SAPPI LIMITED - Second quarter results for the period ended March 2018

Release Date: 14/05/2018 09:00
Code(s): SAP
 
Wrap Text
Second quarter results for the period ended March 2018

SAPPI LIMITED
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI

Investing in growth
Second quarter results for the period ended March 2018

2nd quarter results
Sappi is a global diversified woodfibre company focused on providing dissolving wood pulp, specialities and packaging
papers, printing and writing papers as well as biomaterials and biochemicals to our direct and indirect customer base
across more than 150 countries.

Our dissolving wood pulp (specialised cellulose) products are used worldwide mainly by converters to create viscose
fibre for fashionable clothing and textiles, as well as other consumer products; quality specialities and packaging 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 market-leading range of printing and
writing papers are used by printers in the production of books, brochures, magazines, catalogues, direct mail and many
other print applications; biomaterials include nanocellulose, fibre composites and lignosulphonate; biochemicals include
second generation sugars.

The wood and pulp needed for our products are either produced within Sappi or bought from accredited suppliers. Sappi
sells almost as much as it buys.


Sales by source* 
North America           25%
Southern Africa         24%
Europe                  51%

Sales by destination*
North America           23%
Southern Africa         10%
Europe                  45%
Asia and other          22%

Sales by product*
Coated paper            57%
Uncoated paper           5%
Speciality paper        12%
Commodity paper          7%
Dissolving wood pulp    18%
Other                    1%

Net operating assets**
North America           25%
Southern Africa         36%
Europe                  39%

*  For the period ended March 2018.
** As at March 2018.


Highlights for the quarter
- EBITDA excluding special items US$211 million (Q2 2017 US$208 million)
- Profit for the period US$102 million (Q2 2017 US$88 million)
- EPS excluding special items 17 US cents (Q2 2017 17 US cents)
- Acquisition of Cham speciality paper business completed
- Net debt US$1,632 million (Q2 2017 US$1,329 million)

                                                                                        Quarter ended                    Half-year ended
                                                                            Mar 2018      Mar 2017      Dec 2017      Mar 2018      Mar 2017    
                                                                                                                                                
Key figures: (US$ million)                                                                                                                      
Sales                                                                          1,496         1,316         1,330         2,826         2,625    
Operating profit excluding special items(1)                                      142           145           105           247           281    
Special items - (gains) losses(2)                                                (12)            3           (11)          (23)           (4)    
EBITDA excluding special items(1)                                                211           208           172           383           409    
Profit for the period                                                            102            88            63           165           178    
Basic earnings per share (US cents)                                               19            16            12            31            33    
EPS excluding special items (US cents)(3)                                         17            17            14            31            33    
Net debt(3)                                                                    1,632         1,329         1,349         1,632         1,329    
Key ratios: (%)                                                                                                                                 
Operating profit excluding special items to sales                                9.5          11.0           7.9           8.7          10.7    
Operating profit excluding special items to capital employed (ROCE)(3)          16.8          20.5          14.1          14.8          19.8    
EBITDA excluding special items to sales                                         14.1          15.8          12.9          13.6          15.6    
Net debt to EBITDA excluding special items                                       2.2           1.7           1.8           2.2           1.7    
Interest cover(3)                                                               11.0           7.7           9.9          11.0           7.7    
Net asset value per share (US cents)(3)                                          365           290           338           365           290    
(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 was ahead of expectations and the group generated EBITDA excluding special items
of US$211 million, an improvement over the same quarter in 2017. Profit for the period increased from US$88 million to
US$102 million due to positive special items in the quarter mainly related to a profit on sale of the corporate office
building in South Africa.

Demand for dissolving wood pulp (DWP) remained strong and pricing improved steadily during the quarter. However, average 
US Dollar prices for the quarter were still below those of the equivalent quarter a year ago. Viscose staple fibre (VSF) 
prices remained under pressure due to the commencement of significant additional VSF capacity in China, despite higher 
prices for competing textiles such as cotton and polyester. Demand and pricing for kraft pulp continued to be strong
and helped underpin DWP pricing.

Demand for specialities and packaging papers continued to be healthy across all major product segments and EBITDA
margins improved to 15% in this quarter. The acquisition of the specialities paper business of the Cham Paper Group 
was completed at the end of February 2018 and the integration of the mills into our European operations is progressing 
smoothly.

The European business experienced a good quarter despite the impact of a stronger Euro on export sales prices and
continued paper pulp cost pressure. Further selling price increases were implemented during the quarter to counteract 
these pressures. Sales volumes were aided by tightening paper markets across a number of paper grades and geographies 
due to machine and mill closures or conversions.

In North America, a series of paper price increases over the past nine months and higher sales volumes led to improved
overall results. These positives were partially offset by the start of the planned major shut for the conversion of PM1
at Somerset Mill during the quarter, which reduced productivity and operating performance.

In the South African business, higher packaging sales volumes and sales price increases for various packaging and
paper grades were unable to fully offset the impact of lower DWP pricing and the stronger Rand/Dollar exchange rate.

Earnings per share excluding special items were 17 US cents, equal to that generated in the equivalent quarter last
year.
 
Cash flow and debt

Net cash utilised for the quarter was US$225 million which included the acquisition of the speciality paper business
of the Cham Paper Group for US$132 million as well as the increased capital expenditure related mainly to the paper
machine conversion projects and the DWP debottlenecking in South Africa.

Cash taxes for the quarter were US$50 million, an increase of US$18 million compared to the equivalent quarter last
year. This increase relates to a South African Revenue Service tax assessment on transfer pricing in prior periods. 

Net debt of US$1,632 million was up US$303 million year-on-year as a result of the cash utilised in the quarter as
mentioned above, together with the translation of Euro denominated debt.

Liquidity comprised cash on hand of US$459 million and US$731 million available from the undrawn committed revolving
credit facilities in Southern Africa and Europe.

Operating review for the quarter

Europe
                                                                                       Quarter ended
€ million                                               Mar 2018      Dec 2017      Sept 2017      Jun 2017      Mar 2017    
Sales                                                        616           571            583           554           581    
Operating profit excluding special items                      37            31             35            23            29    
Operating profit excluding special items to sales (%)        6.0           5.4            6.0           4.2           5.0    
EBITDA excluding special items                                64            59             63            51            56    
EBITDA excluding special items to sales (%)                 10.4          10.3           10.8           9.2           9.6    
RONOA pa (%)                                                11.7          10.6           12.2           8.2          10.3    

The European business delivered a strong performance, with the successful implementation of coated paper price increases 
and growing specialities and packaging sales volumes leading to an improved result compared to both the prior quarter
and the equivalent quarter last year.

European and export graphic paper markets continue to be stable, allowing for the implementation of coated paper price
increases that have offset much of the rise in paper pulp costs. 

The specialities and packaging paper business experienced sales growth of 12% over the prior year, excluding the sales
from the inclusion of the specialities business of the Cham Paper Group for one month. Price increases on some
speciality products were implemented during the quarter to offset the impact of the stronger Euro/US Dollar exchange rate;
however, they continued to be below that of the prior year.

Variable costs rose 5% compared to last year, led by sharp increases in both purchased softwood and hardwood paper
pulp pricing. Lower latex, wood and energy prices provided some relief. 

North America
                                                                                                   Quarter ended
US$ million                                                       Mar 2018      Dec 2017      Sept 2017      Jun 2017      Mar 2017    
Sales                                                                  363           342            357           314           335    
Operating profit (loss) excluding special items                         18            (1)            27            (2)           14    
Operating profit (loss) excluding special items to sales (%)           5.0          (0.3)           7.6          (0.6)          4.2    
EBITDA excluding special items                                          37            18             47            17            34    
EBITDA excluding special items to sales (%)                           10.2           5.3           13.2           5.4          10.1    
RONOA pa (%)                                                           6.8          (0.4)          10.7          (0.8)          5.8    

The North American business benefited from increased sales volumes in all product categories and higher graphic paper
prices when compared to the equivalent quarter last year. The improved performance was achieved despite the US$5 million
impact of lost production due to the commencement of the PM1 conversion at Somerset Mill during March.

The US coated paper market continued to experience tight supply conditions, and coated paper prices have risen 5% over
the prior year as the July and November price increases were further realised during the quarter. Sales volumes have
also been positively impacted, increasing by 2% compared to the equivalent quarter last year. 

As demand for DWP continues to grow we have swung more of the Cloquet Mill production capacity to DWP at the expense
of paper pulp production. The positive impact of additional DWP sales volumes has been negated somewhat by higher average
purchased paper pulp costs. Average DWP sales prices were higher than the prior quarter, but remained below those of
last year. 

The packaging paper business experienced good year-on-year volume growth of 46% but had lower pricing due to product
mix. The release paper business had a slight decline in volume while pricing was largely in line with last year. 

Variable costs were negatively impacted by higher purchased paper pulp, chemicals and energy prices, all of which have
risen year-on-year and quarter-on-quarter.

Southern Africa
                                                                                            Quarter ended
ZAR million                                                Mar 2018      Dec 2017      Sept 2017      Jun 2017      Mar 2017    
Sales                                                         4,548         4,291          4,879         4,432         4,818    
Operating profit excluding special items                        950           940          1,106           918         1,317    
Operating profit excluding special items to sales (%)          20.9          21.9           22.7          20.7          27.3    
EBITDA excluding special items                                1,168         1,144          1,344         1,102         1,489    
EBITDA excluding special items to sales (%)                    25.7          26.7           27.5          24.9          30.9    
RONOA pa (%)                                                   20.9          21.3           26.0          21.5          30.5    

Improved sales volumes could not offset the impact of the stronger Rand/US Dollar exchange rate and the US Dollar DWP
prices, which despite rising during the quarter, were below those of a year ago.

DWP sales volumes were slightly less than those of the equivalent quarter last year due to supply disruptions as a result 
of a local power utility outage, but higher than those of the prior quarter. Lower average US Dollar prices coupled with 
a stronger Rand/US Dollar exchange rate led to average sales prices that were 10% below those of a year ago.

Packaging sales volumes improved, with citrus industry growth more than offsetting the impact of the drought on agricultural 
packaging demand in the Western Cape. Printing and packaging paper prices rose year-on-year and this, along with tight cost 
control, resulted in improved profitability for the paper business. 

Directorate
Dr Deenadayalen (Len) Konar, independent non-executive director, retired from the board at the end of January 2018. 
Dr Konar was appointed to the board in March 2002 and was appointed to the audit committee in 2002 and to the nomination
and governance committee in 2008. He served as chair of the audit committee since 2007.

Outlook
Demand for DWP remains good, and Chinese market prices have remained relatively stable. VSF prices currently remain
under pressure due to low industry operating rates following significant capacity additions in the last few years. Third
quarter average realised DWP prices should be in line with those of the second quarter, while volumes will be lower due
to scheduled annual maintenance shuts at Cloquet, Ngodwana and Saiccor.

Graphic paper operating rates remain healthy in Europe, and further price increases have been implemented since quarter 
end to mitigate the impact of the continuing rise in paper pulp prices. The ongoing integration of the mills acquired
from the Cham Paper Group is expected to deliver the anticipated synergies.

In the United States we will continue with the downtime on PM1 at Somerset Mill in order to complete the conversion
project at the mill. Further coated paper price increases implemented since January will be realised in the third quarter
and this will help negate the aforementioned impact as well as anticipated higher pricing for purchased pulp and
chemicals.

Speciality and packaging paper demand continues to grow as customers and consumers switch to paper-based packaging rather 
than plastics. The acquisition of the specialities business of the Cham Paper Group and the technology acquired with the 
purchase of Rockwell Solutions in 2017 positions us well for growth in this market.

Capital expenditure in 2018 is expected to be approximately US$500 million as currency movements and the acceleration
of various conversion and debottlenecking projects will inflate the total expenditure for the year. The conversions at
Maastricht and Somerset mills, the Saiccor, Ngodwana and Cloquet DWP debottlenecking projects and the expansion of
Saiccor are projects focused on higher margin growth segments including DWP and speciality packaging. 

The group's third quarter operating performance is expected to be in line with that of the prior year as the impact of
the stronger Rand and the various capital projects under way offset the improved graphic paper markets.

On behalf of the board

S R Binnie
Director

G T Pearce
Director

9 May 2018


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
                                                                                   Quarter ended             Half-year ended
US$ million                                                          Note      Mar 2018      Mar 2017      Mar 2018      Mar 2017    
Sales                                                                             1,496         1,316         2,826         2,625    
Cost of sales                                                                     1,244         1,094         2,365         2,176    
Gross profit                                                                        252           222           461           449    
Selling, general and administrative expenses                                        106            81           200           163    
Other operating (income) expenses                                                    (7)            1            (6)            5    
Share of profit from equity investments                                              (1)           (2)           (3)           (4)    
Operating profit                                                        3           154           142           270           285    
Net finance costs                                                                    21            24            36            49    
  Net interest expense                                                               23            27            39            54    
  Interest capitalised                                                               (1)            -            (1)            -    
  Net foreign exchange gain                                                          (1)           (3)           (2)           (5)    

Profit before taxation                                                              133           118           234           236    
Taxation                                                                             31            30            69            58    
Profit for the period                                                               102            88           165           178    
Basic earnings per share (US cents)                                     4            19            16            31            33    
Weighted average number of shares in issue (millions)                             538.7         534.5         537.2         533.0    
Diluted earnings per share (US cents)                                   4            19            16            30            33    
Weighted average number of shares on fully diluted basis (millions)               549.4         548.0         549.2         545.9    


Condensed group statement of comprehensive income
                                                                                                                 Reviewed
                                                                                    Quarter ended             Half-year ended
US$ million                                                                    Mar 2018      Mar 2017      Mar 2018      Mar 2017    
Profit for the period                                                               102            88           165           178    
Other comprehensive income (loss), net of tax                                                                                        
  Items that will not be reclassified subsequently to profit or loss                  -             -           (19)            -    
  Actuarial gains (losses) on post-employment benefit funds                           -             -             -             -    
  Tax effect resulting from change in tax rates                                       -             -           (19)            -    
  Items that may or are reclassified subsequently to profit or loss                  43            15           149            48    
  Exchange differences on translation of foreign operations                          44            16           141            49    
  Movements in hedging reserves                                                      (3)           (2)            9            (1)    
  Tax effect of above items                                                           2             1            (1)            -    

Total comprehensive income (loss) for the period                                    145           103           295           226    


Condensed group balance sheet

                                                                               Reviewed       Audited    
US$ million                                                          Note      Mar 2018     Sept 2017
ASSETS                                                          
Non-current assets                                                                3,837         3,378    
  Property, plant and equipment                                                   2,993         2,681    
  Plantations                                                           5           549           458    
  Deferred tax assets                                                                93           123    
  Goodwill and intangible assets                                                     94            39    
  Equity-accounted investees                                                         38            26    
  Other non-current assets                                                           70            51    
Current assets                                                                    1,971         1,869    
  Inventories                                                                       752           636    
  Trade and other receivables                                                       734           668    
  Derivative financial instruments                                                   18             3    
  Taxation receivable                                                                 8            12    
  Cash and cash equivalents                                                         459           550    
                                                                
Total assets                                                                      5,808         5,247    
EQUITY AND LIABILITIES                                                                                   
Equity                                                                                                   
  Ordinary shareholders' interest                                                 1,968         1,747    
Non-current liabilities                                                           2,724         2,457    
  Interest-bearing borrowings                                                     1,940         1,739    
  Deferred tax liabilities                                                          342           295    
  Other non-current liabilities                                                     442           423    
Current liabilities                                                               1,116         1,043    
  Interest-bearing borrowings                                                       145           133    
  Overdrafts                                                                          6             -    
  Trade and other payables                                                          908           858    
  Provisions                                                                          5            10    
  Derivative financial instruments                                                    7             5    
  Taxation payable                                                                   45            37    
                                                                
Total equity and liabilities                                                      5,808         5,247    
Number of shares in issue at balance sheet date (millions)                        538.9         535.0    


Condensed group statement of cash flows

                                                                                                                Reviewed
                                                                                   Quarter ended             Half-year ended
US$ million                                                                    Mar 2018      Mar 2017      Mar 2018      Mar 2017    
Profit for the period                                                               102            88           165           178    
Adjustment for:                                                                                                                      
  Depreciation, fellings and amortisation                                            88            80           168           163    
  Taxation                                                                           31            30            69            58    
  Net finance costs                                                                  21            24            36            49    
  Defined post-employment benefits paid                                            (12)          (12)          (22)          (21)    
  Plantation fair value adjustments                                                (25)          (16)          (57)          (42)    
  Net restructuring provisions                                                      (2)             -           (2)             -    
  Profit on disposal and written off assets                                         (9)             -           (9)             -    
  Other non-cash items                                                               -             9             8            20    
Cash generated from operations                                                      194           203           356           405    
Movement in working capital                                                        (35)          (26)         (118)         (123)    
Net finance costs paid                                                             (15)          (24)          (21)          (41)    
Taxation paid                                                                      (50)          (32)          (44)          (66)    
Dividend paid                                                                      (81)          (59)          (81)          (59)    
Cash generated from operating activities                                             13            62            92           116    
Cash utilised in investing activities                                             (238)          (42)         (331)          (79)    
Capital expenditure                                                               (119)          (45)         (207)          (82)    
Proceeds on disposal of assets                                                       10             1            10             3    
Acquisition of subsidiary                                                         (132)             -         (132)             -    
Other movements                                                                       3             2           (2)             -    

Net cash (utilised) generated                                                     (225)            20         (239)            37    
Cash effects of financing activities                                                 60          (10)           118          (16)    
Proceeds from interest-bearing borrowings                                            64           (9)           122             5    
Repayment of interest-bearing borrowings                                            (4)           (1)           (4)          (21)    
Net movement in cash and cash equivalents                                         (165)            10         (121)            21    
Cash and cash equivalents at beginning of period                                    618           681           550           703    
Translation effects                                                                   6            12            30          (21)    
Cash and cash equivalents at end of period                                          459           703           459           703    


Condensed group statement of changes in equity

                                                                                       Reviewed
                                                                                   Half-year ended
US$ million                                                                    Mar 2018      Mar 2017    
Balance - beginning of period                                                     1,747         1,378    
Total comprehensive income for the period                                           295           226    
Shareholders for dividend                                                           (81)          (59)    
Transfers from the share purchase trust                                               3             4    
Transfers of vested share options                                                    (1)           (2)    
Share-based payment reserve                                                           5             4    
Balance - end of period                                                           1,968         1,551    


Notes to the condensed group results

1.  Basis of preparation
    The condensed consolidated interim financial statements for the quarter and half-year ended March 2018 are prepared 
    in accordance with International Financial Reporting Standards, IAS 34 Interim Financial Reporting, the SAICA Financial 
    Reporting Guides as issued by the 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 2018 have been reviewed in accordance 
    with the International Standard on Review Engagements 2410 by the group's auditors, KPMG Inc. 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.  Segment information
    The group's reportable segments comprise the geographic regions of North America, Europe and Southern Africa and have remained 
    unchanged from the prior year. The group has however changed the financial information by major product category, as reviewed 
    by the chief operating decision maker during the quarter ended December 2017. Accordingly, the group has restated the financial 
    information presented by major product category for the quarter and half-year ended March 2018.

                                                   Quarter ended             Half-year ended
    Metric tons (000's)                      Mar 2018      Mar 2017      Mar 2018      Mar 2017    
    Sales volume
    North America                                 347           329           690           682    
    Europe                                        847           839         1,669         1,706    
    Southern Africa -  Pulp and paper             413           408           796           772    
                       Forestry                   254           262           502           506    
    Total                                       1,861         1,838         3,657         3,666    
    Which consists of:                                                                           
      Specialised cellulose                       302           303           589           584    
      Specialities and packaging papers           231           209           429           390    
      Printing and writing papers               1,074         1,064         2,137         2,186    
      Forestry                                    254           262           502           506    

                                                                                      Reviewed
                                                       Quarter ended               Half-year ended
    US$ million                                     Mar 2018      Mar 2017      Mar 2018      Mar 2017    
    Sales                                                                                                 
    North America                                        363           335           705           689    
    Europe                                               756           619         1,429         1,270    
    Southern Africa -  Pulp and paper                    359           347           658           636    
                       Forestry                           18            15            34            30    
    Total                                              1,496         1,316         2,826         2,625    
    Which consists of:                                                                                    
      Specialised cellulose                              279           283           520           530    
      Specialities and packaging papers                  254           208           450           387    
      Printing and writing papers                        945           810         1,822         1,678    
      Forestry                                            18            15            34            30    
    Operating profit (loss) excluding special items                                                       
    North America                                         18            14            17            22    
    Europe                                                45            31            82            74    
    Southern Africa                                       79            99           148           183    
       Unallocated and eliminations(1)                     -             1             -             2    
    Total                                                142           145           247           281    
    Which consists of:                                                                                    
      Specialised cellulose                               69            99           131           181    
      Specialities and packaging papers                   25            23            41            38    
      Printing and writing papers                         48            22            75            60    
       Unallocated and eliminations(1)                     -             1             -             2    
    Special items - (gains) losses                                                                        
    North America                                          -             -             2             -    
    Europe                                                (1)            1             1             1    
    Southern Africa                                      (13)            -           (29)           (7)    
       Unallocated and eliminations(1)                     2             2             3             2    
    Total                                                (12)            3           (23)           (4)    
    Segment operating profit (loss)                                                                       
    North America                                         18            14            15            22    
    Europe                                                46            30            81            73    
    Southern Africa                                       92            99           177           190    
       Unallocated and eliminations(1)                    (2)           (1)           (3)            -    
    Total                                                154           142           270           285    
    (1) Includes the group's treasury operations and our insurance captive.

                                                                                       Reviewed
                                                      Quarter ended                Half-year ended
    US$ million                                    Mar 2018      Mar 2017      Mar 2018      Mar 2017    
    EBITDA excluding special items                                                                       
    North America                                        37            34            55            62    
    Europe                                               78            59           147           134    
    Southern Africa                                      97           112           181           210    
       Unallocated and eliminations(1)                   (1)            3             -             3    
    Total                                               211           208           383           409    
    Which consists of:                                                                                   
      Specialised cellulose                              83           111           158           206    
      Specialities and packaging papers                  38            32            65            57    
      Printing and writing papers                        91            62           160           143    
       Unallocated and eliminations(1)                   (1)            3             -             3    
    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 
    believes are material by nature or amount to the 
    operating results and require separate disclosure.
    EBITDA excluding special items                      211           208           383           409 
    Depreciation and amortisation                       (69)          (63)         (136)         (128)
    Operating profit excluding special items            142           145           247           281 
      Special items - gains (losses)                     12            (3)           23             4 
      Plantation price fair value adjustment              6             1            22            12 
      Acquisition costs                                  (2)            -            (2)            - 
      Net restructuring provisions                        2             -             2             - 
      Profit on disposal and written off assets           9             -             9             - 
      Black Economic Empowerment charge                  (1)           (1)           (1)           (1)
      Fire, flood, storm and other events                (2)           (3)           (7)           (7)

    Segment operating profit                            154           142           270           285 
      Net finance costs                                 (21)          (24)          (36)          (49)
    Profit before taxation                              133           118           234           236 
      Taxation                                          (31)          (30)          (69)          (58)
    Profit for the period                               102            88           165           178 
    (1) Includes the group's treasury operations and our insurance captive.

                                                                                       Reviewed
                                                                                   Half-year ended
    US$ million                                                                Mar 2018      Mar 2017    
    Segment assets                                                                                       
    North America                                                                 1,090           989    
    Europe                                                                        1,652         1,194    
    Southern Africa                                                               1,545         1,277    
      Unallocated and eliminations(1)                                                 4            55    
    Total                                                                         4,291         3,515    
    Reconciliation of segment assets to total assets                                                     
    Segment assets                                                                4,291         3,515    
      Deferred taxation                                                              93           147    
      Cash and cash equivalents                                                     459           703    
      Trade and other payables                                                      908           711    
      Provisions                                                                      5            11    
      Derivative financial instruments                                                7             6    
      Taxation payable                                                               45            25    
    Total assets                                                                  5,808         5,118    
    (1) Includes the group's treasury operations and our insurance captive.

3.  Operating profit
                                                                                                        Reviewed
                                                                           Quarter ended            Half-year ended
    US$ million                                                      Mar 2018      Mar 2017      Mar 2018       Mar 2017    
    Included in operating profit are the following items:                                                                   
    Depreciation and amortisation                                          69            63           136            128    
    Fair value adjustment on plantations (included in cost of sales)                                                        
    Changes in volume                                                                                                       
      Fellings                                                             19            17            32             35    
      Growth                                                              (19)          (15)          (35)           (30)    
                                                                            -             2           (3)              5    
    Plantation price fair value adjustment                                 (6)           (1)          (22)           (12)    
                                                                           (6)            1           (25)            (7)    
    Net restructuring provisions                                           (2)            -            (2)             -    
    Profit on disposal of property, plant and equipment                    (9)            -            (9)             -    

4.  Earnings per share
                                                                                                          Reviewed
                                                                               Quarter ended            Half-year ended
    US$ million                                                          Mar 2018      Mar 2017      Mar 2018       Mar 2017    
    Basic earnings per share (US cents)                                        19            16            31             33    
    Headline earnings per share (US cents)                                     18            16            30             33    
    EPS excluding special items (US cents)                                     17            17            31             33    
    Weighted average number of shares in issue (millions)                   538.7         534.5         537.2          533.0    
    Diluted earnings per share (US cents)                                      19            16            30             33    
    Diluted headline earnings per share (US cents)                             17            16            29             33    
    Weighted average number of shares on fully diluted basis (millions)     549.4         548.0         549.2          545.9    
    Calculation of headline earnings                                                                                            
      Profit for the period                                                   102            88           165            178    
      Profit on disposal of property, plant and equipment                      (9)            -           (9)              -    
      Tax effect of above items                                                 3             -             3              -    
    Headline earnings                                                          96            88           159            178    
    Calculation of earnings excluding special items                                                                             
      Profit for the period                                                   102            88           165            178    
      Special items after tax                                                  (8)            3           (16)            (2)    
       Special items                                                          (12)            3           (23)            (4)    
       Tax effect                                                               4             -             7              2    

      Tax special items                                                         -             -            19              -    
    Earnings excluding special items                                           94            91           168            176    

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), 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.

    US$ million                                                                 Reviewed       Audited 
                                                                               Mar 2018      Sept 2017 
    Fair value of plantations at beginning of year                                  458            441 
    Gains arising from growth                                                        35             58 
    Fire, flood, storm and other events                                               -             (5)
    In-field inventory                                                               (1)             1 
    Gain arising from fair value price changes                                       22             21 
    Harvesting - agriculture produce (fellings)                                     (32)           (63)
    Translation difference                                                           67              5 
    Fair value of plantations at end of period                                      549            458 

6.  Financial instruments
    The group's financial instruments that are measured at fair value on a recurring basis consist of derivative financial 
    instruments, available-for-sale financial assets and a contingent consideration liability. 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)
    US$ million                                 Fair value       Reviewed        Audited 
                                                 hierarchy       Mar 2018      Sept 2017
    Investment funds(2)                            Level 1              8              7
    Derivative financial assets                    Level 2             18              3
    Derivative financial liabilities               Level 2              7              5
    Contingent consideration liability(3)          Level 3             13             13
    (1) The fair value of the financial instruments are equal to their carrying value.
    (2) Included in other non-current assets.
    (3) Included in other non-current liabilities and trade and other payables.

    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 movement 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.

    The contingent consideration is based on a multiple of targeted future earnings, of which a 92% weighted average outcome has 
    been projected.

    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
    US$ million                                  Reviewed        Audited     
                                                 Mar 2018      Sept 2017    
    Contracted                                        246            253    
    Approved but not contracted                       244            219    
                                                      490            472    
8.  Contingent liabilities
    Other contingent liabilities                       22             19    
                                                       22             19   

    Other contingent liabilities mainly relate to environmental and other taxation queries in respect of certain group companies.

9.  Material balance sheet movements
    Since the 2017 financial year-end, the ZAR and Euro have strengthened by approximately 12.7% and 4.3% respectively to the US Dollar, 
    the group's presentation currency, resulting in a similar increase of the group's assets and liabilities held in the aforementioned 
    functional currencies on translation to the presentation currency.

    Deferred tax assets
    There were reductions in the corporate tax rate in various countries resulting in a decrease of US$36 million in our deferred tax 
    asset balance of which US$17 million was recorded through the income statement and US$19 million through other comprehensive income.

10. Acquisition
    On 28 February 2018, Sappi acquired the speciality paper business of Cham Paper Group Holding AG (CPG) for CHF132 million 
    (US$139 million). The transaction includes all brands and know-how, the Carmignano and Condino mills in Italy, as well as their 
    digital imaging business and facility situated in Cham, Switzerland. The acquisition was financed from internal resources. The 
    acquisition increases Sappi's relevance in specialities and packaging papers, opening up new customers and markets to Sappi's 
    existing products and generating economies of scale and synergies. It will improve near-term profitability and serve as a platform 
    for organic growth, further acquisitions and will add €183 million of annual sales and approximately €20 million of annual EBITDA 
    before taking into account synergies.

    Provisional fair values of assets acquired and liabilities assumed as at 28 February 2018 are as follows:
                                                    EURO        US$    
    Property, plant and equipment                     50         61    
    Trademarks                                         7          9    
    Inventories                                       25         31    
    Trade receivables                                 28         34    
    Prepayments and other debit balances               2          3    
    Cash and cash equivalents                          6          7    
    Trade payables                                   (23)       (28)    
    Pension liabilities                               (3)        (4)    
    Provisions                                        (1)        (2)    
    Other payables and accruals                       (9)       (10)    
    Net deferred tax (liabilities) assets             (1)        (1)    
    Borrowings                                        (5)        (7)    
    Short-term loans                                  (5)        (6)    
    Net asset value acquired                          71         87    
    Intangibles and goodwill                          43         52    
    Purchase consideration                           114        139    
    Less: Cash and cash equivalents acquired          (6)        (7)    
    Net cash outflow on acquisition                  108        132    

11. Related parties
    There has been no material change, by nature or amount, in transactions with related parties since the 2017 financial 
    year-end other than purchases from The Boldt Company for engineering services which amounted to US$46 million for the 
    half-year ended March 2018 (Sept 2017: US$8 million).

12. Accounting standards, interpretations and amendments to existing standards that are not yet effective
    There has been no significant change to managements estimates in respect of new accounting standards, amendments and 
    interpretations to existing standards that have been published which are not yet effective and which have not yet been 
    adopted by the group. Management is in the process of completing its assessments in this regard.

13. Events after balance sheet date
    On 16 April, Sappi Southern Africa Limited repaid its unsecured ZAR500 million (US$41 million) public bond due April 2018 
    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

Operating profit - a profit from business operations before deduction of net finance costs and taxes 

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 believes 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 2018      Mar 2017      Mar 2018      Mar 2017    
Key figures: (ZAR million)
Sales                                                                        17,889        17,405        36,095        35,664    
Operating profit excluding special items(1)                                   1,698         1,918         3,155         3,818    
Special items - (gains) losses(1)                                              (143)           40          (294)          (54)    
EBITDA excluding special items(1)                                             2,523         2,751         4,892         5,557    
Profit for the period                                                         1,220         1,164         2,107         2,418    
Basic earnings per share (SA cents)                                             226           218           392           454    
Net debt(1)                                                                  19,320        17,843        19,320        17,843    
Key ratios: (%)                                                                                                                  
Operating profit excluding special items to sales                               9.5          11.0           8.7          10.7    
Operating profit excluding special items to capital employed (ROCE)(1)         16.6          20.0          15.0          19.9    
EBITDA excluding special items to sales                                        14.1          15.8          13.6          15.6    
(1) Refer to supplemental information for the definition of the term.

The above financial results have been translated into Rand from US 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    
                                                       2018         2017         2017         2017         2017    
Exchange rates:
Period end rate: US$1 = ZAR                         11.8385      12.3724      13.5561      13.0551      13.4259    
Average rate for the quarter: US$1 = ZAR            11.9577      13.6220      13.1761      13.1857      13.2260    
Average rate for the year to date: US$1 = ZAR       12.7723      13.6220      13.3813      13.4536      13.5861    
Period end rate: €1 = US$                            1.2323       1.1998       1.1814       1.1426       1.0652    
Average rate for the quarter: €1 = US$               1.2286       1.1778       1.1756       1.1011       1.0656    
Average rate for the year to date: €1 = US$          1.2032       1.1778       1.1055       1.0827       1.0738    


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

Date: 14/05/2018 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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