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Sap - Sappi Limited - Chairman`s Statement At AGM Sappi Limited (Registration Number 1936/008963/06) (Incorporated In The Republic Of South Africa) Share Code: Sap & Isin: Zae000006284) ("Sappi" Or The "Company") Chairman`s Statement At AGM We Reported Our Results For The December Quarter On The 1st Of February And It Was Pleasing To Note The Improved Operating Results For The Business And The Reported Earnings Per Share Of 13c In The Quarter. We Indicated Then That We Expected The Underlying Earnings In The Coming Quarter To Improve Compared To The December Quarter Excluding The Unpredictable Fair Value Adjustments. We Continue To Believe That We Will Be Able To Do This. Our Fine Paper Business Is Experiencing Strong Demand And Industry Operating Rates For Coated Fine Paper In Europe And The United States Are At Very High Levels, But Margins Are Still Under Pressure. In Europe, The Key To Our Profitability Is An Increase In Paper Prices Which Have Been Declining For Six Years In Defiance Of Substantial Cost Increases In Chemicals, Energy And Fibre. In December We Announced Price Increases In Europe, And As Far As We Can Tell, All Our Major Competitors Have Now Announced Increases As Well, Although Some, Notably One Competitor, Have Delayed The Increase Until March. We Are Maintaining The Higher Prices But In The Short-Term It Is Having Some Effect On Volumes. We Are Confident That By The End Of The First Calendar Quarter, Prices In Europe Will Have Risen By About Euro40 A Ton, But This Is Not Sufficient To Fully Offset Cost Inflation. Significant Progress Has Been Made On Achieving Cost Reductions Which Are Aimed To Reduce Our Cost On The Average Of The 2005 Cost Base By Euro 175-Million A Year And This Is On Track For Completion By September. However, Most Of The Cost Reductions Have Been Offset By Price Rises In Wood, Energy And Fibre; Further Price Increases Are Therefore Essential To Restore Reasonable Margins. In North America, We Have Stabilized The Business And We Are Now Back To The Excellent Customer Service Levels Which We Offered Previously. There Are Significant Opportunities To Eliminate Costs By Streamlining Our Logistics Chain And Also By Generating And Producing New Products In The Market And Sappi North America Can Now Focus On These Issues. Our South African Business Is Benefiting From Buoyant Containerboard And Pulp Prices, Improved Operations At Saiccor, A Slow But Steady Improvement In The Operating Conditions In Sappi Kraft And The Weaker Rand. The Expansion Of Saiccor Is Well Underway And Is Expected To Come On Stream By The Middle Of Next Year Which Will Add Significant New Profit Opportunities And Cost Reductions For That Business. Much Improved Margins Can Be Expected From This Business. During The Last Six Months, There Have Been Significant Management Changes In The Group As Various Senior Executives Have Reached Retirement Age. The New Management Teams Are Beginning To Settle Down In South Africa And We Will Benefit From Fresh Eyes On Old Challenges. We Are Confident That They Will Find New Opportunities To Improve The Business. In Europe, Berry Wiersum Joined The Group In January And Will Take Over From Wolfgang Pfarl As CEO Of Europe When Wolfgang Retires At The End Of March. Berry Is Actively Engaged In The Transition Period And Focused On Improving The Revenue Line Of Our European Business. In The Us, The Management Team Has Stabilized And We Are Focusing In The Quarters Ahead On Reducing Costs And Growing Our Market Share Back Slowly. Finally, The New CEO Of Sappi Trading, Wayne Rau, Will Take Over That Business At The End Of March When Hugh Martin Retires. We Are Positive About The Outlook For The Business And Expect The Changes We Have Made Will Continue To Show Steady Improvement In Operating Performance. Johannesburg 5 March 2007Sponsor : UBS Warburg Date: 05/03/2007 15:45:11 Supplied by www.sharenet.co.za Produced by the JSE SENS Department.
