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SAPPI LIMITED - First quarter results for the period ended December 2018

Release Date: 06/02/2019 08:00
Code(s): SAP     PDF:  
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First quarter results for the period ended December 2018

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

First quarter results for the period ended December 2018 

1st quarter results
Sappi is a global diversified woodfibre company focused on providing dissolving wood pulp, packaging and 
speciality 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 products are used worldwide mainly by converters to create viscose fibre for 
fashionable clothing and textiles, as well as other consumer products; 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 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        44%
Southern Africa       9%
Europe               22%
Asia and other       25%

Sales by product*
Coated paper         54%
Uncoated paper        6%    
Speciality paper     15%   
Commodity paper       6%
Dissolving wood pulp 19%

Net operating assets**
North America        27%
Southern Africa      35%
Europe               38%

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

Highlights for the quarter

- EBITDA excluding special items US$197 million (Q1 2018 US$172 million)

- EPS excluding special items 16 US cents (Q1 2018 14 US cents)

- Profit for the period US$81 million (Q1 2018 US$63 million)

- Net debt US$1,557 million (Q1 2018 US$1,349 million)

                                                                                   Quarter ended
                                                                        Dec 2018      Dec 2017      Sept 2018    
Key figures: (US$ million)                                                                                       
Sales                                                                      1,418         1,330          1,535    
Operating profit excluding special items(1)                                  128           105            148    
Special items - loss (gain)(2)                                                 5           (11)            13    
EBITDA excluding special items(1)                                            197           172            224    
Profit for the period                                                         81            63            107    
Basic earnings per share (US cents)                                           15            12             20    
EPS excluding special items (US cents)(3)                                     16            14             19    
Net debt(3)                                                                1,557         1,349          1,568    
Key ratios: (%)                                                                                                  
Operating profit excluding special items to sales                            9.0           7.9            9.6    
Operating profit excluding special items to capital employed (ROCE)(3)      14.7          14.1           17.0    
EBITDA excluding special items to sales                                     13.9          12.9           14.6    
Net debt to EBITDA excluding special items                                   2.0           1.8            2.1    
Interest cover(3)                                                           10.9           9.9           11.0    
Net asset value per share (US cents)(3)                                      353           338            361    
(1) Refer to note 2 of 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 of the group results for details on special items.
(3) Refer to supplemental information for the definition of the term.

Commentary on the quarter
In a difficult operating climate, the resilience of the business and the benefits from the diversification
of the product portfolio in recent years were emphasised during the quarter. Profitability was in line 
with the guidance provided at the end of the 2018 financial year and the group generated EBITDA excluding 
special items of US$197 million, a 15% improvement compared to the equivalent quarter last year. Profit for 
the comparative period increased by 29% to US$81 million due to the improved operating profit and a lower 
tax charge for the quarter.

Dissolving wood pulp (DWP) sales prices remained stable throughout most of the quarter, and declined slightly
in December due to pressure from lower Chinese viscose staple fibre (VSF) prices and a weak Chinese paper pulp
market. Overall, our customers' demand for DWP continued to be healthy.

Packaging and specialities markets were mixed with solid containerboard and paperboard sales volumes and
higher prices offsetting weaker demand in European self-adhesive and consumer packaging segments. Input cost
pressures on the non- or partially integrated mills persisted due to elevated paper pulp prices, which impacted
margins for the segment. Specialities and packaging sales volumes for the group were 27% higher year-on-year.

Sluggish demand for coated graphic and packaging papers along with ongoing high paper pulp input costs
depressed margins in the European business. Higher selling prices and the inclusion of the Cham Paper business 
led to stable year-on-year profitability. 

Higher DWP and coated paper prices, combined with a shorter scheduled shut at Somerset led to an improved
operating performance for the North American business. PM1 at Somerset continued to ramp up paperboard
production and commercial sales of these grades steadily increased. 

The South African business delivered excellent results, with increased DWP and packaging sales volumes
combined with higher Rand selling prices across the board more than offsetting energy and woodfibre 
cost pressures.

Earnings per share excluding special items was 16 US cents, an increase from the 14 US cents generated in
the equivalent quarter last year. Special items reduced earnings by US$5 million.

Cash flow and debt
Net cash utilised for the quarter of US$7 million, compared to US$14 million utilised in the equivalent
quarter last year. The reduction in cash utilisation was due to improved operational cash generation that 
was offset somewhat by a US$18 million increase in capital expenditure.

Net debt of US$1,557 million was US$208 million higher than at the end of the equivalent quarter last year
as a result of the Cham Paper acquisition of US$132 million and increased capital expenditure in the past year.

Liquidity comprised cash on hand of US$350 million and US$670 million available from the undrawn committed
revolving credit facilities in Southern Africa and Europe. 

Operating review on the quarter

Europe
                                                                      Quarter ended
€ million                                   Dec 2018      Sept 2018      Jun 2018      Mar 2018      Dec 2017    
Sales                                            642            671           636           616           571    
Operating profit excluding special items          30             38            31            37            31    
Operating profit excluding special 
items to sales (%)                               4.7            5.7           4.9           6.0           5.4    
EBITDA excluding special items                    59             71            60            64            59    
EBITDA excluding special items 
to sales (%)                                     9.2           10.6           9.4          10.4          10.3    
RONOA pa (%)                                     8.8           11.3           9.3          11.7          10.6    

The European business was under pressure from weak demand in the coated paper and certain packaging markets
as well as continued high paper pulp input costs. The stable year-on-year operating result was achieved due to
the contribution of Cham Paper, market share gains in coated woodfree paper and higher average net selling
prices for all product categories. 

The packaging and specialities paper business increased sales volumes by 50% year-on-year (up 4% on a 
like-for-like basis excluding Cham Paper), following the completion of the Maastricht conversion and the 
inclusion of the Cham Paper volumes after the acquisition of that business was concluded during the second 
fiscal quarter of 2018. Paperboard and containerboard markets were solid during the quarter, however, the 
self-adhesives market and consumer goods end use markets struggled. Average net selling prices were 17% 
(10% on a like-for-like basis) higher as a result of a shift in product mix post the conversion of 
Maastricht and the acquisition of Cham Paper, and price increases implemented last year to counter 
rising raw material costs. 

Variable costs in Euro were 17% higher year-on-year, driven primarily by softwood and hardwood pulp costs
that were 34% and 17% higher respectively. Fixed costs were 12% higher, mainly due to the inclusion of Cham
Paper personnel and related fixed costs.


North America
                                                                      Quarter ended
US$ million                                 Dec 2018      Sept 2018      Jun 2018      Mar 2018      Dec 2017    
Sales                                            351            388           339           363           342    
Operating profit (loss) excluding        
special items                                      9             31             1            18            (1)    
Operating profit (loss) excluding        
special items to sales (%)                       2.6            8.0           0.3           5.0          (0.3)    
EBITDA excluding special items                    29             51            20            37            18    
EBITDA excluding special items           
to sales (%)                                     8.3           13.1           5.9          10.2           5.3    
RONOA pa (%)                                     3.2           10.9           0.4           6.8          (0.4)    

Higher selling prices for all products other than release paper and improved DWP volumes contributed to the
improved year-on-year performance in the North American business. The improvement was tempered by lower coated
paper sales volumes and elevated purchased paper pulp costs.

Coated paper demand in the US market began to weaken during the quarter, however our CFS operating rates
remained good and we continue to increase sales volumes of coated paper from our European mills. Further price
increase realisation was achieved with average net selling prices for coated paper 13% higher than the prior
year. 

Increased purchased paper pulp volumes and higher market pulp prices reduced the benefit of the year-on-year
growth in DWP sales volumes and prices. 

Packaging and specialities volumes were 68% above those of last year, with increased sales volumes of
existing packaging grades and new paperboard grades offsetting weaker release paper sales volumes. Commercial 
sales of paperboard products are growing, with sales volume and pricing set to improve over the course of the 
coming year as the ramp up proceeds.

Variable costs were negatively impacted by the higher purchased paper pulp prices and the continued
optimisation of PM1 for the new paperboard grades. Fixed costs remained well managed.

Southern Africa                          
                                                                      Quarter ended
ZAR million                                 Dec 2018      Sept 2018      Jun 2018      Mar 2018      Dec 2017    
Sales                                          4,981          5,103         4,383         4,548         4,291    
Operating profit excluding                
special items                                  1,217          1,081           553           950           940    
Operating profit excluding                
special items to sales (%)                      24.4           21.2          12.6          20.9          21.9    
EBITDA excluding special items                 1,446          1,344           742         1,168         1,144    
EBITDA excluding special items            
to sales (%)                                    29.0           26.3          16.9          25.7          26.7    
RONOA pa (%)                                    24.0           22.4          11.9          20.9          21.3    

Improved year-on-year packaging, DWP sales volumes and increased selling prices for all major product
categories led to a strong improvement in operating performance for the Southern African business.

DWP sales volumes were greater than the equivalent quarter last year, but lower than those of the prior
quarter due to low starting inventories. Average US Dollar selling prices were 5% higher than a year ago 
and a weaker Rand/US Dollar exchange rate further boosted selling prices.

Packaging sales volumes grew 2% year-on-year, while local sales prices increased to match variable cost
rises. Export sales prices benefited from the weaker exchange rate. Office paper and newsprint sales volumes 
were slightly lower than the prior year while prices grew 12% to help offset variable cost pressures.

Fixed costs rose in line with local inflation while variable costs, particularly for energy and woodfibre,
were negatively impacted by the weaker Rand and higher Dollar prices for coal, wood and paper pulp. 

Directorate
The board is pleased to announce the appointment of Mr Brian Beamish as independent non-executive director
with effect from 01 March 2019.

Outlook 
Following the completion of the debottlenecking of Saiccor and Ngodwana in 2018, we plan to grow dissolving 
wood pulp volumes through the remainder of 2019 to meet increased customer demand. DWP prices in China have 
come under pressure in the past two months as the lower Chinese VSF prices and current weak Chinese paper 
pulp markets influence DWP pricing. Demand from our customers remains good and we anticipate that continued 
high paper pulp prices in the rest of the world will support DWP prices going forward. 

Market conditions for the various grades of packaging and speciality papers that we produce have diverged in
the past month or so, with strong containerboard markets in South Africa and solid paperboard demand in
Europe contrasting with some weakness in the release paper, and various European speciality grades. The ramp up 
of packaging paper production at Maastricht and Somerset post the completion of the conversion projects at these
mills in 2018 will result in further sales growth in this segment.

Graphic paper markets in Europe and North America have weakened in recent months which has impacted the
market balance, particularly for Europe. Further potential industry capacity conversions and closures may happen 
in the coming periods, however, short-term profitability will be negatively impacted if demand continues to be 
as weak as it has been recently. 

Capital expenditure in 2019 is expected to be approximately US$590 million as we proceed with the Saiccor
110kt expansion project, complete the Saiccor woodyard upgrade, convert Lanaken PM8 from coated mechanical to
woodfree paper production and upgrade the Gratkorn mill in our continued transition towards growing and higher
margin segments.

Given current weak graphic paper markets and paper pulp prices which remain elevated in Europe and North
America, we expect EBITDA in the second quarter of financial year 2019, given current exchange rates, to be
slightly below that of 2018. The full year result is expected to be above that of the prior year. 

On behalf of the board

S R Binnie
Director

G T Pearce
Director

06 February 2019


Forward-looking statements
Certain statements in this release that are neither reported financial results nor other historical information, 
are forward-looking statements, including but not limited to statements that are predictions of or indicate future 
earnings, savings, synergies, events, trends, plans or objectives. The words "believe", "anticipate", "expect", 
"intend", "estimate", "plan", "assume", "positioned", "will", "may", "should", "risk" and other similar expressions, 
which are predictions of or indicate future events and future trends and which do not relate to historical matters, 
and may be used to identify forward-looking statements. You should not rely on forward-looking statements because 
they involve known and unknown risks, uncertainties and other factors which are in some cases beyond our control 
and may cause our actual results, performance or achievements to differ materially from anticipated future results, 
performance or achievements expressed or implied by such forward-looking statements (and from past results, 
performance or achievements). Certain factors that may cause such differences include but are not limited to:
- the highly cyclical nature of the pulp and paper industry (and the factors that contribute to such
  cyclicality, such as levels of demand, production capacity, production, input costs including raw material, 
  energy and employee costs, and pricing);
- the impact on our business of a global economic downturn;
- unanticipated production disruptions (including as a result of planned or unexpected power outages);
- changes in environmental, tax and other laws and regulations;
- adverse changes in the markets for our products;
- the emergence of new technologies and changes in consumer trends including increased preferences for
  digital media;
- consequences of our leverage, including as a result of adverse changes in credit markets that affect our
  ability to raise capital when needed;
- adverse changes in the political situation and economy in the countries in which we operate or the effect
  of governmental efforts to address present or future economic or social problems;
- the impact of restructurings, investments, acquisitions, dispositions and other strategic initiatives
  (including related financing), any delays, unexpected costs or other problems experienced in connection with
  dispositions or with integrating acquisitions or implementing restructuring and other strategic initiatives and
  achieving expected savings and synergies; and
- currency fluctuations.

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

Condensed group income statement
                                                                                       Quarter ended
                                                                                   Dec 2018      Dec 2017    
US$ million                                                              Note      Reviewed      Reviewed    
Sales                                                                                 1,418         1,330    
Cost of sales                                                                         1,196         1,121    
Gross profit                                                                            222           209    
Selling, general and administrative expenses                                            100            94    
Other operating expenses                                                                  -             1    
Share of profit from equity investments                                                  (1)           (2)    
Operating profit                                                            3           123           116    
Net finance costs                                                                        17            15    
  Net interest expense                                                                   19            16    
  Net foreign exchange gain                                                              (2)           (1)    
Profit before taxation                                                                  106           101    
Taxation(1)                                                                              25            38    
Profit for the period                                                                    81            63    
Basic earnings per share (US cents)                                         4            15            12    
Weighted average number of shares in issue (millions)                                 539.9         535.8    
Diluted earnings per share (US cents)                                       4            15            11    
Weighted average number of shares on fully diluted basis (millions)                   549.7         549.0    
                                                                                                             

Condensed group statement of other comprehensive income                                                      
                                                                                        Quarter ended
                                                                                   Dec 2018      Dec 2017    
US$ million                                                                        Reviewed      Reviewed    
Profit for the period                                                                    81            63    
Other comprehensive income, net of tax                                                                       
  Items that will not be reclassified subsequently to profit or loss                      -           (19)    
  Actuarial gains (losses) on post-employment benefit funds                               -             -    
  Tax rate change(1)                                                                      -           (19)    
  Items that may be reclassified subsequently to profit or loss                         (22)          106    
  Exchange differences on translation of foreign operations                             (19)           97    
  Movements in hedging reserves                                                          (4)           12    
  Tax effect of above items                                                               1            (3)    
Total comprehensive income for the period                                                59           150    
(1) During the quarter ended December 2017, there were tax rate changes relating primarily to the reduction 
    of the federal corporate income tax rate in the USA where the rate changed from 35% in 2017 to 21% in 
    2018, resulting in a US$19 million taxation charge recorded through the income statement and US$19 million 
    through other comprehensive income.


Condensed group balance sheet                                    
                                                                                   Dec 2018     Sept 2018    
US$ million                                                             Note       Reviewed      Reviewed    
ASSETS                                                                                                       
Non-current assets                                                                    3,753         3,766    
Property, plant and equipment                                                         3,006         3,010    
Plantations                                                                5            459           466    
Deferred tax assets                                                                      97           106    
Goodwill and intangible assets                                                           62            63    
Equity-accounted investees                                                               32            33    
Other non-current assets                                                                 97            88    
Current assets                                                                        1,903         1,904    
Inventories                                                                             828           741    
Trade and other receivables                                                             707           767    
Derivative financial assets                                                               9            21    
Taxation receivable                                                                       9            12    
Cash and cash equivalents                                                               350           363    
                                                                                                             
Total assets                                                                          5,656         5,670    
EQUITY AND LIABILITIES                                                                                       
Shareholders' equity                                                                                         
Ordinary shareholders' interest                                                       1,915         1,947    
Non-current liabilities                                                               2,506         2,550    
Interest-bearing borrowings                                                           1,778         1,818    
Deferred tax liabilities                                                                336           335    
Other non-current liabilities                                                           392           397    
Current liabilities                                                                   1,235         1,173    
Interest-bearing borrowings                                                             116            97    
Overdrafts                                                                               13            16    
Trade and other payables                                                                954         1,009    
Provisions                                                                                6             6    
Derivative financial liabilities                                                          5             6    
Taxation payable                                                                         49            39    
Shareholders for dividend                                                                92             -    
                                                                                                             
Total equity and liabilities                                                          5,656         5,670    
Number of shares in issue at balance sheet date (millions)                            542.6         539.3    


Condensed group statement of cash flows
                                                                                        Quarter ended
                                                                                   Dec 2018      Dec 2017    
US$ million                                                                        Reviewed      Reviewed    
Profit for the period                                                                    81            63    
Adjustment for:                                                                                              
  Depreciation, fellings and amortisation                                                86            80    
  Taxation                                                                               25            38    
  Net finance costs                                                                      17            15    
  Defined post-employment benefits paid                                                 (10)          (10)    
  Plantation fair value adjustments                                                     (20)          (32)    
  Other non-cash items                                                                   18             8    
Cash generated from operations                                                          197           162    
Movement in working capital                                                             (87)          (83)    
Net finance costs paid                                                                   (5)           (6)    
Taxation (paid) refund                                                                   (3)            6    
Cash generated from operating activities                                                102            79    
Cash utilised in investing activities                                                  (109)          (93)    
Capital expenditure                                                                    (106)          (88)    
Other non-current asset movements                                                        (3)           (5)    
Net cash (utilised) generated                                                            (7)          (14)    
Cash effects of financing activities                                                      2            58    
Proceeds from interest-bearing borrowings                                                 6            58    
Repayment of interest-bearing borrowings                                                 (4)            -    
Net movement in cash and cash equivalents                                                (5)           44    
Cash and cash equivalents at beginning of period                                        363           550    
Translation effects                                                                      (8)           24    
Cash and cash equivalents at end of period                                              350           618    


Condensed group statement of changes in equity
                                                                                       Quarter ended
                                                                                   Dec 2018      Dec 2017    
US$ million                                                                        Reviewed      Reviewed    
Balance - beginning of period                                                         1,947         1,747    
Total comprehensive income for the period                                                59           150    
Shareholders for dividend                                                               (92)          (81)    
Transfers of vested share options                                                         -             2    
Share-based payment reserve                                                               1             3    
Balance - end of period                                                               1,915         1,821    
Comprising                                                                                                   
Ordinary share capital and premium                                                      841           981    
Non-distributable reserves                                                              131           136    
Foreign currency translation reserves                                                  (181)         (157)    
Hedging reserves                                                                        (33)          (24)    
Retained earnings                                                                     1,157           885    
Total equity                                                                          1,915         1,821    


Notes to the condensed group results

1.  Basis of preparation
    The condensed consolidated interim financial statements for the quarter ended 30 December 2018 are prepared 
    in accordance with the International Financial Reporting Standards, 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 as issued by the IASB and are consistent with those applied in 
    the previous annual financial statements except those new standards adopted and set out below under "Adoption 
    of accounting standards in the current year".

    The preparation of these condensed consolidated interim financial statements was supervised by the Chief 
    Financial Officer, G T Pearce, CA(SA) and were authorised for issue on 6 February 2019.

    The condensed consolidated interim financial statements for the quarter ended 30 December 2018 have been 
    reviewed in accordance with the International Standard on Review Engagements 2410 by the group's auditor, 
    KPMG Inc. Its 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.

    Adoption of accounting standards in the current year
    The group has adopted the following standards and amendments to standards during the current year, all of 
    which had no material impact on the group's reported results or financial position:

    IFRS 15 Revenue from Contracts with Customers
    Revenue is derived principally from the sale of goods to customers and is measured at the fair value of the 
    amount received or receivable after the deduction of trade and settlement discounts, rebates and customer 
    returns. For the majority of local and regional sales, transfer occurs at the point of offloading the 
    shipment into the customer's warehouse whereas for the majority of export sales, transfer occurs when the 
    goods have been loaded onto the relevant carrier unless the contract of sale specifies different terms.

    The adoption of IFRS 15 resulted in the group recognising revenue from shipping activities as a separate 
    performance obligation when control of the goods pass to customers at the point when the goods have been 
    loaded onto the relevant carrier. Given that the group is acting as an agent in these activities, revenue 
    is recognised when the shipping is arranged which is considered to be at the point of loading of the goods 
    resulting in no significant timing differences compared to revenue recognition under IAS 18. The related 
    shipping costs have been set-off against this revenue based on agent accounting principles whereas these 
    were previously included in cost of sales. Refer to note 2 for the quantitative impact of this adjustment. 
    The group elected to adopt IFRS 15 on a cumulative effect method.

    IFRS 9 Financial Instruments
    IFRS 9 sets out a new classification and measurement approach for financial assets that reflects the 
    business model in which the assets are managed and their cash flow characteristics. The three principal 
    classification categories for financial assets are: measured at amortised cost, fair value through profit 
    or loss and fair value through other comprehensive income. The new classification did not have a significant 
    impact compared to the previous accounting for financial assets under IAS 39. IFRS 9 replaced the 'incurred 
    loss' model in IAS 39 with a forward-looking ‘expected credit loss' (ECL) model. The group applied the 
    practical expedient in IFRS 9 to calculate the ECL on trade receivables using a provision matrix. The 
    application of the ECL model did not result in a material impact compared to the previous accounting under 
    IAS 39. With respect to hedging, a new non-distributable equity reserve was created called 'cost of hedging 
    reserve'. This reserve is used to separate all time value of money and forward point valuations on hedged 
    instruments, as required per IFRS 9. This resulted in an increase to retained earnings and a decrease to 
    this 'cost of hedging reserve' of US$4 million on adoption of IFRS 9.    
    
2.  Segment information
                                                                                        Quarter ended
    Metric tons (000's)                                                            Dec 2018      Dec 2017    
    Sales volume                                                                                             
    North America                                                                       321           343    
    Europe                                                                              809           822    
    Southern Africa - Pulp and paper                                                    396           383    
                      Forestry                                                          317           248    
    Total                                                                             1,843         1,796    
    Which consists of:                                                                                       
      Dissolving wood pulp                                                              297           287    
      Specialities and packaging papers                                                 252           198    
      Printing and writing papers                                                       977         1,063    
      Forestry                                                                          317           248    
                                                                                                             
                                                                                        Quarter ended
                                                                                   Dec 2018      Dec 2017    
    US$ million                                                                    Reviewed      Reviewed    
    Sales                                                                                                    
    North America                                                                       351           342    
    Europe                                                                              732           673    
    Southern Africa - Pulp and paper                                                    329           299    
                      Forestry                                                           19            16    
    Delivery costs revenue adjustment(2)                                                (13)            -    
    Total                                                                             1,418         1,330    
    Which consists of:                                                                                       
      Dissolving wood pulp                                                              263           241    
      Specialities and packaging papers                                                 282           196    
      Printing and writing papers                                                       867           877    
      Forestry                                                                           19            16    
      Delivery costs revenue adjustment(2)                                              (13)            -    
    (2) Relates to delivery costs netted off against revenue. Refer to note 1, IFRS 15 adoption.

                                                                                        Quarter ended
    US$ million                                                                    Dec 2018      Dec 2017    
                                                                                   Reviewed      Reviewed    
    Operating profit (loss) excluding special items                                                          
    North America                                                                         9            (1)    
    Europe                                                                               34            37    
    Southern Africa                                                                      85            69    
      Unallocated and eliminations(1)                                                     -             -    
    Total                                                                               128           105    
    Which consists of:                                                                                       
    Dissolving wood pulp                                                                 77            62    
    Specialities and packaging papers                                                    13            16    
    Printing and writing papers                                                          38            27    
      Unallocated and eliminations(1)                                                     -             -    
    Special items - (gains) losses                                                                           
    North America                                                                         -             2    
    Europe                                                                                4             2    
    Southern Africa                                                                      (3)          (16)    
      Unallocated and eliminations(1)                                                     4             1    
    Total                                                                                 5           (11)    
    Segment operating profit (loss)                                                                          
    North America                                                                         9            (3)    
    Europe                                                                               30            35    
    Southern Africa                                                                      88            85    
      Unallocated and eliminations(1)                                                    (4)           (1)    
    Total                                                                               123           116    
    EBITDA excluding special items                                                                           
    North America                                                                        29            18    
    Europe                                                                               67            69    
    Southern Africa                                                                     101            84    
      Unallocated and eliminations(1)                                                     -             1    
    Total                                                                               197           172    
    Which consists of:                                                                                       
      Dissolving wood pulp                                                               91            75    
      Specialities and packaging papers                                                  30            27    
      Printing and writing papers                                                        76            69    
       Unallocated and eliminations(1)                                                    -             1    
    (1) Includes the group's treasury operations and our insurance captive.

                                                                                       Quarter ended
                                                                                   Dec 2018      Dec 2017    
    US$ million                                                                    Reviewed      Reviewed    
    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                                                      197           172    
    Depreciation and amortisation                                                       (69)          (67)    
    Operating profit excluding special items                                            128           105    
      Special items - gains (losses)                                                     (5)           11    
       Plantation price fair value adjustment                                             3            16    
       Fire, flood, storm and other events                                               (8)           (5)    
                                                                                                             
    Segment operating profit                                                            123           116    
    Net finance costs                                                                   (17)          (15)    
    Profit before taxation                                                              106           101    
    Taxation                                                                            (25)          (38)    
    Profit for the period                                                                81            63    
    Segment assets                                                                                           
    North America                                                                     1,144         1,031    
    Europe                                                                            1,582         1,414    
    Southern Africa                                                                   1,441         1,464    
      Unallocated and eliminations(1)                                                   (64)          (75)    
    Total                                                                             4,103         3,834    
    Reconciliation of segment assets to total assets                                                         
    Segment assets                                                                    4,103         3,834    
    Deferred tax assets                                                                  97            93    
    Cash and cash equivalents                                                           350           618    
    Trade and other payables                                                            954           828    
    Provisions                                                                            6             9    
    Derivative financial instruments                                                      5             7    
    Taxation payable                                                                     49            85    
    Shareholders for dividend                                                            92            75    
    Total assets                                                                      5,656         5,549    
    (1) Includes the group's treasury operations and our insurance captive.

3.  Operating profit
                                                                                        Quarter ended
                                                                                   Dec 2018      Dec 2017    
    US$ million                                                                    Reviewed      Reviewed    
    Included in operating profit are the following items:                                                    
    Depreciation and amortisation                                                        69            67    
    Fair value adjustment on plantations (included in cost of sales)                                         
    Changes in volume                                                                                        
    Fellings                                                                             17            13    
    Growth                                                                              (17)          (16)    
                                                                                          -            (3)    
    Plantation price fair value adjustment                                               (3)          (16)    
                                                                                         (3)          (19)    
4.  Earnings per share                                                                                       
    Basic earnings per share (US cents)                                                  15            12    
    Headline earnings per share (US cents)                                               15            12    
    EPS excluding special items (US cents)                                               16            14    
    Weighted average number of shares in issue (millions)                             539.9         535.8    
    Diluted earnings per share (US cents)                                                15            11    
    Diluted headline earnings per share (US cents)                                       15            11    
    Weighted average number of shares on fully diluted basis (millions)               549.7         549.0    
    Calculation of headline earnings                                                                         
    Profit for the period                                                                81            63    
    Headline earnings                                                                    81            63    
    Calculation of earnings excluding special items                                                          
    Profit for the period                                                                81            63    
    Special items after tax                                                               5            (8)    
      Special items                                                                       5           (11)    
      Tax effect                                                                          -             3    
                                                                                                             
    Tax special items                                                                     -            19    
    Earnings excluding special items                                                     86            74    

5.  Plantations
    Plantations are stated at fair value less 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 and volume and 
    growth estimations.                                 

    Mature timber that is expected to be felled within 12 months from the end of the reporting period is valued 
    using unadjusted current market prices. Mature timber that is to be felled in more than 12 months from the 
    reporting date is valued using a 12-quarter rolling historical average price. Immature timber is valued 
    using a discounted cash flow method taking into account the growth cycle of a plantation.
                                                                                                         
    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.
                                                                                                        
                                                                                   Dec 2018     Sept 2018    
    US$ million                                                                    Reviewed      Reviewed    
    Fair value of plantations at beginning of year                                      466           458    
    Gains arising from growth                                                            17            69    
    In-field inventory                                                                   (2)            1    
    Gain arising from fair value price changes                                            3            27    
    Harvesting - agriculture produce (fellings)                                         (17)          (66)    
    Translation difference                                                               (8)          (23)    
    Fair value of plantations at end of period                                          459           466    

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      Dec 2018      Sept 2018    
                                                                   hierarchy      Reviewed       Reviewed    
    Investment funds(2)                                              Level 1             7              7    
    Derivative financial assets                                      Level 2             9             21    
    Derivative financial liabilities                                 Level 2             5              6    
    Contingent consideration liability(3)                            Level 3             6              7    
    (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 weighted average 
    outcome has been considered.                                                  
                                                                                           
    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, bank overdrafts and current interest-bearing borrowings 
    approximate their fair values.                                                  
    
7.  Capital commitments                                                                                      
                                                                                   Dec 2018     Sept 2018    
                                                                                   Reviewed      Reviewed    
    Contracted                                                                          259           293    
    Approved but not contracted                                                         403           381    
                                                                                        662           674    

8.  Material balance sheet movements
    Inventories, trade and other receivables and trade and other payables
    The increase in inventories with a decrease in both trade and other receivables and trade and other 
    payables is largely attributable to seasonal working capital movements.

9.  Related parties
    There has been no material change, by nature or amount, in transactions with related parties since the 
    2018 financial year-end except for the Boldt Company which is no longer considered a related party.

10. 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 their 
    assessment of IFRS 16 Leases.

11. Events after the balance sheet date
    There have been no reportable events that have occurred between the balance sheet date and the date of 
    authorisation for issue of these financial statements.

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
                                                                                   Dec 2018      Dec 2017    
Key figures: (ZAR million)                                                                                   
Sales                                                                                20,295        18,117    
Operating profit excluding special items(1)                                           1,832         1,430    
Special items - (gains) losses(1)                                                        72          (150)    
EBITDA excluding special items(1)                                                     2,820         2,343    
Profit for the period                                                                 1,159           858    
Basic earnings per share (SA cents)                                                     215           160    
Net debt(1)                                                                          22,477        16,690    
Key ratios: (%)                                                                                              
Operating profit excluding special items to sales                                       9.0           7.9    
Operating profit excluding special items to capital employed (ROCE)(1)                 14.7          14.2    
EBITDA excluding special items to sales                                                13.9          12.9    
(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                                                               
                                                  Dec         Sept          Jun          Mar          Dec    
                                                 2018         2018         2018         2018         2017    
Exchange rates:                                                                                                 
Period end rate: US$1 = ZAR                   14.4361      14.1473      13.7275      11.8385      12.3724    
Average rate for the quarter: US$1 = ZAR      14.3127      14.0615      12.6312      11.9577      13.6220    
Average rate for the year to date:            14.3127      13.0518      12.7255      12.7723      13.6220    
US$1 = ZAR                                                                                                   
Period end rate: €1 = US$                      1.1438       1.1609       1.1685       1.2323       1.1998    
Average rate for the quarter: €1 = US$         1.1409       1.1626       1.1920       1.2286       1.1778    
Average rate for the year to date: €1 = US$    1.1409       1.1902       1.1995       1.2032       1.1778    


Registration number: 1936/008963/06      
JSE code: SAP                            
ISIN code: ZAE000006284                  
Issuer code: SAVVI                       
                                         
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
South Africa

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    



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