Sappi Limited Announces Results for Second Quarter Ended March 2011

JOHANNESBURG, May 9, 2011 /PRNewswire/ --

Results for the second quarter ended March 2011:

• EPS excluding special items 9 US cents; Q2 2010 loss per share 3 US cents
• Operating profit excluding special items US$127 million; Q2 2010 US$54 million
• Special items US$128 million charge including envisaged closure of Biberist Mill
• Good demand for the majority of our products
• Input costs continue to increase
• Net cash generated US$100 million

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The quarter under review

Commenting on the results, Sappi (NYSE:SPP) chief executive Ralph Boettger said:

"Operating profit excluding special items for the quarter (US$127 million) more than doubled compared to a year earlier (US$54 million) and on a per week basis was at the same level as our first financial quarter ended December 2010. The operating performance of each of our regional businesses improved when compared to a year earlier and in particular the fine paper business continued its improving trend, with operating profit excluding special items increasing 65% compared to the equivalent quarter last year and 25% compared to the quarter ended December 2010. Sales for the quarter increased to US$1.8 billion, up 16% compared to the equivalent quarter last year.

"Input cost increases affected the performance of each of our businesses. In particular our European business, which purchases more than half its pulp requirements, was affected by high pulp prices together with prices for wood, latex and energy. Special items for the quarter were a charge of US$128 million arising mainly as a result of costs associated with the envisaged closure of Biberist Mill.  The Biberist charges comprise restructuring costs of US$59 million and non-cash asset impairment costs of US$59 million.  In the event that Biberist Mill is closed, we will transfer production to, and will service our customers from our other mills.  We estimate the benefits of such a closure to exceed US$50 million per annum.  In addition, we have identified further actions across our European business, which will result in fixed and variable cost savings of over US$50 million per annum once fully implemented.

"Cash generated from operations was US$222 million for the quarter, and net cash generated was US$100 million. Net debt reduced to US$2.37 billion. Liquidity remains strong, and cash on hand at the end of the quarter was US$567 million. Net finance costs of US$68 million included a net charge of US$5 million in connection with the repurchase of US$150 million of bonds.

"EPS was a loss of 14 US cents (including a charge of 23 US cents in respect of special items) compared to a loss of 6 US cents for the equivalent quarter last year (including a charge of 3 US cents in respect of special items).

"The Sappi Limited board has approved the expansion of the Ngodwana Mill in South Africa. The expanded mill will produce kraft linerboard, newsprint as well as 210,000 tons of chemical cellulose. We expect chemical cellulose production to commence in early 2013."

Outlook

Looking forward, Boettger commented:

"We expect business conditions in our major markets to remain favourable; however, input costs are increasing as the global economic recovery gathers momentum.  We also expect to start realising the benefits of our European profit improvement measures in the fourth financial quarter.  We therefore expect the improved trend in the group's underlying operating performance to continue through the remainder of the financial year.

"We expect positive cash generation for the rest of our financial year and good net cash generation for the full year.

"Our third financial quarter is generally a seasonally weaker quarter. The quarter will also be impacted by planned annual maintenance shuts at a number of our major pulp mills, which will result in a substantial increase in maintenance costs and lost contribution from reduced output.  We expect our results excluding special items for the third financial quarter to be in line with the equivalent quarter last year."

ENDS

The full results announcement is available at www.sappi.com.

There will be a conference call to which investors are invited. Full details are available at www.sappi.com using the links Investor Info; Investor Calendar; 2Q11 Financial Results.

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, which do not relate to historical matters, 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 the 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;
• 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 investments, acquisitions and dispositions (including related financing), any delays, unexpected costs or other problems experienced in connection with dispositions or with integrating acquisitions 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.

Issued by:

Brunswick South Africa on behalf of Sappi Limited

Tel + 27 (0) 11 502 7300

SOURCE Sappi Limited

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