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SAPPI LIMITED - Results for the quarter ended December 2019

Release Date: 05/02/2020 08:00
Code(s): SAP     PDF:  
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Results for the quarter ended December 2019

Sappi Limited
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI

Results for the quarter ended December 2019

Short-form SENS announcement

                                                Quarter ended
US$ million                                  Dec 2019    Dec 2018         %
Sales                                            1 302       1 418       -8,2%
EBITDA excluding special items                     139         197      -29,4%
Profit for the period                               24          81      -70,4%
Net debt                                         1 916       1 557       23,1%

Headline EPS (US Cents)                              4           15     -73,3%
Basic EPS (US Cents)                                 4           15     -73,3%
EPS excluding special items (US Cents)               6           16     -62,5%
Net asset value (US Cents)                         379          353       7,4%

Sappi is a global diversified woodfibre company focused on providing dissolving
wood pulp, packaging and speciality papers, graphic papers as well as biomaterials
and biochemicals to our direct and indirect customer base across more than 150

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 graphic 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

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.

First quarter commentary

A good performance from the European and North American packaging and
specialities segment and satisfactory results from the graphic paper businesses were
not enough to offset the significant impact from the unprecedented and markedly
lower dissolving wood pulp (DWP) prices. Consequently, the group generated
EBITDA excluding special items of US$139 million compared to the US$197 million
in the equivalent quarter last year. Profit for the comparative period decreased by
US$57 million to US$24 million primarily due to the lower DWP prices.

The ongoing strategy to diversify the product portfolio into higher margin segments
and position the company for future growth reaped rewards as the packaging and
specialities segment continued to grow profitability. The focus on efficiencies and
costs combined with strong customer relationships and service levels ensured
profitability for graphic paper was stable despite weak global demand.

DWP market prices fell US$272/ton in the last year as the combined impact of soft
global textile markets, excess viscose staple fibre (VSF) capacity and a weaker
US$/Renminbi exchange rate drove the DWP price downwards. On the supply side,
low paper pulp prices provided no relief for swing producers. This significantly
impacted both the segment and group profitability levels.

Profitability in the packaging and specialities segment improved despite a particularly
sluggish containerboard market in South Africa. An improved product mix, following
the recent conversions, and more optimal machine efficiencies in both Europe and
North America led to increased margins. Lower input costs, particularly for paper
pulp, supported the margin enhancement.

The substantial market share gains in coated woodfree paper in both North America
and Europe countered the ongoing deterioration in graphic paper demand, enabling
us to take fewer production curtailments than in recent quarters. Declining input costs
helped maintain healthy margins.

Earnings per share excluding special items was 6 US cents, a decrease from the 16
US cents generated in the equivalent quarter last year. Special items reduced
earnings by US$7 million.

Cash flow and debt
Net cash utilised for the quarter was US$278 million, compared to US$7 million
utilised in the equivalent quarter last year. The cash utilisation was due to the usual
seasonal working capital outflow in our first fiscal quarter, lower operational cash
generation and higher finance costs and tax payments. The cash acquisition cost of
US$144 million for the Matane Mill, which was completed in the quarter, further
contributed to the utilisation.

Net debt of US$1,916 million was US$359 million higher than at the end of the
equivalent quarter last year as a result of the cash utilisation in the quarter, the
Matane acquisition which was financed via a new US$181 million 8-year term loan
and the US$92 million non-cash impact resulting from the implementation of IFRS16,
which now incorporates operating leases on the balance sheet. In terms of the
relevant bank facilities, the leverage covenant reached 2.8 times at the end of the
Liquidity comprised cash on hand of US$270 million and US$658 million available
from the undrawn committed revolving credit facilities in South Africa and Europe.

On behalf of the board
S R Binnie
G T Pearce
05 February 2020

Short form announcement
This short-form announcement is the responsibility of the directors. It is only a
summary of the information in the full announcement and does not contain full or
complete details. Any investment decision should be based on the full announcement
accessible on 5 February 2020 via the JSE link and also available the sappi website

Copies of the full announcement may be requested by contacting Jeanine Olivier on
telephone: +27 (0)11 407 8307, email:

The JSE link is as follows:

JSE Sponsor: UBS South Africa (Pty) Ltd

Date: 05-02-2020 08:00:00
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