SAPPI - QUARTERLY REVIEW

SAPPI LIMITED
(REGISTRATION NUMBER 05/08963/06)

UNAUDITED QUARTERLY REVIEW FOR THE 3 MONTHS ENDED 31 DECEMBER 1998
ABBREVIATED INCOME STATEMENT

                             3 MONTHS TO      3 MONTHS TO      3 MONTHS TO
                             DECEMBER 1998    DECEMBER 1997    DECEMBER 1998
                             R MILLION        R MILLION        US$ MILLION**
SALES                        5718             3747             989

OPERATING INCOME             484              389              84

NET INCOME                   87               156              15
EARNINGS PER SHARE

- HEADLINE EARNINGS (CENTS)  58               63               10

- BASIC (CENTS)              29               65               5

- DILUTED (CENTS)*           29               65               5

* RESTRICTED BY THE ACCOUNTING STANDARD AC104 TO A LEVEL NO GREATER THAN BASIC
EPS.

** TRANSLATION TO US$ HAS BEEN CALCULATED AT AN AVERAGE RATE OF US$1 : ZAR
5.7819 FOR THIS PERIOD.
TRADING CONDITIONS

MANY OF THE REGIONS IN WHICH WE OPERATE HAD SLOWER ECONOMIC GROWTH IN THE
QUARTER EXCEPT THE UNITED STATES WHICH HAS PROVED TO BE STRONGER THAN MANY
ANALYSTS EXPECTED. UNDERLYING DEMAND FOR THE GROUP'S PAPER PRODUCTS CONTINUED
STEADILY IN OUR MAJOR MARKETS. SURPLUS EUROPEAN CAPACITY FOR COATED WOODFREE
PAPER CONTINUED TO OVERHANG THE MARKET AND ONGOING MATCHING OF SUPPLY TO DEMAND
IS REQUIRED BY THE INDUSTRY IN ORDER TO AVOID EXCESSIVE BUILD UP OF

INVENTORIES. ORDER INFLOW IN EUROPE SINCE THE BEGINNING OF JANUARY HAS HOWEVER
BEEN BETTER THAN A YEAR AGO. PULP MARKETS REMAINED WEAK BUT PRODUCER

INVENTORIES DECLINED FURTHER IN DECEMBER, AND ALTHOUGH ANNOUNCED PRICE
INCREASES IN JANUARY DID NOT HOLD, PRICES HAVE STABILISED AND MIGHT START TO
MOVE UP IN THE SECOND HALF.
RESULTS

AS FORECAST IN THE 1998 PRELIMINARY RESULTS ANNOUNCEMENT, ALTERNATIVE MINIMUM
TAX IN THE UNITED STATES AND A COINCIDENCE OF PLANNED MAINTENANCE SEVERELY
DEPRESSED EARNINGS PER SHARE IN THE 3 MONTHS TO DECEMBER 1998. THIS WAS FURTHER
AGGRAVATED BY SUBSTANTIAL COMMERCIAL CURTAILMENT IN EUROPE DURING THE QUARTER.
EARNINGS BEFORE EXCEPTIONAL ITEMS (HEADLINE EARNINGS) PER SHARE WERE 58 CENTS
(1997 63 CENTS). BASIC AND DILUTED EARNINGS PER SHARE WERE 29 CENTS (1997 65
CENTS). THE MAIN DIFFERENCES BETWEEN HEADLINE AND BASIC EPS RELATE TO A CHANGE
IN PROVISIONS AND THE ADJUSTMENT OF GOODWILL FOLLOWING THE SALE OF THE USA
TIMBERLANDS.

NET CASH EARNINGS (NET EARNINGS PLUS NON CASH ITEMS) PER SHARE, HOWEVER, WERE
MAINTAINED AT THE SAME LEVEL AS THE COMPARATIVE QUARTER LAST YEAR (R2,93 PER
SHARE).

CONSOLIDATED SALES FOR THE QUARTER ENDED 31 DECEMBER 1998 INCREASED BY 53% ON
1997. THE INCREASE RELATES MAINLY TO THE INCLUSION OF KNP LEYKAM (NOT INCLUDED
IN 1997) AND TO THE WEAKENING OF THE RAND DURING 1998.

FINE PAPER BUSINESS - THE OPERATING INCOME INCREASED BY 38% TO R412 MILLION
(1997 R299 MILLION) MAINLY AS A RESULT OF THE INCLUSION OF KNP LEYKAM. SAPPI
FINE PAPER EUROPE INCREASED ITS OPERATING INCOME BY 168% TO R155 MILLION; THE
NORTH AMERICAN BUSINESS BY 6% TO R226 MILLION BUT IN SOUTHERN AFRICA OPERATING
INCOME DECLINED BY 26% TO R36 MILLION.

FOREST PRODUCTS BUSINESS - THE OPERATING INCOME IN FOREST PRODUCTS DECLINED BY
9% TO R60 MILLION LARGELY AS A RESULT OF WEAKER PULP MARKETS.

TRADING - SAPPI TRADING'S OPERATING INCOME ALSO FELT THE EFFECTS OF THE WEAKER
PULP MARKETS AND DECLINED BY 10% TO R23 MILLION.

OVERALL GROUP OPERATING INCOME INCREASED BY 24% TO R484 MILLION.

GROUP TAXATION INCREASED TO R85,8 MILLION (1997 R32,1 MILLION) PRIMARILY AS A
RESULT OF AN ACCRUAL OF AMT (ALTERNATIVE MINIMUM TAX) IN THE UNITED STATES.
THE SALE OF THE TIMBERLANDS IN THE UNITED STATES FOR $180 MILLION WAS COMPLETED
IN NOVEMBER. THE PROFIT ON THE SALE OF THE TIMBERLANDS RECORDED IN THE NORTH
AMERICAN COMPANY'S ACCOUNTS, WAS SET OFF AGAINST AN ADJUSTMENT TO THE GOODWILL
ARISING IN SAPPI'S ACCOUNTS.

UNDERLYING DEMAND FOR PAPER REMAINS FIRM AND PRODUCERS APPEAR TO BE TRYING TO
MATCH THEIR OUTPUT TO DEMAND. COATED WOODFREE PAPER PRICES HAVE THEREFORE ONLY
DECLINED MARGINALLY SINCE THE MIDDLE OF LAST YEAR. THE ORDER POSITION IN EUROPE
HAS IMPROVED SIGNIFICANTLY SINCE JANUARY AND EUROPEAN PRICES HAVE RECENTLY
RECOVERED SOMEWHAT AND ARE EXPECTED TO BE REASONABLY STABLE FOR THE BALANCE OF
THE YEAR. THE GROUP SHOULD, HOWEVER, BENEFIT FROM CONTINUED TIGHT MANAGEMENT OF
COSTS, THE ACHIEVEMENT OF SYNERGIES FROM MERGING THE EUROPEAN BUSINESSES AND
FROM THE SIGNIFICANT COST REDUCTION ACHIEVED OVER THE PAST TWO YEARS IN THE
UNITED STATES. THE WEAKER SOUTH AFRICAN RAND SHOULD ALSO HELP THE SOUTHERN
AFRICAN BUSINESS AS MOST OF ITS SALES ARE EITHER DENOMINATED IN OR INFLUENCED
BY US$ PRICES. DESPITE THE WEAK START TO THE YEAR AND PROVIDED ECONOMIC
CONDITIONS DO NOT DETERIORATE FURTHER WE EXPECT SECOND QUARTER EARNINGS PER
SHARE TO IMPROVE OVER THE FIRST QUARTER BUT TO BE SOMEWHAT LOWER THAN THE
PREVIOUS SECOND QUARTER.  FULL YEAR EPS SHOULD, HOWEVER, BE SIMILAR TO THE
PREVIOUS YEAR.
FORWARD LOOKING STATEMENTS

CERTAIN STATEMENTS IN THIS MEDIA 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 EVENTS, TRENDS, PLANS OR OBJECTIVES. UNDUE RELIANCE SHOULD NOT BE PLACED
ON SUCH STATEMENTS BECAUSE, BY THEIR NATURE, THEY ARE SUBJECT TO KNOWN AND
UNKNOWN RISKS AND UNCERTAINTIES AND CAN BE AFFECTED BY OTHER FACTORS, THAT
COULD CAUSE ACTUAL RESULTS AND COMPANY PLANS AND OBJECTIVES TO DIFFER

MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN THE FORWARD-LOOKING STATEMENTS
(OR FROM THE PAST RESULTS). THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY
UPDATE OR REVISE ANY OF THESE FORWARD-LOOKING STATEMENTS, WHETHER TO REFLECT
NEW INFORMATION OR FUTURE EVENTS OF CIRCUMSTANCES OR OTHERWISE.
CONTACT : ROBERT HOPE
SAPPI LIMITED JOHANNESBURG
TEL: +27 11 407 8111 FAX: +27 11 403 1493