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SAPPI AUDITED RESULTS YEAR ENDED 30 SEPTEMBER 1998
HIGHLIGHTS
DIVIDEND 100 CENTS PER SHARE
NEW YORK STOCK EXCHANGE LISTING
EUROPEAN ACQUISITION ENHANCES EPS
R1,6 BILLION ASSET DISPOSAL
CONSOLIDATED INCOME STATEMENT
AUDITED AUDITED
12 MONTHS 12 MONTHS 12 MONTHS
ENDED ENDED 12 MONTHS ENDED
30.09.98 30.09.97 CHANGE 30.09.98
R MILLION R MILLION % US$ MILLION*
NET TURNOVER 22 710 16 216 40,0 4 308
OPERATING INCOME BEFORE
DEPRECIATION 3 848 2 172 77,2 730
DEPRECIATION 1 640 1 008 62,7 311
OPERATING INCOME 2 208 1 164 89,7 419
NON-TRADING INCOME 63 37 70,3 12
INCOME BEFORE FINANCE
COSTS AND TAXATION 2 271 1 201 89,1 431
NET FINANCE COSTS 988 611 61,7 187
PAID 1 236 1 013 22,0 234
CAPITALISED (248) (402) (38,3) (47)
INCOME BEFORE TAXATION 1 283 590 117,5 244
TAXATION - CURRENT 203 94 116,0 39
INCOME AFTER TAXATION 1 080 496 117,7 205
INCOME ATTRIBUTABLE TO
MINORITY INTERESTS 84 92 (8,7) 16
NET INCOME 996 404 146,5 189
BASIC EARNINGS PER
SHARE (CENTS)** 417 147 183,7 79
WEIGHTED AVERAGE
NUMBER OF SHARES IN
ISSUE (MILLIONS) 200,5 159,2 25,9 200,5
DILUTED EARNINGS PER
SHARE (CENTS) 380 147*** 158,5 72
WEIGHTED AVERAGE NUMBER
OF SHARES ON FULLY
DILUTED BASIS (MILLIONS) 262,1 159,2 64,6 262,1
ORDINARY DIVIDENDS PER
SHARE (CENTS) 100 - - 19
* THE TRANSLATION TO US$ HAS BEEN CALCULATED AT AN AVERAGE RATE OF US$1:
R5,2714 FOR THE YEAR.
** CALCULATED AFTER DEDUCTION OF THE TRANSFER TO DEFERRED EQUITY OF R159
MILLION (1997 - R169 MILLION).
***RESTRICTED BY THE ACCOUNTING STANDARD AC 104 TO A LEVEL NO GREATER THAN
BASIC EPS.
CALCULATION OF EARNINGS BEFORE EXCEPTIONAL ITEMS (HEADLINE EARNINGS)
NET INCOME 996 404 - 189
PROFIT ON SALE OF
BUSINESS (90) - (17)
PROFIT ON DISPOSAL OF
FIXED ASSETS (127) 1 (24)
MILL CLOSURE COSTS 121 - 23
INCREASE IN OTHER
PROVISIONS 12 30 2
EARNINGS BEFORE EXCEPTIONAL
ITEMS (HEADLINE
EARNINGS) 912 435 109,6 173
EARNINGS BEFORE EXCEPTIONAL
ITEMS (HEADLINE EARNINGS)
PER SHARE (CENTS)** 376 167 124,6 71
WEIGHTED AVERAGE NUMBER OF
SHARES IN ISSUE
(MILLIONS) 200,5 159,2 25,9 200,5
** CALCULATED AFTER DEDUCTION OF THE TRANSFER TO DEFERRED EQUITY OF R159
MILLION (1997 - R169 MILLION).
ABRIDGED BALANCE SHEET
30.09.98 30.09.97 30.09.98
R MILLION R MILLION US$ MILLION**
FUNDS EMPLOYED
ORDINARY SHAREHOLDERS'
INTEREST 12 701 9 208 2 184
MINORITY INTERESTS 1 340 975 230
LONG-TERM BORROWINGS 13 035 7 773 2 242
OTHER LONG-TERM LIABILITIES 1 521 771 262
28 597 18 727 4 918
EMPLOYMENT OF FUNDS
FIXED ASSETS 23 486 13 733 4 039
PLANTATIONS AND TIMBERLANDS 3 290 2 873 566
OTHER NON-CURRENT ASSETS 1 652 1 333 284
CURRENT ASSETS 9 115 5 635 1 568
BANK BALANCES AND DEPOSITS 2 966 1 215 510
OTHER CURRENT ASSETS 6 149 4 420 1 058
TOTAL ASSETS 37 543 23 574 6 457
CURRENT LIABILITIES 8 946 4 847 1 539
INTEREST BEARING LIABILITIES 825 561 142
BANK OVERDRAFT 2 754 1 239 474
OTHER CURRENT LIABILITIES 5 367 3 047 923
28 597 18 727 4 918
NUMBER OF SHARES IN ISSUE (MILLIONS) 223,8 159,2 223,8
DEBT : EQUITY RATIO 0,97 0,82 0,97
CURRENT RATIO 1,02 1,16 1,02
**THE TRANSLATION TO US$ HAS BEEN CALCULATED AT THE CLOSING RATE OF US$1:
R5,8150
CONSOLIDATED SUMMARISED CASH FLOW STATEMENT
12 MONTHS 12 MONTHS 12 MONTHS
ENDED ENDED ENDED
30.09.98 30.09.97 30.09.98
R MILLION R MILLION US$ MILLION*
CASH GENERATED BY OPERATIONS 3 946 2 450 748
MOVEMENT IN WORKING CAPITAL 663 72 126
NET FINANCE COST (1 236) (1 013) (234)
TAXATION (179) (65) (34)
DIVIDENDS PAID - (48) -
CASH RETAINED FROM OPERATING
ACTIVITIES 3 194 1 396 606
CASH UTILISED IN INVESTING
ACTIVITIES (954) (1 528) (181)
CASH EFFECTS OF FINANCING
ACTIVITIES (1 062) 653 (201)
NET CASH GENERATED 1 178 521 224
THE CASH FLOW STATEMENT REFLECTS ACTUAL CASH FLOWS, IN THE UNDERLYING
CURRENCIES, TRANSLATED AT AVERAGE EXCHANGE RATES.
*THE TRANSLATION TO US$ HAS BEEN CALCULATED AT AN AVERAGE RATE OF US$1: R5,2714
FOR THE YEAR.
MARKETS
DEMAND FOR THE GROUP'S PAPER PRODUCTS WAS STEADY THROUGHOUT THE FINANCIAL YEAR
BUT SELLING PRICES SOFTENED IN THE SECOND HALF FOLLOWING SUPPLY PRESSURE FROM
INCREASED EUROPEAN CAPACITY AND SURPLUS FAR EAST ASIAN PRODUCTION.
PULP MARKETS SOFTENED SIGNIFICANTLY FOLLOWING THE FAR EASTERN ECONOMIC COLLAPSE
AND SEVERELY AFFECTED THE DISSOLVING AND UNBLEACHED PULP OPERATIONS IN SOUTHERN
AFRICA WHICH SELL A LARGE PORTION OF THEIR OUTPUT IN THAT REGION.
PRODUCTION
PAPER PRODUCTION VOLUMES WERE MANAGED TO MEET CONSUMPTION DEMAND WITH
COMMERCIAL DOWNTIME BEING TAKEN IN EUROPE DURING THE SUMMER HOLIDAY PERIOD.
THIS CURTAILMENT KEPT INVENTORIES IN CHECK AND HELPED TO MAINTAIN SELLING
PRICES.
THE NEW PAPER MACHINE IN GRATKORN CONTINUED TO PERFORM BEYOND EXPECTATIONS,
ENABLING THE PLANNED PERMANENT CLOSURE OF PAPER MACHINES NUMBERS 8 AND 10 TO BE
ADVANCED. DURING THE FIRST HALF YEAR THE WOLVERCOTE MILL IN ENGLAND WAS CLOSED.
SUBSEQUENT TO THE YEAR-END NUMBER 6 PAPER MACHINE AT WESTBROOK IN THE UNITED
STATES WAS ALSO CLOSED. FULL PROVISION HAS BEEN MADE FOR THE COST OF THESE
CLOSURES.
DISSOLVING PULP AND UNBLEACHED PULP PRODUCTION WAS ALSO CURTAILED BECAUSE OF
LOWER DEMAND FROM THE FAR EAST.
DEBT REDUCTION/DISPOSAL OF ASSETS
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.
TOTAL ASSETS SALES OF R1,6 BILLION HAVE BEEN ACHIEVED SINCE THE ANNOUNCEMENT OF
THE R2,0 BILLION TARGET.
CONSIDERABLE EFFORT WAS APPLIED TO PREPARING THE TIMBER INDUSTRIES DIVISION IN
SOUTH AFRICA FOR A SEPARATE STOCK EXCHANGE LISTING IN JOHANNESBURG, BUT THIS
WAS POSTPONED BECAUSE OF PREVAILING WEAK MARKET CONDITIONS AND HIGH INTEREST
RATES. IT IS THE GROUP'S INTENTION TO PROCEED WITH THIS WHEN MARKETS IMPROVE.
CASH FROM THE SALE OF SHARES TO THE PUBLIC WILL BE APPLIED TO THE REDUCTION OF
DEBT.
IN THE UNITED STATES THE GROUP CONTINUED ITS EFFORTS TOWARDS DISPOSING OF
CERTAIN ENERGY ASSETS. INITIAL FAVOURABLE INDICATIVE BIDS WERE RECEIVED BUT
CONDITIONS PERTAINING TO FINAL BIDS WERE NOT IN ACCORDANCE WITH THE GROUP'S
OPERATING REQUIREMENTS AND THE ENERGY ASSET SALES HAVE BEEN WITHDRAWN.
THE NASH AND TRANSCRIPT BUSINESSES IN THE UK ARE NOW OPERATING AS SEPARATE
ENTITIES. OFFERING MEMORANDA ARE BEING PREPARED WITH THE INTENTION OF DISPOSING
OF THESE BUSINESSES IN THE FUTURE.
RESULTS
CONSOLIDATED SALES FOR THE YEAR AMOUNTED TO R22,7 BILLION (1997 R16,2 BILLION)
AN INCREASE OF 40% ON 1997. MOST OF THE INCREASE IS RELATED TO THE INCLUSION
(FOR 9 MONTHS) OF THE RESULTS OF KNP LEYKAM AND THE WEAKENING OF THE RAND IN
JUNE 1998. COSTS WERE GENERALLY WELL CONTAINED AND SELLING PRICES, ALTHOUGH
SOFTER AT THE END THAN AT THE BEGINNING OF THE YEAR, AVERAGED OUT AT SIMILAR
LEVELS TO THE 1997 AVERAGE. OPERATING INCOME FOR 1998 WAS R2 208 MILLION, AN
INCREASE OF 90% OVER 1997, HALF OF WHICH WAS CONTRIBUTED BY KNP LEYKAM.
NET FINANCE COSTS AMOUNTED TO R988,2 MILLION (1997
R611,5 MILLION). THE INCREASE OF R376,7 MILLION RESULTED FROM THE ACQUISITION
OF KNP LEYKAM AND THE ASSUMPTION OF ITS DEBT, AS WELL AS THE RESTRICTION ON
FINANCE COSTS CAPITALISED (SEE BELOW). HIGHER PREVAILING INTEREST RATES IN
SOUTH AFRICA ALSO PLAYED A ROLE. BORROWINGS AT SAPPI FINE PAPER NORTH AMERICA
AND EUROPE (POST ACQUISITION) IN THEIR RESPECTIVE CURRENCIES CONTINUED TO
DECREASE.
INTEREST CAPITALISED RELATES MAINLY TO THE HOLDING COSTS OF FORESTS. BECAUSE OF
THE HIGH PREVAILING REAL INTEREST RATES IN SOUTH AFRICA, THE INTEREST
CAPITALISED ON SOUTH AFRICAN FORESTS THIS YEAR HAS BEEN LIMITED TO THE LEVEL OF
THE INCREASE IN THE PRODUCER PRICE INDEX AND VOLUME GROWTH. THE NET EFFECT ON
INCOME OF THE INTEREST CAPITALISATION POLICY WAS R168,2 MILLION COMPARED TO
R211,1 MILLION LAST YEAR.
THE 1997 PRACTICE OF CONSERVING THE GROUP'S TIMBER RESOURCES DURING A PERIOD OF
INCREASED MARKET AVAILABILITY, FOLLOWING A PERIOD OF GOOD RAINS, WAS CONTINUED
IN 1998 AND HAD AN ADVERSE IMPACT ON THE CASH FLOW DURING THE YEAR OF R125,0
MILLION AND ON OPERATING INCOME OF R22,3 MILLION. IN 1999 THE GROUP WILL REVERT
TO MANAGING ITS SOUTH AFRICAN FORESTS ON A BASIS OF FULL ROTATION THEREBY
OPTIMISING THE UTILISATION OF ITS OWN FOREST RESOURCES.
SOUTH AFRICAN ACCOUNTING STANDARDS NOW REQUIRE THAT COMPANIES ACCOUNT FOR
SURPLUSES AND LIABILITIES IN RESPECT OF PENSION BENEFITS, BUT DO NOT HAVE ANY
REQUIREMENT REGARDING POST-RETIREMENT MEDICAL BENEFITS. SAPPI HAS NEVERTHELESS
CHOSEN TO BRING TO ACCOUNT AT THE SAME TIME A SURPLUS ON PENSION BENEFITS AND
THE FULL DEFICIT ON POST-RETIREMENT MEDICAL BENEFITS. THE NET EFFECT OF THIS
CHANGE IN ACCOUNTING POLICY ON 1998 BASIC EARNINGS PER SHARE WAS AN INCREASE OF
25 CENTS (1997 36 CENTS).
AT THE TIME OF THE INTERIM REPORT WE INFORMED SHAREHOLDERS THAT WE HAD
STRUCTURED OUR OPERATIONS FOR REPORTING AND MANAGEMENT PURPOSES INTO SAPPI FINE
PAPER PLC BASED IN LONDON, SAPPI FOREST PRODUCTS IN SOUTH AFRICA, SAPPI TRADING
IN HONG KONG AND THE CORPORATE HEAD OFFICE IN JOHANNESBURG. THE OPERATING
RESULTS OF THESE RESPECTIVE OPERATIONS DURING THE FINANCIAL YEAR 1998 WERE AS
FOLLOWS:
YEAR TO YEAR TO YEAR TO
30/9/98 30/9/97 30/9/98
R MILLION R MILLION US$ MILLION
TURNOVER
FINE PAPER* 18 376 12 162 3 486
FOREST PRODUCTS 4 334 4 054 822
22 710 16 216 4 308
OPERATING INCOME
FINE PAPER* 1 832 924 347
FOREST PRODUCTS 300 263 57
SAPPI TRADING 109 100 21
CORPORATE AND FINANCE (33) (123) (6)
2 208 1 164 419
*INCLUDES KNP LEYKAM FROM 1.1.98
IN LINE WITH THE REVISED SOUTH AFRICAN ACCOUNTING STANDARD AC 104, EARNINGS PER
SHARE IS PRESENTED BOTH BEFORE (BASIC EPS) AND AFTER (DILUTED EPS) THE EFFECTS
OF THE ISSUE OF POTENTIAL ORDINARY SHARES (DEFERRED EQUITY). BASIC EPS WAS 417
CENTS AND DILUTED EPS WAS 380 CENTS. IN 1997 THE RESPECTIVE RESTATED FIGURES
WERE 147 CENTS AND 147 CENTS, THE LATTER FIGURE BEING RESTRICTED BY THE REVISED
ACCOUNTING STANDARD TO A LEVEL NO GREATER THAN BASIC EPS.
IT HAS BEEN SAPPI'S STATED INTENTION, WHERE IT HAS AN OPTION, TO SETTLE ITS
DEFERRED EQUITY OBLIGATIONS IN SHARES. BECAUSE THIS CREATES DIFFICULTY IN
PREDICTING DILUTED EPS, THE BOARD HAS DECIDED TO REVIEW THIS DECISION AND
EXPECTS TO MAKE AN ANNOUNCEMENT SHORTLY.
THE GROUP'S DEBT:EQUITY RATIO AT YEAR-END WAS 0,97 COMPARED TO THE PREVIOUS
YEAR-END'S RESTATED LEVEL OF 0,82. THIS MOVEMENT WAS THE RESULT OF THE KNP
LEYKAM ACQUISITION AND THE REPURCHASE IN MAY 1998 OF THE IDC INVESTMENT IN
SAICCOR WHICH WAS SETTLED PARTLY IN SHARES AND PARTLY IN CASH. SALES OF ASSETS
REDUCED THE ADVERSE IMPACT OF THESE TRANSACTIONS.
IF THE PROCEEDS OF THE SALE OF THE TIMBERLANDS IN MAINE, USA, WHICH WAS
COMPLETED IN NOVEMBER 1998 WERE INCLUDED, THE DEBT:EQUITY RATIO WOULD HAVE BEEN
0,92. THE EQUIVALENT DEBT TO TOTAL CAPITALISATION WOULD BE:
DEBT : DEBT :
EQUITY TOTAL
CAPITALISATION
1998 REPORTED 0,97 0,49
INCLUDING TIMBERLAND SALES 0,92 0,48
TAXATION
THE INCREASED TAXATION CHARGE RELATES MAINLY TO THOSE SUBSIDIARIES WHICH ARE
SUBJECT TO CERTAIN MINIMUM TAX CHARGES. THE LOW TAXATION RATE OVERALL IS
PRIMARILY THE RESULT OF PREVIOUS TAX LOSSES AND ALLOWANCES BROUGHT FORWARD.
SHARE CAPITAL
THE AUTHORISED SHARE CAPITAL OF THE COMPANY WAS INCREASED FROM 225 MILLION TO
325 MILLION SHARES OF R1 EACH AT THE EXTRAORDINARY MEETING OF SHAREHOLDERS HELD
ON 7 NOVEMBER 1997.
ON 31 DECEMBER 1997, 44,6 MILLION SHARES WERE ISSUED TO KNP BT IN PART PAYMENT
FOR THE ACQUISITION OF 91,54% OF KNP LEYKAM.
ON 5 MAY 1998, 19,8 MILLION SHARES WERE ISSUED TO THE IDC IN PART SETTLEMENT OF
THE PURCHASE PRICE OF THEIR INVESTMENT IN SAICCOR.
INTEGRATION OF KNP LEYKAM
THE INTEGRATION OF KNP LEYKAM INTO A LARGER SAPPI FINE PAPER EUROPE HAS
PROCEEDED WELL. BY MAY 1998 THE BUSINESS HAD A SINGLE MANAGEMENT OPERATING FROM
ITS HEADQUARTERS IN BRUSSELS, A SINGLE IDENTITY AND ONE FACE TO ITS CUSTOMERS.
FOUR HEAD OFFICES WERE REDUCED TO ONE AND 26 SALES OFFICES WERE REDUCED TO 11,
MAINLY BY ELIMINATION OF DUPLICATION.
THE RATIONALISATION OF THE OPERATIONS IS ALSO PROGRESSING WELL. THREE PAPER
MACHINES WERE PERMANENTLY CLOSED DURING THE YEAR AND THE REDUCTION IN THE
NUMBER OF EMPLOYEES IDENTIFIED AT THE TIME OF ACQUISITION IS EXPECTED TO BE
EXCEEDED BY SEPTEMBER 1999. THE BENEFITS OF SYNERGIES WILL HAVE A FAVOURABLE
IMPACT ON 1999 PERFORMANCE AND ARE EXPECTED TO REACH THE ANTICIPATED LEVEL OF
R2 PER SHARE BY THE YEAR 2000.
NEW YORK LISTING
THE GROUP LISTED ITS SHARES ON THE NEW YORK STOCK EXCHANGE ON 5 NOVEMBER 1998.
THE PURPOSE OF THE LISTING IS TO OPEN UP FURTHER MARKETS FOR THE TRADING OF
SAPPI SHARES IN ORDER, OVER TIME, TO IMPROVE LIQUIDITY AND TO PERMIT ACCESS TO
THE FULL SPECTRUM OF US INVESTORS.
YEAR 2000
GOOD PROGRESS IS BEING MADE IN ISOLATING AND ADDRESSING POTENTIAL YEAR 2000
PROBLEMS CONCERNING THE GROUP'S OPERATIONS. SEPARATE PROGRAMMES ARE BEING
FOLLOWED IN EACH OPERATING REGION AND ALL ARE EXPECTED TO BE SATISFACTORILY
COMPLETED DURING THE FIRST HALF OF 1999.
THE TOTAL ANTICIPATED COSTS OF MEETING YEAR 2000 COMPLIANCE IS APPROXIMATELY
R170 MILLION AT CURRENT EXCHANGE RATES OF WHICH SOME 30% WAS EXPENSED BY
SEPTEMBER 1998.
REPORTING
FROM THE NEW FINANCIAL YEAR WHICH COMMENCED ON 1 OCTOBER 1998, THE GROUP WILL
BE ISSUING SUMMARY REPORTS AT QUARTER ONE AND QUARTER THREE TO SUPPLEMENT THE
HALF YEARLY AND ANNUAL REPORTS WHICH ARE REQUIRED BY THE JSE. THE FIRST REPORT
WILL BE ISSUED IN FEBRUARY 1999.
DIVIDENDS
IN THE LIGHT OF THE SATISFACTORY RESULTS FOR 1998 AND A CAUTIOUSLY POSITIVE
VIEW OF 1999 THE BOARD HAS DECLARED A CASH DIVIDEND OF 100 CENTS PER SHARE.
AS INDICATED AT THE INTERIM STAGE FURTHER DIVIDENDS WILL BE CONSIDERED ONLY ON
AN ANNUAL BASIS.
OUTLOOK
FINANCIAL MARKETS CONTINUE TO BE EXTREMELY UNCERTAIN AND DEVELOPMENTS IN SOME
ASIAN COUNTRIES ARE UNPREDICTABLE. WHILST MOST COMMENTATORS BELIEVE THAT THERE
WILL CONTINUE TO BE REASONABLE GROWTH IN EUROPE AND NORTH AMERICA, GROWTH IN
SOUTHERN AFRICA AND ASIA IS LIKELY TO BE EXTREMELY MODEST. THESE CONDITIONS
WILL INEVITABLY HAVE AN INFLUENCE ON CAPACITY UTILISATION IN THE WESTERN
HEMISPHERE.
THE WEAKNESS OF THE SA RAND, WHICH IS LIKELY TO CONTINUE, WILL ASSIST THE
SOUTHERN AFRICAN OPERATIONS IN IMPROVING EARNINGS, AS MOST OF THE PRODUCT SALES
ARE EITHER DOLLAR DENOMINATED OR INFLUENCED BY DOLLAR PRICES.
THE RELATIVE WEAKNESS OF THE US DOLLAR, COMPARED TO EUROPEAN CURRENCIES, WILL
REDUCE THE PRESSURE OF IMPORTS IN THE US MARKET.
EXTERNAL FACTORS, SUCH AS THE ECONOMIC DECLINE IN SE ASIA, HAVE CAUSED THE
DELAY OF A NUMBER OF NEW PROJECTS AND A DEFERRAL OF MANY OTHERS IN THAT REGION.
IN THE MEDIUM TERM, THEREFORE, THE NEW CAPACITY ADDITIONS WHICH WERE PLANNED IN
ASIA ARE LIKELY TO HAVE LESS OF AN IMPACT THAN ORIGINALLY THOUGHT, PARTICULARLY
ON PULP MARKETS.
IN THE UNITED STATES THE LONG AWAITED ENVIRONMENTAL PROTECTION AGENCY (EPA)
CLUSTER RULES HAVE BEEN PROMULGATED AND US PULP MILLS WILL HAVE TO COMPLY WITH
MUCH STRICTER ENVIRONMENTAL RULES, IN PARTICULAR RELATING TO ELEMENTAL
CHLORINE-FREE PULPING (ECF). THIS IS EXPECTED TO REQUIRE SIGNIFICANT
INVESTMENTS BY THE INDUSTRY. HOWEVER, SAPPI'S MAJOR MILL IN THE US ALREADY
COMPLIES WITH THESE RULES, AND THE GROUP WILL THEREFORE NOT BE SERIOUSLY
AFFECTED. SAPPI HAS BEEN USING ECF PULPING IN MOST OF ITS PULP MILLS WORLDWIDE
FOR SEVERAL YEARS. MANY SMALLER AND OLDER US PULP MILLS MAY FIND IT UNECONOMIC
TO MAKE THE INVESTMENTS REQUIRED TO MEET THE EPA REGULATIONS. THIS SHOULD LEAD
TO A TIGHTENING OF THE PULP MARKET OVER THE NEXT TWO YEARS. AS SAPPI'S SALES
AND PURCHASES OF PULP ARE REASONABLY BALANCED, THIS DEVELOPMENT IS EXPECTED TO
BENEFIT THE GROUP.
AN ENCOURAGING DEVELOPMENT IN 1998 WAS THE INCREASING AWARENESS, BY THIS
INDUSTRY, OF THE NEED TO MATCH OUTPUT TO MARKET DEMAND. ALTHOUGH THERE HAS BEEN
SOME INCREASE IN THE TOTAL PAPER INVENTORIES HELD, BOTH IN EUROPE AND NORTH
AMERICA, THERE IS INCREASING EVIDENCE THAT THE INDUSTRY IS RUNNING ITS
FACILITIES TO MEET CUSTOMER NEEDS RATHER THAN TO MAXIMISE OUTPUT. THIS HAS BEEN
EVIDENT IN EUROPE PARTICULARLY DURING THE EUROPEAN SUMMER.
SAPPI RAN ITS FACILITIES TO MARKET DEMAND AND TOOK CURTAILMENT IN EUROPE (23
DAYS) AND IN THE SOUTHERN AFRICAN PULP BUSINESS (10%) IN THE PERIOD TO END
SEPTEMBER. THE GROUP IS COMMITTED TO BALANCING PRODUCTION TO DEMAND AND HAS
THEREFORE BUDGETED A SIMILAR PERIOD OF DOWNTIME IN THE COMING YEAR.
IN THIS ENVIRONMENT IT IS NOT POSSIBLE TO PREDICT EARNINGS WITH ANY DEGREE OF
ACCURACY.
THE GROUP'S DRIVE TO INTRODUCE NEW PRODUCTS, REDUCE COSTS AND IMPROVE OPERATING
EFFICIENCIES COUPLED WITH THE SUBSTANTIAL SYNERGIES AND COST SAVINGS IN EUROPE,
REDUCED FINANCE COSTS IN NORTH AMERICA AND THE BENEFITS OF A WEAKER CURRENCY IN
SOUTH AFRICA SHOULD, HOWEVER, MORE THAN COMPENSATE FOR THE WEAKNESSES IN THE
GLOBAL ECONOMY.
SAPPI WILL COMMENCE QUARTERLY REPORTING FOR THE FIRST TIME THIS YEAR. IT IS
ANTICIPATED THAT THE FIRST QUARTER RESULTS WILL BE SEVERELY DEPRESSED BY WEAK
TRADING CONDITIONS, A COINCIDENCE OF PLANNED MAINTENANCE SHUTS AND AN ACCRUAL
OF MINIMUM TAX IN THE UNITED STATES, BUT PROVIDING THERE IS NO FURTHER
DETERIORATION IN TRADING CONDITIONS WE EXPECT THE YEAR, AS A WHOLE, TO RESULT
IN A SIMILAR OR BETTER LEVEL OF PERFORMANCE.
ON BEHALF OF THE BOARD
E VAN AS W E HEWITT
DIRECTOR DIRECTOR
30 NOVEMBER 1998
DIVIDEND ANNOUNCEMENT
THE DIRECTORS HAVE DECLARED A DIVIDEND (NUMBER 75) OF 100 CENTS PER SHARE FOR
THE YEAR ENDED 30 SEPTEMBER 1998 TO SHAREHOLDERS REGISTERED IN THE BOOKS OF THE
COMPANY AT THE CLOSE OF BUSINESS ON FRIDAY, 18 DECEMBER 1998.
THE DIVIDEND IS DECLARED IN THE CURRENCY OF THE REPUBLIC OF SOUTH AFRICA.
DIVIDENDS PAYABLE FROM THE JOHANNESBURG TRANSFER OFFICE WILL BE PAID IN SOUTH
AFRICAN RAND, AND THOSE PAYABLE FROM THE LONDON TRANSFER OFFICE WILL BE PAID IN
BRITISH POUNDS STERLING OR, IN THE CASE OF SHAREHOLDERS RESIDENT IN THE USA, IN
US DOLLARS, AT THE RESPECTIVE RATES OF EXCHANGE RULING ON 20 JANUARY 1999.
PAYMENTS WILL BE MADE ON OR ABOUT 27 JANUARY 1999.
SAPPI MANAGEMENT SERVICES (PTY) LIMITED
SECRETARIES
PER D J O'CONNOR
30 NOVEMBER 1998
COPIES OF THIS REPORT WILL BE MAILED TO SHAREHOLDERS. OTHER INTERESTED PARTIES
CAN OBTAIN COPIES FROM:
SOUTH AFRICA: MERCANTILE REGISTRARS LIMITED, 10TH FLOOR, 11 DIAGONAL STREET,
JOHANNESBURG, 2001, PO BOX 1053, JOHANNESBURG, 2000
UNITED KINGDOM: INDEPENDENT REGISTRARS GROUP LIMITED, BOURNE HOUSE, 34
BECKENHAM ROAD, BECKENHAM, KENT, BR3 4TU
UNITED STATES OF AMERICA: THE BANK OF NEW YORK, ADR DEPARTMENT, 101 BARCLAY
STREET, NEW YORK, NY 10286
THESE RESULTS CAN BE VIEWED ON THE INTERNET AT HTTP://WWW.SAPPI.COM
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