SAPPI LIMITED - ANNUAL FINANCIAL STATEMENTS FOR THE YEAR

SAPPI LIMITED: ANNUAL FINANCIAL STATEMENTS FOR THE YEAR-ENDED 30 SEPTEMBER 1998
THE PRELIMINARY STATEMENT OF THE AUDITED RESULTS OF SAPPI LIMITED WAS RELEASED
ON 30 NOVEMBER, 1998.

RELEASED HEREWITH ARE THE FULL AUDITED FINANCIAL STATEMENTS OF SAPPI LIMITED
FOR THE YEAR ENDED 30 SEPTEMBER 1998, WHICH WILL BE INCLUDED IN THE COMPANY'S
FORTHCOMING ANNUAL REPORT. THIS INFORMATION IS BEING RELEASED AHEAD OF THE
ANNUAL REPORT BECAUSE ELEMENTS OF IT WILL BE INCLUDED IN A LISTINGS PARTICULARS
DOCUMENT WHICH WILL BE FILED WITH THE LONDON STOCK EXCHANGE ON FRIDAY, 18
DECEMBER 1998. THIS FILING IS IN CONNECTION WITH THE LISTING OF ADDITIONAL
SHARES ON THE LONDON STOCK EXCHANGE WHICH SHARES WERE ALL LISTED ON THE
JOHANNESBURG STOCK EXCHANGE DURING THE LAST TWELVE MONTHS.

THE COMPANY HAS HAD A SECONDARY LISTING IN LONDON SINCE 1992.
DIRECTORS' REPORT

YOUR DIRECTORS HAVE PLEASURE IN SUBMITTING THEIR REPORT FOR THE YEAR ENDED 30
SEPTEMBER 1998.
BUSINESS OF THE GROUP

IN APRIL 1998, THE GROUP CHANGED THE MANAGEMENT STRUCTURE OF ITS BUSINESS FROM
ONE BASED ON REGIONS TO ONE BASED ON PRODUCT. THE GROUP NOW CONDUCTS ITS
BUSINESS THROUGH THREE OPERATING DIVISIONS, VIZ.
- SAPPI FINE PAPER PLC
- SAPPI FOREST PRODUCTS, AND
- SAPPI TRADING

SAPPI FINE PAPER PLC WHOSE HEAD OFFICE IS IN LONDON, CONDUCTS THE GROUPS FINE
PAPER BUSINESS WORLD-WIDE THROUGH SAPPI FINE PAPER EUROPE, SAPPI FINE PAPER
NORTH AMERICA AND SAPPI FINE PAPER SOUTH AFRICA WHOSE OPERATIONS ARE BASED IN
THE COUNTRIES INDICATED.

SAPPI FOREST PRODUCTS CONDUCTS THE GROUP'S COMMODITIES BUSINESS IN SOUTH AFRICA
THROUGH SIX WHOLLY OWNED MANAGEMENT COMPANIES. IT ALSO MANAGES THE SAPPI FINE
PAPER SOUTH AFRICA BUSINESS ON BEHALF OF SAPPI FINE PAPER PLC AND THE USUTU
PULP COMPANY LIMITED IN SWAZILAND IN WHICH THE GROUP HAS A 69% INTEREST.
SAPPI TRADING CONTINUES TO BE THE GROUP'S INTERNATIONAL MARKETING ARM, MAINLY
FOR THE SALE OF PRODUCT OF SAPPI FOREST PRODUCTS FROM SOUTH AFRICA, AND HAS ITS
HEAD OFFICE IN HONG KONG.
REPORTING PERIOD

THE GROUP'S FINANCIAL PERIOD ENDS ON THE WEDNESDAY CLOSEST TO THE YEAR END DATE
AND RESULTS ARE REPORTED AS IF AT THE YEAR END DATE.
GENERALLY ACCEPTED ACCOUNTING PRACTICE (GAAP)

AS A SOUTH AFRICAN COMPANY SAPPI'S FINANCIAL REPORTING IS BASED ON SOUTH
AFRICAN GAAP. THE BOARD HAS CONSIDERED THE APPLICATION OF ALTERNATIVE

ACCOUNTING STANDARDS, BUT HAS ELECTED TO RETAIN THE STANDARDS IN USE IN VIEW OF
THE CONTINUING IMPORTANCE OF ITS SOUTH AFRICAN SHAREHOLDERS AND THE TRADING IN
SAPPI SHARES WHICH TAKES PLACE ON THE JOHANNESBURG STOCK EXCHANGE.

IN ADDITION SAPPI WILL RECONCILE ITS REPORTING ANNUALLY WITH U.S. GAAP AND WILL
INCORPORATE THIS RECONCILIATION IN ITS ANNUAL 20-F SUBMISSION TO THE SECURITIES
AND EXCHANGE COMMISSION IN THE UNITED STATES.

THESE FINANCIAL STATEMENTS HAVE ACCORDINGLY BEEN PREPARED IN ACCORDANCE WITH
THE STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING PRACTICE APPROVED BY THE SOUTH
AFRICAN ACCOUNTING PRACTICES BOARD. IN CASES WHERE THERE IS NO RELEVANT SOUTH
AFRICAN GAAP, THE ACCOUNTING STANDARDS APPLICABLE TO THE RELEVANT FOREIGN
SUBSIDIARY'S JURISDICTION HAVE BEEN OBSERVED.
ACQUISITIONS
KNP LEYKAM

IN NOVEMBER 1997 SHAREHOLDERS APPROVED THE PURCHASE OF 91,5% OF THE SHARES OF
KNP LEYKAM, EUROPE'S LEADING PRODUCER OF COATED WOODFREE PAPER. THE TRANSACTION
WAS COMPLETED ON 31 DECEMBER 1997.

THE PURCHASE CONSIDERATION FOR THE ACQUISITION AMOUNTED TO APPROXIMATELY NLG1.5
BILLION (R3.7 BILLION *). IN ADDITION, SAPPI ASSUMED NET INDEBTEDNESS RELATED
TO KNP LEYKAM OF APPROXIMATELY NLG1.11 BILLION (R2,6 BILLION *).

THE PURCHASE CONSIDERATION WAS SETTLED THROUGH THE ISSUE OF 44 600 423 NEW
ORDINARY SHARES OF R1,00 EACH AT A PREMIUM OF R42.85 PER SHARE AND THROUGH THE
ISSUE OF ZERO COUPON NOTES GUARANTEED BY SAPPI, WITH A PAR VALUE OF NLG 739
MILLION (R1,8 BILLION*). THE NOTES MATURE ON 31 DECEMBER 1999.
* = EXCHANGE RATE USED WAS R 2.4325 : NLG 1
IDC'S SAICCOR INVESTMENT

IN MAY 1993 THE INDUSTRIAL DEVELOPMENT CORPORATION (IDC) FINANCED PART OF THE
SAICCOR EXPANSION PROJECT AT UMKOMAAS BY MAKING AN EQUITY INVESTMENT IN
SAICCOR. SAPPI LIMITED UNDERTOOK TO PURCHASE THE IDC'S INVESTMENT AFTER 5 YEARS
AND TO PAY USING SAPPI LIMITED SHARES OR CASH, SUBJECT TO THE IDC'S OPTION TO
LIMIT THE CASH PORTION TO 50%.

THE VALUE WAS FIXED, IN TERMS OF THE AGREEMENT, ON 5 MAY 1998 AT R1 005,7
MILLION OF WHICH R502.8 MILLION WAS PAID IN CASH AND THE BALANCE BY THE ISSUE
OF 19 804 620 SHARES OF R1,00 EACH TO THE IDC AT A PREMIUM OF R24.39 PER SHARE.
THE SHARE PRICE OF R25.39 PER SHARE WAS THE AVERAGE CLOSING PRICE OVER THE
PRECEDING 60 TRADING DAYS.
DISPOSALS

DURING THE YEAR THE GROUP DISPOSED OF ITS PRESSURE SENSITIVE BUSINESS IN THE
UNITED STATES AND PLANT IN SOUTHERN AFRICA. SUBSEQUENT TO THE YEAR END THE SALE
OF THE TIMBERLANDS IN MAINE, USA WAS COMPLETED. THE SELLING PRICE FOR THE
TIMBERLANDS WAS $180 MILLION. THE RECURRING LOSS OF INCOME FROM THE TIMBERLANDS
WILL BE FULLY RECOVERED THROUGH INTEREST SAVINGS.
SHARE CAPITAL

IN NOVEMBER 1997 A SPECIAL RESOLUTION WAS PASSED AND REGISTERED TO INCREASE THE
AUTHORISED SHARE CAPITAL FROM R225 MILLION TO R325 MILLION BY THE CREATION OF A
FURTHER 100 MILLION ORDINARY SHARES OF R1 EACH.

DURING THE YEAR THE FOLLOWING SHARE ISSUES WERE MADE:

* 44 600 423 SHARES OF R1.00 EACH AT A PREMIUM OF R42.85 PER SHARE IN PART
SETTLEMENT OF THE ACQUISITION OF KNP LEYKAM.

* 160 000 SHARES OF R1.00 EACH AT A PREMIUM OF R18.90 PER SHARE IN TERMS OF THE
SAPPI LIMITED SHARE INCENTIVE SCHEME.

* 19 804 620 SHARES OF R1.00 EACH AT A PREMIUM OF R24.39 PER SHARE AS

SETTLEMENT OF THE CONSIDERATION FOR THE ACQUISITION BY SAPPI OF THE INTEREST
HELD IN SAPPI SAICCOR (PTY) LIMITED BY THE INDUSTRIAL DEVELOPMENT CORPORATION
OF SOUTH AFRICA LIMITED.

AT 30 SEPTEMBER 1998 THE AUTHORISED AND ISSUED SHARE CAPITAL OF THE COMPANY WAS
AS FOLLOWS:
AUTHORISED:                           R
325 000 000 ORDINARY SHARES OF
R1 EACH                               325 000 000
ISSUED:
223 751 892 ORDINARY SHARES OF
R1 EACH                               223 751 892

SHARE PREMIUM                         5 717 290 000

DEFERRED EQUITY                       1 276 600 000
CONVERTIBLE NOTES

DURING JULY 1995, THE COMPANY'S WHOLLY OWNED SUBSIDIARY, SAPPI BVI FINANCE
LIMITED, ISSUED US$250 MILLION OF 7,5% CONVERTIBLE GUARANTEED NOTES DUE 2002.
THE NOTES ARE GUARANTEED BY SAPPI LIMITED.

UNLESS PREVIOUSLY REDEEMED OR PURCHASED AND CANCELLED, THE NOTES MAY BE
CONVERTED AT THE OPTION OF THE HOLDERS ON OR AFTER 26 OCTOBER 1995, UP TO AND
INCLUDING 25 JULY 2002, INTO ORDINARY SHARES, NOMINAL VALUE R1,00 PER SHARE, OF
SAPPI LIMITED AT AN INITIAL CONVERSION PRICE OF R76,00 PER SHARE WHICH IS
SUBJECT TO ADJUSTMENT IN CERTAIN EVENTS AT A FIXED RATE OF EXCHANGE ON
CONVERSION OF R3,6450 : US$1.

UNLESS PREVIOUSLY CONVERTED, THE NOTES WILL BE REDEEMED ON 1 AUGUST 2002, BUT
MAY BE REDEEMED BY THE ISSUER, IN WHOLE BUT NOT IN PART, AT PAR PLUS ACCRUED
INTEREST AT THE DATE OF REDEMPTION, AT ANY TIME IN THE EVENT OF ANY CHANGES
RELATING TO TAXATION, THE EFFECT OF WHICH CHANGES WOULD BE TO OBLIGATE THE
ISSUER TO PAY THE HOLDER OF ANY NOTE ADDITIONAL AMOUNTS. IN ADDITION, THE NOTES
MAY BE REDEEMED AT THE OPTION OF THE ISSUER, IN WHOLE OR IN PART, AT ANY TIME
ON OR AFTER 1 AUGUST 1998 AT PAR PLUS ACCRUED INTEREST.

11 990 132 AUTHORISED ORDINARY SHARES ARE SPECIFICALLY RESERVED FOR THE
CONVERSION OF THE NOTES INTO NEW SHARES AND WERE PLACED UNDER THE CONTROL OF
THE DIRECTORS FOR THIS SPECIFIC ISSUE AT A GENERAL MEETING OF SHAREHOLDERS ON
21 AUGUST 1995.
DIVIDENDS

THE DIRECTORS HAVE DECLARED A DIVIDEND (NUMBER 75) OF 100 CENTS PER SHARE FOR
THE YEAR ENDED 30 SEPTEMBER 1998 (1997 : NIL).
SAPPI LIMITED SHARE INCENTIVE SCHEME

IN MARCH 1997, SHAREHOLDERS APPROVED THE ADOPTION OF A NEW SHARE INCENTIVE
SCHEME FOR EMPLOYEES, CALLED THE SAPPI LIMITED SHARE INCENTIVE SCHEME, TO
REPLACE THE SHARE PURCHASE SCHEME WHICH WAS ORIGINALLY INTRODUCED IN 1979. 10
000 000 ORDINARY SHARES WERE ALLOCATED FOR ISSUE UNDER THE SCHEME AND WERE
PLACED UNDER THE CONTROL OF THE DIRECTORS FOR SPECIFIC ISSUE IN FUTURE.
SHARES IN ISSUE UNDER THE PREVIOUS SHARE PURCHASE SCHEME WERE TRANSFERRED TO
THE NEW SCHEME. AS AT 30 SEPTEMBER 1998 THERE WERE 2 531 513 SHARES IN ISSUE IN
TERMS OF THE SCHEME, 2 208 775 OPTIONS AND 1 352 000 DEFERRED OPTIONS.
BORROWING FACILITIES

NET BORROWINGS AMOUNT TO R13.6 BILLION (30 SEPTEMBER 1997 : R8.4 BILLION)
AGAINST R32.5 BILLION ALLOWED IN TERMS OF THE COMPANY'S ARTICLES OF

ASSOCIATION. FULL DETAILS OF THE LONG TERM BORROWINGS ARE SET OUT IN ANNEXURE A
INSURANCE

THE GROUP HAS A POLICY OF EXTERNALLY INSURING HIGH SEVERITY, LOW FREQUENCY
RISKS AND SELF INSURING THE BALANCE OF ITS EXPOSURE. THE SAPPI CAPTIVE INSURER
IS UTILISED TO MANAGE EXPOSURE AND OPTIMISE RE-INSURANCE ON A WORLD WIDE BASIS.
RISK EXPOSURE IS CONTROLLED THROUGH THE GROUP UTILISING APPROPRIATE EXPERTISE
INCLUDING THAT MADE AVAILABLE THROUGH BROKERS, INSURERS AND OTHER CONSULTANTS.
THE SELF INSURED ELEMENT OF PLANTATION RISKS HAS BEEN RETAINED AT R3,5 MILLION
FOR ANY ONE OCCURRENCE. THE SELF INSURANCE OF OTHER ASSET RISKS IS UP TO R10
MILLION FOR BOILER RELATED LOSSES AND UP TO R6 MILLION FOR OTHER LOSSES.
ARTICLES OF ASSOCIATION

THE COMPANY'S EXISTING ARTICLES OF ASSOCIATION WERE ADOPTED ON 1 MAY 1979.
SINCE THEN THERE HAVE BEEN CERTAIN CHANGES IN COMPANY LAW AND PROCEDURE AND IN
ADDITION THE COMPANY HAS AMENDED ITS ARTICLES ON SEVERAL OCCASIONS. IT IS
THEREFORE DEEMED DESIRABLE FOR THE COMPANY TO ADOPT NEW ARTICLES WHICH WILL
CONSOLIDATE THE AMENDMENTS MADE TO THE ARTICLES ADOPTED IN 1979 AND WILL
INCORPORATE THE LATEST PROCEDURES. THEREFORE NEW ARTICLES HAVE BEEN PREPARED
WHICH HAVE BEEN APPROVED BY THE JOHANNESBURG STOCK EXCHANGE. THESE WILL BE
SUBMITTED TO THE ANNUAL GENERAL MEETING FOR APPROVAL BY SPECIAL RESOLUTION, THE
EFFECT OF WHICH WILL BE TO REPLACE THE EXISTING ARTICLES WITH THE PROPOSED NEW
ARTICLES. THERE ARE NO MATERIAL CHANGES IN THE PROPOSED NEW ARTICLES AS
COMPARED WITH THE 1979 ARTICLES SAVE THAT THE MAXIMUM AMOUNT PAYABLE AS
DIRECTOR'S FEES WITHOUT THE APPROVAL OF SHAREHOLDERS IN GENERAL MEETING WILL BE
INCREASED FROM R400 000 TO R3 000 000. THE PROPOSED INCREASE IS JUSTIFIED BY
INFLATION AND BY THE FACTS THAT WITH THE COMPANY'S INTERNATIONAL EXPANSION, THE
COMPANY NOW HAS NON-RESIDENT DIRECTORS WHOSE FEES BASED ON INTERNATIONAL NORMS
ARE PAID IN FOREIGN CURRENCY AND THAT IT IS DESIRABLE THAT ALL DIRECTORS
RECEIVE EQUAL FEES.
DIRECTORS AND SECRETARIES

DURING THE YEAR MESSRS JS CHALSTY AND W PFARL WERE APPOINTED DIRECTORS OF THE
COMPANY AS WAS MR K DE KLUIS WHO REPLACED MR F DE WIT WHO WAS APPOINTED A
DIRECTOR ON CONCLUSION OF THE ACQUISITION BY SAPPI OF 91.5% OF KNP LEYKAM BUT
WHO RESIGNED SOON THEREAFTER. DR SJ NAUDE AND MR MH VISSER ALSO RESIGNED AS
DIRECTORS DURING THE YEAR.

IN TERMS OF THE COMPANY'S ARTICLES OF ASSOCIATION MESSRS, JS CHALSTY, TL DE
BEER, ID FORBES AND MR HAYMON WILL RETIRE FROM THE BOARD AT THE FORTHCOMING
ANNUAL GENERAL MEETING. ALL, BEING ELIGIBLE, HAVE OFFERED THEMSELVES FOR
RE-ELECTION.

THE BENEFICIAL INTERESTS OF DIRECTORS IN THE SHARES OF THE COMPANY INCLUDING
OPTIONS AND ALLOCATION OF SHARES IN TERMS OF THE SAPPI LIMITED SHARE INCENTIVE
SCHEME WERE AS FOLLOWS:

NO OF SHARES HELD AT             30 SEPTEMBER      30 SEPTEMBER

                                 1998              1997

ORDINARY SHARES                  1 461 766         960 566

A REGISTER OF INTERESTS OF DIRECTORS AND OTHER EXECUTIVES IN SHARES OF THE
COMPANY IS AVAILABLE TO SHAREHOLDERS AND THE PUBLIC ON REQUEST.
SUBSIDIARY COMPANIES

DETAILS OF THE COMPANY'S SIGNIFICANT SUBSIDIARIES ARE GIVEN IN ANNEXURE B.
SPECIAL RESOLUTIONS

A FULL LIST OF THE SPECIAL RESOLUTIONS PASSED BY THE COMPANY AND ITS

SUBSIDIARIES DURING THE YEAR WILL BE MADE AVAILABLE TO SHAREHOLDERS ON REQUEST.
REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF SAPPI LIMITED.

WE HAVE AUDITED THE ANNUAL FINANCIAL STATEMENTS AND GROUP ANNUAL FINANCIAL
STATEMENTS OF SAPPI LTD. SET OUT ON THE ATTACHED PAGES FOR THE YEAR ENDED 30
SEPTEMBER 1998.

WE CONDUCTED OUR AUDIT IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING

STANDARDS. THESE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE AUDIT TO OBTAIN
REASONABLE ASSURANCE THAT, IN ALL MATERIAL ASPECTS, FAIR PRESENTATION IS
ACHIEVED IN THE FINANCIAL STATEMENTS. AN AUDIT INCLUDES AN EVALUATION OF THE
APPROPRIATENESS OF THE ACCOUNTING POLICIES, AN EXAMINATION, ON A TEST BASIS, OF
EVIDENCE SUPPORTING THE AMOUNTS AND DISCLOSURES INCLUDED IN THE FINANCIAL
STATEMENTS, AN ASSESSMENT OF THE REASONABLENESS OF SIGNIFICANT ESTIMATES AND A
CONSIDERATION OF THE APPROPRIATENESS OF THE OVERALL FINANCIAL STATEMENT
PRESENTATION. WE CONSIDER THAT OUR AUDIT PROCEDURES WERE APPROPRIATE IN THE
CIRCUMSTANCES TO EXPRESS OUR OPINION PRESENTED BELOW.

IN OUR OPINION THESE FINANCIAL STATEMENTS FAIRLY PRESENT THE FINANCIAL POSITION
OF THE COMPANY AND THE GROUP AT 30 SEPTEMBER 1998, AND THE RESULTS OF THEIR
OPERATIONS AND CASH FLOW INFORMATION FOR THE 12 MONTHS THEN ENDED IN CONFORMITY
WITH GENERALLY ACCEPTED ACCOUNTING PRACTICE AND IN THE MANNER REQUIRED BY THE
COMPANIES ACT.
DELOITTE & TOUCHE
CHARTERED ACCOUNTANTS (SA)
JOHANNESBURG
17 DECEMBER 1998

SAPPI GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1998
ANNUAL FINANCIAL STATEMENTS

THE DIRECTORS AND OFFICERS OF THE COMPANY ARE RESPONSIBLE TO THE EXTENT
RESPECTIVELY INDICATED FOR THE ANNUAL FINANCIAL STATEMENTS WHICH ARE SUBMITTED
TO SHAREHOLDERS IN GENERAL MEETING.

THE DIRECTORS ARE PRINCIPALLY RESPONSIBLE FOR THE OVERALL CO-ORDINATION OF THE
PREPARATION AND FOR THE FINAL APPROVAL OF SUCH SUBMISSION. THE INITIAL
PREPARATION IS THE RESPONSIBILITY OF THE COMPANY'S OFFICERS. THE AUDITORS ARE
RESPONSIBLE FOR AUDITING THE ANNUAL FINANCIAL STATEMENTS IN THE COURSE OF
EXECUTING THEIR STATUTORY DUTIES.

THE REPORT AND FINANCIAL STATEMENTS OF THE COMPANY AND THE GROUP APPEAR ON THE
FOLLOWING PAGES:
ACCOUNTING POLICIES
INCOME STATEMENT
BALANCE SHEET
CASH FLOW STATEMENT
GROUP INCOME STATEMENT IN US DOLLARS
GROUP BALANCE SHEET IN US DOLLARS
NOTES TO THE FINANCIAL STATEMENTS
ABRIDGED COMPANY FINANCIAL STATEMENTS
LONG TERM BORROWINGS
INVESTMENTS

THE ABOVE STATEMENTS WERE APPROVED BY THE BOARD OF DIRECTORS ON 17 DECEMBER
1998 AND WERE SIGNED ON ITS BEHALF BY:
E VAN AS
EXECUTIVE CHAIRMAN
WE HEWITT
EXECUTIVE DIRECTOR - FINANCE
SAPPI LIMITED
ACCOUNTING POLICIES
BASIS OF PRESENTATION

THE FINANCIAL STATEMENTS ARE PREPARED AND PRESENTED IN TERMS OF THE HISTORICAL
COST CONVENTION EXCEPT FOR LAND AND BUILDINGS WHICH ARE ACCOUNTED FOR EITHER AT
COST OR ON THE BASIS OF EXISTING USE VALUE AS AT 28 FEBRUARY 1990. THE
PRINCIPAL ACCOUNTING POLICIES OF THE GROUP HAVE BEEN FOLLOWED CONSISTENTLY WITH
THE PREVIOUS YEAR WITH THE EXCEPTION OF CHANGES IN POLICIES RELATING TO
ACCOUNTING FOR PENSION AND MEDICAL COSTS FOR THE SOUTHERN AFRICAN OPERATIONS
AND TO THE DETERMINATION AND PRESENTATION OF EARNINGS PER SHARE.
CONSOLIDATION PRACTICE

THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDE ALL WHOLLY-OWNED SUBSIDIARIES.
INTERCOMPANY PROFITS, TRANSACTIONS AND BALANCES HAVE BEEN ELIMINATED.

INVESTMENTS IN WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE BUT WHICH THE
COMPANY DOES NOT CONTROL ARE ACCOUNTED FOR UNDER THE EQUITY METHOD OF
ACCOUNTING.

DIFFERENCES BETWEEN THE COST OF INVESTMENTS IN SUBSIDIARIES AND THE VALUE OF
THEIR ATTRIBUTABLE NET ASSETS AT DATES OF ACQUISITION ARE TREATED AS FOLLOWS:
I) A DISCOUNT IS CREDITED TO NON-DISTRIBUTABLE RESERVES;

II) A PREMIUM IS CHARGED TO AVAILABLE NON-DISTRIBUTABLE RESERVES AND ANY
BALANCE REMAINING TO DISTRIBUTABLE RESERVES.
ASSOCIATE COMPANIES

AN ASSOCIATE COMPANY IS ONE IN WHICH THE GROUP HAS A LONG TERM INVESTMENT IN
THE EQUITY CAPITAL AND HAS THE POWER TO EXERCISE SIGNIFICANT INFLUENCE OVER THE
FINANCIAL AND OPERATING POLICIES OF THE COMPANY.

INVESTMENTS IN ASSOCIATE COMPANIES ARE ACCOUNTED FOR UNDER THE EQUITY METHOD IN
THE PREPARATION OF THE CONSOLIDATED GROUP FINANCIAL STATEMENTS AND ACCORDING TO
THE COST METHOD IN THE COMPANY'S FINANCIAL STATEMENTS. THE SHARE OF ASSOCIATE
COMPANIES' RETAINED INCOME IS DETERMINED FROM THEIR LATEST AUDITED FINANCIAL
STATEMENTS. ASSOCIATE COMPANIES ARE NOT MATERIAL TO THE CONSOLIDATED FINANCIAL
STATEMENTS. THUS, NO SEPARATE DISCLOSURE IS INCLUDED HEREIN.
FOREIGN CURRENCIES

TRANSACTIONS IN FOREIGN CURRENCIES ARE TAKEN INTO ACCOUNT AT THE RATES OF
EXCHANGE RULING ON THE TRANSACTION DATE OR WHERE COVER EXISTS, AT THE COVERED
RATE. ASSETS AND LIABILITIES IN FOREIGN CURRENCIES ARE TRANSLATED AT RATES OF
EXCHANGE RULING AT THE YEAR END OR AT COVER RATES WHERE APPLICABLE.

GAINS AND LOSSES AND COSTS ASSOCIATED WITH FORWARD COVER CONTRACTS ARE TAKEN TO
INCOME IN THE YEAR TO WHICH THEY RELATE AND ARE DEALT WITH IN THE INCOME
STATEMENT UNDER FINANCE COSTS.

THE BALANCE SHEET AND INCOME STATEMENTS OF NON-SOUTH AFRICAN SUBSIDIARIES ARE
TRANSLATED AT RATES OF EXCHANGE RULING AT THE YEAR END AND WEIGHTED AVERAGE
RATES DURING THE YEAR, RESPECTIVELY. DIFFERENCES ARISING FROM THE TRANSLATION
OF THE OPENING NET INVESTMENT AT THE RATES RULING AT THE YEAR END ARE TAKEN
DIRECTLY TO RESERVES.
FIXED ASSETS AND DEPRECIATION

LAND AND BUILDINGS ARE STATED EITHER AT COST OR EXISTING USE VALUE AS AT 28
FEBRUARY 1990 LESS RELATED DEPRECIATION IN THE CASE OF BUILDINGS. PLANT AND
EQUIPMENT IS STATED AT COST, LESS RELATED DEPRECIATION.

COST MEANS ALL COSTS INCURRED TO BRING THE PLANT TO THE LOCATION AND CONDITION
FOR ITS INTENDED USE, THE ATTAINMENT OF WHICH IS INDICATED BY THE ACHIEVEMENT
OF PERFORMANCE IN TERMS OF ITS OPERATIONAL SPECIFICATIONS, AND INCLUDES
SPECIFIC FINANCING COSTS.

DEPRECIATION IS CALCULATED ON A STRAIGHT LINE BASIS TO WRITE OFF THE COST OF
THE ASSETS OVER THEIR EFFECTIVE USEFUL LIVES. NO DEPRECIATION IS PROVIDED ON
LAND.
PLANTATIONS AND TIMBERLANDS

PLANTATIONS AND TIMBERLANDS ARE STATED AT THE LOWER OF COST LESS DEPLETIONS AND
ESTIMATED MARKET VALUE. COST INCLUDES ALL EXPENDITURE INCURRED ON ACQUISITION,
FORESTRY DEVELOPMENT, ESTABLISHMENT AND MAINTENANCE OF PLANTATIONS, AND FINANCE
CHARGES.

DEPLETIONS COMPRISE THE COST OF TIMBER FELLED, INCLUDING FINANCE CHARGES, WHICH
IS DETERMINED ON THE AVERAGE METHOD, PLUS AMOUNTS WRITTEN OFF STANDING TIMBER
TO COVER LOSS OR DAMAGE CAUSED, FOR EXAMPLE, BY FIRE, DISEASE AND STUNTED
GROWTH.
ASSET REVALUATION RESERVE

ANY SURPLUS ARISING ON THE REVALUATION OF LAND AND BUILDINGS PRIOR TO 1 MARCH
1990 WAS CREDITED TO THE ASSET REVALUATION RESERVE, WHICH IS REGARDED AS
NON-DISTRIBUTABLE. ON DEPRECIATION OR DISPOSAL OF THE ASSET THE APPLICABLE
PORTION OF THE SURPLUS IS TRANSFERRED TO DISTRIBUTABLE RESERVES.

LEASED ASSETS AND ASSETS ACQUIRED UNDER SUSPENSIVE SALE AGREEMENTS

FIXED ASSETS ACQUIRED UNDER FINANCE LEASES AND SUSPENSIVE SALE AGREEMENTS ARE
CAPITALISED AT COST EXCLUDING FINANCE COSTS.

FINANCE COSTS ARE ACCRUED AND EXPENSED ANNUALLY, BASED ON THE EFFECTIVE RATE OF
INTEREST APPLIED CONSISTENTLY TO THE REMAINING BALANCE OF THE LIABILITY AND ARE
INCLUDED IN THE RELATED LIABILITY. THIS LIABILITY IS REDUCED AS AND WHEN
PAYMENTS ARE MADE IN TERMS OF THE AGREEMENTS.

OPERATING LEASES MAINLY FOR THE RENTAL OF PREMISES AND CERTAIN OFFICE

EQUIPMENT, ARE NOT CAPITALISED AND RENTALS ARE EXPENSED AS INCURRED.
INVENTORIES

INVENTORY IS VALUED AT THE LOWER OF COST, DETERMINED ON THE FIRST-IN-FIRST-OUT
BASIS, AND NET REALISABLE VALUE. ALL DAMAGED OR SUBSTANDARD MATERIALS AND
OBSOLETE, REDUNDANT OR SLOW MOVING INVENTORIES ARE WRITTEN DOWN TO THEIR
ESTIMATED NET REALISABLE VALUES

THE COST OF RAW MATERIALS, CONSUMABLE STORES AND SPARES IS THE DELIVERED LANDED
COST, WHILE THE COST OF WORK IN PROGRESS AND FINISHED GOODS INCLUDES BOTH
DIRECT COSTS AND PRODUCTION OVERHEADS.
DEFERRED EXPENDITURE

DEFERRED EXPENDITURE REPRESENTS ACQUISITION COSTS OF A SUBSIDIARY ATTRIBUTABLE
TO THE DEBT RAISED TO FINANCE THE ACQUISITION AND IS AMORTISED OVER THE TERM OF
THE FINANCE RAISED ON CAPITAL AMOUNTS OUTSTANDING FROM TIME TO TIME USING A
METHOD THAT APPROXIMATES THE EFFECTIVE INTEREST METHOD OVER THE LIFE OF THE
DEBT.
DEFERRED TAXATION

DEFERRED TAXATION IS PROVIDED ON THE LIABILITY METHOD USING THE PARTIAL BASIS.
ACCORDINGLY, DEFERRED TAXATION IS PROVIDED ONLY WHERE IT IS PROBABLE THAT TAX
WILL BECOME PAYABLE IN THE FORESEEABLE FUTURE AS A RESULT OF THE REVERSAL OF
EXISTING TIMING DIFFERENCES.
PROVISION FOR MAJOR MAINTENANCE

TO ENSURE AN EQUITABLE ANNUAL CHARGE TO COVER THE COST OF MAJOR MAINTENANCE AND
THE RENEWAL OF CERTAIN PLANT, A PROVISION IS MADE TO APPORTION SUCH COST OVER
THE PERIODS BETWEEN PLANNED SHUTDOWNS.
RESEARCH AND DEVELOPMENT

EXPENDITURE ON RESEARCH AND DEVELOPMENT IS EXPENSED AGAINST INCOME IN THE YEAR
IN WHICH IT IS INCURRED.
EMPLOYEE BENEFITS
POST EMPLOYMENT BENEFITS - PENSIONS

THE POLICY OF THE GROUP IS TO PROVIDE RETIREMENT BENEFITS FOR ITS EM