially achieved despite the challenges presented by the Covid-19 pandemic and associated travel bans and lockdowns. We refocused our audit plan to address possible Covid-19 impacts: including raw materials supply chain, treasury (eg cash flow and liquidity), credit risks, financial reporting, cyber risk, and business continuity planning. In 2022 internal audit will support the achievement of Sappi’s strategic objectives by completing advisory and assurance projects in the following areas: Thrive25 (cid:54)(cid:88)(cid:86)t(cid:68)i(cid:81)(cid:3)(cid:82)(cid:88)r(cid:3)fi(cid:81)(cid:68)(cid:81)ci(cid:68)(cid:79)(cid:3)(cid:75)e(cid:68)(cid:79)t(cid:75)(cid:3)(cid:29) sales, procurement, treasury, and working capital processes Drive operational excellence: sales and operations, maintenance, energy, strategic business and IT projects including digital innovation initiatives Grow our business: R&D, packaging and speciality papers, capital projects (Saiccor Mill expansion project in SSA and Taurus in Sappi Europe), and new businesses eg biomaterials, integration and control onboarding reviews of the Matane Pulp Mill in Canada Enhance trust: ethics, governance, sustainability, and cyber security reviews Internal audit maintains an internal quality assurance programme. In 2020, an external quality assurance review was conducted by the Institute of Internal Auditors (IIA). A Generally Conforms rating was received, which is the highest of the three levels of conformance to the IIA’s standards. The 2021 internal quality assurance review highlighted a need for more attention to the documentation of effectiveness testing. This will be addressed in 2022. Board assessment of t(cid:75)e(cid:123)c(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:111)(cid:86)(cid:3)ri(cid:86)(cid:78)(cid:3) management, compliance (cid:73)(cid:88)(cid:81)cti(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)d(cid:3)e(cid:428)ecti(cid:89)e(cid:81)e(cid:86)(cid:86)(cid:3) of internal controls and combined assurance The board is responsible for the group’s systems of internal financial and operational control. As part of an ongoing comprehensive evaluation process, control self-assessments, independent reviews by internal audit, external audit and other assurance providers, were undertaken across the group to test the effectiveness of various elements of the group’s financial, disclosure and other internal controls as well as procedures and systems. Identified areas of improvement are being addressed to strengthen the group’s controls further. The board has assessed the combined assurance provided in 2021. The results of the reviews did not indicate any material breakdown in the functioning of these controls, procedures and systems during the year. The internal controls in place, including the financial controls and financial control environment, are considered to be effective and provide a sound basis for the preparation of the financial statements, annual integrated report and other reports used internally for management decision making. Company secretary The Company Secretary does not fulfil executive management functions outside of the duties of Company Secretary and is not a director. During the year, the board assessed the independence, competence, qualifications and experience of the Company Secretary and has concluded that she is sufficiently independent (ie maintained an arm’s length relationship with the executive team, the board and individual directors), qualified, competent and experienced to hold this position. The Company Secretary is responsible for the duties set out in section 88 of the Companies Act 71 of 2008 (as amended) of South Africa. Specific responsibilities include providing guidance to directors on discharging their duties in the best interests of the group, informing directors of new laws affecting the group, as well as arranging for the induction of new directors. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 152 153 GOVERNANCE AND COMPENSATION GOVERNANCE AND COMPENSATION Remuneration Report “Dear shareholder, I present the committee’s report on remuneration for executive directors, executive committee members and non-executive directors. This report details the company’s compensation policy and implementation thereof.” Mike Fallon Chairman of the Human Resources and Compensation Committee The information provided in this report has been approved by the board as per the recommendation by the Human Resources and Compensation Committee. The report is split into three sections: Section A details previous voting outcomes, focus and compliance statement of the committee, Section B gives an overview of our remuneration policy and Section C addresses the implementation of the remuneration policy in 2021. Our report and disclosures fully comply with regulatory and statutory provisions relating to remuneration governance in all the countries in which we operate. This report is aligned with the principles and recommended practices of King IV as part of our commitment to good corporate governance. The previous report was supported at the Sappi Limited’s AGM on 3 February 2021, with a vote of 96.6% endorsing the remuneration policy and a vote of 95.7% for the implementation report. Review of directors’ remuneration policy and shareholder consultation We aim to ensure that our policy will continue to support Sappi’s Thrive25 objectives. The key changes that have been made are: • Implementation of return on capital employed (ROCE) as a measure in our short-term incentive plan from 2022, replacing working capital • Implementation of a voluntary minimum shareholding requirement for all prescribed offi cers to be achieved by December 2025 • Disclosure of the vested PSP award as part of the total remuneration in line with best practice • ESG (environmental, social and governance) targets are included in the personal objectives of all senior managers We value the input of our shareholders and will continue to seek their input to ensure good disclosure. Succession planning One of the key oversight responsibilities of the committee is to ensure strong succession plans are in place to develop suitable internal candidate succession for all senior management and executive role appointments. This includes oversight of the group’s training and development processes. As we announced in October 2020, Berry Wiersum retired as CEO of our European operations and was succeeded by Marco Eikelenboom. The availability of an internal successor for Berry and the smooth transition process bears testimony of our robust succession planning process to manage the retirement risks. Tracy Wessels was appointed as Group Head Sustainability and Investor Relations replacing Graeme Wild who was appointed as VP Sales and Marketing, Sappi Southern Africa. Introduction of ROCE Through various forums, stakeholders have raised questions pertaining to Sappi’s short-term incentive and suggested that Sappi should consider introducing a return measure in determining performance. We value the input of all stakeholders, and as we drive forward with our Sappi Thrive25 T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 154 strategic plans, Sappi will be introducing ROCE as a measure for their short-term incentives as from 2022. ROCE will be calculated for the group and all regions will be measured on the group ROCE to support and drive our OneSappi philosophy. The agreed target will be the budgeted ROCE. We believe that this is a fair measure considering the volatility in the current business environment and the cyclical nature of our business. The targeted ROCE will be appropriately adjusted on an annual basis depending on the returns. We will aim to outperform Sappi’s cost of capital over time through the cycles. This measure will replace working capital and amount to 20% of the overall incentive. We will continually review the appropriateness of the 20% weighting and make recommendations accordingly. This is a significant development in our continuous drive to improve the business and has been fully supported by our top 550 senior managers, who will be subject to the revised basis of measurement from October 2021. Voluntary minimum shareholding requirement (cid:73)(cid:82)r(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:83)re(cid:86)cri(cid:69)ed(cid:3)(cid:82)(cid:433)cer(cid:86) I am also pleased to announce that voluntary minimum shareholding requirements have been introduced for all prescribed officers. As you know, the Group Chief Executive Officer, Steve Binnie previously volunteered to introduce this requirement in 2015. We believe that this broader application will further align senior management and shareholder interest. All prescribed officers in Sappi were engaged and support the implementation of a voluntary minimum shareholding requirement. GOVERNANCE AND COMPENSATION (cid:44)(cid:81)ce(cid:81)ti(cid:89)e(cid:3)(cid:86)c(cid:75)e(cid:80)e(cid:86)(cid:3)(cid:115)(cid:3)(cid:86)(cid:75)(cid:82)rt-(cid:3)(cid:68)(cid:81)d(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)-ter(cid:80) Despite the challenging operating environment, both the EBITDA ex SI and the working capital performance target were achieved for the Management Incentive Scheme (MIS). The consolidated EBITDA ex SI of US$532 million was ahead of the target of US$473 million. Our primary objective from a health and safety point of view is to have zero injuries and zero fatalities. Although we did not achieve our lost-time injury frequency rate (LTIFR) of 0.41, the group had no fatalities in 2021. Our final LTIFR for the year was 0.48. The overall vesting on the Issue 43 performance share was 12.5%. Details of these are covered further in Section C of the report. Executive objectives For 2022, the focus of the Sappi leadership team will be to: • Drive the safety-first programme • Improve Sappi’s sustainability footprint • Continue leading the Sappi values (integrity, speed, courage and smart decision-making) Thrive25 strategy • Continue with the embedment of Sappi • Grow the packaging and specialities business with optimal volumes • Manage the graphics business capacity • Drive operational excellence across all plants • Develop plans to manage the current global logistic challenges • Reduce debt levels towards the 2x EBITDA ex SI target • Complete the commissioning of the Saiccor expansion project to ensure the increased dissolving pulp volumes • Talent management and succession – managing key retirements over the next 12 months and near-term succession Conclusion Our remuneration policy is benchmarked continuously against the relevant industry peers to ensure competitive reward and that it motivates our senior team to achieve the group’s objectives and deliver sustainable returns and value creation for our shareholders. The committee believes that the remuneration of executives during 2021 reflects our challenges and successes to date in the delivery of our strategy. We have improved disclosures on our policy and the implementation report. We have listened to you, our shareholders, and the developments in the short-term bonus criteria and the voluntary minimum shareholding requirement reflects this feedback. Thank you for your support and advice that you have given for our 2021 remuneration report. Mike Fallon Chairman of the Human Resources and Compensation Committee 155 GOVERNANCE AND COMPENSATION Remuneration Report continued Section A: Voting, focus and compliance statement Statement of voting at Annual General Meeting The AGM of Sappi Limited was held on 3 February 2021 and the requisite resolutions endorsing the remuneration policy and the implementation report were passed as follows: Ordinary resolution number 7: Non-binding endorsement of remuneration policy For Against Shares voted Abstain 484,202,272 17,189,481 501,391,753 96.57% 3.43% 100% 1,066,632 Ordinary resolution number 8: Non-binding endorsement of implementation report For Against Shares voted Abstain 479,881,839 21,507,527 501,389,366 95.71% 4.29% 100% 1,069,019 At the February 2020 AGM, the results for the requisite ordinary resolutions endorsing the remuneration policy and the implementation report were 80.22% and 83.11%, respectively. (cid:43)(cid:88)(cid:80)(cid:68)(cid:81)(cid:3)(cid:53)e(cid:86)(cid:82)(cid:88)rce(cid:86)(cid:3)(cid:68)(cid:81)d(cid:3)C(cid:82)(cid:80)(cid:83)e(cid:81)(cid:86)(cid:68)ti(cid:82)(cid:81)(cid:3)C(cid:82)(cid:80)(cid:80)ittee The purpose of the committee is to oversee remuneration matters for all controlled subsidiaries of Sappi Limited. Its key objectives are to: • Make recommendations on remuneration policies and practices, including Sappi’s employee share schemes • Ensure effective executive succession planning • Review compliance with all statutory and best practice requirements on labour and industrial relations management The committee consisted of four independent non-executive directors: • Mr MA Fallon – Chairman • Mr BR Beamish • Mr NP Mageza • Mr RJ Renders The Chairman of the company, Sir Nigel Rudd, attends committee meetings ex-officio while the Group CEO, Mr SR Binnie together with Group Head Human Resources, Mr Fergus Marupen attend meetings by invitation. Mrs A Mahendranath, Company Secretary, attends the meeting as secretary to the committee. The Human Resources and Compensation Committee met four times during the year and held one telephone conference. The Human Resources and Compensation Committee ensures that the policy governing compensation practices and structures within the group support the group’s strategy and performance goals. The policy also enables the attraction, retention and motivation of executives and all employees. The key activities of the committee during 2021 are summarised as follows: Recommended and approved • Implementation of ROCE as a measure in the short-term incentive from 2022, replacing working capital • Implementation of a voluntary minimum shareholding requirement for all prescribed officers effective May 2021 • The allocation of 2021 performance share awards to executive directors and all other eligible participants • Salary increases and bonus payments for executive directors and other key senior managers for 2021 • Fee levels for non-executive directors of the Sappi Limited Board for consideration and recommendation to shareholders for approval • The allocation model and the comparator peer group for the 2021 PSP • The 2022 MIS rules • Retention bonuses for key staff on Sappi strategic projects Reviewed • The 2020 Remuneration Report, including the content of the company compensation policy and practices, which was put to shareholders for a non-binding vote at the AGM in February 2021 • Development of the 2021 Remuneration Report for shareholder approval in February 2022 • The succession, retirement and development plans for key management positions • The group’s industrial relations policy Attendance at meetings by individual members is detailed on page  139. and implementation None of the committee members has any significant personal financial interest, or conflict of interest, or any form of cross directorship, or day-to-day involvement in the running of the business. Executive directors and managers are not present during committee discussions relating to their own compensation. • The group’s training and development policy and implementation • Update on the HR2025 plan • The Investor feedback on the 2020 Remuneration Report • 2020 committee evaluation • Sappi’s Covid-19 response and the impact on employees T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 156 GOVERNANCE AND COMPENSATION Independent advice Management engaged the services from the following organisations to assist in compensation work during the course of the year: • Mercer Kepler, United Kingdom • Korn Ferry, South Africa • KPMG Inc, South Africa • Bowmans, South Africa • PricewaterhouseCoopers Tax Services, South Africa Compliance statement The Human Resources and Compensation Committee is committed to maintaining high standards of corporate governance and supports and applies the principles of good governance advocated by King IV. Our remuneration approach and disclosures fully comply with regulatory and statutory provisions relating to reward governance in all the countries in which we operate. The committee ensures compliance with legal and regulatory requirements as they pertain to compensation. The Human Resources and Compensation Committee is of the view that the objectives stated in the remuneration policy have been achieved for the period under review. The committee is satisfied that it has fulfilled its responsibilities in accordance with its terms of reference and with the status of remuneration and incentives in the group. Areas of focus for 2022 Key activities for the committee in 2022 will be, inter alia, the approval of the remuneration and bonuses for executive directors and senior management. In addition to the annual work plan as approved by the committee, the chairman of the committee and senior executives from Sappi will, if required, also be visiting key shareholders to discuss issues of mutual concern. 157 GOVERNANCE AND COMPENSATION Remuneration Report continued Section B: Overview of the remuneration policy Compensation strategy and policy Our compensation packages: • Are designed to attract, retain and motivate executives and all employees to deliver on performance goals and strategy • Are simple, transparent and aligned with the interests of shareholders • Reflect the views of our investors, shareholder bodies and stakeholders • Are structured in a way that substantial rewards are only paid for exceptional performance and that poor performance does not earn an incentive award • Encourage behaviour consistent with the group’s risk and reward philosophy • Have an appropriate and balanced reward mix for executive directors and other executive managers based on base pay, benefits and short and long-term incentives within the context of the industry sector • Are applied consistently across the group to promote alignment and fairness • Through the Deferred Shares Bonus Plan, provide for a voluntary deferral of 40% of the Group CEO’s annual bonus, and 30% of the executive managers’ annual bonuses (to purchase Sappi shares), to ensure a long-term focus on the company’s performance by the individual concerned and establish a personal stake in the company • Are designed to pay at the market median for all components of pay, except for short-term incentives, which are targeted at the 75th percentile • To support our Thrive25 ambitions Summary of reward components of executive directors and other members of the group executive committee The compensation of executive directors and other executive committee members comprises fixed and variable components. Purpose > Structure > Fixed Opportunity > Component – Base salary • (cid:55)o reflect market value of the role, individuals’ skills, contribution, experience and performance • To attract and retain key talent • Paid monthly in cash • Reviewed annually with any increases to be • effective from (cid:19)(cid:20) (cid:45)anuar(cid:92) each (cid:92)ear • Base salary reviews take into account prevailing market practices, economic conditions and the levels of base salary increase mandates provided to the general employee population Increases are applied in line with outcomes of performance discussions with the individuals concerned and market conditions • To provide protection and market competitive benefits to aid recruitment and(cid:123)retention Component – Benefits • Private medical insurance • Income in the event of death or disability • None These are: • Appropriate in terms of level of seniority; • Market related • (cid:39)eath benefit is a multiple of base salar(cid:92), and • Non-pensionable Component – Pension • To provide market related benefits • Facilitate the accumulation of savings for post- retirement years • Comprises defined benefit and defined contribution plans • A large number of defined benefit plans are closed to new hires • Emplo(cid:92)ees in legac(cid:92)-defined benefit plans continue to accrue benefits in such plans for both past and future service • (cid:53)etirement plans differ b(cid:92) region • Executive members of defined contribution plans(cid:123)receive a compan(cid:92) contribution of up to (cid:20)(cid:27)(cid:17)(cid:23)(cid:26)(cid:8) of salar(cid:92) T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 158 Purpose > • Focus participants on targets relevant to the group’s strategic goals • Drive performance • Motivate executives to achieve specific and stretching short-term goals • Reward individuals for(cid:123)their personal contribution and performance • Deferred share proportion of the annual bonus aligns interests with shareholders Component – Annual cash incentive GOVERNANCE AND COMPENSATION Structure > Variable Opportunity > • All measures and objectives are reviewed and set • The maximum bonus for executive directors is (cid:20)(cid:20)(cid:24)(cid:8) of(cid:123)base salar(cid:92) • Regional CEOs can earn a maximum bonus of (cid:28)(cid:24)(cid:8) of base salary • Executive committee members and other(cid:123)senior managers may earn(cid:123)a ma(cid:91)imum bonus of up to 88% of base salary • A cash award is made at the beginning of the financial (cid:92)ear • Payments are reviewed and approved at year end by the committee based on performance against the targets • Threshold is required to be met for any bonus payment to occur • (cid:55)arget level of bonuses varies from (cid:25)(cid:24)(cid:8) to (cid:27)(cid:24)(cid:8) of(cid:123)base salar(cid:92) • Weightings for (cid:21)(cid:19)(cid:21)(cid:20) were(cid:29) E(cid:37)(cid:44)(cid:55)(cid:39)A e(cid:91) S(cid:44) (cid:115) (cid:24)(cid:19)(cid:8)(cid:30) • • Working Capital – 20% and safety – 10%; Individual – 20% If the agreed target for EBITDA ex SI is achieved, a(cid:123)bonus award percentage of (cid:20)(cid:19)(cid:19)(cid:8) will be paid for that component. A bonus award percentage of up to(cid:123)(cid:20)(cid:24)(cid:19)(cid:8) can be earned if(cid:123)(cid:20)(cid:20)(cid:19)(cid:8) or more of the agreed target is achieved If the agreed target % for working capital is achieved, a bonus award percentage of (cid:20)(cid:19)(cid:19)(cid:8)(cid:123)will(cid:123)be paid for that component(cid:17) A(cid:123)bonus Award percentage of up to (cid:20)(cid:24)(cid:19)(cid:8) can(cid:123)be earned if(cid:123)(cid:28)(cid:19)(cid:8) or less than the target is(cid:123)achieved(cid:17) (cid:44)f the working capital target is exceeded by more than 10% then no bonus award will be paid for working(cid:123)capital • Bonuses are paid in cash. The Group CEO and executive committee members have volunteered to purchase shares with (cid:23)(cid:19)(cid:8) and (cid:22)(cid:19)(cid:8) of their after-tax cash bonus, respectively. The right to sell the(cid:123)shares is deferred for up to three (cid:92)ears, sub(cid:77)ect to individual members not being terminated for cause • Non pensionable • Malus and clawback may be applied in the following circumstances: (i) Financial results of the group or a company/ business unit in the Sappi group have been materially misstated (ii) A participant has ceased to be a director or (iii) (iv) employee by reason of gross misconduct and has resulted in significant losses to the business There has been material breach of Code of Ethics/Law There has been an erroneous assessment of(cid:123)the e(cid:91)tent to which an(cid:92) performance conditions has been satisfied resulting in(cid:123)a(cid:123)higher vesting outcome 159 GOVERNANCE AND COMPENSATION Remuneration Report continued Section B: Overview of the remuneration policy Compensation strategy and policy continued Purpose > • Align the interests of the executive members with those of the shareholder • Reward the execution of the strategy and long-term outperformance of our competitors • • Encourage long-term commitment to the company Is a wealth creation mechanism for executive members if the company outperforms the peer group Voluntary minimum shareholding requirement for prescribed officers Component – Long-term share incentive plans Structure > Variable Opportunity > • Conditional grants awarded annually to executive directors, executive committee members and other key senior managers of the company • A higher share price will benefit the participants • Straight-line vesting after four years • Performance is measured relative to a peer group(cid:123)of (cid:20)(cid:25) other industr(cid:92)-related companies • The number of conditional shares allocated varies between the CEO and each of the executive committee members(cid:17) (cid:48)easures for(cid:123)(cid:21)(cid:19)(cid:21)(cid:20) awards were relative total shareholder return (cid:11)(cid:55)S(cid:53)(cid:12) (cid:115) (cid:24)(cid:19)(cid:8) and relative cash flow return on(cid:123)net assets (cid:11)CF(cid:53)(cid:50)(cid:49)A(cid:12) (cid:115) (cid:24)(cid:19)(cid:8) • Malus and clawback may be applied in the following circumstances: (i) Financial results of the group or a company/ business unit in the Sappi group have been materially misstated (ii) A participant has ceased to be a director or employee by reason of gross misconduct and has resulted in significant losses to the business (iii) There has been material breach of Code of Ethics/Law (iv) There has been an erroneous assessment of the extent to which any performance conditions have been satisfied resulting in a(cid:123)higher vesting outcome • The target holding as a multiple of annual base salar(cid:92) needs to be achieved b(cid:92) (cid:39)ecember (cid:21)(cid:19)(cid:21)(cid:24)(cid:17) The requirement is that the CEO should hold (cid:22)(cid:123)times annual base salar(cid:92), up from his previous (cid:21)(cid:123)times(cid:17) (cid:55)he CF(cid:50) (cid:21) times and all other prescribed officers at (cid:20) times annual base salar(cid:92) • The acquisition of shares will primarily be achieved by vesting performance shares and through the acquisition of shares under the executive management share purchase scheme (whereby an individual is required to purchase shares from a designated portion of their after tax MIS bonus). However, individuals can also purchase shares during the normal open period with the appropriate approvals • Provide an appropriate level of protection to both the executive and to Sappi • Executive committee members have notice periods • by the company of 12 months or less • Separation agreements, when appropriate, are negotiated with the individual concerned with prior approval being obtained in terms of our governance structures Component – Service contracts In circumstances where(cid:123)there is a significant likelihood of a transaction involving the Sappi group or a business unit, limited change in(cid:123)control protections ma(cid:92) be(cid:123)agreed and implemented if deemed necessary for(cid:123)retention purposes T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 160 GOVERNANCE AND COMPENSATION Service contracts Mr Binnie and Mr Pearce have an ongoing employment contract which requires six months’ notice of termination by the employee and 12 months’ notice of termination by the company. Depending on their location, executive committee members have ongoing employment contracts which require between three to six months’ notice of termination by the employee and six to 12 months’ notice of termination by the company. Other than in the case of termination for cause, the company may terminate the executive directors’ service contracts by making payment in lieu of notice equal to the value of the base salary plus benefits which they would have received during the notice period. Executive directors are required to retire from the company at the age of 63 years. The retirement age of executive committee members is generally between the ages of 63 years and 65 years and differs by region. Choice of performance measures and approach to target setting Short-term incentive: MIS The table below shows the metrics and why they were chosen and how targets are set. Metric Percentage (%) > Relevance > How do we set the targets? > EBITDA ex SI 50 A ke(cid:92) indicator of the underl(cid:92)ing profit performance of the group, reflecting both revenues and costs. Aligns closely with our strategic goals of achieving cost advantages and growth(cid:17) (cid:48)ore efficient water, energ(cid:92) and raw material usage is also encouraged. Targets and ranges are set each year by the board taking account of required progress towards strategic goals, and the prevailing market conditions. Working capital 20 Safety 10 A key indicator of accounts payable, accounts receivable, cash management and stock levels. Achieving optimum working capital levels in the business re(cid:84)uires efficient use of resources throughout the suppl(cid:92) chain and influences cash management, a key pillar of our strategy. A core value of the company and one of the key indicators of whether the business is meeting its(cid:123)sustainabilit(cid:92) goal of (cid:93)ero harm(cid:17) Targets and ranges are set each year by the(cid:123)board taking account of the re(cid:84)uired progress towards strategic goals, and the prevailing market conditions. The committee considers input from the SETS Committee and sets appropriate standards and goals. The measurement will(cid:123)be the LTIFR. (cid:44)f there is a fatalit(cid:92) in a specific region, the group executive committee, the regional e(cid:91)ecutive committee and the affected operations, will score zero. Individual performance 20 An indicator of the contribution of each executive director, individual performance for relevant managers. Includes several key non-financial targets in relation to numerous ESG, living the Sappi Values, major capital projects and BBBEE in the case of South Africa. Priorities are set for the CEO by the Chairman of the board in line with the business plan for the applicable year. Targets and ranges are then cascaded to the rest of the business teams. These are reviewed as part of an annual review with the Chairman. ROCE (To be implemented in 2022 replacing working capital) 20 A key indicator of the underlying returns that the group achieves on its capital employed. Achieving a ROCE over time that outperforms the group’s weighted cost of capital will ensure alignment of the group’s returns targets with those expected by the group’s shareholders. Targets and ranges are set each year by the board taking account of the required progress towards strategic goals, and the prevailing market conditions. 161 Performance Share Plan The Sappi PSP provides for annual awards of conditional performance shares which are subject to meeting performance targets measured over a four-year period. These awards will only vest if Sappi’s performance, relative to a peer group of 16 other industry- related companies is ranked at median or above the median. The performance criteria are relative TSR and relative CFRONA. GOVERNANCE AND COMPENSATION Remuneration Report continued Section B: Overview of the remuneration policy Compensation strategy and policy continued The bonus payment opportunity available to executive directors and executive committee members is as follows: Executive director Regional CEO On-target bonus Stretch target 85% of base salary 115% of base salary 70% of base salary 95% of base salary Other prescribed officers (ie executive committee members) 65% of base salary 88% of base salary (cid:53)e(cid:80)(cid:88)(cid:81)er(cid:68)ti(cid:82)(cid:81)(cid:3)(cid:68)t(cid:3)di(cid:428)ere(cid:81)t(cid:3)(cid:83)er(cid:73)(cid:82)r(cid:80)(cid:68)(cid:81)ce(cid:3)(cid:79)e(cid:89)e(cid:79)(cid:86) The chart below illustrate the total potential remuneration (base pay and short-term incentives) for executive director at different performance levels. Remuneration levels CEO and CFO (% of base pay) 0 0 1 5 8 5 1 1 0 0 1 120 100 80 60 40 20 0 Target ● Base pay ● Short-term incentive (MIS) Maximum Long-term incentives are excluded from these scenarios as their vesting depends on performance conditions being met. The table below shows the metrics and why they were chosen and how targets are set. Metric TSR CFRONA Relevance > How do we set the targets? > TSR measures the total returns to Sappi’s shareholders, providing close alignment with shareholder interests. A ke(cid:92) indicator of the effective use of capital(cid:17) CFRONA is calculated as cash generated by operations after working capital movements (before interest, tax and dividends) divided by average total assets (excluding cash) less interest-free liabilities. This measure is calculated using a simple annual average over the previous four-year period. The committee sets the performance requirements for each grant. A peer group of packaging and paper sector companies is used. Nothing vests in positions 10 – 17 of the peer group. Vesting increases from (cid:21)(cid:24)(cid:8) at position (cid:28) to (cid:20)(cid:19)(cid:19)(cid:8) for positions (cid:20) (cid:115) (cid:24)(cid:17) The committee sets the performance requirements for each grant. A peer group of packaging and paper sector companies is used. No vesting occurs in positions 10 – 17 of the peer group. Vesting increases from (cid:21)(cid:24)(cid:8) at position (cid:28) to (cid:20)(cid:19)(cid:19)(cid:8) for positions (cid:20) (cid:115) (cid:24)(cid:17) T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 162 GOVERNANCE AND COMPENSATION The peer group for the PSP award consisted of the following 16 industry-related companies: Stora Enso Lenzing Graphic Packaging International UPM-Kymmene Rayonier Advance Materials Borregaard Sun Paper Metsá Board BillerudKorsnäs (cid:43)(cid:82)(cid:79)(cid:80)e(cid:81) Mondi PLC International Paper West Rock Verso Suzano Resolute Forest Products Vesting schedule The vesting schedule for 2017 allocation for both TSR and CFRONA is as follows: Position 1 – 5 6 7 8 9 10 – 17 Vesting 100% 80% 65% 45% 25% 0% Disclosure In this report, Sappi discloses vested as well as grant performance share values. In the 2020 report only the grant benefits were disclosed. Malus and clawback Awards made to the CEO, Chief Financial Officer and prescribed officers under Sappi’s MIS and PSP are subject to both malus and clawback provisions which may be applied during the period of two years after the date of vesting or granting. Clawback refers to the recovery of paid or vested amounts and malus refers to the reduction, including to nil, of unvested or unpaid amounts. Malus and clawback may be applied in the following circumstances: • Financial results of the group or a company/business unit in the Sappi group have been materially misstated • A participant has ceased to be a director or employee by reason of gross misconduct and has resulted in significant losses to the business • There has been material breach of Code of Ethics/Law • There has been an erroneous assessment of the extent to which any performance conditions have been satisfied resulting in a higher vesting outcome. Statement of fair and responsible remuneration The group’s compensation policy for the remuneration of executive directors and other senior executives is set taking appropriate account of remuneration and employment conditions of other employees in the group. The committee annually receives a report from management on pay practices across the group, including salary levels and trends, collective bargaining outcomes and bonus participation. At the time that salary increases are considered the committee additionally receives a report on the approach management proposes to adopt for general staff increases. Both these reports are taken into account in the committee’s decisions regarding the remuneration of executive directors and other senior executives. In some countries where the group operates, more formal consultation arrangements with employee representatives are in place relating to employment terms and conditions, in accordance with local legislation and practice. The group also conducts employee engagement surveys every two years which gauge employees’ satisfaction with their working conditions. The Sappi board is given feedback on these survey results. Approach to remuneration benchmarks Executive compensation is benchmarked on data provided in national executive compensation surveys, for countries in which executives are domiciled, as well as information disclosed in the annual reports of listed companies of the Johannesburg Stock Exchange. Sappi participates in global remuneration surveys and uses data from global remuneration survey, ie PwC, Mercer, et al to determine appropriate remuneration levels. Ensuring an appropriate peer group in order to retain the integrity and appropriateness of the benchmark data is a key task of the Human Resources and Compensation Committee. Executive pay is benchmarked every alternate year. The remuneration package for a newly appointed executive director is set in accordance with the terms of the group’s approved remuneration policy in force at the time of appointment. The variable remuneration for a new executive director is determined in the same way as for existing executive directors. For internal and external appointments, the group may meet certain relocation expenses, as appropriate. 163 GOVERNANCE AND COMPENSATION Remuneration Report continued (cid:53)e(cid:80)(cid:88)(cid:81)er(cid:68)ti(cid:82)(cid:81)(cid:3)(cid:83)(cid:82)(cid:79)ic(cid:92)(cid:3)(cid:73)(cid:82)r(cid:3)(cid:81)(cid:82)(cid:81)-e(cid:91)ec(cid:88)ti(cid:89)e(cid:3)direct(cid:82)r(cid:86)(cid:3)(cid:11)(cid:73)ee(cid:86)(cid:12) Element Purpose > How it works? > Fees > Fixed • The Chairman receives an • The Chairman’s fees are all-inclusive fee Non-executive Chairman (fees) • To attract and retain a high- calibre chairman, with the necessary experience and skills • To provide fees which take account of the time commitment and responsibilities of the role • To attract and retain high-calibre • The non-executives are paid Other non-executive directors (fees) non-executives, with the necessary experience and skills • To provide fees which take account of the time commitment and responsibilities of the role a(cid:123)basic fee • Attendance fees are also paid to reflect the re(cid:84)uirement for non-executive directors to attend meetings in various international locations • The chairmen of the main board committees and the lead(cid:123)independent director are paid additional fees to reflect their extra responsibilities reviewed periodically by the committee • Fees are set by reference to market median data for companies of similar size and complexity to Sappi • Non-executive directors’ fees are reviewed periodically by the Chairman and Human Resources and Compensation Committee • Fees are set by reference to market median data for companies of similar size and complexity to Sappi Sappi may reimburse the reasonable expenses of board directors that relate to their duties on behalf of Sappi. Sappi may also provide advice and assistance with board directors’ tax returns where these are impacted by the duties they undertake on behalf of Sappi. All non-executive directors have letters of appointment with Sappi Limited for an initial period of three years. In accordance with best practice, non-executive directors are subject to re-election at the AGM after the three-year period. Appointments may be terminated by Sappi with six months’ notice. No compensation is payable on termination, other than accrued fees and expenses. Voting on remuneration As required by King IV, Sappi’s remuneration policy and implementation report as detailed in this Remuneration Report, need to be tabled for separate non-binding advisory votes by shareholders at the upcoming AGM. In the event that either the remuneration policy or the implementation report, or both, are voted against by 25% or more of the voting rights entitled to be exercised by shareholders at such AGM, then the committee will ensure that the following measures are taken in good faith and with best reasonable efforts: • An engagement process to ascertain the reasons for the dissenting votes, and • Appropriately addressing legitimate and reasonable objections and concerns raised which may include amending the remuneration policy or clarifying or adjusting remuneration governance and/or processes. You can also view the full Remuneration policy on www.sappi.com T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 164 GOVERNANCE AND COMPENSATION Section C: Remuneration implementation report Compensation structure Total compensation comprises fixed pay (ie base salary and benefits) and variable performance-related pay, which is divided further into short-term incentives with a one-year performance period and long-term incentives which have a four-year performance period. Compensation mix The compensation mix for executive directors and executive committee members is shown in the schematics below. The long-term incentive awards are based on the vested value of the performance plan shares issued on 04 December 2017 (share price at date of allocation: ZAR95,64). Details of the executive directors’ remuneration can be found on page  169. Executive directors 3.0 2.5 22% 34% 36% 2.0 1.5 ) n o i l l i m $ S U ( 1.0 44% 64% 0.5 0 2018 ● (cid:57)e(cid:86)te(cid:71)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:69)e(cid:81)e(cid:430)t 2019 ● 4% 46% 51% 17% 83% 2020 2021 Short-term incentive ● Guaranteed package (cid:51)re(cid:86)(cid:70)ribe(cid:71) o(cid:433)(cid:70)er(cid:86) (cid:70)ompen(cid:86)ation mi(cid:91) 7.0 6.0 ) n o i l l i m $ S U ( 5.0 4.0 3.0 2.0 1.0 0 13% 30% 21% 6% 57% 73% 12% 88% 2 2 3% 31% 66% 2018 ● (cid:57)e(cid:86)te(cid:71)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:69)e(cid:81)e(cid:430)t 2019 ● 2020 2021 Short-term incentive ● Guaranteed package In January 2021, Mr Binnie and Mr Pearce received zero salary increases on both their South African and offshore portion. The same salary increase percentages were applied in determining the salary increases for executive committee members’ and general staff, dependent on location. (cid:53)etire(cid:80)e(cid:81)t(cid:3)(cid:69)e(cid:81)efit(cid:86) Retirement benefits are largely in the form of defined contribution schemes. In some instances, legacy defined benefit schemes exist. Almost all the defined benefit schemes are closed to new hires. Mr Binnie and Mr Pearce are both members of defined contribution funds and the total employee and company contribution is ZAR350,000 each. No additional payments were made to any retirement fund on behalf of the executive directors. Short-term incentive A performance threshold of 85% of budgeted EBITDA ex SI for the group is required before any bonus can be paid to participants in the group scheme. Our compensation policy aims to have a balance between guaranteed, short- and long-term incentives. Base salary The Human Resources and Compensation Committee approved the level of base salary for each executive director, executive committee member and other key senior managers. The salary increases were based on individuals’ performances and contributions, internal relativities, inflation rates in the countries of operation, general market salary movement and overall affordability. 165 GOVERNANCE AND COMPENSATION Remuneration Report continued Section C : Remuneration implementation report continued Short-term incentive continued 2021 MIS outcomes for executive directors MIS EBITDA US Dollar (million) Points Working capital Percentage Points Safety LTIFR Points Threshold Target Maximum Actual 402 473 50 520 75 578 75 Threshold Target Maximum Actual 13.6% 12.4% 20 11.2% 30 10.6% 30 Target Actual 0.42 0.48 – Personal objectives of executives for 2021 MIS Performance objectives Link to strategic fundamental > Description > Tasks and targets > Drive the safety-first programme Drive to ensure that Sappi has sufficient liquidity and capital resources to sustain the business Continue leading the Sappi values (cid:39)rive safet(cid:92)-first across Sappi with continuous improvement on overall severity rates measured by the Injury Index II of Own and Contractors. Ensure that Sappi will have sufficient li(cid:84)uidit(cid:92) and capital resources to sustain the business. • Zero fatalities • (cid:42)roup own emplo(cid:92)ee (cid:47)(cid:55)(cid:44)F(cid:53) (cid:31)(cid:19)(cid:17)(cid:23)(cid:21) • (cid:55)argets as per financial disclosures(cid:29) – – – Liquidity Debt to EBITDA ex SI Return on capital employed Ensure continued communication and training around values. Drive visible felt leadership through more direct engagement with shop floor b(cid:92)(cid:123)all lead team members. • All employees to complete the three-yearly cycle of Code of Ethics compliance training • (cid:20)(cid:19)(cid:19)(cid:8) sign-off on Polic(cid:92) Passport • Zero tolerance for discipline failures around ethics • Each group lead team member to visit their allocated sites at least once every two years Improvement in senior management relationships score in the engagement survey • Drive Sappi’s sustainability footprint Meet Sappi’s annual sustainability targets. • All BP21 sustainability targets met Drive operational excellence across all plants Govern implementation of(cid:123)operational e(cid:91)cellence programmes to drive an(cid:123)e(cid:91)cellence culture(cid:17) • OME group average target at group level within (cid:20)(cid:8) of budget of (cid:27)(cid:19)(cid:17)(cid:24)(cid:8) • OME average better than the previous year achievement of 79% • Project Ranulph cost savings of (cid:56)S(cid:7)(cid:25)(cid:27)(cid:17)(cid:27)(cid:123)million T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 166 GOVERNANCE AND COMPENSATION Performance objectives Link to strategic fundamental > Description > Tasks and targets > Execute Saiccor Mill expansion project as planned Grow packaging and speciality paper business with optimal volumes Manage graphic paper business capacity Governance oversight of Saiccor Mill expansion project. • Project back on stream post Covid-19 delays • Saiccor Mill expansion project success rating using the post-project evaluation Grow volumes in SSA and SNA in line with increase in demand. • Packaging (cid:20)(cid:17)(cid:23)(cid:23)(cid:23)k tons • Packaging E(cid:37)(cid:44)(cid:55)(cid:39)A margin (cid:20)(cid:21)(cid:17)(cid:24)(cid:8) Manage graphics capacity in line with market demands. • Manage volumes in line with adjusted Covid-19 recover(cid:92) plan to appro(cid:91)imatel(cid:92) (cid:22),(cid:24)(cid:19)(cid:19)k tons • E(cid:37)(cid:44)(cid:55)(cid:39)A margin for graphics (cid:24)(cid:17)(cid:23)(cid:8) Manage key retirements and near-term succession Successors identified for all key retirees for the next 12 months. • 90% ready now successors for all key retirements Sappi Thrive25 strategy Lead the roll-out of the Thrive25 strategy across all regions. • Regional strategies in place supporting Thrive25 • Significant progress on all four fundamentals (cid:11)(cid:42)row our business, Sustain our financial health, Drive operational excellence and Enhance trust) The Chairman conducted a formal review with the CEO and scored him out of 20 points on the achievement of the stated objectives, namely objective achieved 2 points, partially achieved 1 point and non-achievement 0 points. 2021 MIS outcomes for executive directors Points Steve Binnie Glen Pearce EBITDA ex SI Working capital Safety Personal 50 75 75 20 30 30 10 – – 20 18 18 Total 100 123 123 For 2021, Mr Binnie and Mr Pearce achieved a bonus outcome of 105% of base salary before currency translations. For ease of reference, the bonus calculation is based on the executive director bonus target of 85% (annual salary) multiplied by 123% bonus outcome (reflected above), is equal to 105% of annual salary, as detailed in the remuneration tables. Performance Share Plan outcomes for 2021 For the four-year period ending September 2021, Sappi’s performance relative to the peer group measured on TSR was ranked 15th, resulted in a 0% vesting on the TSR component. The determination of the vesting of the shares was provided by Mercer Kepler, an independent third party. For the four-year period ending September 2021, Sappi’s performance relative to the peer group measured on CFRONA was ranked 9th, resulted in 25% vesting on the CFRONA component. This result was verified by KPMG, our external auditors. 167 Dilution If all outstanding plan shares were to vest as at September 2021, the resulting dilution effect would be 2.53% (2020: 2.12%, 2019: 2.3%) of issued ordinary share capital excluding treasury shares. Voluntary minimum share holding This voluntary requirement has been introduced for all prescribed officers. The target holding as a multiple of annual base salary needs to be achieved by December 2025. The requirement is that the CEO should hold 3 times annual base salary, up from his previous 2 times. The CFO 2 times and all other prescribed officers at 1 times annual base salary. The acquisition of shares will primarily be achieved by vesting PSPs and through the acquisition of shares under the executive management share purchase scheme (whereby an individual is required to purchase shares from a designated portion of their after-tax MIS bonus). However, individuals can also purchase shares during the normal open period with the appropriate approvals. SENS announcements will be applicable. GOVERNANCE AND COMPENSATION Remuneration Report continued In aggregate, therefore 12.5% of the total 2017 awards vested. 2017 TSR vesting schedule (% of awards vesting) 100 80 60 40 20 0 0 0 1 0 0 1 0 0 1 0 0 1 0 0 1 0 8 5 6 5 4 5 2 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Sappi’s TSR ranking versus comparators 2017 CFRONA vesting schedule (% of awards vesting) 100 80 60 40 20 0 0 0 1 0 0 1 0 0 1 0 0 1 0 0 1 0 8 5 6 5 4 5 2 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Sappi’s CFRONA ranking versus comparators In December 2017, Mr Binnie was granted 137,000 conditional performance plan shares, of which 12.5% of the allocation will vest in December 2021. In December 2017, Mr Pearce was granted 63,000 conditional performance plan shares, of which 12.5% of the allocation will vest in December 2021. The historical vesting of PSP awards: Share awards TSR CFRONA Aggregate 2018 100% 100% 100% 2019 80% 100% 90% 2020 0% 100% 50% 2021 0% 25% 12.5% Performance Share Plan allocations for 2021 Each year, Mercer Kepler provides management with a recommendation for an appropriate pool size. For the 2021 allocation, it was approved to grant the number of shares implied by the same ZAR value of the previous year PSP awards, where value is based on trailing long-run average share price at grant (eg 12 months). This approach has been applied for the last four years and is consistent with recommendations by our shareholders, to disclose the allocation method. Mr Binnie was awarded 180,000 conditional performance plan shares in November 2021 that will vest in November 2025. Mr Pearce was awarded 85,000 conditional performance plan shares in November 2021 that will vest in November 2025. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 168 GOVERNANCE AND COMPENSATION Pre(cid:86)cri(cid:69)ed(cid:3)(cid:82)(cid:433)cer Target minimum Shareholding Number of shares (Sept 2021) Value of shares Actual multiple SR Binnie GT Pearce M Eikelenboom M Haws A Thiel M van Hoven G Bowles F Marupen 3x 2x 1x 1x 1x 1x 1x 1x M Mansoor * Average share price of US$2.84 (R40.95) for September 2021. ** Based on the base salary as at 1 January 2021. *** Based on base salary as at 1 April 2021 for M Eikelenboom. 1x 400,000 185,877 20,318 40,000 561,902 203,403 109,438 73,261 57,050 US$1,136,000 US$527,891 US$57,703 US$113,600 US$1,595,802 US$577,665 US$310,804 US$208,061 US$162,022 2.0 1.6 0.1 0.3 4.7 3.2 1.2 1.1 0.5 (cid:53)e(cid:80)(cid:88)(cid:81)er(cid:68)ti(cid:82)(cid:81)(cid:3)di(cid:86)c(cid:79)(cid:82)(cid:86)(cid:88)re(cid:3)(cid:82)(cid:73)(cid:3)e(cid:91)ec(cid:88)ti(cid:89)e(cid:3)direct(cid:82)r(cid:86)(cid:3)(cid:68)(cid:81)d(cid:3)(cid:83)re(cid:86)cri(cid:69)ed(cid:3)(cid:82)(cid:433)cer(cid:86) Executive directors’ emoluments for 2021 (US Dollar) Short-term compensation (STC) LTSIP (Value of shares vested this year)* Subtotal STC Total Executive director Base salary Annual cash award Other allowances Benefits & pension A B A + B S Binnie G Pearce 564,742 326,357 Total * Long-term Share Incentive Plan (PSP) (LTSIP). 891,099 607,749 351,098 958,847 16,440 9,344 25,784 84,179 61,581 1,273,110 748,380 50,924 23,417 1,324,034 771,797 145,760 2,021,490 74,341 2,095,831 • Local earnings are translated into the reporting currency (US Dollar) using the average exchange rate over the financial year The average rate for SA Rand and Swiss Franc appreciated by 8% and 6%, respectively against the US Dollar • Due to the earnings currencies (ZAR) appreciating against the reporting currency (US$) over the year, this had the effect of showing earnings in US Dollar terms to be higher • Base salary – the actual salary earned during 2021 • Performance related remuneration – the actual value earned in 2021 based on the rules of the MIS • Sums paid by way of expense allowance – expenses allowed • Contributions paid under pension and medical aid schemes – the annual contribution paid by the company into a defined benefit fund on behalf of the members determined as a percentage of their base salary • Long-term shares vested in December 2021 LTSIP benefit: 2021 allocation (will vest in 2025) Executive director S Binnie G Pearce * Estimated share price. ** Assuming 100% vesting on both performance conditions. Share price at allocation* R Total awarded benefit ** US$ 42 42 504,000 238,000 Number of shares 180,000 85,000 169 GOVERNANCE AND COMPENSATION Remuneration Report continued Executive directors’ emoluments for 2020 (US Dollar) Short-term compensation (STC) Base salary Annual cash award Other allowances Benefits & pension LTSIP (Value of shares vested this year) Subtotal STC Total A B A + B 504,410 291,478 – – 15,531 8,827 74,296 56,126 594,237 356,431 132,823 61,492 727,060 417,923 Executive director S Binnie(1) G Pearce(2) Total 1,144,983 24,358 (1) SR Binnie received a 4.6% increase on the South African portion (70% of total salary), and a 1.0% increase on the off-shore portion of his salary 795,888 950,668 130,422 194,315 – (30% of total salary). Overall salary expressed in reporting currency was 6.5% lower than in 2019. (2) GT Pearce received a 4.6% increase on the South African portion (70% of total salary), and a 1.0% increase on the off-shore portion of his salary (30% of total salary). Overall salary expressed in reporting currency was 6.6% lower than in 2019. • Local earnings are translated into the reporting currency (US Dollar) using the average exchange rate over the financial year The average rate for SA Rand depreciated by 13% and appreciated for the Swiss Franc by 4% • Due to the earnings currencies (ZAR) depreciating against the reporting currency (US Dollar) over the year, this had the effect of showing earnings in US Dollar terms to be lower than last year • Base salary – the actual salary earned during 2020, including the three-month 10% salary reduction • Performance related remuneration – the actual volume earned in 2020 based on the rules of the MIS. • Sums paid by way of expense allowance – expenses allowed • Contributions paid under pension and medical aid schemes – the annual contribution paid by the company into a defined benefit fund on behalf of the members determined as a percentage of their base salary • Long-term shares vested in December 2020 Prescribed officers/executive committee members (US Dollar) Prescribed officers are members of the group executive committee. The table below sets out the remuneration for prescribed officers for 2021: Short-term compensation (STC) LTSIP (Value of shares vested this year) Subtotal STC Total Pre(cid:86)cri(cid:69)ed(cid:3)(cid:82)(cid:433)cer Base salary Annual cash award Other allowances Benefits & pension A B A + B B Wiersum(1) M Eikelenboom M Haws A Thiel M van Hoven G Bowles F Marupen M Mansoor Total (1) Retired March 2021. 414,011 274,953 437,552 339,777 179,317 265,605 190,682 321,900 – – 391,597 307,032 148,830 234,379 157,173 259,661 1,494 1,494 – 11,561 5,537 8,726 5,790 137,000 147,274 62,905 49,375 59,071 48,522 54,275 47,591 64,205 562,779 412,039 878,524 717,441 382,206 562,985 401,236 782,766 24,718 7,806 8,178 28,250 21,931 23,417 18,957 14,125 587,497 419,845 886,702 745,691 404,137 586,402 420,193 796,891 2,423,797 1,498,672 171,602 533,218 4,627,289 147,382 4,774,671 T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 170 GOVERNANCE AND COMPENSATION LTSIP benefit: 2021 Allocation (will vest in 2025) Pre(cid:86)cri(cid:69)ed(cid:3)(cid:82)(cid:433)cer G Bowles M van Hoven F Marupen A Thiel M Eikelenboom M Haws M Mansoor * Estimated share price. ** Assuming 100% vesting on both performance conditions. The table below sets out the remuneration for prescribed officers for 2020: Short-term compensation (STC) Base salary US$ Annual cash award US$ Other allowances** US$ Benefits & pension US$ 750,723 401,458 304,729 157,111 237,651 173,079 294,155 – – – – – – – 2,799 – 9,830 5,203 8,243 5,469 142,860 268,369 43,891 54,040 42,245 65,910 43,656 86,582 Pre(cid:86)cri(cid:69)ed(cid:3)(cid:82)(cid:433)cer B Wiersum M Haws A Thiel M van Hoven G Bowles F Marupen M Mansoor Share price at allocation* R Total awarded benefit** US$ 42 42 42 42 42 42 42 224,000 224,000 190,400 280,000 280,000 280,000 168,000 Number of shares 80,000 80,000 68,000 100,000 100,000 100,000 60,000 LTSIP (Value of shares vested this year)(3) B US$ 92,238 26,647 92,238 71,741 76,865 61,492 15,475 Total A + B US$ 1,114,129 471,996 460,837 276,300 388,669 283,696 539,072 Subtotal STC A US$ 1,021,891 445,349 368,599 204,559 311,804 222,204 523,597 Total 174,404 2,318,906 (3) Vesting of issue 42 on 09 December 2020: Vesting share price R33.26. ** Other allowances include a significant salary sacrifice. – 604,693 3,098,003 436,696 3,534,699 Non-executive directors’ fees Directors are normally remunerated in the currency of the country in which they live or work from. Their remuneration is translated into US Dollar, the group’s reporting currency, at the average exchange rate prevailing during the financial 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. The quantum of committee fees depends on whether the director is an ordinary member or a chairman of the committee. Non-executive directors do not earn attendance fees, however, additional fees are paid for attendance at board meetings more than the five scheduled meetings per annum. The Chairman of the Sappi Limited board receives a flat directors’ fee and does not earn committee fees. Non-executive directors do not participate in any incentive schemes or plans of any kind. In determining the fees for non-executive directors, due consideration is given to the fee practice of companies of similar size and complexity in the countries in which the directors are based. The extreme volatility of currencies, in particular the ZAR/US Dollar exchange rate in the past few years, caused distortions of the relative fees in US Dollar paid to individual directors. 171 GOVERNANCE AND COMPENSATION Remuneration Report continued This year Korn Ferry conducted a bespoke benchmarking exercise in relation to the non-executive directors’ fees. Their conclusion was that the fees are at the appropriate levels when compared to the market. They have recommended Sappi adjust all non- executive directors’ fees by the relevant Consumer Price Index in the respective directors’ country of domicile for 2022. As for the Chairman’s fee, no increase was recommended. We will continue to review our non-executive directors’ fees against the market and our comparator group to ensure that our fees are at the appropriate levels, taking into account the size and complexity of Sappi. Non-executive directors’ fees are proposed by the executive committee, agreed by the Human Resources and Compensation Committee, recommended by the board and approved at the AGM by the shareholders. The non-executive directors’ fees for 2021 financial year were approved by shareholders. The table below sets out the remuneration for non-executive directors for 2021: Name ANR Rudd MA Fallon BR Beamish NP Mageza MV Moosa B Mehlomakulu Z Malinga RJAM Renders JM Lopez JE Stipp Board fees Committee fees Travel allowance Total GBP319,940 GBP46,670 GBP46,670 ZAR450,750 ZAR674,450 ZAR450,750 ZAR450,750 EUR62,290 US$70,540 US$70,540 GBP0 GBP47,890 GBP39,460 ZAR614,500 ZAR427,850 ZAR380,480 ZAR234,030 EUR58,120 US$25,500 US$35,680 GBP0 GBP0 GBP0 GBP319,940 GBP94,560 GBP86,130 ZAR56,868 ZAR1,122,118 ZAR56,868 ZAR1,159,168 ZAR888,098 ZAR56,868 ZAR741,648 ZAR56,868 EUR120,410 EUR0 US$99,840 US$3,800 US$110,020 US$3,800 Fees are benchmarked and comparable to the market fees payable to the directors’ residence. Name KR Osar (1) JD McKenzie(1) ANR Rudd MA Fallon BR Beamish NP Mageza MV Moosa B Mehlomakulu Z Malinga RJAM Renders JM Lopez JE Stipp (1) Retired from the board in December 2019. 2020 Board fees Committee fees Travel allowance US$17,635 ZAR168,613 GBP311,942 GBP45,503 GBP45,503 ZAR439,481 ZAR601,664 ZAR439,481 ZAR439,481 EUR60,733 US$68,777 US$8,920 ZAR73,225 GBP0 GBP47,718 GBP38,474 ZAR599,138 ZAR417,154 ZAR312,461 ZAR228,179 EUR56,667 US$24,863 US$7,600 ZAR0 GBP8,971 GBP8,971 GBP8,971 ZAR0 ZAR0 ZAR0 ZAR0 EUR10,374 US$11,400 Total US$34,155 ZAR241,838 GBP320,913 GBP102,192 GBP92,948 ZAR1,038,619 ZAR1,018,818 ZAR751,942 ZAR667,661 EUR127,774 US$105,040 US$68,777 US$34,788 US$11,400 US$114,965 Statement by the board regarding compliance with the remuneration policy The board annually receives a report from the Human Resources and Compensation Committee on pay practices across the group, including salary levels and trends, collective bargaining outcomes and bonus participation. The board endorses the Human Resources and Compensation Committee position that Sappi’s remuneration policy is set taking appropriate account of remuneration and employment conditions of other employees in the group and external factors. It is the view of the board that this policy as detailed herein, drives business performance and value creation for all stakeholders. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 172 173 GOVERNANCE AND COMPENSATION GOVERNANCE AND COMPENSATION Social, Ethics, Transformation and Sustainability Committee Report Introduction The Social, Ethics, Transformation and Sustainability Committee Report (SETS) Committee presents its report for the fi nancial year ended September 2021. This committee is a statutory committee with a majority of independent non- executive members, whose duties are delegated to them by the board of directors. The committee conducted its aff airs in compliance with a board approved terms of reference and discharged all its responsibilities contained therein. MV Moosa Chairman Social, Ethics, Transformation and Sustainability Committee Multi-functional regional sustainability councils provide strategic and operational support to a group sustainability council which in turn provides support to the SETS Committee in dealing with key sustainability issues. During the fi nancial year the committee formally met three times at which meetings it deliberated on all aspects relating to its terms. A 100% attendance record was achieved by board committee members for 2021. Objectives of the committee The role of the SETS Committee is to assist the board with the oversight of the company and to provide guidance to management’s work in respect of its duties in the fi elds of SETS. The committee relies on international best practice as well as the laws and regulations under which Sappi’s businesses operate to ensure that the group not only complies with, but also fully implements all requirements. The committee addresses issues relating to corporate social investment, ethical conduct, diversity, transformation and empowerment initiatives and targets and ongoing sustainability practices to ensure that our business, our environment and our people can prosper on an ongoing basis. The responsibilities include monitoring the company’s activities, having regard to any relevant legislation, other legal requirements and prevailing codes of best practice. The committee meets a minimum of three times each year. Membership of the committee The members of the SETS Committee during the 2021 fi nancial year were: • Mr MV Moosa (Chairman from 01 March 2016) • Mr SR Binnie • Dr B Mehlomakulu • Mr BR Beamish • Mr JM Lopez Four members of the committee were independent non-executive directors and one the CEO. In addition, the Chairman of the board and the Chairman of the Audit Committee attends committee meetings ex offi cio. The regional CEO, the Group Head Strategy and Legal, the Group Head Technology, the Group Head Human Resources, the Group Head Corporate Aff airs, the Executive Vice President Dissolving Wood Pulp and the Group Head Investor Relations and Sustainability attend meetings by invitation. Committee activities reviewed and actioned during the year • Reviewed and revised the committee terms of reference and annual work plan • Approved the corporate citizenship policy • Reviewed and endorsed the public aff airs and corporate citizenship programmes • Reviewed the UN SGDs most relevant to Sappi T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 174 – – • Reviewed Sappi’s standing in terms of: The principles set out in the United Global Compact Principles The OECD recommendations regarding corruption The Employment Equity Act, and The Broad-based Black Economic Empowerment (BBBEE) Act • Reviewed the Code of Ethics, ethics programme and their effectiveness • Obtained feedback from the ethics – – reporting hotlines • Reviewed the South African skills audit as well as the training and development plan • Reviewed the staff training progress • Reviewed the company performance relative to the Employment Equity Act, BBBEE Act and the company’s transformation strategies • Reviewed the Sappi Southern Africa Transformation Charter • Reviewed Sappi’s policy and standing in terms of the International Labour Organization protocol on decent work and working conditions • Reviewed the group safety programmes, safety performance and actions being taken to improve the safety performance of the group • Reviewed the group unfair discrimination and equality policy • Reviewed the group sustainability charter and environmental policy • Reviewed the material indicators of the group’s environmental performance • Reviewed regional sustainability performance against goals for 2021 • Reviewed regional and global public policy matters affecting the group and its operations • Reviewed the various production unit operating efficiencies, reliability and unscheduled downtime metrics for 2021 GOVERNANCE AND COMPENSATION • In depth review and approval of 2030 Scope 1 and Scope 2 science-based decarbonisation target and associated capital plans prior to submission to SBTi for validation • In-depth review of carbon intensity of Sappi business units and operations against peer group companies • In depth review of global energy intensity profiles, fuel sources and associated carbon emissions • Reviewed the SETS Committee report for the annual integrated report as well as sustainability information presented in the annual integrated report • Reviewed the external verification update report on selected group sustainability metrics At certain meetings, a topic is selected for an in-depth review, typically matters which in the view of the committee represent key risks or opportunities for the business. This year the focus area was on the company’s response to climate change, more specifically decarbonisation. In 2020 we committed to set a well below 2 degrees science-based 2030 decarbonisation target. In May 2021 The Scope 1 and Scope 2 emission intensity target was approved by the SETS Committee and Sappi Limited board prior to submission to SBTi for validation. In addition, a dedicated decarbonisation capital plan was developed and presented which will be continually updated to ensure that the targets are met. Conclusion The committee confirms that the group gives its SETS responsibilities the necessary attention. Appropriate policies and programmes are in place to contribute to social and economic development, ethical behaviour of staff towards colleagues and other stakeholders, fair labour practices, environmental responsibility and good customer relations. In fulfilling their mandate, the committee has sought to ensure the needs of a wide set of stakeholders, including employees, local communities, customers and shareholders are considered and that key sustainability risks are identified and managed. There were no substantive areas of non-compliance with legislation and regulation, nor non-adherence with codes of best practice applicable to the areas within the committee’s mandate that were brought to the committee’s attention. The committee has no reason to believe that any such non-compliance or non-adherence has occurred. MV Moosa Chairman Social, Ethics, Transformation and Sustainability Committee 175 A M P L I F Y In a continuous flow of energy and life, water always finds the lowest level in an incredibly efficient manner. It penetrates any crevice or path that will facilitate its downward flow, steadily meandering and descending in search of lower planes. In a similar fashion, our focus is on amplifying value creation for all our stakeholders. We do so by prioritising low-cost mills and maximising existing capacity, optimising pulp integration and targeting best overall machine efficiency levels. We also work to amplify value creation through innovation and R&D. Innovation is a way of operating that provides competitive advantages and ensures we grow, flourish and progress. R&D is focused on realising our ambitious but achievable strategy of extracting more value from each tree. Our strategy is supported by technology centres in each region which cover every section of the value chain. The landscape around us is changing rapidly. Stakeholders’ needs and expectations have shifted, in particular as regards the environment and social equity. We are responding to natural resources constraints by seeking responsible alternatives to non-renewables and solutions that are truly sustainable from seed to final product. We strictly monitor and control our use of energy, water and other raw materials and are investing in reducing our reliance on fossil fuels. In the communities where we operate, we prioritise projects that support education, entrepreneurship and environment, as well as health and welfare, while working to break the cycle of poverty through stable, safe employment. By amplifying value creation in this way, we accelerate and advance meaningful change. 176 A M P L I F Y In a continuous flow of energy and life, water always finds the lowest level in an incredibly efficient manner. It penetrates any crevice or path that will facilitate its downward flow, steadily meandering and descending in search of lower planes. In a similar fashion, our focus is on amplifying value creation for all our stakeholders. We do so by prioritising low-cost mills and maximising existing capacity, optimising pulp integration and targeting best overall machine efficiency levels. We also work to amplify value creation through innovation and R&D. Innovation is a way of operating that provides competitive advantages and ensures we grow, flourish and progress. R&D is focused on realising our ambitious but achievable strategy of extracting more value from each tree. Our strategy is supported by technology centres in each region which cover every section of the value chain. The landscape around us is changing rapidly. Stakeholders’ needs and expectations have shifted, in particular as regards the environment and social equity. We are responding to natural resources constraints by seeking responsible alternatives to non-renewables and solutions that are truly sustainable from seed to final product. We strictly monitor and control our use of energy, water and other raw materials and are investing in reducing our reliance on fossil fuels. In the communities where we operate, we prioritise projects that support education, entrepreneurship and environment, as well as health and welfare, while working to break the cycle of poverty through stable, safe employment. By amplifying value creation in this way, we accelerate and advance meaningful change. 177 APPENDICES Five year review for the year ended September 2021 US$ million 2021 2020 2019 2018 2017 Income statement Sales Variable manufacturing and delivery costs Fixed costs Sundry expenses (income)(1) Operating profit excluding special items Special items – (gains) losses Operating profit (loss) Net finance costs Profit (loss) before taxation Taxation charge Profit (loss) for the year EBITDA excluding special items Balance sheet Total assets Non-current assets Current assets Current liabilities Shareholders' equity Net debt Gross interest-bearing debt Cash Capital employed Cash flow Cash generated from operations Decrease (increase) in working capital Finance costs paid Finance income received Taxation paid Dividends paid Cash generated from operating activities Net cash generated (utilised) Cash effects of financing activities Capital expenditure (gross) To maintain operations To expand operations 5,265 3,238 1,777 47 203 57 146 134 12 (1) 13 532 6,186 4,255 1,931 1,309 1,970 1,946 2,312 (366) 3,916 472 39 (110) 8 (2) – 407 29 33 374 176 198 4,609 2,838 1,673 41 57 95 (38) 88 (126) 9 (135) 378 5,455 3,891 1,564 1,123 1,632 1,957 2,236 (279) 3,589 323 65 (108) 6 (26) – 260 (257) 138 351 126 225 5,746 3,530 1,771 43 402 19 383 85 298 87 211 687 5,623 3,789 1,834 1,214 1,948 1,501 1,894 (393) 3,449 673 (15) (51) 9 (51) (92) 473 1 56 471 148 323 5,806 3,521 1,767 38 480 (9) 489 68 421 98 323 762 5,670 3,766 1,904 1,173 1,947 1,568 1,931 (363) 3,515 709 (79) (84) 18 (73) (81) 410 (254) 68 541 167 374 5,296 3,147 1,601 22 526 - 526 80 446 108 338 785 5,247 3,378 1,869 1,043 1,747 1,322 1,872 (550) 3,069 748 (27) (96) 15 (100) (59) 481 108 (279) 357 140 217 Exchange rates 1,181 US$ per one Euro exchange rate – closing 1,106 US$ per one Euro exchange rate – average (financial year) 13,556 ZAR to one US$ exchange rate – closing ZAR to one US$ exchange rate – average (financial year) 13,381 (1) Sundry items include all income and costs not directly related to manufacturing operations such as debtor securitisation costs, commissions 1,172 1,196 14,966 14,851 1,161 1,190 14,147 13,052 1,163 1,120 17,131 16,226 1,094 1,128 15,156 14,346 paid and received and results of equity-accounted investments. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 178 APPENDICES US$ million 2021 2020 2019 2018 2017 Statistics Number of ordinary shares (millions)(1) In issue at year end Basic weighted average number of shares in issue during the year Per share information (US cents) Basic earnings (loss) Diluted earnings (loss) Headline earnings (loss) Diluted headline earnings (loss) EPS excluding special items (US cents) Net asset value Profitability ratios (%) Operating profit (loss) to sales Operating profit excluding special items to sales EBITDA excluding special items to sales Operating profit excluding special items to capital employed (ROCE) Net debt to EBITDA excluding special items Interest cover Return on average equity (ROE) Debt ratios (%) Net debt to total capitalisation Efficiency ratios Asset turnover (times) Inventory turnover ratio Liquidity ratios Current asset ratio Trade accounts receivable days outstanding (including receivables securitised) Cash interest cover (times) Other non-financial information(2) Sales volumes Number of full-time equivalent employees Lost time injury frequency rate (including contract employees) Energy Energy intensity (GJ/adt) Renewable energy to total energy(%) Water Specific process water extracted (m3/adt) Waste 561.5 546.1 542.8 539.3 535.0 549.7 545.5 542.0 538.1 533,9 2 2 5 5 15 351 2.8 3.9 10.1 5.4 3.7 5.5 0.7 (25) (25) (19) (19) (5) 299 (0.8) 1.2 8.2 1.6 5.2 4.7 (7.5) 39 39 42 42 44 359 6.7 7.0 12.0 11.0 2.2 9.3 10.0 60 59 59 58 60 361 8.4 8.3 13.1 14.6 2.1 11.0 17.5 63 62 64 63 64 327 9.9 9.9 14.8 18.0 1.7 9.1 21.6 49.7 54.5 43.5 44.6 43.1 0.9 5.6 1.5 47 4.5 0.8 6.3 1.4 44 3.7 1.0 7.0 1.5 46 7.6 1.0 6.7 1.6 45 9.3 1.0 7.0 1.8 45 8.1 7,339 12,492 0.38 6,788 12,805 0.35 7,622 12,821 0.54 7,591 12,645 0.43 7,410 12,158 0.44 22.35 52.44 23.70 53.06 22.12 51.65 22.56 50.33 22.82 52.33 34.86 37.09 34.51 34.49 34.18 Specific total landfill (tonne/adt) 0.053 0.061 0.066 0.064 0.079 Emissions Specific scope 1 emissions (ton CO2 eq/adt) Absolute Scope 1 (ton CO2e) Specific scope 2 emissions (ton CO2 eq/adt) Absolute Scope 2 (ton CO2e) 0.68 4,273,189 0.16 1,022,586 0.71 4,082,708 0.20 1,152,771 0.66 4,425,323 0.22 1,482,328 0.69 4,451,642 0.23 1,483,552 0.68 4,327,137 0.24 1,545,343 Refer to share statistics section for other market and share-related information. (1) Net of treasury shares (refer to note 19 to the group financial statements). (2) Certain energy, water, waste and emissions data for the comparative years have been restated using the latest reporting standards and measurement methodology. Note: Definitions for various terms and ratios used above are included in the glossary section. 179 APPENDICES Share statistics as at September 2021 Shareholding Ordinary shares in issue 1 – 5,000 5,001 – 10,000 10,001 – 50,000 50,001 – 100,000 100,001 - 1,000,000 Over 1,000,000 Number of shareholders 8,373 250 423 170 376 83 9,675 Number of shares(1) % of shares in issue 3,592,022 1,866,934 10,166,003 12,368,505 119,312,712 414,216,140 0.6 0.3 1.8 2.2 21.2 73.9 % 86.4 2.6 4.4 1.8 3.9 0.9 100.0 561,522,316 100.0 (1) The number of shares excludes 5,457,921 treasury shares held by the group. Shareholder spread Type of shareholder Non-public Sappi Limited directors and prescribed officers 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 Share owners interested in 10% or more of the issued shares Public (the number of public shareholders as at September 2021 was 9,663) % of shares in issue 0.5 0.5 – 0.0 – – 99.5 100.0 Sappi has a primary listing on the JSE Limited and a Level 1 ADR programme that trades in the over-the-counter market in the United States. A large number of shares are held by nominee companies for beneficial shareholders. Pursuant to section 56(7) of the Companies Act 71 of 2008 of South Africa, the directors have investigated the beneficial ownership of shares in Sappi Limited, including those which are registered in the nominee holdings. These investigations revealed as of September 2021, the following are beneficial holders of more than 5% of the issued share capital of Sappi Limited: (cid:37)e(cid:81)efici(cid:68)(cid:79)(cid:3)(cid:75)(cid:82)(cid:79)der Public Investment Corporation Alexander Forbes Investments Allan Gray Balanced Fund Shares 90,846,857 34,224,444 30,787,959 % 16.2 6.1 5.5 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 2021, the following fund managers were responsible for managing 5% or more of the share capital of Sappi Limited: Fund manager Public Investment Corporation Allan Gray Pty Limited Prudential Investment Managers Ninety One Plc Old Mutual Limited Shares 78,821,182 78,235,288 67,240,327 64,917,106 37,930,522 % 14.0 13.9 12.0 11.6 6.8 T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 180 Share statistics Ordinary shares in issue (millions)(1) Net asset value per share (US cents) Number of shares traded (millions) JSE New York Value of shares traded JSE (ZAR million) New York (US$ million) Percentage of issued shares traded Market price per share - year end - highest - lowest JSE (South African cents) New York (US cents) JSE (South African cents) New York (US cents) JSE (South African cents) New York (US cents) APPENDICES 2021 2020 2019 2018 2017 561.5 351 444.5 0.7 546.1 299 736.3 2.0 542.8 359 537.1 0.3 539.3 361 557.4 0.4 535.0 327 630.7 3.1 17,073.0 1.6 79.3 24,509.3 4.0 135.2 33,141.3 1.5 99.0 49,837.1 2.9 103.4 54,760.0 20.3 118.5 3,861 260 5,269 359 2,265 135 0.78 128.99 2,377 151 4,799 345 1,720 107 negative negative 3,629 251 9,059 640 3,542 241 16.29 6.14 8,875 639 10,579 749 7,180 613 9.56 10.46 9,206 681 10,438 797 6,953 509 9.28 10.78 3,633 Earnings yield (%)(2) Price/earnings ratio (times)(2) Total market capitalisation (US$ million)(2) (1) The number of shares excludes 5,457,921 treasury shares held by the group. (2) Based on financial year-end closing prices on the JSE Limited. Income statement amounts have been converted at average year-to-date 1,449 3,383 1,300 758 exchange rates. Note: Definitions for various terms and ratios used above are included in the Glossary section. 181 APPENDICES Glossary (cid:42)e(cid:81)er(cid:68)(cid:79)(cid:3)defi(cid:81)iti(cid:82)(cid:81)(cid:86) AGM – Annual General Meeting. AF&PA – American Forest and Paper Association. air dry tons (ADT) – Meaning dry solids content of 90% and moisture content of 10%. BCTMP – Bleached Chemi-Thermo Mechanical Pulp. biochemicals – Enzymes, hormones, pheromones etc, which either occur naturally or are manufactured to be identical to naturally occurring substances. Biochemicals have many environment-friendly applications, such as natural pesticides that work in non-lethal ways as repellents or by disrupting the mating patterns of the pests. biofuels – Organic material such as wood, waste and alcohol fuels, as well as gaseous and liquid fuels produced from these feedstocks. biomaterials – New developments in wood processing supports the move to a biobased economy that utilises materials that are renewable and biodegradable and in the case of wood feedstocks do not compete with food sources. black liquor – The spent cooking liquor from the pulping process which arises when pulpwood is cooked in a digester thereby removing lignin, and other extractives from the wood to free the cellulose fibres. The resulting black liquor is an aqueous solution of lignin residues and the inorganic chemicals used in the pulping process. Black liquor contains slightly more than half of the energy content of the wood fed into the digester. bleached pulp – Pulp that has been bleached by means of chemical additives to make it suitable for higher brightness fine paper production. casting and release paper – Embossed paper used to impart design in polyurethane or polyvinyl chloride plastic films for the production of synthetic leather and other solid textured surfaces. CEPI – Confederation of European Paper Industries. Cham Paper Group Holding AG (CPG) – Speciality paper business acquired by Sappi, which included CPG’s Carmignano and Condino Mills (Italy) and its digital imaging business located in Cham (Switzerland) as well as all brands and know-how. chemical oxygen demand (COD) – The amount of oxygen required to break down the organic compounds in effluent. chemical pulp – A generic term for pulp made from woodfibre that has been produced in a chemical process. CHP – Combined heat and power. coated mechanical paper (CM) – Coated paper made from groundwood pulp which has been produced in a mechanical process, primarily used for magazines, catalogues and advertising material. coated paper – 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. coated woodfree paper (CWF) – Coated paper made from chemical pulp which is made from woodfibre that has been produced in a chemical process, primarily used for high-end publications and advertising material. 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. CSI and CSR – Corporate social investment and corporate social responsibility. CSV – Corporate shared value involves developing profitable business strategies that deliver tangible social benefits. dissolving pulp (DP) – Highly purified chemical pulp derived primarily from wood and in some instances cotton linters, intended primarily for conversion into chemical derivatives of cellulose and used mainly in the manufacture of viscose staple fibre, solvent spin fibre and filament. DP market price - Market price for imported hardwood dissolving pulp into China issued daily by the CCF Group EIA – Environmental impact assessment. ESG – Environmental, social and corporate governance. energy – Is present in many forms such as solar, mechanical, thermal, electrical and chemical. Any source of energy can be tapped to perform work. In power plants, coal is burned and its chemical energy is converted into electrical energy. To generate steam, coal and other fossil fuels are burned, thus converting stored chemical energy into thermal energy. 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. FMCG – Fast-moving consumer goods. Examples include non-durable goods such as packaged foods, beverages, toiletries, over-the-counter medicines and many other consumables. FSA – Forestry South Africa. Forest Stewardship CouncilTM (FSCTM) – A global, not-for-profit organisation dedicated to the promotion of responsible forest management world-wide. (https://ic.fsc.org/en). full-time equivalent employee – The number of total hours worked divided by the maximum number of compensable hours in a full-time schedule as defined by law. graphic papers – A generic term for a group of papers intended for commercial printing use such as coated woodfree, coated mechanical, uncoated woodfree and newsprint. greenhouse gases (GHG) – The GHGs included in the Kyoto Protocol are carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 182 APPENDICES hemicellulose sugars – The biorefinery process for second generation hemicellulose sugars involves recovering them from the prehydolysate liquor, and then separating them mostly from lignin. high-yield pulp – Pulp that has a higher yield from wood logs than pure chemical pulps. High-yield pulp is processed either through mechanical processes or combined mechanical chemical processes such as Matane high-yield bleached chemi-thermo mechanical pulp (BCTMP). mechanical pulp – Pulp produced by means of the mechanical grinding or refining of wood or woodchips. nanocellulose – Cellulose is the main component of plant stems, leaves and roots. Traditionally, its main commercial use was in producing paper and textiles. Nanocellulose is derived from further processing cellulose to a smaller size fraction or nano scale. These engineered celluloses open up opportunities for advanced, planet- friendly solutions in place of environmentally harmful products. ISO – The International Organization for Standardization. natural/indigenous forest – Pristine areas not used commercially. JSE Limited – The main securities exchange in South Africa. kraft paper – Packaging or other 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 GHG relative to levels emitted in 1990. lignosulphonate – Lignosulphonate is a highly soluble lignin derivative and a product of the sulphite pulping process. 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. liquor – White liquor is the aqueous solution of sodium hydroxide and sodium sulphide used to extract lignin during kraft pulping. Black liquor is the resultant combination of lignin, water and chemicals. lost-time injury frequency rate (LTIFR) – Number of lost time injuries x 200,000 divided by man hours. managed forest – Naturally occurring forests that are harvested and managed commercially. NBHK – Northern Bleached Hardwood Kraft pulp. One of the varieties of market pulp, produced from hardwood trees (ie birch or aspen) in Scandinavia, Canada and northern United States of America. NBSK – Northern Bleached Softwood Kraft pulp. One of the main varieties of market pulp, produced from coniferous trees (ie spruce, pine) in Scandinavia, Canada and northern United States of America. 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. NGO – Non-governmental organisation. NPO – Non-profit organisation. OHSAS – An international health and safety standard. OTC – Over-the-counter trading of shares. Packaging and speciality papers – A generic term for a group of papers intended for commercial and industrial use such as flexible packaging, label papers, functional papers, containerboard, paperboard, silicone base papers, casting and release papers, dye sublimation papers, inkjet papers and tissue paper. packaging paper – Paper used for packaging purposes. PAMSA – Paper Manufacturers’ Association of South Africa. Programme for the Endorsement of Forest Certification (PEFC) – An international non-profit, NGO dedicated to promoting sustainable forest management (SFM) through independent third-party certification. PEFC works by endorsing national forest certification systems and is represented in 49 countries through national organisations such as SFI® in North America (https://www.pefc.org). plantation – Large scale planted forests, intensively managed, highly productive and grown primarily for wood and fibre production. PM – Paper machine. power – The rate at which energy is used or produced. pulpwood – Wood suitable for producing pulp – usually not of sufficient standard for sawmilling. raster – A rectangular pattern of parallel scanning lines followed by the electron beam on a television screen or computer monitor. release paper – Based paper used in the production of making release liners, the backing paper for self-adhesive labels. sackkraft – Kraft paper used to produce multi-wall paper sacks. Sappi Biotech – The business unit within Sappi which drives innovation and commercialisation of biomaterials and biochemicals. Sappi Europe (SEU) – The business unit within Sappi which oversees operations in the European region. Sappi Dissolving Pulp (DP) – The business unit within Sappi which oversees the production and marketing of DP. Sappi North America (SNA) – The business unit within Sappi which oversees operations in the North American region. 183 APPENDICES Glossary continued Sappi Southern Africa (SSA) – The business unit within Sappi which oversees operations in the Southern Africa region. specific total energy (STE) – The energy intensity ratio defined by the total energy consumption in the context of the saleable production. (cid:42)e(cid:81)er(cid:68)(cid:79)(cid:3)fi(cid:81)(cid:68)(cid:81)ci(cid:68)(cid:79)(cid:3) defi(cid:81)iti(cid:82)(cid:81)(cid:86) acquisition date – The date on which control in respect of subsidiaries, joint control in respect of joint arrangements and significant influence in associates commences. associate – An entity over which the investor has significant influence. basic earnings per share – Net profit for the year divided by the weighted average number of shares in issue during the year. Sustainable Forestry Initiative® (SFI®) – A solutions-oriented sustainability organisation that collaborates on forest- based conservation and community initiatives. The SFI forest management standard is the largest forestry certification standard in the PEFC programme. (https://www.forests.org). TCFD – Task Force on Climate-related Financial Disclosures. thermo-mechanical pulp – Pulp produced by processing woodfibres using heat and mechanical grinding or refining wood or woodchips. commissioning date – The date that an item of property, plant and equipment, whether acquired or constructed, is brought into use. ton – Metric ton of 1,000 kg. total suspended solids (TSS) – Refers to matter suspended or dissolved in effluent. tons per annum (tpa) – Term used in this report to denote tons per annum (tons a year). Capacity figures in this report denote tons per annum at maximum continuous run rate. uncoated woodfree paper – Printing and writing paper made from bleached chemical pulp used for general printing, photocopying and stationery, etc. Referred to as uncoated as it does not contain a layer of pigment to give it a coated surface. United Nations Global Compact (UNGC) – A principle-based framework for businesses, stating 10 principles in the areas of human rights, labour, environment and anticorruption. UN SDGs – United Nations Sustainable Development Goals. compound annual growth rate – Is the mean annual growth rate of an investment over a specified period of time longer than one year. control – An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. diluted earnings per share – Is calculated by assuming conversion or exercise of all potentially dilutive shares, share options and share awards unless these are anti-dilutive. discount rate – This is the pre-tax interest rate that reflects the current market assessment of the time value of money for the purposes of determining discounted cash flows. 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. viscose staple fibre (VSF) – A natural fibre made from purified cellulose, primarily from DP that can be twisted to form yarn. disposal date – The date on which control in respect of subsidiaries, joint arrangements and significant influence in associates ceases. woodfree paper – Paper made from chemical pulp. World Wide Fund for Nature (WWF) – The world’s largest conservation organisation, focused on supporting biological diversity. fair value – The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SBTi - The Science Based Targets initiative (SBTi) is a partnership between Carbon Disclosure Project (CDP), the United Nations Global Compact (UNGC), World Resources Institute (WRI) and the World Wide Fund for Nature (WWF). The objective of SBTi is to drive ambitious climate action in the private sector by enabling companies to set science- based GHG emissions reduction targets. SBTi provides technical assistance and expert resources to companies who set science-based targets in line with the latest climate science and provides companies with independent assessment and validation of decarbonisation targets. Scope 1 and 2 GHG emissions – The Greenhouse Gas Protocol defines Scope 1 (direct) and Scope 2 (indirect) emissions as follows: • Direct GHG emissions are emissions from sources that are owned or controlled by the reporting entity, and • Indirect GHG emissions are emissions from purchased electricity, steam, heat or cooling. SDGs – see UN SDGs. SETS – Social, ethics, transformation and sustainability. silviculture costs – Growing and tending costs of trees in forestry operations. solid waste – Dry organic and inorganic waste materials. specific – When data is expressed in specific form, this means that the actual quantity consumed during the year indicated, whether energy, water, emissions or solid waste, is expressed in terms of a production parameter. For Sappi, as with other pulp and paper companies, this parameter is air dry tons of saleable product. specific purchased energy – The term ‘specific’ indicates that the actual quantity during the year indicated, is expressed in terms of a production parameter. For Sappi, as with other pulp and paper companies, the parameter is air dry tons of product. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 184 APPENDICES 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. foreign operation – An entity whose activities are based or conducted in a country or currency other than that of the reporting entity. functional currency – The currency of the primary economic environment in which the entity operates. group – The group comprises Sappi Limited, its subsidiaries and its interest in joint ventures and associates. joint arrangement – Is an arrangement of which two or more parties have joint control. joint venture – Is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. operation – A component of the group: • That represents a separate major line of business or geographical area of operation that is distinguished separately for financial and operating purposes. operating profit – A profit from business operations before deduction of net finance costs and taxes. presentation currency – The currency in which the 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 recoverable amount of an asset or cash-generating unit is the higher of its fair value less costs of disposal and its value in use. In determining the value in use, expected future cash flows are discounted to their net 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 compensation for services rendered. significant influence – Is the power to participate in the financial and operating policy decisions of an entity but is not control or joint control of those policies. (cid:49)(cid:82)(cid:81)-(cid:42)(cid:36)(cid:36)P(cid:3)fi(cid:81)(cid:68)(cid:81)ci(cid:68)(cid:79)(cid:3) defi(cid:81)iti(cid:82)(cid:81)(cid:86) The group believes that it is useful to report certain non-GAAP measures for the following reasons: • These measures are used by the group for internal performance 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 measurements 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 International Financial Reporting Standards (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. BEE transaction implemented in 2010 in terms of BEE legislation in South Africa. 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 – 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), taxation, depreciation, amortisation and special items. EPS excluding special items – Earnings per share excluding special items and certain once-off finance and tax items. fellings – The amount charged against the income statement representing the standing value of the plantations harvested. GAAP – Generally accepted accounting principles. headline earnings – As defined in Circular 1/2019, issued by the South African Institute of Chartered Accountants in December 2019, which separates from earnings all separately identifiable remeasurements. It is not necessarily a measure of sustainable earnings. It is a Listings Requirement of the JSE Limited to disclose headline earnings per share. black economic empowerment (BEE) charge – Represents the IFRS 2 non-cash charge associated with the inventory turnover (times) – Cost of sales divided by inventory on hand at balance sheet date. 185 gains or losses on the price fair value adjustment of plantations and alternative fuel tax credits receivable in cash. 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. APPENDICES Glossary continued 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. 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 earnings per share. net cash (utilised) generated – Cash flows from operating activities less cash flows from investing activities. revolving credit facility (RCF) – A variable line of credit used by public and private businesses. net debt – Current and non-current interest-bearing borrowings and lease liabilities, and bank overdraft (net of cash, cash equivalents and short-term deposits). net debt to total capitalisation – Net debt divided by capital employed. ROCE – Return on average capital employed. Operating profit excluding special items divided by average capital employed. ROE – Return on average equity. Profit for the period divided by average shareholders’ equity. net operating assets – Total assets (excluding deferred taxation and cash and cash equivalents) less current liabilities (excluding interest-bearing borrowings, lease liabilities 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 year end. ordinary shareholders’ interest per share – Shareholders’ equity divided by the actual number of shares in issue at year end. RONOA – Return on average net operating assets. Operating profit excluding special items divided by average net operating assets. 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, non-recurring integration costs related to acquisitions, financial impacts of natural disasters, non-cash T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 186 APPENDICES 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 adviser immediately. Sappi Limited (Registration number: 1936/008963/06) JSE share code: SAP ISIN: ZAE000006284 (Sappi or the Company) Notice is hereby given to the shareholders of the Company (Shareholders) in terms of section 62(1) of the Companies Act, No. 71 of 2008 as amended (Companies Act) that the eighty fifth (85th) Annual General Meeting of the company will be held entirely through electronic communication on Wednesday, 09 February 2022 at 14:00 (South African Standard Time). This annual general meeting, and any resumption thereof pursuant to an adjournment or recommencement thereof pursuant to a postponement, is referred to hereinafter as the AGM. Record dates The record date on which shareholders must be recorded as such in the register maintained by Computershare Investor Services Proprietary Limited, the transfer secretaries of the company (transfer secretaries) in order to be entitled to receive this Notice of AGM is Friday, 03 December 2021. This Notice of AGM is sent to shareholders on Friday, 17 December 2021 and this will be announced on the Stock Exchange News Service (SENS), on the same date. The last day to trade in order to be eligible to attend and vote at the AGM is Tuesday, 01 February 2022. The record date to determine which shareholders are entitled to attend and vote at the AGM is Friday, 04 February 2022 (Attendance Record Date). Order of business A To present: i. ii. the audited consolidated annual financial statements of the company for the financial year ended September 2021, including the reports of the auditors, the directors and the Audit and Risk Committee, such annual financial statements having been approved by the board of directors of the company (board) as required by section 30(3)(c) of the Companies Act, and the report of the Social, Ethics, Transformation and Sustainability Committee in the annual integrated report (see page 174). The complete audited consolidated annual financial statements of the company for the financial year ended 2021 are available on the Sappi website: www.sappi.com. B To present the annual integrated report, containing the disclosures required as per the JSE Listings Requirements. The annual integrated report is available on the Sappi website: www.sappi.com. C To consider and, if deemed fit, pass (with or without modification) the ordinary and special resolutions set out below: 1. Ordinary resolution number 1: Re-election of the directors retiring by rotation in terms of the Sappi’s memorandum of incorporation Each of the board and the Nomination and Governance Committee has evaluated the performance of each of the following directors who are retiring by rotation and recommends and supports the re-election of each of them. For brief biographical details of these directors, refer to note 1 in Notice to Shareholders on page 194. It is intended that all the directors who retire by rotation will, if possible, attend the AGM, by means of videoconferencing. In order for these resolutions to be adopted, in each case the support of more than 50% of the voting rights exercised on the resolution by shareholders present or represented by representative or proxy at the AGM and entitled to exercise voting rights on the resolution is required: Ordinary resolution number 1.1 “Resolved that Mr SR Binnie be and is hereby re-elected as a director of Sappi.” 187 APPENDICES Notice to shareholders continued Ordinary resolution number 1.2 “Resolved that Mr JM Lopez be and is hereby re-elected as a director of Sappi.” Ordinary resolution number 1.3 “Resolved that Mr BR Beamish be and is hereby re-elected as a director of Sappi.” Ms J E Stipp will retire effective 09 February 2022 and has notified the board that she will not offer herself for re-election. Sappi thanks Ms Stipp for her invaluable contribution to the board. 2. Ordinary resolution number 2: Election of Audit and Risk Committee members Ordinary resolution number 2 is proposed to elect the members of the Audit and Risk Committee in accordance with section 94(2) of the Companies Act and the King IV Report on Corporate Governance for South Africa 2016 (King IV). Section 94 of the Companies Act requires that, at each AGM, shareholders must elect an Audit and Risk Committee comprising at least three members. The Nomination and Governance Committee has assessed the performance and independence of each of the directors proposed to be members of the Audit and Risk Committee, and recommends their election to the Audit and Risk Committee. The board considered and accepted the findings of the Nomination and Governance Committee. The board is satisfied that the proposed members meet the requirements of section 94(4) of the Companies Act, that they are independent according to King IV and that they possess the required qualifications and experience as prescribed in regulation 42 of the Companies Regulations, 2011, which requires that at least one-third of the members of a company’s Audit Committee at any particular time must have academic qualifications or experience in economics, law, corporate governance, finance, accounting, commerce, industry, public affairs or human resource management. Brief biographical details of each proposed member of the Audit and Risk Committee are included in the biographies of the directors contained under Our Leadership in the annual integrated report (see page 134). Ordinary resolution number 2.1 “Resolved that Mr NP Mageza be and is hereby elected as a member (and chairperson) of the Audit and Risk Committee.” Ordinary resolution number 2.2 “Resolved that Ms ZN Malinga be and is hereby elected as a member of the Audit and Risk Committee.” Ordinary resolution number 2.3 “Resolved that Dr B Mehlomakulu be and is hereby elected as a member of the Audit and Risk Committee.” Ordinary resolution number 2.4 “Resolved that Mr RJAM Renders be and is hereby elected as a member of the Audit and Risk Committee.” Ms JE Stipp, member of the Audit and Risk Committee has notified the board that she will not offer herself for re-election to the board and as such, will not offer herself for re-election as a member of the Audit and Risk Committee. An announcement on her replacement will be made in due course. In terms of the Companies Act, each proposed member of the Audit and Risk Committee will, if elected, hold office until the conclusion of the next AGM and perform the duties and responsibilities stipulated in section 94(7) of the Companies Act, in the JSE Listings Requirements and in King IV and such other duties and responsibilities as may from time to time be determined by the board. In order for each of the resolutions in this paragraph 2 to be adopted, the support in each case of more than 50% of the voting rights exercised on the resolution by shareholders present or represented by representative or proxy at the AGM and entitled to exercise voting rights on the resolution is required. 3. Ordinary resolution number 3: Appointment of auditors The board has evaluated the performance of KPMG Inc and recommends their re-appointment as auditors of Sappi. “Resolved that KPMG Inc (with the designated registered auditor to be Mr Coenie Basson) be and is hereby re-appointed as the auditors of Sappi for the financial year ending 2022 and remain in office until the conclusion of the next Annual General Meeting.” In order for this ordinary resolution number 3 to be adopted, the support of more than 50% of the voting rights exercised on the resolution by shareholders present or represented by representative or proxy at the AGM and entitled to exercise voting rights on the resolution is required. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 188 APPENDICES 4. Ordinary resolution number 4: Remuneration policy “Resolved that the company’s remuneration policy as contained under Remuneration Report in the annual integrated report (see page 154), be and is hereby endorsed by way of a non-binding advisory vote.” This non-binding advisory vote is being proposed in accordance with the recommendations of King IV. In order for this ordinary resolution number 4 to be adopted, the support of more than 50% of the voting rights exercised on the resolution by shareholders present or represented by representative or proxy at the AGM and entitled to exercise voting rights on the resolution is required. The endorsement of each of the remuneration policy (in this ordinary resolution number 4) and the remuneration implementation report (in ordinary resolution number 5) is tabled as a non-binding advisory vote. However, the outcome of each vote will be acknowledged when considering the remuneration policy and the implementation thereof. If either the remuneration policy or the remuneration implementation report, or both, is/are voted against by 25% or more of the voting rights exercised, the board will, as recommended by King IV and required by the JSE Listings Requirements, in its voting results announcement invite the dissenting shareholders to engage with Sappi, and state the manner and timing of such engagement. 5. Ordinary resolution number 5: Remuneration implementation report “Resolved that the company’s remuneration implementation report under Remuneration Report in the annual integrated report (see page 154), be and is hereby endorsed by way of a non-binding advisory vote.” This non-binding advisory vote is being proposed in accordance with the recommendations of King IV. In order for this ordinary resolution number 5 to be adopted, the support of more than 50% of the voting rights exercised on the resolution by shareholders present or represented by representative or proxy at the AGM and entitled to exercise voting rights on the resolution is required. 6. Special resolution number 1: Non-executive directors’ fees “Resolved that, with effect from 01 October 2021 and until otherwise determined in general meeting, the remuneration of the non-executive directors for their services shall be as follows: Fee structure 1. Sappi Board fees(cid:11)(cid:20)(cid:12) Chairperson If United Kingdom resident Lead Independent Director If South African resident If United Kingdom resident If United States of America resident If European resident Other directors If South African resident If United Kingdom resident If United States of America resident If European resident 2. Audit and Risk Committee fees(cid:11)(cid:20)(cid:12) Chairperson If South African resident If United Kingdom resident If United States of America resident If European resident Other directors If South African resident If United Kingdom resident If United States of America resident If European resident From To £319,940 £319,940(2) ZAR674,450 £70,070 US$105,820 €93,500 ZAR704,800 £71,121 US$108,466 €94,435 ZAR450,750 £46,670 US$70,540 €62,290 ZAR471,034 £47,370 US$72,304 €62,913 ZAR468,050 £47,390 US$73,060 €63,240 ZAR489,112 £48,101 US$74,887 €63,872 ZAR234,030 £23,830 US$35,680 €31,790 ZAR244,561 £24,187 US$36,572 €32,108 189 APPENDICES Notice to shareholders continued 3. Fee(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:43)(cid:88)(cid:80)(cid:68)(cid:81)(cid:3)(cid:53)e(cid:86)(cid:82)(cid:88)rce(cid:86)(cid:3)(cid:68)(cid:81)d(cid:3)C(cid:82)(cid:80)(cid:83)e(cid:81)(cid:86)(cid:68)ti(cid:82)(cid:81)(cid:3)C(cid:82)(cid:80)(cid:80)ittee(cid:15)(cid:3) Nomination and Governance Committee, Social, Ethics, Sustainability and Transformation Committee and any other c(cid:82)(cid:80)(cid:80)ittee(cid:3)(cid:11)(cid:68)d(cid:3)(cid:75)(cid:82)c(cid:3)(cid:82)r(cid:3)(cid:82)t(cid:75)er(cid:90)i(cid:86)e(cid:12)(cid:11)(cid:20)(cid:12) Chairperson If South African resident If United Kingdom resident If United States of America resident If European resident Other directors If South African resident If United Kingdom resident If United States of America resident If European resident 4. (cid:36)dditi(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:80)eeti(cid:81)(cid:74)(cid:3)(cid:73)ee(cid:86)(cid:3)(cid:73)(cid:82)r(cid:3)(cid:69)(cid:82)(cid:68)rd(cid:3)(cid:80)eeti(cid:81)(cid:74)(cid:86)(cid:3)i(cid:81)(cid:3)e(cid:91)ce(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)fi(cid:89)e(cid:3)(cid:80)eeti(cid:81)(cid:74)(cid:86) (cid:83)er(cid:3)fi(cid:81)(cid:68)(cid:81)ci(cid:68)(cid:79)(cid:3)(cid:92)e(cid:68)r(cid:3)(cid:90)(cid:75)et(cid:75)er(cid:3)(cid:68)tte(cid:81)ded(cid:3)i(cid:81)(cid:3)(cid:83)er(cid:86)(cid:82)(cid:81)(cid:3)(cid:82)r(cid:3)(cid:69)(cid:92)(cid:3)te(cid:79)ec(cid:82)(cid:81)(cid:73)ere(cid:81)ce(cid:18) videoconference If South African resident If United Kingdom resident If United States of America resident If European resident 5. Travel compensation (applicable to long-haul flights with a duration of at least 10 hours) If South African resident If United Kingdom resident If United States of America resident If European resident From To ZAR281,400 £28,160 US$41,750 €37,570 ZAR294,063 £28,582 US$42,794 €37,946 ZAR146,450 £19,730 US$25,500 €26,330 ZAR153,040 £20,026 US$26,138 €26,593 ZAR45,190 per meeting £4,630 per meeting US$7,050 per meeting ZAR47,224 per meeting £4,699 per meeting US$7,226 per meeting €6,170 per meeting €6,232 per meeting US$3,800 per meeting US$3,800 per meeting US$3,800 per meeting US$3,800 per meeting US$3,800 per meeting US$3,800 per meeting US$3,800 per meeting US$3,800 per meeting (1) Fees per financial year excluding VAT and taxes unless otherwise indicated. (2) Inclusive of all board committee fees. If a future Chairperson is not a United Kingdom resident, appropriate benchmark information in relation to his/her domicile will be used to determine fees payable. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 190 APPENDICES Sappi’s practice, as advised previously, is to review directors’ fees annually. Special resolution number 1 increases the remuneration currently paid to non-executive directors and board committee members by between approximately 1.0% and 4.6% per annum depending generally on the domicile of the directors and the currency in which they are paid, with effect from 01 October 2021. A bespoke benchmarking exercise in relation to the fees was carried out this year. The  conclusion was that the fees are at the appropriate and market-related levels. The recommendation is that Sappi adjust all fees by the relevant consumer price index in the respective directors’ country of domicile for the 2022 financial year. As for the Chairperson’s fee, no adjustment is proposed. The review also takes into account that the responsibility of non-executive directors continues to increase substantially flowing from legislative, regulatory and corporate governance developments and requirements in South Africa and elsewhere. Non-executive directors’ fees are paid quarterly (in March, June, September, and December each year) and the proposed increase, if approved, will be applicable to payments to be made in December 2021 onwards. Initially the December 2021 payment will be made on the basis of the existing fee structure, and following shareholder approval of the proposed increases, the shortfall in the December 2021 payment will be made up in the March 2022 payment. The practice has been and will continue to be that directors’ fees and board committee fees are paid to non-executive directors only. In order for this special resolution number 1 to be adopted, the support of at least 75% of the voting rights exercised on the resolution by shareholders present or represented by representative or proxy at the AGM and entitled to exercise voting rights on the resolution is required. 7. Special resolution number 2: Loans or other financial assistance to related or inter-related companies The Companies Act provides that the board of directors of a company may authorise that company to provide direct or indirect financial assistance (which includes, without limitation, lending money, guaranteeing a loan or other obligation and securing any debt or obligation) to a related or inter-related company, provided that such authorisation shall be made pursuant to a special resolution of the shareholders adopted within the previous two years, which approved such assistance either for the specific recipient or generally for a category of potential recipients and the specific recipient falls within that category. The board of directors of a company can only approve financial assistance if it is satisfied that: (i) immediately after providing the financial assistance, the company would satisfy the solvency and liquidity test contained in the Companies Act, and (ii) the terms under which the financial assistance is proposed to be given are fair and reasonable to the company. “Resolved that the board be and is hereby authorised, in accordance with the Companies Act, to authorise the company to provide direct or indirect financial assistance which the board may deem fit to any company (wheresoever incorporated or registered) which is from time to time related or inter-related to the company, on such terms and conditions and in such amounts as the board may determine.” In order for this special resolution number 2 to be adopted, the support of at least 75% of the voting rights exercised on the resolution by shareholders present or represented by representative or proxy at the AGM and entitled to exercise voting rights on the resolution is required. 8. Ordinary resolution number 6: Signature of documents “Resolved that any director and Group Company Secretary of Sappi (each being entitled to act individually) is authorised to sign all such documents and do all such things as may be necessary or reasonably desirable for or incidental to the implementation of the resolutions passed at this AGM.” In order for this ordinary resolution number 6 to be adopted, the support of more than 50% of the voting rights exercised on the resolution by shareholders present or represented by representative or proxy at the AGM and entitled to exercise voting rights on the resolution is required. 191 APPENDICES Notice to shareholders continued D. Other matters: To transact such other business as may be transacted at an AGM. Identification (cid:44)(cid:81)(cid:3)ter(cid:80)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)ecti(cid:82)(cid:81)(cid:3)(cid:25)(cid:22)(cid:11)(cid:20)(cid:12)(cid:3)(cid:82)(cid:73)(cid:3)t(cid:75)e(cid:3)C(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)ie(cid:86)(cid:3)(cid:36)ct(cid:15)(cid:3)(cid:69)e(cid:73)(cid:82)re(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:83)er(cid:86)(cid:82)(cid:81)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:83)(cid:68)rtici(cid:83)(cid:68)te(cid:3)i(cid:81)(cid:3)t(cid:75)e(cid:3)(cid:36)(cid:42)(cid:48)(cid:15)(cid:3)t(cid:75)(cid:68)t(cid:3)(cid:83)er(cid:86)(cid:82)(cid:81)(cid:3)(cid:80)(cid:88)(cid:86)t(cid:3) (cid:83)re(cid:86)e(cid:81)t(cid:3)re(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)e(cid:3)(cid:86)(cid:68)ti(cid:86)(cid:73)(cid:68)ct(cid:82)r(cid:92)(cid:3)ide(cid:81)tific(cid:68)ti(cid:82)(cid:81)(cid:3)t(cid:82)(cid:3)t(cid:75)e(cid:3)c(cid:75)(cid:68)ir(cid:83)er(cid:86)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)t(cid:75)e(cid:3)(cid:80)eeti(cid:81)(cid:74)(cid:15)(cid:3)(cid:90)(cid:75)(cid:82)(cid:3)(cid:80)(cid:88)(cid:86)t(cid:3)(cid:69)e(cid:3)re(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:92)(cid:3)(cid:86)(cid:68)ti(cid:86)fied(cid:3)t(cid:75)(cid:68)t(cid:3) such person has the right to listen in to, participate in, and vote in, the meeting, either as a shareholder or as a re(cid:83)re(cid:86)e(cid:81)t(cid:68)ti(cid:89)e(cid:3)(cid:82)r(cid:3)(cid:83)r(cid:82)(cid:91)(cid:92)(cid:3)(cid:73)(cid:82)r(cid:3)(cid:68)(cid:3)(cid:86)(cid:75)(cid:68)re(cid:75)(cid:82)(cid:79)der(cid:17)(cid:3)(cid:36)cce(cid:83)t(cid:68)(cid:69)(cid:79)e(cid:3)(cid:73)(cid:82)r(cid:80)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)ide(cid:81)tific(cid:68)ti(cid:82)(cid:81)(cid:3)i(cid:81)c(cid:79)(cid:88)de(cid:3)(cid:68)(cid:3)(cid:89)(cid:68)(cid:79)id(cid:3)ide(cid:81)tit(cid:92)(cid:3)d(cid:82)c(cid:88)(cid:80)e(cid:81)t(cid:15)(cid:3) passport or driver’s license. Certificated shareholders and own-name dematerialised shareholders Shareholders who are recorded as such in the register maintained by the transfer secretaries on the attendance record date (qualifying shareholders) and who: • hold Sappi shares in certificated form, or • have dematerialised their shares (ie have replaced the paper share certificates with electronic records of ownership under JSE’s electronic settlement system) and are recorded in the sub-register in own name dematerialised form (ie shareholders who have specifically instructed their Central Securities Depositary Participant (CSDP) or broker to hold their shares in their own name on Sappi’s sub-register), are entitled to: – – participate in, speak at, and/or vote at, the AGM, or appoint one or more proxies to participate in, speak at, and/or vote at, the AGM in their stead. A proxy need not be a shareholder. The form of proxy is enclosed. It is requested, for administrative reasons, that forms of proxy be emailed, posted or delivered to the transfer secretaries at the following addresses to be received by no later than (cid:20)(cid:23)(cid:29)(cid:19)(cid:19)(cid:3)(cid:11)(cid:54)(cid:82)(cid:88)t(cid:75)(cid:3)(cid:36)(cid:73)ric(cid:68)(cid:81)(cid:3)(cid:54)t(cid:68)(cid:81)d(cid:68)rd(cid:3)(cid:55)i(cid:80)e(cid:12)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:82)(cid:81)d(cid:68)(cid:92)(cid:15)(cid:3)(cid:19)(cid:26)(cid:3)Fe(cid:69)r(cid:88)(cid:68)r(cid:92)(cid:3)(cid:21)(cid:19)(cid:21)(cid:21). (cid:43)(cid:68)(cid:81)d(cid:3)de(cid:79)i(cid:89)erie(cid:86)(cid:3)t(cid:82)(cid:29) Computershare Investor Services Proprietary Limited Rosebank Towers, 15 Biermann Avenue, Rosebank Johannesburg, 2196 South Africa Postal deliveries to: Computershare Investor Services Proprietary Limited Private Bag X9000, Saxonwold, Johannesburg, 2132, South Africa Email deliveries to: proxy@computershare.co.za If a certificated shareholder or own-name dematerialised shareholder does not email, post or deliver forms of proxy to the transfer secretaries so as to be received by that time, such shareholder will nevertheless be entitled to email the form of proxy to the transfer secretaries at proxy@computershare.co.za to be received prior to the commencement of the AGM. Beneficial owners of dematerialised shares Beneficial owners of Sappi shares who have dematerialised their Sappi shares and who are not registered as own name dematerialised shareholders and who: • wish to participate in, speak at, and/or vote at, or wish their representatives to participate in, speak at, and/or vote at, the AGM (electronically) must instruct their CSDPs or brokers to provide them or their representatives with a letter of representation to enable them or their representatives to participate in, speak at, and/or vote at, such meeting or • do not wish to participate in, speak at, and vote at, the AGM, should provide their CSDPs or brokers with their voting instructions in terms of the relevant custody agreement between them and their CSDPs or brokers. Such a beneficial owner must not complete the attached form of proxy. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 192 – – – – APPENDICES Electronic participation in the AGM The company intends to make provision for shareholders, or their representatives or proxies, to participate in, speak at, and/or vote at, the AGM by way of electronic communication as provided for in terms of Sappi’s Memorandum of Incorporation and section 63(2) of the Companies Act. In this regard, qualifying shareholders or their representatives or proxies may participate in, speak at, and/or vote at, the AGM by way of an interactive electronic platform and, if they wish to do so, should note the following: • the company will offer a qualifying shareholder (or its representative or proxy) reasonable access through electronic facilities and a virtual meeting platform to participate in the AGM • a qualifying shareholder (or its representative or proxy) will, if (and only if) the qualifying shareholder requests that access be granted to it (or its representative or proxy) to do so, be able to: – – participate in the AGM through electronic facilities vote during the AGM through a virtual meeting platform. • a qualifying shareholder (or its representative or proxy) is invited to request such access by: sending an email (a participation request) to the transfer secretaries at proxy@computershare.co.za or registering at www.smartagm.co.za. Following receipt of a participation request, the transfer secretaries will email the relevant contact link and logon details to the qualifying shareholder concerned (or its representative or proxy) to enable it (or its representative or proxy) to participate in, speak at, and/or vote at, the AGM (a connection details notice). • the participation request must specify: the name of the qualifying shareholder (and, if applicable, of the representative or proxy) an email address at which the qualifying shareholder (and, if applicable, the representative or proxy) can be contacted. • reasonably satisfactory identification (and a letter of representation or a duly completed form of proxy, if applicable) must be attached to a participation request. It is requested, for administrative reasons, that a participation request, complying with the above requirements, be emailed to the transfer secretaries at proxy@computershare.co.za, to be received by no later than (cid:20)(cid:23)(cid:29)(cid:19)(cid:19)(cid:3)(cid:11)(cid:54)(cid:82)(cid:88)t(cid:75)(cid:3)(cid:36)(cid:73)ric(cid:68)(cid:81)(cid:3)(cid:54)t(cid:68)(cid:81)d(cid:68)rd(cid:3) Time) on Monday, 07 February 2022. If a qualifying shareholder does not email a participation request complying with the above requirement to reach the transfer secretaries by that time, that qualifying shareholder (or its representative or proxy) will nevertheless be entitled to email a participation request complying with the above requirements to the transfer secretaries at proxy@computershare.co.za, to be received prior to the commencement of the AGM. Qualifying shareholders (and their representatives or proxies) should nevertheless be aware that if they send a participation request near to the time of commencement of the AGM, there is a risk, and they accept the risk, that: (i) the participation request will not reach the transfer secretaries prior to the commencement of the AGM; (ii) the transfer secretaries will not have sufficient time to send the connection details notice prior to the commencement of the AGM; or (iii) the connection details notice will not reach the qualifying shareholder (or representative or proxy) prior to the commencement of the AGM. In relation to a participation request complying with the above requirements received by the transfer secretaries from a qualifying shareholder (or its representative or proxy): • by (cid:20)(cid:23)(cid:29)(cid:19)(cid:19)(cid:3)(cid:11)(cid:54)(cid:82)(cid:88)t(cid:75)(cid:3)(cid:36)(cid:73)ric(cid:68)(cid:81)(cid:3)(cid:54)t(cid:68)(cid:81)d(cid:68)rd(cid:3)(cid:55)i(cid:80)e(cid:12)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:82)(cid:81)d(cid:68)(cid:92)(cid:15)(cid:3)(cid:19)(cid:26)(cid:3)Fe(cid:69)r(cid:88)(cid:68)r(cid:92)(cid:3)(cid:21)(cid:19)(cid:21)(cid:21), the transfer secretaries will use reasonable endeavours to email the connection details notice by no later than (cid:20)(cid:26)(cid:29)(cid:19)(cid:19)(cid:3)(cid:11)(cid:54)(cid:82)(cid:88)t(cid:75)(cid:3)(cid:36)(cid:73)ric(cid:68)(cid:81)(cid:3)(cid:54)t(cid:68)(cid:81)d(cid:68)rd(cid:3)(cid:55)i(cid:80)e(cid:12)(cid:3)(cid:82)(cid:81)(cid:3)(cid:55)(cid:88)e(cid:86)d(cid:68)(cid:92)(cid:15)(cid:3) (cid:19)(cid:27)(cid:123)Fe(cid:69)r(cid:88)(cid:68)r(cid:92)(cid:3)(cid:21)(cid:19)(cid:21)(cid:21) or • after (cid:20)(cid:23)(cid:29)(cid:19)(cid:19)(cid:3)(cid:11)(cid:54)(cid:82)(cid:88)t(cid:75)(cid:3)(cid:36)(cid:73)ric(cid:68)(cid:81)(cid:3)(cid:54)t(cid:68)(cid:81)d(cid:68)rd(cid:3)(cid:55)i(cid:80)e(cid:12)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:82)(cid:81)d(cid:68)(cid:92)(cid:15)(cid:3)(cid:19)(cid:26)(cid:3)Fe(cid:69)r(cid:88)(cid:68)r(cid:92)(cid:3)(cid:21)(cid:19)(cid:21)(cid:21) but prior to the commencement of the AGM, the transfer secretaries will use reasonable endeavours to email the connection details notice as soon as reasonably practicable after receipt of the participation request. For information purposes only, a guide for electronic shareholders meetings will be available on the company’s website (cid:11)www.sappi.com) and can also be obtained from the transfer secretaries. Should you have any further questions on electronic participation, please send an email to proxy@computershare.co.za. Sappi will make the electronic facilities and platform available at no cost to the user. However, any third-party costs relating to the use of, or access to, the electronic facilities and platform will be for the user’s account. 193 APPENDICES Notice to shareholders continued Sappi does not accept responsibility, and will not be held liable, under any applicable law or otherwise, for: • any action of, or omission by, the transfer secretaries or • any loss arising in any way from the use of the electronic facilities or platform including, without limitation, any malfunctioning or other failure of the facilities or platform, or any failure of any email to reach, or delay in any email reaching, its intended destination. Questions The board encourages shareholders to participate and to ask questions at the AGM. In order to facilitate efficient responses to questions at the meeting, shareholders can ask questions in advance by submitting their questions in writing to the Group Company Secretary so as to be received by (cid:20)(cid:26)(cid:29)(cid:19)(cid:19)(cid:3)(cid:11)(cid:54)(cid:82)(cid:88)t(cid:75)(cid:3)(cid:36)(cid:73)ric(cid:68)(cid:81)(cid:3)(cid:54)t(cid:68)(cid:81)d(cid:68)rd(cid:3)(cid:55)i(cid:80)e(cid:12)(cid:3)(cid:82)(cid:81)(cid:3)Frid(cid:68)(cid:92)(cid:15)(cid:3)(cid:21)(cid:27)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)r(cid:92)(cid:3)(cid:21)(cid:19)(cid:21)(cid:21) at: 108 Oxford Road Houghton Estate Johannesburg, 2198 South Africa or PO Box 52264 Saxonwold, 2132 South Africa or By email to ami.mahendranath@sappi.com By order of the board Secretaries: per A Mahendranath Group Company Secretary Sappi Southern Africa Limited 108 Oxford Road Houghton Estate Johannesburg, 2198 South Africa 17 December 2021 T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 194 APPENDICES Notes 1. Directors retiring by rotation who are seeking re-election Stephen Robert Binnie (Steve) (54) (Chief Executive Officer (CEO)) (cid:52)(cid:88)(cid:68)(cid:79)ific(cid:68)ti(cid:82)(cid:81)(cid:86)(cid:29) BCom, BAcc, CA(SA), MBA Nationality: British Appointed: September 2012 Sappi board committee memberships • Social, Ethics, Transformation and Sustainability Committee • Attends meetings of all other board committees by invitation Skills, expertise and experience Mr Binnie was appointed CEO of Sappi in July 2014. He joined Sappi in July 2012 as CFO designate and was appointed CFO and Executive Director from 01 September 2012. Before joining Sappi, he held various senior finance roles and was previously CFO of Edcon for 10 years after having been in a senior finance role at Investec Bank Limited for four years. James Michael Lopez (Jim) (62) (Independent) (cid:52)(cid:88)(cid:68)(cid:79)ific(cid:68)ti(cid:82)(cid:81)(cid:86)(cid:29) BA (Economics) Nationality: American Appointed: March 2019 Sappi board committee memberships Social, Ethics, Transformation and Sustainability Committee Skills, expertise and experience Mr Lopez is the former President and CEO of Tembec Inc (2006 to 2017) having progressed through management, senior management and executive positions in Tembec since 1989. In 2017, Mr Lopez successfully negotiated the sale of Tembec Inc, a manufacturer of lumber, pulp, paper/paperboard and speciality cellulose and a global leader in sustainable forest management practices. Mr Lopez previously served as Co-Chairperson of the Bi-National Softwood Lumber Council. Previous Chairmanships included the Softwood Lumber Board, Forest products Innovation, Ontario Forest Products Association and Forest Products Association of Canada. Brian Richard Beamish (Brian) (64) (Independent) (cid:52)(cid:88)(cid:68)(cid:79)ific(cid:68)ti(cid:82)(cid:81)(cid:86)(cid:29) BSc (Mech Eng): HBS PMD Nationality: British and South African Appointed: March 2019 Sappi board committee memberships • Social, Ethics, Transformation and Sustainability Committee • Human Resources and Compensation Committee Other board and organisation memberships • Nordgold (Member of the Audit and Risk Committee and Remuneration Committee, as well as Chairperson of the Safety and Sustainable Development Committee) Skills, expertise and experience: Mr Beamish is a qualified mechanical engineer with over 40 years of relevant management, business and leadership experience in capital-intensive industries. He was appointed to the Lonmin board in 2013 and served as Chairperson from May 2014 until June 2019 when the corporate action with Sibanye Stillwater concluded. He also served as Chair of the Nomination Committee and as a member of the Remuneration and Safety, Health and Environment Committees. His senior executive career was spent within Anglo American, where his final role until retirement was Group Director Mining and Technology, before which he was the CEO of the Base Metals division. 195 APPENDICES Shareholders’ diary Annual General Meeting First quarter results released Second quarter and half-year results released Third quarter results released Financial year end Preliminary fourth quarter and year results Annual integrated report posted to shareholders and posted on website 09 February 2022 February 2022 May 2022 August 2022 September 2022 November 2022 December 2022 T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 196 APPENDICES Proxy form for the Annual General Meeting Sappi Limited (Registration number: 1936/008963/06) JSE share code: SAP ISIN: ZAE000006284 (Sappi or the Company) For use only by shareholders who: • hold shares in certificated form, or • hold dematerialised shares (ie where the paper share certificates have been replaced with electronic records of ownership under the JSE’s electronic settlement system and are recorded in Sappi's sub register with own name registration (ie shareholders who have specifically instructed their Central Securities Depository Participant (CSDP) or broker to record the holding of their shares in their own name in Sappi's sub register). If you are unable to attend the eighty-fifth (85th) annual general meeting of the Company to be held at (cid:20)(cid:23)(cid:29)(cid:19)(cid:19)(cid:3)(cid:11)(cid:54)(cid:82)(cid:88)t(cid:75)(cid:3)(cid:36)(cid:73)ric(cid:68)(cid:81)(cid:3) Standard Time). on Wednesday, 09 February 2022 through electronic communication, you should complete and return this form of proxy. The Annual General Meeting, and any resumption thereof pursuant to an adjournment or recommencement thereof pursuant to a postponement, is referred to hereinafter as the AGM. It is requested, for administrative reasons, that this form of proxy be sent to Computershare Investor Services Proprietary Limited, the transfer secretaries of the company (transfer secretaries) by email, post or physical delivery, to the addresses set out later on in the form of proxy, to be received by no later than (cid:20)(cid:23)(cid:29)(cid:19)(cid:19)(cid:3)(cid:11)(cid:54)(cid:82)(cid:88)t(cid:75)(cid:3)(cid:36)(cid:73)ric(cid:68)(cid:81)(cid:3)(cid:54)t(cid:68)(cid:81)d(cid:68)rd(cid:3)(cid:55)i(cid:80)e(cid:12)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:82)(cid:81)d(cid:68)(cid:92)(cid:15)(cid:3)(cid:19)(cid:26)(cid:3)Fe(cid:69)r(cid:88)(cid:68)r(cid:92)(cid:3)(cid:21)(cid:19)(cid:21)(cid:21). If a certificated shareholder or own-name dematerialised shareholder does not email, post or deliver forms of proxy to the transfer secretaries to be received by that time, such shareholder will nevertheless be entitled to email, post or deliver the form of proxy to the transfer secretaries to be received prior to the commencement of the AGM. Beneficial owners of Sappi shares who have dematerialised their Sappi shares and who are not registered as own name dematerialised shareholders and who wish to: • attend the AGM (electronically) must instruct their CSDPs or brokers to provide them with a letter of representation to enable them to attend such meeting, or • vote at, but not to attend, the AGM, must provide their CSDPs or brokers with their voting instructions in terms of the relevant custody agreement between them and their CSDPs or brokers. (cid:54)(cid:88)c(cid:75)(cid:3)(cid:69)e(cid:81)efici(cid:68)(cid:79)(cid:3)(cid:82)(cid:90)(cid:81)er(cid:86)(cid:3)(cid:80)(cid:88)(cid:86)t(cid:3)(cid:81)(cid:82)t(cid:3)c(cid:82)(cid:80)(cid:83)(cid:79)ete(cid:3)t(cid:75)i(cid:86)(cid:3)(cid:73)(cid:82)r(cid:80)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)r(cid:82)(cid:91)(cid:92)(cid:17) I/We (please print names in full) of (address) Telephone/Cellphone number: Email address: being a shareholder(s) of Sappi holding Sappi shares and entitled to vote at the AGM, hereby appoint or failing him/her or failing him/her or failing him/her, the chairperson of the meeting as my/our proxy to attend, speak and vote for me/us on the resolutions to be proposed (with or without modification) at the AGM, as follows: Number of shares For Against Abstain Ordinary resolution number 1 – Re election of the directors retiring by rotation in terms of Sappi’s Memorandum of Incorporation Ordinary resolution number 1.1 – Re-election of Mr SR Binnie as a director of Sappi Ordinary resolution number 1.2 – Re-election of Mr JM Lopez as a director of Sappi Ordinary resolution number 1.3 – Re-election of Mr BR Beamish as a director of Sappi Ordinary resolution number 2 – Election of Audit and Risk Committee members Ordinary resolution number 2.1 – Election of Mr NP Mageza as member and chairperson of the Audit and Risk Committee Ordinary resolution number 2.2 – Election of Ms ZN Malinga as a member of the Audit and Risk Committee Ordinary resolution number 2.3 – Election of Dr B Mehlomakulu as a member of the Audit and Risk Committee Ordinary resolution number 2.4 – Election of Mr RJAM Renders as a member of the Audit and Risk Committee 197 APPENDICES Proxy form continued Number of shares Against Abstain For Ordinary resolution number 3 – Re-appointment of KPMG Inc as auditors of Sappi for the year ending 2022 and until the conclusion of the next Annual General Meeting of Sappi Ordinary resolution number 4 – Non-binding endorsement of remuneration policy Ordinary resolution number 5 – Non-binding endorsement of remuneration implementation report Special resolution number 1 – Non-executive directors’ fees Special resolution number 2 – Loans or other financial assistance to related or inter-related companies Ordinary resolution number 6 – Authority for directors and Group Company Secretary to sign all documents and do all such things necessary to or reasonably desirable for or incidental to the implementation of the above resolutions 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 Signature this day of Assisted by me, where applicable (name and signature) Please read the notes and instructions on the following pages. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 198 APPENDICES Notes to the form of proxy 1. This form of proxy is only to be completed by certificated shareholders and own-name dematerialised shareholders. 2. A shareholder may insert the name of a proxy or the names of two alternative proxies of the shareholder’s choice in the space provided, provided that, in the case of concurrent proxies, this form of proxy clearly states the order in which the concurrent proxies votes are to take precedence in the event that both or all of the concurrent proxies are present, and vote, at the AGM. If such order is not set out and the chairperson is permitted to, and does, waive such non-compliance, then the person whose name stands first on this form of proxy and who is present at the AGM will be entitled to act to the exclusion of those whose names follow. 3. A shareholder may appoint more than one proxy to exercise voting rights attached to different shares held by the shareholder. 4. On a show of hands, every shareholder present or represented by proxy or by representative shall have only one vote irrespective of the number of shares such shareholder holds. On a poll, every shareholder present or represented by proxy or by representative shall be entitled to cast one vote per share held. 5. A shareholder’s instructions to the proxy must be indicated by inserting the relevant numbers of votes exercisable by the proxy in the appropriate box or by inserting X should the shareholder wish to vote all shares held by it. Failure to comply will be deemed to authorise the proxy to vote or to abstain from voting, as the case may be, in respect of all the shareholder’s votes, in such manner as the proxy decides. A shareholder or the proxy is not obliged to exercise all the votes exercisable by the shareholder or by the proxy, but the total of votes cast and in respect of which abstention is recorded may not exceed the total of votes exercisable by the shareholder or by the proxy. 6. Forms of proxy must be dated and signed by the shareholder appointing a proxy. 7. It is requested, for administrative reasons, that this form of proxy be sent to the transfer secretaries, in accordance with the details provided below, so as to reach the transfer secretaries by no later than (cid:20)(cid:23)(cid:29)(cid:19)(cid:19)(cid:3)(cid:11)(cid:54)(cid:82)(cid:88)t(cid:75)(cid:3)(cid:36)(cid:73)ric(cid:68)(cid:81)(cid:3)(cid:54)t(cid:68)(cid:81)d(cid:68)rd(cid:3)(cid:55)i(cid:80)e(cid:12)(cid:3)(cid:82)(cid:81)(cid:3) Monday, 07 February 2022: (cid:43)(cid:68)(cid:81)d(cid:3)de(cid:79)i(cid:89)erie(cid:86)(cid:3)t(cid:82)(cid:29) Computershare Investor Services Proprietary Limited Rosebank Towers, 15 Biermann Avenue, Rosebank Johannesburg, 2196 South Africa Postal deliveries to: Computershare Investor Services Proprietary Limited Private Bag X9000, Saxonwold, Johannesburg, 2132, South Africa Email deliveries to: proxy@computershare.co.za If a certificated shareholder or own-name dematerialised shareholder does not email, post or deliver forms of proxy to the transfer secretaries to be received by that time, such shareholder will nevertheless be entitled to email, post or deliver the form of proxy to the transfer secretaries to be received prior to the commencement of the AGM. 8. Completing and lodging this form of proxy will not preclude the relevant shareholder from attending the AGM and speaking and voting in person to the exclusion of any proxy appointed in terms hereof. 9. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity or other legal capacity must be attached to this form of proxy, unless previously recorded by the transfer secretaries or waived by the chairperson of the AGM. 10. The completion of blank spaces need not be initialled. Any alteration or correction made to this form of proxy must be initialled by the signatory/ies. 11. If any shares are jointly held, all joint shareholders must sign this form of proxy. If more than one of those shareholders is present at the AGM either in person or by proxy, the person whose name appears first in the securities register will be entitled to vote to the exclusion of the others. 199 APPENDICES Notes to the form of proxy continued 12. Despite the aforegoing, the chairperson of the AGM may waive any formalities that would otherwise be a prerequisite for a valid form of proxy. Transfer secretaries’ offices South Africa Computershare Investor Services Proprietary Limited (Registration number: 2004/003647/07) Rosebank Towers, 15 Biermann Avenue, Rosebank Johannesburg, 2196, South Africa (Private Bag X9000, Saxonwold, 2132, South Africa) Tel: +27 11 370 5000 Email: proxy@computershare.co.za (cid:54)(cid:88)(cid:80)(cid:80)(cid:68)r(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)ter(cid:80)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)ecti(cid:82)(cid:81)(cid:3)(cid:24)(cid:27)(cid:11)(cid:27)(cid:12)(cid:11)(cid:69)(cid:12)(cid:11)i(cid:12)(cid:3)(cid:82)(cid:73)(cid:3)t(cid:75)e(cid:3)(cid:54)(cid:82)(cid:88)t(cid:75)(cid:3)(cid:36)(cid:73)ric(cid:68)(cid:81)(cid:3)C(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)ie(cid:86)(cid:3)(cid:36)ct(cid:15)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:80)e(cid:81)ded Section 58(8)(b)(i) provides that the form of proxy supplied by a company for the purpose of appointing a proxy must bear a reasonably prominent summary of the rights established by section 58 of the Companies Act, 2008, as amended, which summary is set out below: • A shareholder of a company may, at any time, appoint any individual, including an individual who is not a shareholder of that company, as a proxy to, among other things, participate in, and speak and vote at, a shareholders meeting on behalf of the shareholder. • A shareholder may appoint two or more persons concurrently as proxies; provided that Sappi’s Memorandum of Incorporation requires that the instrument appointing the concurrent proxies clearly states the order in which the concurrent proxies votes are to take precedence in the event that both or all of the concurrent proxies are present, and vote, at the relevant meeting. • A shareholder may appoint more than one proxy to exercise voting rights attached to different securities held by the shareholder. • A proxy may delegate the proxy’s authority to act on behalf of the shareholder to another person. Note however that Sappi’s Memorandum of Incorporation prohibits such delegation. • A proxy appointment must be in writing, and dated and signed by the shareholder, and remains valid only until the meeting (including any resumption thereof pursuant to an adjournment or recommencement thereof pursuant to a postponement) ends, unless the proxy appointment is revoked, in which case the proxy appointment will be cancelled with effect from such revocation. • A shareholder may revoke a proxy appointment in writing. • A proxy appointment is suspended at any time and to the extent that the shareholder chooses to act directly and in person in the exercise of any rights as a shareholder. • A proxy is entitled to exercise, or abstain from exercising, any voting right of the shareholder without direction, except to the extent the form of proxy provides otherwise. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 200 APPENDICES Administration Investor relations Tracy Wessels Group Head Investor Relations and Sustainability Tel +27 (0)11 407 8391 Tracy.Wessels@sappi.com (cid:45)(cid:54)E(cid:3)(cid:54)(cid:83)(cid:82)(cid:81)(cid:86)(cid:82)r UBS South Africa Proprietary Limited 144 Oxford Road 8th Floor South Wing Melrose Johannesburg 2196 PO Box 522194 Saxonwold Rosebank 2196 Tel +27 (0)11 322 7000 Fax +27 (0)11 784 8280 United States ADR depositary BNY Mellon Shareowner Services PO Box 505000 Louisville, KY 40233-5000 United States of America 462 South 4th Street Suite 1600 Louisville, KY 40202 United States of America shrrelations@cpushareownerservices.com www.mybnymdr.com Sappi Limited Registration number: 1936/008963/06 JSE code: SAP ISIN code: ZAE 000006284 Group Company Secretary Ami Mahendranath Secretaries Sappi Southern Africa Limited 108 Oxford Road Houghton Estate Johannesburg, 2198 South Africa PO Box 52264 Saxonwold, 2132 South Africa Tel +27 (0)11 407 8464 Ami.Mahendranath@sappi.com www.sappi.com Transfer secretaries Computershare Investor Services Proprietary Limited Rosebank Towers 15 Biermann Avenue Rosebank, 2196 South Africa Private Bag X9000 Saxonwold, 2132 South Africa Tel +27 (0)11 370 5000 Fax +27 (0)11 688 5238 proxy@computershare.co.za www.computershare.com C(cid:82)r(cid:83)(cid:82)r(cid:68)te(cid:3)(cid:68)(cid:428)(cid:68)ir(cid:86) André Oberholzer Group Head Corporate Affairs Tel +27 (0)11 407 8044 Andre.Oberholzer@sappi.com 201 APPENDICES Forward-looking statements Certain statements in this release 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. The words “believe”, “anticipate”, “expect”, “intend”, “estimate”, “plan”, “assume”, “positioned”, “will”, “may”, “should”, “risk” and other similar expressions, which are predictions of or indicate future events and future trends and which do not relate to historical matters, may be used to identify forward-looking statements. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are in some cases beyond our control and may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements (and from past results, performance or achievements). Certain factors that may cause such differences include but are not limited to: • the highly cyclical nature of the pulp and paper industry (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); • the Covid-19 pandemic • the impact on our business of adverse changes in global economic conditions • unanticipated production disruptions (including as a result of planned or unexpected power outages) • changes in environmental, tax and other laws and regulations • adverse changes in the markets for our products • the emergence of new technologies and changes in consumer trends including increased preferences for digital media • consequences of our leverage, including as a result of adverse changes in credit markets that affect our ability to raise capital when needed • adverse changes in the political situation and economy in the countries in which we operate or the effect of governmental efforts to address present or future economic or social problems • the impact of restructurings, investments, acquisitions, dispositions and other strategic initiatives (including related financing), any delays, unexpected costs or other problems experienced in connection with dispositions or with integrating acquisitions or implementing restructuring and other strategic initiatives and achieving expected savings and synergies, and • currency fluctuations. We undertake 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. T R O P E R D E T A R G E T N I L A U N N A 1 2 0 2 i p p a S 202 www.www.

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