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SAPPI LIMITED - First Quarter Results for the period ended December 2014

Release Date: 11/02/2015 08:00
Code(s): SAP     PDF:  
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First Quarter Results for the period ended December 2014

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

FIRST QUARTER RESULTS
for the period ended December 2014

1st quarter results

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.

*Sales by source
North America - 25%
Europe - 50%
Southern Africa - 25%

*Sales by product
Coated paper - 59%
Uncoated pape - 6%
Speciality paper
Commodity paper - 7%
Dissolving wood pulp - 18%
Paper pulp - 9%
Other - 1%

*Sales by destination
North America - 20%
Europe - 41%
Southern Africa - 10%
Asia and other - 29%

**Net operating assets
North America - 27%
Europe - 39%
Southern Africa - 34%
* for the period ended December 2014
** as at December 2014

Highlights for the quarter

-   Profit for the period USD24 million (Q1 2014 USD18 million)
-   EPS excluding special items 5 US cents (Q1 2014 2 US cents)
-   EBITDA excluding special items USD145 million (Q1 2014 USD147 million)
-   Net debt USD2,040 million, down USD340 million year-on-year

                                                                                  Quarter ended
                                                                                    Restated(1)
                                                                         Dec 2014      Dec 2013     Sept 2014
Key figures: (USD million)
Sales                                                                       1,377         1,499         1,505
Operating profit excluding special items (2)                                   74            60           124
Special items - losses (gains)(3)                                               5          (10)            48
EBITDA excluding special items (2)                                            145           147           200
Profit for the period                                                          24            18            68
Basic earnings per share (US cents)                                             5             3            13
Net debt (4)                                                                2,040         2,380         1,946
 
Key ratios: (%) 
Operating profit excluding special items to sales                             5.4           4.0           8.2
Operating profit excluding special items to capital employed (ROCE)(5)        9.7           7.0          15.4
EBITDA excluding special items to sales                                      10.5           9.8          13.3
Return on average equity (ROE)(5)                                             9.1           6.4          24.7
Net debt to total capitalisation(5)                                          65.8          68.0          65.1
Net asset value per share (US cents)                                          202           215           199
 
(1) Restated for the adoption of IFRS 10 Consolidated Financial Statements. Refer to note 2 to the group results for more detail.
(2) Refer to note 11 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 note 11 to the group results for details on special items.
(4) Refer to supplemental information for the reconciliation of net debt to interest-bearing borrowings.
(5) Refer to supplemental information for the definition of the term.

Commentary on the quarter
Operating performance in the quarter was in line with expectations and the equivalent
quarter last year. The group generated an EBITDA excluding special items of USD145
million, operating profit excluding special items of USD74 million and profit for the period
of USD24 million.

The Specialised Cellulose business continued to generate good returns during the
quarter, with EBITDA excluding special items of USD70 million. US Dollar prices for
dissolving wood pulp remain under pressure in all market segments due to excess
market supply as well as the weak margins in the viscose staple fibre sector. The
decline in cotton and polyester prices and large cotton reserves are compounding the
pricing pressures. The weaker Rand/Dollar exchange rate has enabled the 
South African mills to maintain Rand pricing, while good variable and fixed cost control across
the business is helping to maintain margins.

The European business benefited from lower fixed costs after the disposal of the
Nijmegen mill, higher sales prices for coated woodfree paper as well as an improved
performance from the specialities business at Alfeld.

A planned extended annual maintenance shut and the completion of a number of capital
projects in the North American business had a significant impact on costs during the
quarter resulting in an operating loss for the quarter. However, the underlying
performance improved, particularly in the coated paper business, as a result of higher
selling prices. In the current pricing environment, the decision to produce paper pulp 
for own consumption as well as dissolving wood pulp at the Cloquet pulp mill also 
enhanced profitability.

The paper business in South Africa continues to show steady improvement, while the
transition from graphic paper grades to packaging paper commenced during the quarter.

Net finance costs for the quarter were USD37 million, a reduction from the USD48 million
in the equivalent quarter last year.

Earnings per share for the quarter were 5 US cents, compared with 3 US cents
(including a gain of 1 US cent in respect of special items) in the equivalent quarter 
last year.

There were no major special items for the quarter. The net charge of USD5 million
includes a self-insured mechanical failure at the Ngodwana mill.

Cash flow and debt
Net cash utilised for the quarter was USD121 million, lower than the net cash utilised of
USD133 million in the equivalent quarter last year. The cash outflow for the quarter was
mainly as a result of a seasonal increase in working capital. Capital expenditure in the
quarter of USD68 million was marginally less than the USD71 million spent in the
equivalent quarter last year.

Net debt of USD2,040 million is down substantially from USD2,380 million at the end of
the restated equivalent quarter last year as a result of the strong cash generation in the
past financial year and the translation benefit of the weaker Euro on the Euro
denominated debt. As previously announced, the net debt increased compared to the
USD1,946 million as of the end of the prior quarter as a result of the seasonal increase in
cash utilisation.

Liquidity comprises cash on hand of USD329 million and USD512 million available from
the undrawn committed revolving credit facilities in South Africa and Europe.

Operating review for the quarter
Europe
                                                                       Quarter         Quarter       Quarter       Quarter       Quarter
                                                                         ended           ended         ended         ended         ended
                                                                      Dec 2014       Sept 2014      Jun 2014      Mar 2014      Dec 2013
                                                                   EUR million     EUR million   EUR million   EUR million   EUR million
Sales                                                                      547             561           543           603           581
Operating profit excluding special items                                    12              26            12            14             3
Operating profit excluding special items to sales (%)                      2.2             4.6           2.2           2.3           0.5
EBITDA excluding special items                                              42              58            39            48            38
EBITDA excluding special items to sales (%)                                7.7            10.3           7.2           8.0           6.5
RONOA pa (%)                                                               4.0             8.6           4.0           4.6           1.0

In this seasonally slower quarter, the performance of the European business improved
compared to that of the equivalent quarter last year. This was despite the EUR12 million
cost and lost margin impact of the paper machine upgrade at the Gratkorn mill. The
improvement was largely as a result of higher average sales prices for coated woodfree
paper and lower fixed costs, with variable costs flat year-on-year. Coated mechanical
paper prices and volumes remain under pressure.

The weaker Euro negatively affected US Dollar denominated variable costs, particularly
for paper pulp, compared to the prior quarter. Conversely, paper exports from Europe
benefited from the weaker Euro and largely offset the effect of increased pulp costs.

The disposal of the Nijmegen mill in the previous financial year assisted in reducing fixed
costs for the business.

The quarter saw a further improvement in the operating and sales performance of the
Alfeld speciality mill with a better product mix and average pricing level.

North America
                                                                       Quarter         Quarter       Quarter       Quarter       Quarter
                                                                         ended           ended         ended         ended         ended
                                                                      Dec 2014       Sept 2014      Jun 2014      Mar 2014      Dec 2013
                                                                   USD million     USD million   USD million   USD million   USD million
Sales                                                                      353             390           380           382           365
Operating (loss) profit excluding special items                            (4)              25           (9)             5           (3)
Operating (loss) profit excluding special items to sales (%)             (1.1)             6.4         (2.4)           1.3         (0.8)
EBITDA excluding special items                                              15              43            10            22            17
EBITDA excluding special items to sales (%)                                4.2            11.0           2.6           5.8           4.7
RONOA pa (%)                                                             (1.6)             9.8         (3.5)           1.9         (1.2)
   
Profitability for the business was similar to that of the equivalent quarter last year despite
a planned extended annual maintenance shut at the Somerset mill and a number of
completed capital projects. These negatively impacted the quarter by approximately
USD10 million in additional expenses and lost margin compared to the equivalent quarter
last year.

Coated paper sales in this seasonally slower quarter were only marginally below those of the
prior year, despite the extended Somerset mill shut. However, prices and the selling mix
improved, both compared to the prior quarter and the equivalent quarter last year.

Dissolving wood pulp sales volumes were lower as the Cloquet mill commenced periodic
hardwood paper pulp production runs to eliminate most of its paper pulp purchases.

The release business continues to be adversely affected by weak demand in China.
Pricing in European markets was also negatively impacted by the weaker Euro.

Variable costs were generally flat with the prior quarter and lower than last year. 
Lower cost fibre, from use of own-make Cloquet pulp production, as well as lower starch and
latex costs have offset higher wood costs resulting from low inventory levels in the
supply chain.

Fixed costs were well controlled and lower than the equivalent quarter last year, despite
additional cost related to the extended cold outage at the Somerset mill.

Sappi Southern Africa
                                                                                                                             Restated(1)
                                                                       Quarter         Quarter       Quarter       Quarter       Quarter
                                                                         ended           ended         ended         ended         ended
                                                                      Dec 2014       Sept 2014      Jun 2014      Mar 2014      Dec 2013
                                                                   ZAR million     ZAR million   ZAR million   ZAR million   ZAR million
Sales                                                                    3,812           3,972         3,781         3,942         3,488
Operating profit excluding special items                                   706             634           653           765           568
Operating profit excluding special items to sales (%)                     18.5            16.0          17.3          19.4          16.3
EBITDA excluding special items                                             863             827           810           897           761
EBITDA excluding special items to sales (%)                               22.6            20.8          21.4          22.8          21.8
RONOA pa (%)                                                              19.1            16.7          16.2          18.6          14.1

(1) Restated for the adoption of IFRS 10 Consolidated Financial Statements. Refer to note 2 to the group results for more detail.
    
    The Southern African business had an improved performance this past quarter, with
    exchange rate gains on export sales and variable cost savings contributing positively.
    
    Dissolving wood pulp volumes and Rand pricing increased compared to the equivalent
    quarter last year but were flat compared to the prior quarter. The weaker Rand/Dollar
    exchange rate offset Dollar based declines in prices during the quarter.
    
    The South African paper business delivered an improved performance due to the
    effective control of fixed and variable costs as well as improved pricing for packaging
    grades. Sales volumes were flat year-on-year, but lower than the prior quarter due to
    weaker specialities and office paper markets.
    
    Production in the quarter at the Ngodwana mill was impacted by a boiler tube leak during
    December. However, sales for the quarter were not affected by this incident.
    
    Outlook
    Graphic paper markets remain challenging, but appear to be marginally better than
    originally anticipated, in both Europe and North America. Paper demand has in general
    declined at a lower rate and price expectations have been met. Exchange rate volatility
    may affect selling prices, particularly in Europe.
    
    The dissolving wood pulp market is under further pressure, consistent with pressure on
    viscose, polyester and cotton. Prices in US Dollars have declined further than expected.
    The lower prices are likely to be substantially offset by a weaker Rand/Dollar exchange rate
    and our ability to swing the Cloquet pulp mill between dissolving wood pulp and paper pulp.
    
    Currency movements affect margins in our European and Southern African businesses,
    having both transactional and translational effects. A weaker Euro and Rand in relation
    to the US Dollar support both local and export pricing for these businesses, historically
    offsetting any input cost increases as a result of the weaker currency.
    
    Capital expenditure in 2015 is expected to be below USD300 million and will focus
    largely on the efficiency improvement investments at our Kirkniemi and Gratkorn mills.
    
    As discussed when reporting last quarter's result, we are evaluating opportunities to
    utilise our cash resources to refinance a portion of our debt in order to lower future
    interest costs. We expect to reduce net debt levels by year end to below those of the
    prior year.
    
    Our outlook for the year, based on current market conditions, is for the operating
    performance to be broadly similar to 2014. The expected improvement in the paper
    businesses will be offset by lower US Dollar dissolving wood pulp pricing and the
    projects at Gratkorn and Somerset mills. In addition, at current exchange rates, the
    translation of Euro and Rand results to Dollars may be negatively impacted compared to
    the prior year.

    On behalf of the board

    S.R Binnie                 G.T Pearce                        11 February 2015
    Director                   Director
    
    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
    and which do not relate to historical matters, and may be used to 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 a 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 and other strategic initiatives 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
                                                                                 Reviewed        Reviewed      
                                                                            Quarter ended   Quarter ended      
                                                                                 Dec 2014        Dec 2013      
                                                                     Note     USD million     USD million      
Sales                                                                               1,377           1,499      
Cost of sales                                                                       1,224           1,339      
Gross profit                                                                          153             160      
Selling, general and administrative expenses                                           84              94      
Other operating expenses (income)                                                       2             (2)      
Share of profit from equity investments                                               (2)             (2)      
Operating profit                                                        3              69              70      
Net finance costs                                                                      37              48      
Net interest expense                                                                   40              48      
Net foreign exchange gain                                                             (2)             (1)      
Net fair value (gain) loss on financial instruments                                   (1)               1      
Profit before taxation                                                                 32              22      
Taxation                                                                                8               4      
Profit for the period                                                                  24              18      
Basic earnings per share (US cents)                                                     5               3      
Weighted average number of shares in issue (millions)                               524.5           521.7      
Diluted earnings per share (US cents)                                                   5               3      
Weighted average number of shares on fully diluted basis (millions)                 529.1           523.4      

Condensed group statement of comprehensive income
                                                                                 Reviewed        Reviewed      
                                                                            Quarter ended   Quarter ended      
                                                                                 Dec 2014        Dec 2013      
                                                                              USD million     USD million      
Profit for the period                                                                  24              18      
Other comprehensive loss, net of tax                                                                           
Items that must be reclassified subsequently to profit or loss                       (12)            (42)      
Exchange differences on translation of foreign operations                             (8)            (54)      
Movements in hedging reserves                                                         (4)              13      
Movement on available for sale financial assets                                         –             (1)      
Total comprehensive income (loss) for the period                                       12            (24)      

Condensed group balance sheet
                                                                                                 Reviewed      
                                                                   Reviewed      Reviewed        Restated      
                                                                   Dec 2014     Sept 2014        Dec 2013      
                                                                USD million   USD million     USD million      
ASSETS                                                                                                         
Non-current assets                                                    3,410         3,505           3,707      
Property, plant and equipment                                         2,758         2,841           3,012      
Plantations                                                             419           430             451      
Deferred tax assets                                                     141           138              96      
Other non-current assets                                                 92            96             148      
Current assets                                                        1,735         1,960           1,835      
Inventories                                                             708           687             771      
Trade and other receivables                                             688           731             776      
Taxation receivable                                                      10            14              17      
Cash and cash equivalents                                               329           528             178      
Assets held for sale                                                      –             –              93      
Total assets                                                          5,145         5,465           5,542      
EQUITY AND LIABILITIES                                                                                         
Shareholders' equity                                                                                           
Ordinary shareholders' interest                                       1,059         1,044           1,122      
Non-current liabilities                                               3,069         3,198           3,322      
Interest-bearing borrowings                                           2,238         2,311           2,444      
Deferred tax liabilities                                                270           272             267      
Other non-current liabilities                                           561           615             611      
Current liabilities                                                   1,017         1,223           1,098      
Interest-bearing borrowings                                             131           163             114      
Other current liabilities                                               865         1,035             971      
Taxation payable                                                         21            25               8      
Liabilities associated with assets held for sale                          –             –               5      
Total equity and liabilities                                          5,145         5,465           5,542      
Number of shares in issue at balance sheet                                                                     
date (millions)                                                       525.3         524.2           522.5      

Condensed group statement of cash flows
                                                                                                 Reviewed
                                                                                 Reviewed        Restated
                                                                                  Quarter         Quarter
                                                                                    ended           ended
                                                                                 Dec 2014        Dec 2013
                                                                              USD million     USD million
Profit for the period                                                                  24              18
Adjustment for:
  Depreciation, fellings and amortisation                                              85             102
  Taxation                                                                              8               4
  Net finance costs                                                                    37              48
  Defined post-employment benefits paid                                              (14)            (17)
  Plantation fair value adjustments                                                  (18)            (26)
  Net restructuring provisions                                                          1               1
  Other non-cash items                                                                 14               6
Cash generated from operations                                                        137             136
Movement in working capital                                                         (136)           (149)
Net finance costs paid                                                               (52)            (56)
Taxation paid                                                                         (3)             (1)
Cash utilised in operating activities                                                (54)            (70)
Cash utilised in investing activities                                                (67)            (63)
  Capital expenditure                                                                (68)            (71)
  Net proceeds on disposal of assets and businesses                                     –               6
  Other movements                                                                       1               2
Net cash utilised                                                                   (121)           (133)
Cash effects of financing activities                                                 (61)            (43)
Net movement in cash and cash equivalents                                           (182)           (176)
Cash and cash equivalents at beginning of period                                      528             352
Translation effects                                                                  (17)               2
Cash and cash equivalents at end of period                                            329             178

Condensed group statement of changes in equity
                                                                                 Reviewed        Reviewed
                                                                                  Quarter         Quarter
                                                                                    ended           ended
                                                                                 Dec 2014        Dec 2013
                                                                              USD million     USD million
Balance – beginning of period                                                       1,044           1,144
Total comprehensive income (loss) for the period                                       12            (24)
Transfers from the share purchase trust                                                 5               4
Transfers of vested share options                                                     (4)             (4)
Share-based payment reserve                                                             2               2
Balance – end of period                                                             1,059           1,122

Notes to the condensed group results
1. Basis of preparation
   The condensed consolidated interim financial statements for the three months ended December 2014
   have been prepared in accordance with the Listings Requirements of the JSE Limited, International
   Financial Reporting Standard, (IAS) 34 Interim Financial Reporting, the SAICA Financial Reporting
   Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued
   by Financial Reporting Standards Council and the requirements of the Companies Act of South Africa.
   The accounting policies applied in the preparation of these interim financial statements are in terms
   of International Financial Reporting Standards and are consistent with those applied in the previous
   annual financial statements.

   The preparation of this condensed consolidated interim financial information was supervised by the
   Chief Financial Officer, G T Pearce CA(SA).

   The interim results for the three months ended December 2014 and December 2013 have been reviewed 
   in accordance with the International Standard on Review Engagements 2410 by the group's auditors, 
   Deloitte & Touche.

   Their unmodified review report is available for inspection at the company's registered office. The
   auditor's report does not necessarily report on all of the information contained in this announcement/
   financial results. Shareholders are therefore advised that in order to obtain a full understanding of the
   nature of the auditor's engagement they should obtain a copy of the auditor's report together with
   the accompanying financial information from the issuer's registered office. Any reference to future
   financial performance included in this announcement, has not been reviewed or reported on by the
   company's auditors.

2. Restatement
   Change in accounting arising after the adoption of IFRS 10 Consolidated Financial Statements
   The group adopted IFRS 10 in the 2014 financial year. IFRS 10 provides a single consolidation model
   that identifies control as the basis for consolidation for all types of entities. In addition, specified 
   assets or a portion of an investee is considered to be a deemed separate entity and should be consolidated
   provided that those assets are, in substance, ring-fenced from other creditors.

   Subsequent to the release of the December 2013 results, an interpretation of a discussion paper
   issued by the Financial Services Board in South Africa (which stated that, although the insurance
   industry is governed by contractual arrangements, cell captives are not legally ring-fenced in the event
   of liquidation) was released. Following the interpretation, the group consequently deconsolidated its
   assets with its South African insurer.

   The impact of this change on the December 2013 financial results is as follows:
   
                                                         As previously
                                                              reported      Adjustment       Restated
                                                           USD million     USD million    USD million
   
   Condensed group balance sheet
   Other non-current assets                                        116              32            148
   Cash and cash equivalents                                       210            (32)            178
   Condensed group statement of cash flows  
   Cash and cash equivalents at beginning of period                385            (33)            352
   Translation effects                                               1               1              2
   Cash and cash equivalents at end of period                      210            (32)            178
   Net debt                                                      2,348              32          2,380
   
   There is no impact on profit or loss or equity for the period.
                                                                              Reviewed       Reviewed   
                                                                               Quarter        Quarter   
                                                                                 ended          ended   
                                                                              Dec 2014       Dec 2013   
                                                                           USD million    USD million   
3. Operating profit                                                                                
   Included in operating profit are the following items:                                                
   Depreciation and amortisation                                                    71             87   
   Fair value adjustment on plantations (included in cost of sales)                                     
   Changes in volume                                                                                    
   Fellings                                                                         14             15   
   Growth                                                                         (17)           (18)   
                                                                                   (3)            (3)   
   Plantation price fair value adjustment                                          (1)            (8)   
                                                                                   (4)           (11)   
   Net restructuring provisions                                                      1              1   
   Profit on disposal of property, plant and equipment                               –            (1)   
   Asset impairment reversals                                                        –            (2)   


                                                                               Reviewed      Reviewed      
                                                                                Quarter       Quarter      
                                                                                  ended         ended      
                                                                               Dec 2014      Dec 2013      
                                                                            USD million   USD million      
4. Headline earnings per share                                                                        
   Headline earnings per share (US cents)                                             5             3      
   Weighted average number of shares in issue (millions)                          524.5         521.7      
   Diluted headline earnings per share (US cents)                                     5             3      
   Weighted average number of shares on fully diluted basis (millions)            529.1         523.4      
   Calculation of headline earnings                                                                        
   Profit for the period                                                             24            18      
   Asset impairment reversals                                                         –           (2)      
   Profit on disposal of property, plant and equipment                                –           (1)      
   Tax effect of above items                                                          –             –      
   Headline earnings                                                                 24            15 

                                                                 Reviewed      Reviewed      Reviewed      
                                                                 Dec 2014     Sept 2014      Dec 2013      
                                                              USD million   USD million   USD million      
5. Capital commitments                                                                                   
   Contracted                                                         105           104            99      
   Approved but not contracted                                        127           126           250      
                                                                      232           230           349 

                                                                 Reviewed      Reviewed      Reviewed      
                                                                 Dec 2014     Sept 2014      Dec 2013      
                                                              USD million   USD million   USD million      
6. Contingent liabilities                                                                             
   Guarantees and suretyships                                          20            23            34      
   Other contingent liabilities                                        16            26            11      
                                                                       36            49            45      

7. Plantations
   Plantations are stated at fair value less estimated cost to sell at the harvesting stage. In arriving at
   plantation fair values, the key assumptions are estimated prices less cost of delivery, discount rates
   (pre-tax weighted average cost of capital), and volume and growth estimations.

   Expected future price trends and recent market transactions involving comparable plantations are
   also considered in estimating fair value. Mature timber that is expected to be felled within 12 months
   from the end of the reporting period are valued using unadjusted current market prices. Immature
   timber and mature timber that is to be felled in more than 12 months from the reporting date are
   valued using a 12 quarter rolling historical average price which, taking the length of the growth cycle
   of a plantation into account, is considered reasonable.

   The fair value of plantations is a Level 3 measure in terms of the fair value measurement hierarchy as
   established by IFRS 13 Fair Value Measurement.
   
                                                                 Reviewed      Reviewed      Reviewed      
                                                                 Dec 2014     Sept 2014      Dec 2013      
                                                              USD million   USD million   USD million      
   Fair value of plantations at beginning of year                     430           464           464      
   Gains arising from growth                                           17            65            17      
   In-field inventory                                                 (1)           (1)           (1)      
   Gain arising from fair value price changes                           1             7             4      
   Harvesting – agriculture produce (fellings)                       (14)          (57)          (14)      
   Translation difference                                            (14)          (48)          (19)      
   Fair value of plantations at end of year                           419           430           451      
   
   
   At September 2013, plantations amounting to USD86 million were disclosed as assets held for sale.
   In accordance with IAS 41 Agriculture, these plantations were carried at fair value. At December 2013,
   gains arising from growth amounted to USD1 million, the price fair value adjustment amounted to
   USD4 million and timber worth USD1 million was felled in these plantations.

8. Financial instruments
   The group's financial instruments that are measured at fair value on a recurring basis consist of cash
   and cash equivalents, derivative financial instuments and available for sale financial assets. These
   have been categorised in terms of the fair value measurement hierarchy as established by IFRS 13
   Fair Value Measurement per the table below.
   
                                                                          Fair value(1)                    
                                                                 Reviewed      Reviewed      Reviewed      
                                      Fair value                 Dec 2014     Sept 2014      Dec 2013      
                                        hierachy              USD million   USD million   USD million      
   Available for sale assets             Level 1                        9            10            10      
   Available for sale assets             Level 2                        –             –            39      
   Derivative financial assets           Level 2                       11            13            19      
   Derivative financial liabilities      Level 2                       20            59           108      


 (1) The fair value of the financial instruments are equal to their carrying value.

     There have been no transfers of financial assets or financial liabilities between the categories of the fair
     value hierarchy.

     The fair value of all external over-the-counter derivatives is calculated based on the discount
     rate adjustment technique. The discount rate used is derived from observable rates of return for
     comparable assets or liabilities traded in the market. The credit risk of the external counterparty is
     incorporated into the calculation of fair values of financial assets and own credit risk is incorporated
     in the measurement of financial liabilities. The change in fair value is therefore impacted by the move
     of the interest rate curves, by the volatility of the applied credit spreads, and by any changes of the
     credit profile of the involved parties.
  
     There are no financial assets and liabilities that have been remeasured to fair value on a non-recurring
     basis. The carrying value of assets and liabilities (excluding plantations) which are held for sale, are
     considered to be below their net recoverable amount.
     The carrying amounts of other financial instruments which include accounts receivable, certain
     investments, accounts payable and current interest-bearing borrowings approximate their fair values.
  
9.  Material balance sheet movements
    Cash and cash equivalents and other current liabilities
    The decrease in cash and cash equivalents and other current liabilities is largely due to seasonal
    working capital movements.

    Interest-bearing borrowings and other non-current liabilities
    Interest-bearing borrowings and other non-current liabilities decreased largely due to the weakening
    of the Euro against the US Dollar, the repayment of the amount due under the OëkB term loan and a
    lower utilisation of our on-balance sheet securitisation facility due to lower trade receivables.

10. Post-balance sheet event
    The group has entered into an agreement to transfer one of its European defined benefit pension
    schemes to an industry-wide pension fund. The transfer is currently subject to regulatory audit and is
    expected to be recorded in the quarter ending March 2015.

11.Segment information
                                                                    Quarter       Quarter
                                                                      ended         ended
                                                                   Dec 2014      Dec 2013
                                                                Metric tons   Metric tons
                                                                    (000's)       (000's)

     Sales volume
     North America                                                      333           348
     Europe                                                             775           836
     Southern Africa – Pulp and paper                                   426           403
                       Forestry                                         228           257
     Total                                                            1,762         1,844
     Which consists of:
      Specialised cellulose                                             300           286
      Paper                                                           1,234         1,301
      Forestry                                                          228           257
    
                                                                   Reviewed      Reviewed
                                                                    Quarter       Quarter
                                                                      ended         ended
                                                                   Dec 2014      Dec 2013
                                                                USD million   USD million
     
     Sales
     North America                                                      353           365
     Europe                                                             684           790
     Southern Africa – Pulp and paper                                   325           327
                       Forestry                                          15            17
     Total                                                            1,377         1,499
     Which consists of: 
      Specialised cellulose                                             243           247
      Paper                                                           1,119         1,235
      Forestry                                                           15            17
    
                                                                   Reviewed      Reviewed      
                                                                    Quarter       Quarter      
                                                                      ended         ended      
                                                                   Dec 2014      Dec 2013      
                                                                USD million   USD million      
   Operating profit (loss) excluding special items                                             
   North America                                                        (4)           (3)      
   Europe                                                                15             4      
   Southern Africa                                                       63            56      
    Unallocated and eliminations(1)                                       –             3      
   Total                                                                 74            60      
   Which consists of:                                                                          
    Specialised cellulose                                                56            55      
    Paper                                                                18             2      
     Unallocated and eliminations(1)                                      –             3      
   
   Special items – losses (gains)                                                              
   North America                                                          –           (1)      
   Europe                                                                 1             –      
   Southern Africa                                                        4          (10)      
    Unallocated and eliminations(1)                                       –             1      
   Total                                                                  5          (10)      
   
   Segment operating profit (loss)                                                             
   North America                                                        (4)           (2)      
   Europe                                                                14             4      
   Southern Africa                                                       59            66      
    Unallocated and eliminations(1)                                       –             2      
   Total                                                                 69            70      
   
   EBITDA excluding special items                                                              
   North America                                                         15            17      
   Europe                                                                53            52      
   Southern Africa                                                       77            75      
    Unallocated and eliminations(1)                                       –             3      
   Total                                                                145           147       
   Which consists of:                                                                          
    Specialised cellulose                                                70            74      
    Paper                                                                75            70      
     Unallocated and eliminations(1)                                      –             3 
   
   (1) Includes the group's treasury operations and our 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.
   
                                                                   Reviewed      Reviewed      
                                                                    Quarter       Quarter      
                                                                      ended         ended      
                                                                   Dec 2014      Dec 2013      
                                                                USD million   USD million      
   EBITDA excluding special items                                       145           147      
   Depreciation and amortisation                                       (71)          (87)      
   Operating profit excluding special items                              74            60      
   Special items – (losses) gains                                       (5)            10      
   Plantation price fair value adjustment                                 1             8      
   Net restructuring provisions                                         (1)           (1)      
   Profit on disposal of property, plant and equipment                    –             1      
   Asset impairment reversals                                             –             2      
   Fire, flood, storm and other events                                  (5)             –      
   Segment operating profit                                              69            70      
   Net finance costs                                                   (37)          (48)      
   Profit before taxation                                                32            22      
   Taxation                                                             (8)           (4)      
   Profit for the period                                                 24            18      
   
   
                                                                                 Reviewed       
                                                                   Reviewed      Restated       
                                                                   Dec 2014      Dec 2013       
                                                                USD million   USD million       
   Segment assets                                                                               
   North America                                                      1,004         1,030       
   Europe                                                             1,495         1,698       
   Southern Africa                                                    1,305         1,566       
   Unallocated and eliminations(1)                                     (15)          (10)      
   Total                                                              3,789         4,284       
   Reconciliation of segment assets to total assets                                             
   Segment assets                                                     3,789         4,284       
   Deferred taxation                                                    141            96       
   Cash and cash equivalents(2)                                         329           178       
   Other current liabilities                                            865           971       
   Taxation payable                                                      21             8       
   Liabilities associated with assets held for sale                       –             5       
   Total assets                                                       5,145         5,542       
   
   
   (1) Includes the group's treasury operations and our insurance captive.
   (2) The comparative period has been restated for the change in accounting arising after the adoption of IFRS 10 Consolidated 
       Financial Statements by an amount of USD32 million. Refer to note 2 for more detail.
   
   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 charge – represents the IFRS 2 non-cash charge associated with the
   BEE transaction implemented in fiscal 2010 in terms of Black Economic Empowerment (BEE) legislation in South Africa 

   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
   
   EPS excluding special items – earnings per share excluding special items and certain once-off finance and tax items 
   
   Headline earnings – as defined in circular 2/2013, reissued by the South African Institute of Chartered Accountants in 
   December 2013, which 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 overdrafts (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 tax assets 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
   
                                                                                            Restated      
                                                                                  Quarter    Quarter      
                                                                                    ended      ended      
                                                                                 Dec 2014   Dec 2013      
   Key figures: (ZAR million)                                                                             
   Sales                                                                           15,439     15,201      
   Operating profit excluding special items(1)                                        830        609      
   Special items – losses/(gains)(1)                                                   56      (101)      
   EBITDA excluding special items(1)                                                1,626      1,491      
   Profit for the period                                                              269        183      
   Basic earnings per share (SA cents)                                                 51         30      
   Net debt(1)                                                                     23,664     25,061      
   Key ratios: (%)                                                                                        
   Operating profit excluding special items to sales                                  5.4        4.0      
   Operating profit excluding special items to capital employed (ROCE)(1)             9.6        6.9      
   EBITDA excluding special items to sales                                           10.5        9.8      
   Return on average equity (ROE)(1)                                                  9.0        6.3      
   Net debt to total capitalisation(1)                                               65.8       68.0      
   
   (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
                                                                                         Restated(1)      
                                                                Dec 2014     Sept 2014      Dec 2013      
                                                             USD million   USD million   USD million      
        Interest-bearing borrowings                                2,369         2,474         2,558      
        Non-current interest-bearing borrowings                    2,238         2,311         2,444      
        Current interest-bearing borrowings                          131           163           114      
        Cash and cash equivalents                                  (329)         (528)         (178)      
        Net debt                                                   2,040         1,946         2,380      
   
   (1) Restated for the change in accounting arising after the adoption of IFRS 10 Consolidated Financial Statements. Refer to note 2 for more detail.
   
   Supplemental information (this information has not been audited or reviewed)
   Exchange rates   
                                                         Dec      Sept       Jun       Mar       Dec      
                                                        2014      2014      2014      2014      2013      
   Exchange rates:                                                                                        
   Period end rate: USD1 = ZAR                       11.6001   11.2285   10.5890   10.5760   10.5300      
   Average rate for the Quarter: USD1 = ZAR          11.2122   10.7456   10.5340   10.8443   10.1406      
   Average rate for the YTD: USD1 = ZAR              11.2122   10.5655   10.5072   10.4938   10.1406      
   Period end rate: EUR1 = USD                        1.2177    1.2685    1.3649    1.3753    1.3742      
   Average rate for the Quarter: EUR1 = USD           1.2504    1.3280    1.3717    1.3705    1.3607      
   Average rate for the YTD: EUR1 = USD               1.2504    1.3577    1.3676    1.3656    1.3607      
                                                            
   Sappi has a primary listing on the JSE Limited and a Level 1 ADR programme that trades in the over-the-counter market
   in the United States
   
   South Africa:                       United States:
   Computershare Investor              ADR Depositary:
   Services (Proprietary) Limited      The Bank of New York Mellon
   70 Marshall Street                  Investor Relations
   Johannesburg 2001                   PO Box 11258                         JSE Sponsor:
   PO Box 61051                        Church Street Station                UBS South Africa
   Marshalltown 2107                   New York, NY 10286-1258              (Pty) Ltd
   Tel +27 (0)11 370 5000              Tel +1 610 382 7836
   
   This report is available on the Sappi website
   www.sappi.com

11 February 2015
UBS South Africa (Pty) Ltd
Date: 11/02/2015 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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