Sappi's Thrive strategy, anchored in our four strategic pillars – drive operational excellence, enhance trust, grow the business, and sustain our financial health – continues to serve as our guiding framework. Between 2021 and 2025, our focus was on growth, underpinned by investments to expand our packaging and speciality papers and DWP businesses. These included the expansion of the Saiccor Mill for DWP, the investment at Gratkorn Mill PM9 to produce label papers, and the conversion and expansion of Somerset Mill PM2 to paperboard. The Gratkorn and Somerset Mills projects have also reduced our exposure to the declining graphic papers markets.

Having completed these key growth investments, our strategic focus is now shifting to what we refer to as a 'Back to Basics' phase. This next stage emphasises driving operational excellence which focuses on improving production efficiencies, ramping up Somerset Mill PM2, and achieving cost savings across our operations. We continue to optimise capacity utilisation in Europe and expect to realise the benefits of our recent rationalisation initiatives during 2026.

In parallel, we are maintaining a disciplined approach to capital allocation. There are no expansionary capital expenditure projects planned for at least the next two years. With debt levels having increased amid a challenging global macroeconomic environment and weak market conditions, our sustain our financial health pillar has become even more critical. We are prioritising cash generation and debt reduction, supported by targeted fixed and variable cost savings, reduced capital expenditure and the suspension of dividends. Strengthening our balance sheet is essential to enhancing Sappi's financial resilience and ensuring we are well-positioned to navigate the current market challenges and capture future opportunities.

Our number one capital allocation priority is to de-lever the balance sheet. In the short term, our focus is on actively managing both our short-and long-term debt facilities and optimising our maturity profile to ensure maximum financial flexibility. As previously communicated, we will be renegotiating our revolving credit facility in early 2026, and we plan to extend the terms of approximately US$200 million to US$300 million of short-term debt to further strengthen our financial position. We have longstanding, trusted relationships with our banking group and have successfully secured additional leverage covenant headroom for the next 12 months, providing the flexibility we need as we navigate 2026 amid continued global macroeconomic headwinds.

We have set a target net debt level below US$1 billion, which serves as the key guardrail guiding all capital allocation decisions. Consistent with our 'Back to Basics' strategic focus, every effort is directed towards maximising cash generation and reducing debt. Our overarching goal remains to enhance shareholder value. Once our leverage is within the targeted range, we will reassess our capital returns strategy, including the potential reinstatement of dividends and consideration of share buybacks as key levers to reward our shareholders.

The investment in the Somerset Mill Paper Machine 2 (PM2) represents the culmination of our strategic capital investment phase spanning 2021 to 2025 and is an important milestone under our Thrive growth pillar. The Somerset Mill project is particularly significant as it simultaneously substantially expands our solid bleached sulphite (SBS) paperboard capacity whilst reducing our exposure to the structurally declining graphic papers market; positioning Sappi for long-term success in a higher-growth, more resilient product segment.

The Somerset Mill project was completed in May 2025, and we are currently ramping up production on the new machine. Technical qualifications with our customers are progressing well, with excellent market feedback received on product quality and performance. We are approaching the commercial ramp-up with a disciplined and strategic focus, mindful that our new capacity is entering the market at a time when the US paperboard sector is experiencing weak conditions. While demand has been softer than initially anticipated when the project was approved in 2022, which has placed downward pressure on pricing, we are making solid progress in securing new customers and building long-term relationships. Additionally, recent tariffs on imports present an important opportunity for us to strengthen our competitive position as a reliable domestic supplier, particularly against the approximately 500,000 tpa of imported folding boxboard currently serving the US market.

Despite these near-term headwinds, we remain confident in our strategic direction and value proposition. As an independent, domestic supplier to the SBS market, we have a differentiated position. Somerset Mill now hosts two of the best paperboard machines in the US, featuring state-of-the-art technology and scale efficiencies that provide us with a strong competitive advantage. We believe that the US market will continue to grow over the long term, and this investment underscores our confidence in the region as a core growth platform for Sappi.

In the short term, we are optimising our production flexibility by leveraging the hybrid capability of our Somerset Mill PM1 machine to produce graphic papers, which helps buffer the commercial ramp-up of PM2. We will continue to manage the trade-off between volume and pricing in a disciplined and responsible manner, ensuring we protect value as markets recover.

Looking ahead, as we transition from a period of significant capital investment into the next strategic phase focused on 'Back to Basics', our priority will be on realising the full value of this investment, maximising cash generation, and delivering sustainable returns to our shareholders.

Global external factors have had a notable impact on Sappi's performance during 2025, largely through indirect channels rather than direct exposure. The re-emergence of global trade tensions and, in particular, the introduction of new US tariffs created heightened uncertainty in international markets. While the direct impact of these tariffs on Sappi's operations has not been material, the broader macroeconomic consequences have affected our business environment. The resulting global slowdown and more cautious consumer spending patterns have softened demand across all our product segments.

Our DWP business has been particularly impacted. Uncertainty in global trade, especially around Chinese import and export activity, has affected sentiment across the textile value chain. Since DWP pricing in China serves as the reference point for much of the global market, this volatility has exerted downward pressure on prices and sentiment throughout the sector.

In addition, shifts in global trade flows have led to the redirection of graphic papers and packaging and speciality papers supply chains, adding further pressure in our local markets. As a cyclical sector, pulp and paper naturally experience demand fluctuations, but these additional external trade-related dynamics have exacerbated the current downturn. Most of our markets are currently in a state of oversupply, driven by both excess global capacity and weak downstream demand.

Currency movements have also added to the challenges. Traditionally, cyclical downturns coincide with a stronger US Dollar, but in this instance, the Dollar has weakened significantly. This has placed additional pressure on the profitability of our South African operations, given the translation effects and export exposure.

In response, our focus remains firmly on the levers within our control. We continue to drive operational efficiency, reduce costs, and manage capacity utilisation across our assets to ensure resilience. Our strong South African and US operations position us well to benefit when market conditions improve. In Europe, our focus remains on proactive capacity management, maximising cash generation and ensuring we continue to meet the evolving needs of our customers despite the challenging environment.

Sustainability is deeply embedded in our values and at the core of our value proposition as a woodfibre-based company producing biobased products for a more circular economy. Our actions are guided by our 4Ps framework – Principles, Prosperity, People, and Planet – which ensures that sustainability considerations are integrated into every aspect of our decision-making and operations. We have recently set new targets through to 2030 that encompass all 4Ps, broadening our ambition in key areas such as gender equality, social impact in South Africa, water stewardship, and biodiversity protection.

Sustainability is important to us and to all of our stakeholders, and it is fully integrated into our Thrive pillar to enhance trust. Our commitment and ambition remain unwavering, but we recognise that sustainability is a journey of continuous progress, requiring balance, discipline, and long-term focus as we work towards our goals. While progress in areas such as environmental impact often demands capital investment, these investments must be both value-enhancing and aligned with our financial guardrails. In line with our 'Back to Basics' focus, we do not plan to undertake large-scale sustainability capital projects in the short term. However, we expect that our emphasis on operational efficiency will deliver meaningful improvements in our performance against our Planet-related targets. We remain committed to continuous improvement, recognising that true long-term success depends on advancing our People and Planet priorities in a responsible and balanced manner – underpinned by our Principles – that ultimately supports Prosperity for all our stakeholders.