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SAPPI LIMITED - Second quarter results for the period ended March 2017

Release Date: 15/05/2017 09:00
Code(s): SAP     PDF:  
Wrap Text
Second quarter results for the period ended March 2017

Sappi Limited
(Incorporated in the Republic of South Africa)
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI

Second quarter results 
for the period ended March 2017

2nd quarter results
Sappi is a global diversified woodfibre company focused on providing graphic/printing papers, packaging and 
speciality papers, dissolving wood pulp as well as products in adjacent fields including nanocellulose and 
lignosulphonate to our direct and indirect customer base across more than 150 countries.

Our market-leading range of graphic paper products are used by printers in the production of books, brochures,
magazines, catalogues, direct mail and many other print applications; quality packaging and speciality papers 
are used in the manufacture of such products as soup sachets, luxury carry bags, cosmetic and confectionery 
packaging, boxes for agricultural products for export, tissue wadding for household tissue products and casting 
release papers used by suppliers to the fashion, textiles, automobile and household industries; our dissolving 
wood pulp (specialised cellulose) products are used worldwide by converters to create viscose fibre for 
fashionable clothing and textiles, pharmaceutical products as well as a wide range of consumer and household 
products. 

The wood and 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         26%
Europe                49%
Southern Africa       25%

Sales by product*
Coated paper          57% 
Uncoated paper         5%
Speciality paper      11%
Commodity paper        6%
Dissolving wood pulp  20%
Other                  1%

Sales by destination*
North America         24%
Europe                42%
Southern Africa        9%
Asia and other        25%

Net operating assets**
North America         29%
Europe                34%
Southern Africa       37%

*  For the period ended March 2017
** As at March 2017

Highlights for the quarter
- EBITDA excluding special items US$208 million (Q2 2016 US$195 million)
- Profit for the period US$88 million (Q2 2016 US$100 million)
- EPS excluding special items 17 US cents (Q2 2016 16 US cents)
- Net debt US$1,329 million, down US$323 million year-on-year

                                                         Quarter ended                     Half-year ended 
                                              Mar 2017      Mar 2016      Dec 2016      Mar 2017      Mar 2016    
Key figures: (US$ million)                                                                                        
Sales                                            1,316         1,294         1,309         2,625         2,578    
Operating profit excluding special items(1)        145           133           136           281           245    
Special items - (gains) losses(2)                    3           (22)           (7)           (4)          (33)    
EBITDA excluding special items(1)                  208           195           201           409           370    
Profit for the period                               88           100            90           178           175    
Basic earnings per share (US cents)                 16            19            17            33            33    
EPS excluding special items (US cents)(3)           17            16            16            33            29    
Net debt(3)                                      1,329         1,652         1,338         1,329         1,652    
Key ratios: (%)                                                                                                   
Operating profit excluding special 
items to sales                                    11.0          10.3          10.4          10.7           9.5    
Operating profit excluding special items 
to capital employed (ROCE)(3)                     20.5          19.3          19.5          19.8          17.7    
EBITDA excluding special items to sales           15.8          15.1          15.4          15.6          14.4    
Net debt to EBITDA excluding special items         1.7           2.4           1.7           1.7           2.4    
Interest cover(3)                                  7.7           6.5           7.7           7.7           6.5    
Net asset value per share (US cents)(3)            290           210           270           290           210    
(1) Refer to note 2 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.  
(2) Refer to note 2 to the group results for details on special items.                             
(3) Refer to supplemental information for the definition of the term.                             

Commentary on the quarter

Operating performance in the quarter improved principally as a result of buoyant dissolving wood pulp (DWP) markets,
which boosted sales volumes and selling prices. This success was despite the impact of a significantly stronger 
Rand/Dollar exchange rate, which reduced profitability in the South African region. The group generated EBITDA 
excluding special items of US$208 million, an increase of 7% over the same quarter in 2016. Profit for the period 
decreased from US$100 million to US$88 million due to a US$18 million positive after tax plantation fair value 
adjustment that occurred last year. 

The specialised cellulose business benefited from strong demand and favourable pricing for DWP, which followed 
the trends for viscose staple fibre, cotton and polyester. The average Dollar prices in the quarter were above 
those of the prior quarter and the equivalent quarter last year, driven mainly by higher average DWP prices in the 
Chinese market. 

Profit from Europe was under pressure as a result of rapidly rising raw material costs, particularly purchased 
pulp and latex, and a soft graphic paper market. However the speciality packaging business continued to achieve 
strong sales growth and profit margins.

Higher DWP pricing, increased packaging and release paper volumes, and the continued focus on cost and efficiency
gains more than offset a decline in coated paper volumes and prices for the US business, leading to an improved 
year-on-year result. 

The paper business in South Africa had a positive quarter, with higher sales volumes in the containerboard and
newsprint categories. However, the stronger Rand/Dollar exchange rate impacted sales prices somewhat, 
particularly for exports.

Net finance costs were US$24 million, a reduction from the US$25 million in the equivalent quarter last year.

Earnings per share excluding special items were 17 US cents, a slight improvement over the 16 US cents generated 
in the equivalent quarter last year. Special items for the quarter resulted in a loss of US$3 million.

Cash flow and debt
Net cash generated was US$20 million, compared to the US$90 million generated in the equivalent quarter last 
year. The decrease was due to the payment of the 2016 dividend during the quarter and increased cash taxes. 
Capital expenditure of US$45 million was in line with the equivalent quarter last year.

Net debt of US$1,329 million was substantially lower than the US$1,652 million at the end of the equivalent 
quarter last year as a result of strong cash generation in the 2016 financial year and the translation benefit 
of the weaker Euro on the Euro denominated debt.

Since quarter end we have repaid the 2017 US$400 million bonds utilising our existing cash resources. This 
will lower the ongoing net interest charge by approximately US$21 million per annum.

Liquidity at quarter end comprised cash on hand of US$703 million and US$569 million available from undrawn 
committed revolving credit facilities. 

Operating review for the quarter             
Europe                                       
                                                                Quarter ended                
                                     Mar 2017       Dec 2016      Sept 2016       Jun 2016       Mar 2016    
                                    € million      € million      € million      € million      € million    
Sales                                     581            602            579            540            604    
Operating profit 
excluding special items                    29             40             31             25             33    
Operating profit excluding 
special items to sales (%)                5.0            6.6            5.4            4.6            5.5    
EBITDA excluding special items             56             69             61             53             62    
EBITDA excluding special 
items to sales (%)                        9.6           11.5           10.5            9.8           10.3    
RONOA pa (%)                             10.3           14.3           11.0            8.6           11.0    


The profitability of the European business declined compared to both the prior quarter (which included 
an additional accounting week) and the equivalent quarter last year. Coated paper sales prices stabilised 
during the quarter, but were 4% below those of the equivalent quarter last year. 

The specialities business attained a stronger sales quarter against both comparative periods, with higher 
volumes offsetting slightly lower rigid packaging prices. The weaker Euro assisted export sales of 
speciality packaging papers.

All major variable cost categories, with the exception of latex, declined relative to last year. 
During the quarter hardwood pulp and latex prices rose rapidly and, along with the weaker Euro, impacted 
margins in the latter half of the quarter. Fixed costs were well controlled and lower than in the 
equivalent quarter last year.

North America                     
                                                                Quarter ended         
                                     Mar 2017       Dec 2016      Sept 2016       Jun 2016       Mar 2016    
                                  US$ million    US$ million    US$ million    US$ million    US$ million    
Sales                                     335            354            360            325            339    
Operating profit (loss) 
excluding special items                    14              8             25             (2)            13    
Operating profit (loss) 
excluding special items to sales (%)      4.2            2.3            6.9           (0.6)           3.8    
EBITDA excluding special items             34             28             43             18             32    
EBITDA excluding special items 
to sales (%)                             10.1            7.9           11.9            5.5            9.4    
RONOA pa (%)                              5.8            3.3           10.2           (0.8)           5.2    


Profitability of the North American business increased compared to the prior year driven by higher DWP 
pricing, growth in specialities and packaging sales volumes as well as lower variable costs, more than 
offsetting declines in coated paper volumes and pricing.

The US coated paper market remained under pressure due to weak demand and lower pricing led by the strong 
Dollar and a rise in imports. Coated paper sales volumes and prices were 3% and 5% respectively below those 
of the equivalent period last year as a result.

The DWP business benefited from the improved Dollar pricing during the quarter and substantially lower 
delivery costs improved margins further. 

Packaging paper demand was positively impacted by the seasonally strong pet food industry demand and the 
continued ramp-up of our new speciality packaging grades, leading to a 20% increase in the segment’s 
volumes compared to the prior year. The casting and release paper business recovered during the quarter 
with Chinese sales particularly strong post the Chinese New Year.

Ongoing procurement and efficiency initiatives together with lower market prices for wood and energy 
led to lower variable costs for the quarter. Fixed costs were well controlled. 

Southern Africa                                                                 
                                                                Quarter ended    
                                     Mar 2017       Dec 2016      Sept 2016       Jun 2016       Mar 2016    
                                  ZAR million    ZAR million    ZAR million    ZAR million    ZAR million    
Sales                                   4,818          4,230          4,760          4,306          4,568    
Operating profit excluding 
special items                           1,317          1,169          1,256          1,050          1,255    
Operating profit excluding 
special items to sales (%)               27.3           27.6           26.4           24.4           27.5    
EBITDA excluding special items          1,489          1,364          1,441          1,215          1,430    
EBITDA excluding special 
items to sales (%)                       30.9           32.2           30.3           28.2           31.3    
RONOA pa (%)                             30.5           27.8           31.1           26.2           32.2    


The South African business continued to deliver strong margins, with improved Dollar selling prices for 
DWP, higher sales volumes and reverting the annual Ngodwana shut to the third quarter offsetting increased 
variable costs and a stronger Rand/Dollar exchange rate.

DWP sales volumes rose compared to both the prior quarter and equivalent quarter last year. The higher 
Dollar prices did not fully offset the impact of the stronger Rand/Dollar exchange rate for the period. 
A planned annual maintenance shut at Saiccor Mill commenced at the end of the quarter and we expect to have 
resolved the economiser tube leak issues that impacted production at the mill over the past few quarters. 

The paper business experienced a strong recovery in sales volumes this past quarter compared to both 
comparative periods. Containerboard and newsprint sales were particularly healthy, and the outlook for 
containerboard remains strong due to an anticipated year-on-year growth in fruit exports.

Variable and fixed costs were above last year and related mainly to wood, energy and personnel, albeit 
the increases were below inflation.

Directorate
Dr Boni Mehlomakulu joined the board as an independent non-executive director and as a member of the 
Social, Ethics Transformation and Sustainability committee, with effect from 01 March 2017.

Outlook
Subsequent to the steady increase in the second quarter, DWP prices have moderated during April 2017. 
This follows a similar trend in viscose staple fibre, cotton and polyester pricing. Nonetheless, market 
dynamics appear favourable, with demand growth continuing to exceed our long-term forecast of 4% and only 
limited capacity addition is expected in the next two years. 

Graphic paper markets in Europe and the United States remain sluggish, although orders in Europe improved 
in late March and April. Rising paper pulp and latex prices, along with a weaker Euro have started to place 
pressure on European margins, with paper price increases originally scheduled for April only offering 
partial relief.

Demand for speciality packaging continues to grow and we are making good progress with the conversion 
projects we recently announced for Europe and North America. These will further boost production 
capacity in these grades.

Capital expenditure in 2017 is expected to be approximately US$350 million. This includes the next phase 
of the DWP debottlenecking project at Ngodwana Mill, the Somerset Mill wood-yard and the initial phases of 
the speciality packaging conversions at Maastricht and Somerset Mills.

Based on current market conditions; in particular the higher paper pulp and latex prices and the current 
Rand/Dollar exchange rate, we expect the group’s operating performance in the third quarter to be 
slightly below that of the equivalent quarter in 2016. However, the full year result is likely to be 
above that of the prior year. 

During the course of 2017 we expect to reduce net debt further through positive cash generation and for 
the net interest expense to decline following the repayment of the maturing 2017 bonds in April.

On behalf of the board

S R Binnie            G T Pearce
Director              Director

15 May 2017

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, identify forward-looking statements. In addition, this 
document includes forward-looking statements relating to our potential exposure to various types of market 
risks, such as interest rate risk, foreign exchange rate risk and commodity price risk. 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 adverse changes in global economic conditions;
- 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 restructurings or 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         Reviewed    
                                                  Quarter          Quarter        Half-year        Half-year    
                                                    ended            ended            ended            ended     
                                                 Mar 2017         Mar 2016         Mar 2017         Mar 2016    
                                      Note    US$ million      US$ million      US$ million      US$ million    
Sales                                               1,316            1,294            2,625            2,578    
Cost of sales                                       1,094            1,048            2,176            2,138    
Gross profit                                          222              246              449              440    
Selling, general and administrative 
expenses                                               81               93              163              175    
Other operating expenses (income)                       1                1                5               (8)    
Share of profit from equity 
investments                                            (2)              (3)              (4)              (5)    
Operating profit                         3            142              155              285              278    
Net finance costs                                      24               25               49               50    
  Net interest expense                                 27               27               54               54    
  Net foreign exchange gain                            (3)              (2)              (5)              (4)    
Profit before taxation                                118              130              236              228    
Taxation                                               30               30               58               53    
Profit for the period                                  88              100              178              175    
Basic earnings per share (US cents)      4             16               19               33               33    
Weighted average number of shares 
in issue (millions)                                 534.5            529.7            533.0            528.6    
Diluted earnings per share (US cents)    4             16               18               33               33    
Weighted average number of shares 
on fully diluted basis (millions)                   548.0            541.4            545.9            538.4    

Condensed group statement of comprehensive income
                                                                  Reviewed         Reviewed         Reviewed    
                                                  Quarter          Quarter        Half-year        Half-year    
                                                    ended            ended            ended            ended     
                                                 Mar 2017         Mar 2016         Mar 2017         Mar 2016    
                                              US$ million      US$ million      US$ million      US$ million    
Profit for the period                                  88              100              178              175    
Other comprehensive income 
(loss), net of tax                                                                   
  Items that may or are 
  reclassified subsequently 
  to profit or loss                                    15               (8)              48              (87)    
  Exchange differences on 
  translation of foreign operations                    16              (15)              49              (86)    
  Movements in hedging reserves                        (2)               9               (1)               -    
  Tax effect of above items                             1               (2)               -               (1)    
Total comprehensive income 
(loss) for the period                                 103               92              226               88    

Condensed group balance sheet
                                                        Reviewed         Reviewed    
                                                        Mar 2017        Sept 2016    
                                            Note     US$ million      US$ million    
ASSETS                                                                               
Non-current assets                                         3,113            3,171    
  Property, plant and equipment                            2,430            2,501    
  Plantations                                  5             454              441    
  Deferred tax assets                                        147              152    
  Derivative financial instruments                             2                1    
  Other non-current assets                                    80               76    
Current assets                                             2,005            2,006    
  Inventories                                                652              606    
  Trade and other receivables                                579              642    
  Derivative financial instruments                            62               44    
  Taxation receivable                                          9               11    
  Cash and cash equivalents                                  703              703    
Total assets                                               5,118            5,177    

EQUITY AND LIABILITIES                                                               
Equity                                                                               
  Ordinary shareholders’ interest                          1,551            1,378    
Non-current liabilities                                    2,265            2,325    
  Interest-bearing borrowings                              1,483            1,535    
  Deferred tax liabilities                                   280              272    
  Other non-current liabilities                              502              518    
Current liabilities                                        1,302            1,474    
  Interest-bearing borrowings                                549              576    
  Other current liabilities                                  722              854    
  Derivative financial instruments                             6                2    
  Taxation payable                                            25               42    
Total equity and liabilities                               5,118            5,177    
Number of shares in issue at 
balance sheet date (millions)                              534.8            530.6    

Condensed group statement of cash flows
                                                                 Reviewed         Reviewed         Reviewed    
                                                 Quarter          Quarter        Half-year        Half-year    
                                                   ended            ended            ended            ended     
                                                Mar 2017         Mar 2016         Mar 2017         Mar 2016    
                                             US$ million      US$ million      US$ million      US$ million 
Profit for the period                                 88              100              178              175    
Adjustment for:                                                                                                
  Depreciation, fellings and amortisation             80               73              163              150    
  Taxation                                            30               30               58               53    
  Net finance costs                                   24               25               49               50    
  Defined post-employment benefits paid              (12)             (13)             (21)             (24)    
  Plantation fair value adjustments                  (16)             (38)             (42)             (54)    
  Net restructuring provisions                         -                1                -                4    
  Profit on disposal of assets held for sale           -               (1)               -              (16)    
  Other non-cash items                                 9               10               20               20    
Cash generated from operations                       203              187              405              358    
Movement in working capital                          (26)             (22)            (123)            (122)    
Net finance costs paid                               (24)             (22)             (41)             (58)    
Taxation paid                                        (32)              (4)             (66)             (22)    
Dividend paid                                        (59)               -              (59)               -    
Cash generated from operating activities              62              139              116              156    
Cash (utilised in) generated from 
investing activities                                 (42)             (49)             (79)             (47)    
  Capital expenditure                                (45)             (45)             (82)             (85)    
  Net proceeds on disposal of assets                   1               (3)               3               38    
  Other movements                                      2               (1)               -                -    
Net cash generated                                    20               90               37              109    
Cash effects of financing activities                 (10)             (22)             (16)             (94)    
  Proceeds from interest-bearing borrowings           (9)              (3)               5                -    
  Repayment of interest-bearing borrowings            (1)             (19)             (21)             (94)    
Net movement in cash and cash equivalents             10               68               21               15    
Cash and cash equivalents at 
beginning of period                                  681              383              703              456    
Translation effects                                   12                6              (21)             (14)    
Cash and cash equivalents at end of period           703              457              703              457    

Condensed group statement of changes in equity
                                                        Reviewed         Reviewed    
                                                       Half-year        Half-year    
                                                           ended            ended    
                                                        Mar 2017         Mar 2016    
                                                     US$ million      US$ million    
Balance - beginning of period                              1,378            1,015    
Total comprehensive income for the period                    226               88    
Dividend                                                     (59)               -    
Transfers from the share purchase trust                        4               12    
Transfers of vested share options                             (2)              (5)    
Share-based payment reserve                                    4                4    
Balance - end of period                                    1,551            1,114    

Notes to the condensed group results
1.  Basis of preparation                                        
    The condensed consolidated interim financial statements for the quarter and half-year ended March 2017 are 
    prepared in accordance with 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 these condensed consolidated interim financial statements was supervised by the Chief 
    Financial Officer, G T Pearce, CA(SA).                         
 
    The condensed consolidated interim financial statements for the half-year ended March 2017 have been 
    reviewed by KPMG Inc, who expressed an unmodified review conclusion. The auditor’s report does not 
    necessarily report on all of the information contained in these 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.  

2.  Segment information                     
                                                  Quarter ended                    Half-year ended      
                                             Mar 2017         Mar 2016         Mar 2017         Mar 2016    
                                               Metric           Metric           Metric           Metric     
                                                 tons             tons             tons             tons    
                                               (000s)           (000s)           (000s)           (000s)   
    Sales volume                                                                                            
    North America                                 329              331              682              661    
    Europe                                        839              834            1,706            1,670    
    Southern Africa - Pulp and paper              408              404              772              790    
                    - Forestry                    262              241              506              500    
    Total                                       1,838            1,810            3,666            3,621    
    Which consists of:                                                                                      
      Specialised cellulose                       303              289              584              544    
      Paper                                     1,273            1,280            2,576            2,577    
      Forestry                                    262              241              506              500    
                                                                                          
                                                              Reviewed         Reviewed         Reviewed    
                                              Quarter          Quarter        Half-year        Half-year    
                                                ended            ended            ended            ended    
                                             Mar 2017         Mar 2016         Mar 2017         Mar 2016    
                                          US$ million      US$ million      US$ million      US$ million    
    Sales                                                                                                   
    North America                                 335              339              689              682    
    Europe                                        619              666            1,270            1,325    
    Southern Africa - Pulp and paper              347              277              636              545    
                    - Forestry                     15               12               30               26    
    Total                                       1,316            1,294            2,625            2,578    
    Which consists of:                                                                                      
      Specialised cellulose                       283              238              530              447    
      Paper                                     1,018            1,044            2,065            2,105    
      Forestry                                     15               12               30               26    
    Operating profit   
    excluding special items                                                         
    North America                                  14               13               22               26    
    Europe                                         31               36               74               68    
    Southern Africa                                99               80              183              147    
      Unallocated and eliminations(1)               1                4                2                4    
    Total                                         145              133              281              245    
    Which consists of:                                                                                      
      Specialised cellulose                        99               84              181              146    
      Paper                                        45               45               98               95    
       Unallocated and eliminations(1)              1                4                2                4    
    Special items - (gains) losses                                                                          
    North America                                   -                3                -                3    
    Europe                                          1               (2)               1                2    
    Southern Africa                                 -              (25)              (7)             (40)    
      Unallocated and eliminations(1)               2                2                2                2    
    Total                                           3              (22)              (4)             (33)    
    Segment operating profit (loss)                                                                         
    North America                                  14               10               22               23    
    Europe                                         30               38               73               66    
    Southern Africa                                99              105              190              187    
      Unallocated and eliminations(1)              (1)               2                -                2    
    Total                                         142              155              285              278    
    EBITDA excluding special items                                                                          
    North America                                  34               32               62               63    
    Europe                                         59               68              134              133    
    Southern Africa                               112               91              210              170    
      Unallocated and eliminations(1)               3                4                3                4    
    Total                                         208              195              409              370    
    Which consists of:                                                                                      
      Specialised cellulose                       111               94              206              168    
      Paper                                        94               97              200              198    
      Unallocated and eliminations(1)               3                4                3                4    
    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.                                                         
    EBITDA excluding special items                208              195              409              370    
      Depreciation and amortisation               (63)             (62)            (128)            (125)    
    Operating profit excluding            
    special items                                 145              133              281              245    
     Special items - gains (losses)                (3)              22                4               33    
      Plantation price fair value           
      adjustment                                    1               26               12               28    
      Net restructuring provisions                  -               (1)               -               (4)    
      Profit on disposal of assets          
      held for sale                                 -                1                -               16    
      Black Economic Empowerment charge            (1)              (1)              (1)              (1)    
      Fire, flood, storm and other events          (3)              (3)              (7)              (6)    
                                                                                                            
    Segment operating profit                      142              155              285              278    
    Net finance costs                             (24)             (25)             (49)             (50)    
    Profit before taxation                        118              130              236              228    
    Taxation                                      (30)             (30)             (58)             (53)    
    Profit for the period                          88              100              178              175    
    (1) Includes the group’s treasury operations and our insurance captive.             

                                                              Reviewed         Reviewed    
                                                              Mar 2017         Mar 2016    
                                                           US$ million      US$ million    
    Segment assets                                                                         
    North America                                                  989            1,013    
    Europe                                                       1,194            1,324    
    Southern Africa                                              1,277            1,026    
      Unallocated and eliminations(1)                               55                4    
    Total                                                        3,515            3,367    
    Reconciliation of segment assets to total assets                                       
    Segment assets                                               3,515            3,367    
      Deferred taxation                                            147              157    
      Cash and cash equivalents                                    703              457    
      Other current liabilities                                    722              759    
      Derivative financial instruments                               6                -    
      Taxation payable                                              25               43    
    Total assets                                                 5,118            4,783    
    (1) Includes the group’s treasury operations and our insurance captive.    

3.  Operating profit        
                                                              Reviewed         Reviewed         Reviewed    
                                              Quarter          Quarter        Half-year        Half-year    
                                                ended            ended            ended            ended    
                                             Mar 2017         Mar 2016         Mar 2017         Mar 2016    
                                          US$ million      US$ million      US$ million      US$ million    
    Included in operating profit          
    are the following items:                                                   
    Depreciation and amortisation                  63               62              128              125    
    Fair value adjustment on plantations  
    (included in cost of sales)                                        
     Changes in volume                                                                                       
      Fellings                                     17               11               35               25    
      Growth                                      (15)             (12)             (30)             (26)    
                                                    2               (1)               5               (1)    
    Plantation price fair value adjustment         (1)             (26)             (12)             (28)    
                                                    1              (27)              (7)             (29)    
    Net restructuring provisions                    -                1                -                4    
    Profit on disposal of assets 
    held for sale                                   -               (1)               -              (16)    
                                                                                                             
4.  Earnings per share    
                                                              Reviewed         Reviewed         Reviewed    
                                              Quarter          Quarter        Half-year        Half-year    
                                                ended            ended            ended            ended    
                                             Mar 2017         Mar 2016         Mar 2017         Mar 2016    
                                          US$ million      US$ million      US$ million      US$ million    
    Basic earnings per                   
    share (US cents)                               16               19               33               33    
    Headline earnings per                
    share (US cents)                               16               19               33               31    
    EPS excluding special                
    items (US cents)                               17               16               33               29    
    Weighted average number of           
    shares in issue (millions)                  534.5            529.7            533.0            528.6    
    Diluted earnings per share           
    (US cents)                                     16               18               33               33    
    Diluted headline                     
    earnings per share (US cents)                  16               18               33               30    
    Weighted average number              
    of shares on fully diluted           
    basis (millions)                            548.0            541.4            545.9            538.4    
    Calculation of headline earnings                                                                        
      Profit for the period                        88              100              178              175    
      Profit on disposal of assets       
      held for sale                                 -               (1)               -              (16)    
      Tax effect of above items                     -                -                -                4    
    Headline earnings                              88               99              178              163    
    Calculation of earnings              
    excluding special items                                                         
    Profit for the period                          88              100              178              175    
    Special items after tax                         3              (15)              (2)             (22)    
      Special items                                 3              (22)              (4)             (33)    
      Tax effect                                    -                7                2               11    
    Earnings excluding special items               91               85              176              153    
                                         
5.  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    
                                                           Mar 2017        Sept 2016    
                                                        US$ million      US$ million    
                                                                                        
    Fair value of plantations at beginning of year              441              383    
    Gains arising from growth                                    30               56    
    Fire, flood, storm and other events                          (4)             (13)    
    In-field inventory                                            -               (1)    
    Gain arising from fair value price changes                   12               64    
    Harvesting - agriculture produce (fellings)                 (35)             (56)    
    Disposals                                                     -               (1)    
    Translation difference                                       10                9    
    Fair value of plantations at end of period                  454              441    

6.  Financial instruments                                                                        
    The group’s financial instruments that are measured at fair value on a recurring basis consist of 
    derivative financial instruments 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    
                                           Fair value           Mar 2017        Sept 2016    
                                            hierarchy        US$ million      US$ million    
    Investment funds(2)                       Level 1                  7                7    
    Derivative financial assets               Level 2                 64               45    
    Derivative financial liabilities          Level 2                  6                2    
    (1) The fair value of the financial instruments are equal to their carrying value.   
    (2) Included in other non-current assets.

    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 to 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 amounts of other financial instruments which include cash and cash equivalents, accounts 
    receivable, certain investments, accounts payable and current interest-bearing borrowings approximate 
    their fair values.                                                             

7.  Capital commitments                                                         
                                                                                
                                                   Reviewed         Reviewed    
                                                   Mar 2017        Sept 2016    
                                                US$ million      US$ million    
                                                                                
    Contracted                                          141               42    
    Approved but not contracted                         349               71    
                                                        490              113    

8.  Contingent liabilities                                                      
    Guarantees and suretyships                            6               10    
    Other contingent liabilities                         17               11    
                                                         23               21
 
9.  Material balance sheet movements                                            
    Inventories, trade and other receivables and other current liabilities          
    The increase in inventories with a decrease in both trade and other receivables and other current liabilities 
    is largely attributable to seasonal working capital movements.                                            

10. Related parties                                                             
    There has been no material change, by nature or amount, in transactions with related parties since the 2016 
    financial year-end.                                            

11. Events after balance sheet date                                             
    The group repaid its US$400 million public bond due July 2017 during the call window period in April 2017 
    from available cash resources.                                            

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

Broad-based Black Economic Empowerment (BBBEE) charge - represents the IFRS 2 non-cash charge associated with 
the BBBEE transaction implemented in fiscal 2010 in terms of BBBEE legislation in South Africa

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

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

Headline earnings - as defined in circular 2/2015, issued by the South African Institute of Chartered Accountants 
in October 2015, which separates from earnings all separately identifiable remeasurements. It is not necessarily 
a measure of sustainable earnings. It is a Listings Requirement of the JSE Limited to disclose headline 
earnings per share

Interest cover - last 12 months EBITDA excluding special items to net interest adjusted for refinancing costs

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

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, bank overdrafts less cash and cash equivalents

Net debt to EBITDA excluding special items - net debt divided by the last 12 months EBITDA excluding special 
items

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

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

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

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

Summary Rand convenience translation                                                                      
                                                         Quarter ended              Half-year ended                  
                                                    Mar 2017      Mar 2016      Mar 2017      Mar 2016    
Key figures: (ZAR million)                                                                                
Sales                                                 17,405        20,474        35,664        38,650    
Operating profit excluding special items(1)            1,918         2,104         3,818         3,673    
Special items - (gains) losses(1)                         40          (348)          (54)         (495)    
EBITDA excluding special items(1)                      2,751         3,085         5,557         5,547    
Profit for the period                                  1,164         1,582         2,418         2,624    
Basic earnings per share (SA cents)                      218           299           454           496    
Net debt(1)                                           17,843        25,531        17,843        25,531    
Key ratios: (%)                                                                                           
Operating profit excluding special items to sales       11.0          10.3          10.7           9.5    
Operating profit excluding special items 
to capital employed (ROCE)(1)                           20.0          19.9          19.9          18.0    
EBITDA excluding special items to sales                 15.8          15.1          15.6          14.4    
(1) Refer to supplemental information for the definition of the term.    
The above financial results have been translated into Rand from Dollar as follows:    
- assets and liabilities at rates of exchange ruling at period end; and      
- income, expenditure and cash flow items at average exchange rates.        

Exchange rates                                                                
                                                   Mar          Dec         Sept          Jun          Mar    
                                                  2017         2016         2016         2016         2016    
Exchange rates:                                                                
Period end rate: US$1 = ZAR                    13.4259      13.7386      13.7139      15.0650      15.4548    
Average rate for the quarter: US$1 = ZAR       13.2260      13.9155      14.1648      15.0053      15.8226    
Average rate for the year to date:                 
US$1 = ZAR                                     13.5861      13.9155      14.7879      14.9966      14.9921
Period end rate: €1 = US$                       1.0652       1.0516       1.1226       1.1117       1.1166    
Average rate for the quarter: €1 = US$          1.0656       1.0814       1.1150       1.1304       1.1020    
Average rate for the year to date: €1 = US$     1.0738       1.0814       1.1111       1.1097       1.0994    


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                                      
Computershare Investor Services (Pty) Ltd         
Rosebank Towers, 15 Biermann Avenue               
Rosebank 2196, South Africa                       
PO Box 61051, Marshalltown 2107, South Africa     
www.computershare.com                             
                                                  
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                               
                                                  
JSE Sponsor:                                      
UBS South Africa (Pty) Ltd                        
                                                  
This report is available on the                   
Sappi website: www.sappi.com                      
                                                           
48 Ameshoff Street, Braamfontein, Johannesburg, South Africa
Tel +27 (0)11 407 8111

Date: 15/05/2017 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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