Lizards are estimated to have been around for 240 million years. Little wonder, given that they make use of a variety of antipredator adaptations, including venom, camouflage, reflex bleeding and the ability to sacrifice and regrow their tails. What’s more, as with other reptiles, the skin of lizards is covered in overlapping scales made of keratin, providing protection from the environment and reducing water loss through evaporation. This characteristic enables them to thrive in some of the driest deserts on earth.
Vigour, strength and adaptability have ensured lizards’ ability to thrive over the course of time.
So, too, at Sappi, our commitment to growing our business and maintaining a healthy balance sheet, has sustained us for almost 90 years. We are vigorous in our commitment to deliver on our Thrive strategy, including by reducing exposure to graphic paper markets while investing for growth in our target markets and capitalising on our leadership position in pulp supply to the lyocell market.
Very little in nature is static – everything is constantly changing and evolving. One miraculous example of this is the metamorphosis of the egg, the caterpillar (larva) and the chrysalis (pupa) into the adult butterfly. This process embodies fresh ideas, renewal and unexpected outcomes.
The caterpillar’s new form as a butterfly opens new horizons, but also new risks, particularly in the form of climate change. Butterflies are particularly sensitive to environmental changes like climatic shifts. That is because they are strictly adapted to certain environmental conditions and their development depends on certain larval food plants and specific microhabitat structures.
In Sappi’s case, climate change presents both risks and opportunities. We are addressing short- and long-term physical and transitional climate risks identified through processes outlined by the Task Force on Climate-related Financial Disclosures (TCFD) to build resilience. In addition, we are determined, as a socially responsible business, to play our part in ensuring a just transition in South Africa as the country faces the reality of reducing its dependence on coal.
We are also determined to accelerate our science-based decarbonisation trajectory which we see as an opportunity to future-proof our business. So too, are the opportunities presented by evolving customer needs and legislation – notably growing demand for sustainable packaging, based on low-carbon impact, together with demand for more sustainable textile fibres.
We cannot achieve our vision of a thriving world without an evolving response to climate change. By collaborating with a broad range of stakeholders we are working to achieve energy security and climate resilience and transform our vision into reality.
Beauty and confidence. Pride and upright posture. These attributes have meant that many cultures over the ages have associated peacocks with royalty and power.
This image is appropriate to Sappi because we too, can stand tall with pride when we consider our past achievements and drive to create not just enterprise value, but value for our people and for communities.
We have achieved enterprise value through our ability to be nimble and optimise profitability in ever-changing markets, reshaping our products and processes to create value and growth for our own business and our customers. We continue to offer our customers a broad range of solutions based on the power of renewable resources that enable them to achieve their sustainability goals and contribute to the low-carbon, circular economy. In doing so, we have continued to focus on treading more lightly on the Planet.
Creating value for our people and communities is underpinned by the structures and programmes we have established which facilitate open, authentic communication, by our ongoing investment in training, development and transformative community programmes, as well as by our collaborative partnerships focused on workable solutions to industry challenges.
Our commitment to delivering sustainable value to our stakeholders is based on our focus on living our values at all times: At Sappi we do business safely with integrity and courage, making smart decisions which we execute with speed.
Hermit crabs are shapeshifters, moulting as they grow, continually shedding their exoskeletons and growing new ones. As their exoskeletons are fragile, they need shells for protection. Rather than produce their own shell, as they grow, they use shells abandoned by other marine creatures. This process is not a one-off, but continues throughout their lifespan, depending on water temperature, habitat and species.
Many species will enhance their chances of survival by encouraging anemones to attach to their shell, as the latter’s stinging tentacles may deter predators. The crabs even transfer the anemones from shell to shell when they move house.
We can draw parallels with Sappi, fortified as we are by our iterative Thrive strategy and by our agility in responding to changes in our operating context to emerge stronger and better positioned for growth. This process is underpinned by ongoing engagement with our stakeholders, whose input helps us shape our response to our environment as we collaborate to build a thriving world.
Bubbles are things of fragility, wonder – and balance. That’s because the inward surface tension forces of the water film are exactly balanced by the outward-pushing pressure of the air inside.
Blowing more air in to make a bigger bubble means more air pressure inside and also means the bubble must get thinner in the process, because there is only so much water to go around. Should one keep blowing more air in, the film eventually won’t have enough reserve water to spread out into a bigger surface, and the ultimate catastrophe occurs: the bubble bursts.
The success of Sappi’s business is also based on balance. This includes continuous capital prioritisation as we look to reduce costs and grow the business while sustaining a healthy balance sheet. It involves reshaping our product portfolio to meet changing market needs and taking advantage of growth opportunities while being mindful of the risks. It means balancing the needs of people and communities with our responsibility to our shareholders.
As we move forward into the future, we know we can rely on the expertise and passion of our people and the ongoing cooperation of our stakeholders to maintain this balance and drive sustainable value creation.
Some mushrooms are bioluminescent, due to luciferins, the same compounds that make fireflies light up at night. This ability is used to attract insects which then spread the mushroom spores elsewhere in the forest, allowing the fungi to reproduce.
But that’s not where connection ends. Beneath every forest and wood lies a complex network of roots and fungi that connects trees and plants to one another. This network – sometimes called the Wood Wide Web – is almost 500 million years old and is vital for most plants on earth. Trees and plants obtain nutrients that the fungi acquire from the soil, such as nitrogen and phosphorus by means of enzymes that the trees do not possess. In return, the fungi receive carbon-rich sugar from the roots of the trees.
This symbiotic relationship enables all connected organisms to thrive.
Similarly, at Sappi our connection with our stakeholders shapes our work to build a thriving world. This connection enables us to meet the changing needs of every employee at Sappi and to offer our partners the renewable innovation they need to be successful. By understanding and connecting with community needs, we drive positive social impact, playing a role beyond making and selling.
Like mushrooms, our business is a living organism – growing, adapting and evolving in a continually shifting context. As we shape our response to this context, we prioritise value creation for all stakeholders.
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.
Over the years, we have implemented several processes, resources and structures to ensure our risks are managed adequately and efficiently. Among these, we have entrenched safety programmes, internal audit reviews, insurance, information technology (IT) security, compliance 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 TCFD.

| For an analysis of the principal financial risks we are exposed to, refer to note 32 of the 2023 Sappi Group Annual Financial Statements at www.sappi.com/annual-reports | |
| Our 2023 Risk Management Report provides a detailed discussion of the group's risk factors, and can be accessed at www.sappi.com/annual-reports |
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, eg return on investment.
Top 10 risks
Residual risk ranking
1
Safety2
Cyclical macroeconomic factors3
Cyber security4
Sustainability expectations5
Climate change6
Evolving technologies and consumer preferences7
Supply chain disruption8
Uncertain and evolving regulatory landscape9
Employee relations10
Liquidity
Root cause
Due to the nature of our manufacturing facilities and forestry operations, our employees and contractors operate in a hazardous environment. We continue to prioritise their health and safety to ensure the continuity of our business.
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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 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.
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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.
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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.
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Root cause
Climate change will have an unavoidable effect on our business in the form of transitional, reputational and physical impacts. The latter includes 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.
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.
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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.
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Root cause
We depend on a reliable and efficient supply chain to procure raw materials from suppliers and 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. 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. 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.
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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.
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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.
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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, which could result in a decline in global demand for our products.
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