SAPPI LIMITED - Sappi and UPM propose combining their European graphic paper businesses to form a 50/50 Joint Venture

Sappi and UPM propose combining their European graphic paper businesses to form a 50/50 Joint Venture

Sappi Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1936/008963/06)
JSE share code: SAP
ISIN: ZAE000006284
("Sappi" or the "Company")

SAPPI AND UPM PROPOSE COMBINING THEIR EUROPEAN GRAPHIC PAPER BUSINESSES TO
FORM A 50/50 JOINT VENTURE


1. INTRODUCTION

   1.1. Sappi Limited ("Sappi") and UPM-Kymmene Corporation ("UPM") ("the Parties") have signed
        a non-binding Letter of Intent ("LOI") in relation to the possible formation of a joint venture for
        graphic paper ("the Joint Venture") in Europe subject to the fulfilment of a number of regulatory
        and other conditions precedent ("the Transaction" or "the Proposed Transaction"). The Joint
        Venture will include the European graphic paper business of Sappi and the UPM
        Communications Paper Business in Europe, the UK and the USA. UPM is listed on the
        Nasdaq Helsinki stock exchange. The Joint Venture will be owned 50/50 by Sappi and UPM
        and will be operated initially as a non-listed independent company.

   1.2. The intent of the Parties is to combine their respective graphic paper businesses (described in
        more detail below) into a jointly owned newly established company. As is customary in
        transactions of this nature, extensive third-party engagements including shareholders,
        regulators, employee representatives and various other stakeholder approvals and consents
        are required.

   1.3. The Parties intend signing definitive agreements during the first half of 2026 and expect to
        close the Proposed Transaction by the end of 2026, once all the conditions precedent have
        been fulfilled.

   1.4. The Proposed Transaction represents a significant step forward in Sappi's Thrive strategy and
        will substantially reduce the Sappi group's direct exposure to graphic paper markets while
        unlocking the value of the European graphic paper assets and contributing towards debt
        reduction.


2. RATIONALE FOR THE CREATION OF THE JOINT VENTURE

   2.1. Demand for graphic paper has been in structural decline for decades. Despite substantial
        capacity reductions in recent years, industry utilisation rates remain unsustainably low. In
        addition, recent trade tensions and tariffs have further disrupted traditional trade flows, leading
        to increased volumes of Asian exports of graphic paper into Europe.

   2.2. The European graphic paper industry is facing growing pressure due to the falling demand,
        high energy costs, excess production capacity and broader economic challenges. To remain
        competitive and sustainable in the long term, consolidation is needed. Consolidation will
        contribute to a more robust and resilient European graphic paper industry, safeguarding
        security of domestic supply for the printing sector.

   2.3. The key benefits of the consolidation of Sappi and UPM's graphic paper assets are as follows:

        2.3.1. By strategically reallocating production volumes to the most efficient paper machines, the
               Joint Venture will achieve more sustainable capacity utilisation and stronger operational
               performance, while continuing to serve customers with a broad portfolio of European
               graphic paper products.

        2.3.2. The operational synergies created through the Joint Venture (which are anticipated to be
               at least €100 million per annum) provide a pathway to realise greater value from the
               combined asset base, delivering enhanced profitability and stronger cash flow generation,
               to the benefit of all stakeholders including shareholders.

        2.3.3. By optimising capacity utilisation, enhancing operational efficiencies and continuing to
               invest in decarbonisation, the Joint Venture can reduce its overall climate impact, helping
               to advance the EU's Clean Industrial Deal objectives.


3. RATIONALE OF THE TRANSACTION FOR SAPPI AND ITS SHAREHOLDERS

   3.1. The proposed Joint Venture is deemed to be the best option to maximise value extraction from
        the graphic paper assets of Sappi Europe. The Joint Venture will streamline operations and
        create opportunities for greater efficiency and cost savings than Sappi could achieve on its
        own, thereby helping to build a stronger future for the European graphic paper business.
        Furthermore, it allows for Sappi to meet its key strategic priorities of reducing direct exposure
        to graphic paper markets and significantly reducing debt and strengthening the balance sheet,
        thereby maximising shareholder value.

   3.2. The key benefits of the Proposed Transaction for Sappi and its shareholders are as follows:

        3.2.1.  Sappi's share of the equity accounted income in the Joint Venture is anticipated to exceed
                the earnings before interest (net finance cost), taxes, depreciation, and amortization
                excluding special items ("EBITDA") of the standalone Sappi European graphic paper
                business.

        3.2.2.  Sappi's Thrive strategy aims to progressively reduce exposure to declining graphic paper
                markets and repositioning the portfolio toward higher-growth, higher-value segments. Post
                the Transaction, Sappi's direct sales volume exposure to the graphic paper segment will
                decrease to below 20%.

        3.2.3.  The cash consideration of €139 million that Sappi will receive on closing of the Transaction
                will enable Sappi to significantly reduce debt in the medium term. Furthermore, cash
                dividends from the Joint Venture will contribute to debt reduction over time.

   3.3. The establishment of the Joint Venture will create a sustainable standalone business that
        ultimately will provide divestment flexibility in the future for Sappi.

   3.4. The Joint Venture will be self-financing and to the extent that it requires additional funding in
        time, it shall be without any recourse to the Parties.


4. DESCRIPTION OF THE ASSETS TO BE CONTRIBUTED TO THE JOINT VENTURE

   4.1. The Proposed Transaction will be structured to enable the Parties to respectively contribute
        the assets detailed below to the newly formed Joint Venture with Sappi and UPM as founding
        shareholders and each holding 50% of the issued shares.

        4.1.1.  Sappi will contribute the following assets:

                1.   Gratkorn Mill (Austria);
                2.   Ehingen Mill (Germany);
                3.   Maastricht Mill (The Netherlands);
                4.   Kirkniemi Mill (Finland); and
                5.   Sappi Europe's wood supply joint ventures.

        4.1.2.  UPM will contribute their Communication Papers business assets which are located at
                the following UPM mills:

                1.   Augsburg (Germany);
                2.   Schongau (Germany);
                3.   Nordland paper lines 1 and 4 (Germany);
                4.   Caledonian (United Kingdom);
                5.   Rauma including UPM RaumaCell (Finland);
                6.   Kymi (Finland);
                7.   Jämsänkoski paper line 6 (Finland); and
                8.   Blandin (United States of America).

   4.2. Both Sappi and UPM will provide relevant operational and administrative support to the Joint
        Venture during the integration period to ensure it will operate optimally.


5. TRANSACTION CONSIDERATION AND USE OF PROCEEDS FOR SAPPI

   5.1. In terms of the Proposed Transaction, Sappi and UPM will contribute their respective
        businesses and assets detailed above to a newly formed Joint Venture with a combined
        enterprise value of €1,420 million, excluding the value of the expected synergy benefits.

   5.2. The Sappi business is valued at €320 million, which is based on an FY2025 EBITDA of €64
        million and represents a 5x multiple. Sappi will transfer pension and other liabilities of €53
        million and net assets valued at €267 million to the Joint Venture. In return Sappi will receive
        cash of €139 million and 50% shareholding in the Joint Venture.

   5.3. The UPM business is valued at €1,100 million, which represents a 4.6x multiple of the last
        reported 12 months to September 2025 EBITDA. UPM will transfer pension and other liabilities
        of €360 million and net assets of €740 million to the Joint Venture. In return UPM will receive
        cash of €613 million and 50% shareholding in the Joint Venture.

   5.4. The Joint Venture will distribute cash dividends to its two shareholders according to its financial
        performance and standing.

   5.5. At closing of the Transaction, the Joint Venture will raise debt to fund the purchase prices
        payable to Sappi and UPM respectively. The Joint Venture will target a Net Debt / EBITDA
        ratio of approximately 2.5x at inception.

   5.6. The cash proceeds that Sappi receives from the proposed Transaction will be allocated to
        reducing debt and general business expenses.

   5.7. Negotiations regarding the details of the Joint Venture and definitive agreements are ongoing,
        and the Parties expect the Transaction to close by the end of 2026 subject to fulfilment of the
        conditions precedent.


6. FINANCIAL INFORMATION

   6.1. The book value of the Sappi net assets that are to be contributed to the Joint Venture and
        which are the subject of the Transaction, are valued at approximately €680 million as at 30
        September 2025, being the date of the last annual financial statements of Sappi Limited. The
        net assets Sappi is contributing to the Joint Venture generated a net loss after tax of
        approximately €83 million for the year ended 30 September 2025, which included restructuring
        and impairment charges incurred during the year. Shareholders should note that the book
        value and loss after tax values are unaudited and based on management accounts and carve-
        out calculations made with material assumptions, specifically for the purposes of the
        Transaction disclosure requirements. Sappi is satisfied with the quality of those management
        accounts.

   6.2. The book value of the UPM net assets that are to be contributed to the Joint Venture and which
        are the subject of the Transaction, are valued at approximately €488 million as at 30 June
        2025, being the date of UPM's half-year financial results. The net assets UPM is contributing
        to the Joint Venture generated a net profit after tax of approximately €199 million for the last
        twelve months to June 2025. Shareholders should note that the book value and profit after tax
        values are unaudited and based on management accounts and carve-out calculations made
        with material assumptions, specifically for the purposes of the Transaction disclosure
        requirements. Sappi is satisfied with the quality of those management accounts.

   6.3. The pro forma financial effects of the Transaction will be set out in the Circular referred to in
        paragraph 8 below.


7. CLASSIFICATION OF THE PROPOSED TRANSACTION

   7.1. The value of the Proposed Transaction exceeds 30% of Sappi's market capitalisation as at the
        date of the signature of the LOI and therefore meets the definition of a Category 1 Transaction
        as contemplated in Section 9 of the JSE Limited Listings Requirements.

   7.2. As a result, the Proposed Transaction is required to be approved by an ordinary resolution of
        the shareholders of the Company and accordingly a general meeting of Sappi shareholders
        will be convened for this purpose in due course.


8. CIRCULAR TO SAPPI SHAREHOLDERS

   8.1. A circular containing the full details of the Proposed Transaction, incorporating a notice
        convening a general meeting of Sappi shareholders ("the Circular") will be distributed to
        shareholders in due course, at which time the salient dates and time of the Transaction, will
        be announced on SENS.


9. CONDITIONS PRECEDENT APPLICABLE TO SAPPI

   9.1. The Parties intend to sign definitive agreements during the first half of 2026 which will include
        all relevant agreements to give effect to the Transaction. The Proposed Transaction will be
        subject to the fulfilment or waiver, of various conditions precedent including the following:

        1.   the approval of the Circular by the JSE Limited;
        2.   the approval of the Transaction by Sappi shareholders in a general meeting;
        3.   securing bank financing;
        4.   signing of the definitive agreements;
        5.   the approval of various relevant Competition and Regulatory Authorities;
        6.   the approval by the South African Reserve Bank; and
        7.   the applicable notification, negotiation, consultation and approvals (such as works councils
             and other financial and regulatory authorities) in all impacted countries.


10. WEBCAST FOR INTERESTED PARTIES

    Sappi's CEO Steve Binnie will host a webcast and conference call to discuss the Transaction at
    4pm (South African Standard Time) on Thursday 04 December 2025. Registration is via the
    Investors page on Sappi's website https://www.sappi.com/investors/next-event


Rosebank
4 December 2025

South African Corporate Advisor/Sponsor and Corporate Broker
RAND MERCHANT BANK (a division of FirstRand Bank Limited)

Date: 04-12-2025 11:45:00
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