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SAPPI LIMITED - Results for Q1 ended 31 December 2012

Release Date: 06/02/2013 08:00
Code(s): SAP     PDF:  
Wrap Text
Results for Q1 ended 31 December 2012

Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284

First Quarter results for the period ended December 2012

Sappi works closely with customers,
both direct and indirect, in over
100 countries to provide them with
relevant and sustainable paper,
paper-pulp and dissolving wood pulp
products and related services and
innovations.

Our market-leading range of paper
products includes: coated fine
papers used by printers, publishers
and corporate end-users in the
production of books, brochures,
magazines, catalogues, direct mail
and many other print applications;
casting release papers used by
suppliers to the fashion, textiles,
automobile and household industries;
and in our Southern African region,
newsprint, uncoated graphic and
business papers, premium-quality
packaging papers, paper-grade pulp
and dissolving wood pulp.

Our dissolving wood pulp products
are used worldwide by converters
to create viscose fibre, acetate tow,
pharmaceutical products as well as
a wide range of consumer products.

The pulp needed for our products
is either produced within Sappi or
bought from accredited suppliers.
Across the group, Sappi is close to
'pulp neutral', meaning that we sell
almost as much pulp as we buy.

Financial summary for the quarter

- Profit for the period US$17 million (Q1 2012 US$45 million)
- EPS 3 US cents (Q1 2012 9 US cents)
- Operating profit excluding special items US$73 million
  (Q1 2012 US$100 million)
- Net finance costs of US$42 million (Q1 2012 US$54 million)
- Net debt US$2,095 million (Q1 2012 US$2,175 million)

                                                                                                 Quarter ended
                                                                                    Dec 2012            Dec 2011           Sept 2012

Key figures: (US$ million)
Sales                                                                                  1,475               1,585               1,585
Operating profit                                                                          70                 107                 160
Special items – losses (gains)(1)                                                          3                  (7)                (42)
Operating profit excluding special items(2)                                               73                 100                 118
EBITDA excluding special items(2)                                                        162                 194                 211
Profit for the period                                                                     17                  45                 107
Basic earnings per share (US cents)                                                        3                   9                  21
Net debt(3)                                                                            2,095               2,175               1,979
Key ratios: (%)
Operating profit to sales                                                                4.8                 6.8                10.1
Operating profit excluding special items to sales                                        5.0                 6.3                 7.4
Operating profit excluding special items to
capital employed (ROCE)                                                                  8.2                11.0                13.0
EBITDA excluding special items to sales                                                 11.0                12.2                13.3
Return on average equity (ROE)(4)                                                        4.5                12.0                27.8
Net debt to total capitalisation(4)                                                     58.1                58.9                56.5
Net asset value per share (US cents)                                                     290                 291                 293

(1) Refer to note 9 for details on special items.
(2) Refer to note 9 to the group results for the reconciliation of EBITDA excluding special items and operating profit excluding
    special items to segment operating profit, and profit for the period.
(3) Refer to supplemental information for the reconciliation of net debt to interest-bearing borrowings.
(4) Refer to supplemental information for the definition of the term.

Commentary on the quarter

The group operating profit excluding special items of US$73 million for the quarter was impacted by generally 
lower selling prices for pulp and paper.

The North American business achieved a good result, with slightly weaker than expected
performance in our Southern African and European businesses. In Europe, the operating and sales
achievements were ahead of the market, which remains challenging and where conditions worsened
during the quarter. Lower pricing across all graphic paper grades led to lower profitability for the
European paper business. In South Africa, the impact of lower dissolving wood pulp prices compared to
the equivalent quarter in the prior year combined with the three-week road transport strike negatively
affected the result. However, volume and pricing momentum picked up towards the end of the quarter.

NBSK pulp prices, to which most of our paper pulp and dissolving wood pulp sales are linked, increased
during the quarter from the recent lows reached at the end of September 2012. Average NBSK prices
were essentially flat compared to the prior quarter and were approximately US$90 per ton lower than in
the equivalent quarter last year. Hardwood pulp prices were significantly higher than the equivalent
quarter last year, which negatively affected our European operations as they are significant buyers of
hardwood pulp. The prices of other major inputs such as energy, wood and chemicals were generally
lower than in the equivalent quarter last year with the exception of the Southern African business.

There were no major special items for the quarter. The charge to special items of US$3 million included
a positive plantation fair value price adjustment of US$8 million and a restructuring provision of 
US$7 million primarily related to the mothballing of PM4 at Tugela.

Finance costs of US$42 million were lower than the equivalent quarter last year of US$54 million following
the refinancing completed over the past year and the reduction in gross debt.

Earnings per share for the quarter was 3 US cents (including a charge of 1 US cent in respect of special
items) compared with 9 US cents (including a gain of 2 US cents in respect of special items) in the
equivalent quarter last year.

Cash flow and debt

Net cash utilised for the quarter was US$102 million, an improvement compared with net cash utilised
of US$111 million in the equivalent quarter last year. This cash outflow for the quarter was mainly as a
result of a seasonal increase in working capital, which typically increases at the end of the first financial
quarter as a result of the seasonal slowdown in deliveries in the second half of  December. Capital
expenditure in the quarter increased to US$97 million compared to US$75 million a year ago, reflecting
the continued expenditure on the dissolving wood pulp projects.

Net debt of US$2,095 million is down from US$2,175 million in December 2011, but up from
US$1,979  million in the quarter ended September 2012 as a result of the seasonal increase in cash
utilisation.

Liquidity remains strong with cash on hand of US$504 million and the EUR350 million (US$463  million)
available from the undrawn committed revolving credit facility at quarter-end. During December 2012, we
finalised a committed revolving credit facility in South Africa of US$118 million, of which US$65 million
was undrawn at the end of December 2012.

Operating Review for the Quarter

Europe
                                     Quarter         Quarter          Quarter         Quarter         Quarter
                                       ended           ended           ended           ended           ended
                                    Dec 2012       Sept 2012        Jun 2012        Mar 2012        Dec 2011
                                 EUR million     EUR million     EUR million     EUR million     EUR million

Sales                                    616             659             620             672             628
Operating profit excluding                16              35               8              37              22
special items  
Operating profit excluding               2.6             5.3             1.3             5.5             3.5
special items to sales (%) 
 EBITDA excluding special                 54              73              47              73              60
  items
 EBITDA excluding special                8.8            11.1             7.6            10.9             9.6
  items to sales (%)  
 RONOA pa (%)                            4.6             9.8             2.2            10.2             6.1

Market conditions in the European paper business continued to be challenging, and deteriorated during
the quarter. The business achieved sales volumes for the quarter equal to the equivalent quarter in the
prior year, despite industry volumes that were depressed year-on-year, in the case of mechanical coated
paper by as much as 7%. During the quarter we experienced strong downward pressure on pricing for
all graphic paper grades, and average graphic paper sales prices were 2% lower than in the equivalent
quarter last year.

Our European business maintained a strong focus on cost containment and variable costs remain 2%
below those of the equivalent quarter last year.

The coated specialities business continues to perform well, with increased sales volumes and stable to
increasing price movements compared with the equivalent quarter last year.

North America
                                    Quarter        Quarter       Quarter       Quarter       Quarter
                                      ended          ended         ended         ended         ended
                                   Dec 2012      Sept 2012      Jun 2012      Mar 2012      Dec 2011
                                US$ million    US$ million   US$ million   US$ million   US$ million

Sales                                   346            377           360           349           352
Operating profit excluding
special items                            18             42            18            24            10
Operating profit excluding 
special items to sales (%)              5.2           11.1           5.0           6.9           2.8
 EBITDA excluding special
  items                                  37             63            38            43            29
 EBITDA excluding special
  items to sales (%)                   10.7           16.7          10.6          12.3           8.2
 RONOA pa (%)                           7.9           18.2           7.7          10.4           4.4

The performance of our North American coated paper business was good, with increased sales volumes
partially offset by 3% lower average sales prices when compared to the equivalent quarter last year.

The pulp business continued to be negatively impacted by pulp prices that are 5% lower than the
equivalent quarter last year, and 3% lower than the prior quarter. Sales volumes were also lower than in
both comparative periods, due in part to a planned increase in pulp inventories at the Cloquet mill ahead
of the conversion to dissolving wood pulp. The conversion of the Cloquet pulp mill from hardwood kraft
pulp to dissolving wood pulp continues on schedule for an expected start-up in the third financial quarter
of 2013.

Release paper sales volumes were markedly higher than in both the equivalent quarter last year, and the
prior quarter. Average sales prices, whilst stable compared to the prior quarter were below those of
the equivalent quarter last year.

Variable costs remained well controlled, with nearly all categories of input costs lower than in the
equivalent quarter last year, resulting in total variable costs per ton being 4% lower than in the equivalent
quarter last year.

Sappi Southern Africa
                                 Quarter       Quarter       Quarter       Quarter       Quarter
                                   ended         ended         ended         ended         ended
                                Dec 2012     Sept 2012      Jun 2012      Mar 2012      Dec 2011
                             ZAR million   ZAR million   ZAR million   ZAR million   ZAR million

Sales                              2,870         3,152         3,159         3,113         3,131
Operating profit excluding
special items                        270           276           255           409           494
Operating profit excluding
special items to sales (%)           9.4           8.8           8.1          13.1          15.8
 EBITDA excluding special
  items                              452           473           426           604           680
 EBITDA excluding special 
  items to sales (%)                15.7          15.0          13.5          19.4          21.7
 RONOA pa (%)                        7.8           8.2           7.6          12.2          15.1

The Southern African business showed a similar result compared to the prior quarter despite the impact
of the three-week road transport strike which spilled over into this quarter. Compared with the equivalent
quarter last year however, the operating result was weaker due to lower sales volumes, lower average
prices in the Specialised Cellulose business and higher variable costs.

The Specialised Cellulose business sold 175kt of dissolving wood pulp during the quarter, similar to the
equivalent quarter last year, but less than the volume sold in the prior quarter due to shipping and
production schedules. Average sales prices, which are linked to NBSK pulp, were 12% lower than in the
equivalent quarter last year, and similar to those achieved in the prior quarter. The Specialised Cellulose
business generated an EBITDA excluding special items of ZAR351 million, representing an EBITDA
excluding special items margin of 28%.

The Southern African paper business further improved its performance, compared both to the equivalent
quarter last year and the prior quarter. While sales volumes were lower predominantly due to the
restructuring of the business and resultant machine closures, sales prices were higher for both local and
export sales.

Input costs increased, particularly purchased wood and pulp, as a result of the weaker Rand/US Dollar
exchange rate.

Directorate

Professor Meyer Feldberg, our lead independent director, retired from the board at the end of
December 2012 having reached the board's mandatory retirement age. Sir Nigel Rudd who has
served as a non-executive director for more than six years succeeded Professor Feldberg as lead
independent director.

Outlook

Financial year 2013 is an important transitional year for the group as we expand our Specialised
Cellulose business and continue to optimise our paper businesses.

Market conditions for the paper business, particularly in Europe, are expected to remain challenging
for the remainder of the fiscal year, particularly with regards to pricing and input costs. Pulp prices,
a major input cost for our European business in particular, have increased since the end of the
quarter. Conversely, paper pulp and dissolving wood pulp sales from our North American and
Southern African operations should benefit from these higher pulp prices. Overall the group benefits
from higher pulp prices as a result of the higher margins in the North American and Southern African
businesses.

Price increases were announced for coated woodfree paper in Europe effective from 01 January
2013. The impact of these increases is expected to be gradually felt over the coming months and
be fully in place during the course of the third financial quarter. Prices for coated mechanical paper
decreased in January, and will not recover before July.

The Specialised Cellulose business continues to sell all available production volumes. The
Specialised Cellulose expansion projects at both the Ngodwana and Cloquet mills proceed on plan
for start-up in our third financial quarter. The Ngodwana mill will take an extended planned annual
maintenance shut during the second financial quarter due to the conversion project. We expect that
this will negatively impact the quarter operating profit by approximately US$20 million.

As previously indicated, as a result of the capex spend on the dissolving wood pulp projects, we
expect net debt to increase from the September 2012 level during the 2013 fiscal year and to
reduce again post the completion of the projects.

Given prevailing market conditions, we expect the second quarter operating profit excluding special
items to be below that of the first quarter for the reasons described above. However, we expect the
operating profit in the second half of the financial year to be stronger than in the first half.

On behalf of the board

R J Boëttger                                S R Binnie
Director                                    Director                                06 February 2013

Forward-looking statements

Certain statements in this 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 earnings, savings, synergies, events, trends, plans or objectives.
The words "believe", "anticipate", "expect", "intend", "estimate", "plan", "assume", "positioned",
"will", "may", "should", "risk" and other similar expressions, which are predictions of or indicate
future events and future trends, which do not relate to historical matters, identify forward-looking
statements. You should not rely on forward-looking statements because they involve known and
unknown risks, uncertainties and other factors which are in some cases beyond our control and
may cause our actual results, performance or achievements to differ materially from anticipated
future results, performance or achievements expressed or implied by such forward-looking
statements (and from past results, performance or achievements). Certain factors that may cause
such differences include but are not limited to:

-   the highly cyclical nature of the pulp and paper industry (and the factors that contribute to such
    cyclicality, such as levels of demand, production capacity, production, input costs including
    raw material, energy and employee costs, and pricing);

-   the impact on our business of the global economic downturn;

-   unanticipated production disruptions (including as a result of planned or unexpected power
    outages);

-   changes in environmental, tax and other laws and regulations;

-   adverse changes in the markets for our products;

-   the emergence of new technologies and changes in consumer trends including increased
    preferences for digital media;

-   consequences of our leverage, including as a result of adverse changes in credit markets that
    affect our ability to raise capital when needed;

-   adverse changes in the political situation and economy in the countries in which we operate or
    the effect of governmental efforts to address present or future economic or social problems;

-   the impact of restructurings, investments, acquisitions, dispositions and other strategic
    initiatives (including related financing), any delays, unexpected costs or other problems
    experienced in connection with dispositions or with integrating acquisitions or implementing
    restructuring or strategic initiatives (including our announced dissolving wood pulp conversion
    projects), and achieving expected savings and synergies; and

-   currency fluctuations.

We undertake no obligation to publicly update or revise any of these forward-looking statements,
whether to reflect new information or future events or circumstances or otherwise.

Condensed group income statement
                                                                       Quarter           Quarter
                                                                         ended             ended
                                                                      Dec 2012          Dec 2011
                                                              Note US$ million       US$ million

Sales                                                                    1,475             1,585
Cost of sales                                                            1,301             1,377
Gross profit                                                               174               208
Selling, general and administrative expenses                                95               105
Other operating expenses (income)                                           10                (4)
Share of profit from associates and joint ventures                          (1)                –
Operating profit                                                 2          70               107
Net finance costs                                                           42                54
  Net interest                                                              41                56
  Net foreign exchange loss (gain)                                           1                (1)
  Net fair value gain on financial instruments                               –                (1)
Profit before taxation                                                      28                53
Taxation                                                                    11                 8
  Current                                                                    3                (1)
  Deferred                                                                   8                 9
Profit for the period                                                       17                45
Basic earnings per share (US cents)                                          3                 9
Weighted average number of shares in issue (millions)                    520.9             520.5
Diluted earnings per share (US cents)                                        3                 9
Weighted average number of shares on fully
diluted basis (millions)                                                 522.2             524.5



Condensed group statement of comprehensive income
                                                                       Quarter           Quarter
                                                                         ended             ended
                                                                      Dec 2012          Dec 2011
                                                                   US$ million       US$ million

Profit for the period                                                       17                45
Other comprehensive loss, net of tax                                       (33)              (11)
  Exchange differences on translation of foreign operations                (24)                2
  Movements in hedging reserves                                             (9)              (14)
  Deferred tax effect of above items                                         –                 1
Total comprehensive (loss) income for the period                           (16)               34

Condensed group balance sheet
                                                                                        Reviewed
                                                                       Dec 2012        Sept 2012
                                                                    US$ million      US$ million
ASSETS
Non-current assets                                                        4,024            3,990
Property, plant and equipment                                             3,192            3,157
Plantations                                                                 553              555
Deferred taxation                                                           152              154
Other non-current assets                                                    127              124
Current assets                                                            2,085            2,178
Inventories                                                                 809              726
Trade and other receivables                                                 772              807
Cash and cash equivalents                                                   504              645
Total assets                                                              6,109            6,168
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest                                           1,513            1,525
Non-current liabilities                                                   3,302            3,328
Interest-bearing borrowings                                               2,293            2,358
Deferred taxation                                                           321              319
Other non-current liabilities                                               688              651
Current liabilities                                                       1,294            1,315
Interest-bearing borrowings                                                 299              261
Bank overdraft                                                                7                5
Other current liabilities                                                   969            1,023
Taxation payable                                                             19               26
Total equity and liabilities                                              6,109            6,168
Number of shares in issue at balance sheet date (millions)                521.5            520.8

Condensed group statement of cash flows                                        
                                                       Quarter       Quarter   
                                                         ended         ended   
                                                      Dec 2012      Dec 2011   
                                                   US$ million   US$ million 
  
Profit for the period                                       17            45   
Adjustment for:                                                                
  Depreciation, fellings and amortisation                  106           113   
  Taxation                                                  11             8   
  Net finance costs                                         42            54   
  Defined post-employment benefits paid                    (15)          (11)   
  Plantation fair value adjustments                        (26)          (24)   
  Net restructuring provisions                               7             –   
  Other non-cash items                                       8            10   
Cash generated from operations                             150           195   
Movement in working capital                               (130)         (166)   
Net finance costs paid                                     (59)          (64)   
Taxation paid                                              (10)           (5)   
Cash utilised in operating activities                      (49)          (40)   
Cash utilised in investing activities                      (53)          (71)   
Net cash utilised                                         (102)         (111)   
Cash effects of financing activities                       (46)         (117)   
Net movement in cash and cash equivalents                 (148)         (228)   

Condensed group statement of changes in equity                                 
                                                       Quarter       Quarter   
                                                         ended         ended   
                                                      Dec 2012      Dec 2011   
                                                   US$ million   US$ million 
  
Balance – beginning of period                            1,525         1,478   
Total comprehensive (loss) income for the period           (16)           34   
Transfers from the share purchase trust                      3             2   
Transfers of vested share options                           (3)           (2)   
Share-based payment reserve                                  4             4   
Balance – end of period                                  1,513         1,516   

Notes to the condensed group results

1. Basis of preparation

   The condensed consolidated interim financial results for the three months ended December 2012 
   have been prepared in compliance with the Listings Requirements of the JSE Limited and in 
   accordance with the framework concepts and the measurement and recognition requirements of 
   International Financial Reporting Standards (IFRS) as issued by the International Accounting 
   Standards Board, AC 500 standards issued by the Accounting Practices Board, the requirements of 
   the Companies Act of South Africa and the information required by IAS 34 Interim Financial 
   Reporting. The accounting policies applied in the preparation of these interim financial results are 
   consistent with those applied for the year ended September 2012.

   The preparation of this condensed consolidated financial information was supervised by the Chief 
   Financial Officer, S R Binnie CA(SA).

   These results are unaudited.
                                                                          Quarter       Quarter   
                                                                            ended         ended   
                                                                         Dec 2012      Dec 2011   
                                                                      US$ million   US$ million   
2. Operating profit 
                                                                              
   Included in operating profit are the following non-cash items:                                    
    Depreciation and amortisation                                              89            94   
    Fair value adjustment on plantations (included in cost of sales)                                  
      Changes in volume                                                                                 
      Fellings                                                                 17            19   
      Growth                                                                  (18)          (21)   
                                                                               (1)           (2)   
      Plantation price fair value adjustment                                   (8)           (3)   
                                                                               (9)           (5)   
Included in other operating expenses (income) are the following:                                  
      Profit on disposal of property, plant and equipment                       –           (5)   
      Net restructuring provisions                                              7             –   
      Black Economic Empowerment charge                                         1             1   

3. Headline earnings per share   
                                                                 
   Headline earnings per share (US cents)                                       3             8   
   Weighted average number of shares in issue (millions)                    520.9         520.5   
   Diluted headline earnings per share (US cents)                               3             8   
   Weighted average number of shares on fully diluted basis (millions)      522.2         524.5   
   Calculation of headline earnings                                                                  
    Profit for the period                                                      17            45   
    Profit on disposal of property, plant and equipment                         –            (5)   
    Tax effect of above items                                                   –             –   
   Headline earnings                                                           17            40   

4. Capital expenditure         
                                                                   
   Property, plant and equipment                                              110            76   


                                                                                       Reviewed   
                                                                         Dec 2012     Sept 2012   
                                                                      US$ million   US$ million   
5. Capital commitments                                     
    Contracted                                                                266           267   
    Approved but not contracted                                               312           244   
                                                                              578           511   
6. Contingent liabilities   
                               
    Guarantees and suretyships                                                 35            31   
    Other contingent liabilities                                               10            10   
                                                                               45            41   

7. Material balance sheet movements
   Cash and cash equivalents, interest-bearing borrowing and inventories

   Inventory increased as a result of a conscious decision to increase stock holding in anticipation of 
   the dissolving wood pulp conversion projects. The decrease in trade and other receivables is mainly 
   attributable to the receipt of US$42 million on the sale of the previously equity accounted 34% 
   shareholding in Jiangxi Chenming Paper Company. Cash and cash equivalents decreased as a result 
   of the redemption of the remaining EUR31 million (US$42 million) of its senior secured notes due 2014, 
   cash capital expenditure of US$97 million, proceeds on sales of investment as described above and 
   reduction in other current liabilities of US$54 million due to seasonal changes.

8. Post balance sheet events

   Following the closure of its Usutu Mill in the 2010 financial year, Sappi Southern Africa has signed an 
   agreement to sell its villages situated around the mill for US$11 million that have a book value of US$0.3 million. 
   The sale is subject to the provision of guarantees by the buyer and the registration of the transfer of the properties 
   in the name of the buyer.

9. Segment information                                               
                                               Quarter       Quarter   
                                                 ended         ended   
                                              Dec 2012      Dec 2011   
                                           Metric tons   Metric tons   
                                                (000's)       (000's)   
Sales volume                                                           
Sappi Fine Paper North America                     334           339   
Sappi Fine Paper Europe                            849           849   
Sappi Southern Africa –   Pulp and paper           380           400   
                          Forestry                 284           241   
Total                                            1,847         1,829
   
                                               Quarter       Quarter   
                                                 ended         ended   
                                              Dec 2012      Dec 2011   
                                           US$ million   US$ million   
Sales                                                                  
Sappi Fine Paper North America                     346           352   
Sappi Fine Paper Europe                            799           846   
Sappi Southern Africa –   Pulp and paper           310           368   
                          Forestry                  20            19   
Total                                            1,475         1,585   
Operating profit excluding special items                               
Sappi Fine Paper North America                      18            10   
Sappi Fine Paper Europe                             21            29   
Sappi Southern Africa                               31            61   
Unallocated and eliminations(1)                      3             –   
Total                                               73           100   
Special items – losses (gains)                                         
Sappi Fine Paper North America                       2             –   
Sappi Fine Paper Europe                              3            (5)   
Sappi Southern Africa                               (2)           (2)   
Unallocated and eliminations(1)                      –             –   
Total                                                3            (7)   
Segment operating profit                                               
Sappi Fine Paper North America                      16            10   
Sappi Fine Paper Europe                             18            34   
Sappi Southern Africa                               33            63   
Unallocated and eliminations(1)                      3             –   
Total                                               70           107   
EBITDA excluding special items                                         
Sappi Fine Paper North America                      37            29   
Sappi Fine Paper Europe                             70            81   
Sappi Southern Africa                               52            84   
Unallocated and eliminations(1)                      3             –   
Total                                              162           194   

(1) Includes the group's treasury operations and the self-insurance captive.

                                               Quarter       Quarter   
                                                 ended         ended   
                                              Dec 2012      Dec 2011   
                                           US$ million   US$ million   
Segment assets                                                
Sappi Fine Paper North America                     913           901   
Sappi Fine Paper Europe                          1,847         1,908   
Sappi Southern Africa                            1,708         1,663   
Unallocated and eliminations(1)                     (3)           65   
Total                                            4,465         4,537   

(1) Includes the group's treasury operations and the self-insurance captive.

Reconciliation of EBITDA excluding special items and operating profit excluding special items to
segment operating profit and profit for the period

Special items cover those items which management believe are material by nature or amount to the
operating results and require separate disclosure.

                                                          Quarter       Quarter   
                                                            ended         ended   
                                                         Dec 2012      Dec 2011   
                                                      US$ million   US$ million
   
EBITDA excluding special items                                162           194   
 Depreciation and amortisation                                (89)          (94)   
Operating profit excluding special items                       73           100   
 Special items – (losses) gains                                (3)            7   
   Plantation price fair value adjustment                       8             3   
   Net restructuring provisions                                (7)            –   
   Profit on disposal of property, plant and equipment          –             5   
   Black Economic Empowerment charge                           (1)           (1)   
   Fire, flood, storm and related events                       (3)            –   
Segment operating profit                                       70           107   
Net finance costs                                             (42)          (54)   
Profit before taxation                                         28            53   
Taxation                                                      (11)           (8)   
Profit for the period                                          17            45   
Reconciliation of segment assets to total assets                                  
Segment assets                                              4,465         4,537   
   Deferred taxation                                          152            43   
   Cash and cash equivalents                                  504           401   
   Other current liabilities                                  969           974   
   Taxation payable                                            19            14   
Total assets                                                6,109         5,969   

Supplemental information (this information has not been audited or reviewed)

General definitions

Average – averages are calculated as the sum of the opening and closing balances for the relevant
period divided by two

Black Economic Empowerment – as envisaged in the Black Economic Empowerment (BEE) legislation
in South Africa

Black Economic Empowerment charge – represents the IFRS 2 non-cash charge associated with the
BEE transaction implemented in fiscal 2010

Fellings – the amount charged against the income statement representing the standing value of the
plantations harvested

NBSK – Northern Bleached Softwood Kraft pulp. One of the main varieties of market pulp, produced
from coniferous trees (ie spruce, pine) in Scandinavia, Canada and northern USA. The price of NBSK is
a benchmark widely used in the pulp and paper industry for comparative purposes

SG&A – selling, general and administrative expenses

Non-GAAP measures

The group believes that it is useful to report certain non-GAAP measures for the following reasons:

– these measures are used by the group for internal performance analysis;

– the presentation by the group's reported business segments of these measures facilitates
  comparability with other companies in our industry, although the group's measures may not be
  comparable with similarly titled profit measurements reported by other companies; and

– it is useful in connection with discussion with the investment analyst community and debt rating
  agencies

These non-GAAP measures should not be considered in isolation or construed as a substitute for GAAP
measures in accordance with IFRS

Capital employed – shareholders' equity plus net debt

EBITDA excluding special items – earnings before interest (net finance costs), taxation, depreciation,
amortisation and special items

Headline earnings – as defined in circular 3/2012 issued by the South African Institute of Chartered
Accountants, separates from earnings all separately identifiable re-measurements. It is not necessarily a
measure of sustainable earnings. It is a Listings Requirement of the JSE Limited to disclose headline
earnings per share

Net assets – total assets less total liabilities

Net asset value per share – net assets divided by the number of shares in issue at balance sheet date

Net debt – current and non-current interest-bearing borrowings, and bank overdraft (net of cash, cash
equivalents and short-term deposits)

Net debt to total capitalisation – net debt divided by capital employed

Net operating assets – total assets (excluding deferred taxation and cash) less current liabilities
(excluding interest-bearing borrowings and overdraft). Net operating assets equate to segment assets

ROCE – annualised return on average capital employed. Operating profit excluding special items divided
by average capital employed

ROE – annualised return on average equity. Profit for the period divided by average shareholders' equity

RONOA – return on average net operating assets. Operating profit excluding special items divided by
average segment assets

Special items – special items cover those items which management believe are material by nature or
amount to the operating results and require separate disclosure. Such items would generally include
profit or loss on disposal of property, investments and businesses, asset impairments, restructuring
charges, non-recurring integration costs related to acquisitions, financial impacts of natural disasters,
non-cash gains or losses on the price fair value adjustment of plantations and alternative fuel tax credits
receivable in cash

The above financial measures are presented to assist our shareholders and the investment community in interpreting our financial
results. These financial measures are regularly used and compared between companies in our industry.

Supplemental information (this information has not been audited or reviewed)

Summary rand convenience translation
                                                       Quarter    Quarter   
                                                         ended      ended   
                                                      Dec 2012   Dec 2011   
Key figures: (ZAR million)                                                  
Sales                                                   12,829     12,825   
Operating profit                                           609        866   
Special items – losses (gains)(1)                           26        (57)   
Operating profit excluding special items(1)                635        809   
EBITDA excluding special items(1)                        1,409      1,570   
Profit for the period                                      148        364   
Basic earnings per share (SA cents)                         28         73   
Net debt(1)                                             17,776     17,587   
Key ratios: (%)                                                             
Operating profit to sales                                  4.7        6.8   
Operating profit excluding special items to sales          4.9        6.3   
Operating profit excluding special items to capital                         
employed (ROCE)(1)                                         8.5       11.0   
EBITDA excluding special items to sales                   11.0       12.2   
Return on average equity (ROE)                             4.6       12.0   
Net debt to total capitalisation(1)                       58.1       58.9   

(1) Refer to supplemental information for the definition of the term.
The above financial results have been translated into Rands from US Dollars as follows:
– assets and liabilities at rates of exchange ruling at period end; and
– income, expenditure and cash flow items at average exchange rates.

Reconciliation of net debt to interest-bearing borrowings

                                             Dec 2012     Sept 2012   
                                          US$ million   US$ million
   
Interest-bearing borrowings                     2,599         2,624   
Non-current interest-bearing borrowings         2,293         2,358   
Current interest-bearing borrowings               299           261   
Bank overdraft                                      7             5   
Cash and cash equivalents                        (504)         (645)   
Net debt                                        2,095         1,979   

Exchange rates                                                                          
                                              Dec     Sept      Jun      Mar      Dec   
                                             2012     2012     2012     2012     2011   
Exchange rates:                                                                         
Period end rate: US$1 = ZAR                8.4851   8.3096   8.1650   7.6725   8.0862   
Average rate for the Quarter: US$1 = ZAR   8.6975   8.2567   8.1229   7.7511   8.0915   
Average rate for the YTD: US$1 = ZAR       8.6975   8.0531   7.9885   7.9237   8.0915   
Period end rate: EUR1 = US$                1.3217   1.2859   1.2660   1.3344   1.2948   
Average rate for the Quarter: EUR1 = US$   1.2970   1.2514   1.2838   1.3116   1.3482   
Average rate for the YTD: EUR1 = US$       1.2970   1.2988   1.3145   1.3299   1.3482   

Sappi has a primary listing on the JSE Limited and a secondary listing on 
the New York Stock Exchange

South Africa: 
Computershare Investor
Services (Proprietary) Limited 
70 Marshall Street
Johannesburg 2001 
PO Box 61051 
Marshalltown 2107
Tel +27 (0)11 370 5000 

United States:
ADR Depositary:
The Bank of New York Mellon
Investor Relations
PO Box 11258
Church Street Station
New York, NY 10286-1258
Tel +1 610 382 7836

this report is available on the Sappi website www.sappi.com

Sponsor: UBS South Africa (Pty) Ltd
Date: 06/02/2013 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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