Sappi Limited Results for the First Quarter Ended 27 December 2009

JOHANNESBURG, Jan. 28 /PRNewswire/ --

• Operating profit excluding special items increased to US$81 million (Q1 2009: US$25 million)
• General improvement in demand for fine paper and pulp
• Increased pulp prices; favourable for Southern African and North American businesses, but unfavourable for European business
• Basic loss per share 10 US cents (unfavourably impacted by 11 US cents special items)
• Cash generated from operations US$245 million (Q1 2009: US$95 million); net cash outflow US$30 million (Q1 2009: outflow US$121 million)

Summary

    
    
    
                                                   Quarter ended
                                                   -------------
                                                               
                                        Dec. 2009    Dec. 2008 Sept. 2009
                                         --------    --------  ---------
    Key figures: (US$ million)
    --------------------------
    Sales                                    1,620      1,187      1,553
    -----                                    -----      -----      -----
    Operating profit (loss)                      1         57       (129)
    -----------------------                    ---        ---       ----
          Special items – losses
           (gains)*                             80        (32)       167
          ----------------------               ---        ---        ---
          Operating profit excluding
           special items                        81         25         38
          --------------------------           ---        ---        ---
          EBITDA excluding special items*      193        106        150
          ------------------------------       ---        ---        ---
    Basic (loss) earnings per
     share (US cents)                          (10)         6        (20)
    -------------------------                  ---        ---        ---
          Net debt*                          2,581      2,497      2,576
          ---------                          -----      -----      -----
    
    
    Key ratios: (%)
    ---------------
    Operating profit (loss) to sales           0.1        4.8       (8.3)
    --------------------------------           ---        ---       ----
          Operating profit excluding
           special items to sales              5.0        2.1        2.4
          --------------------------           ---        ---        ---
          Operating profit excluding
           special items to Capital
           Employed  (ROCE)*                   7.5        2.6        3.3
          --------------------------           ---        ---        ---
          EBITDA excluding special items
           to sales
          ------------------------------
          Return on average equity
           (ROE)*                             11.9        8.9        9.7
          ------------------------            ----        ---        ---
          Net debt to total
           capitalisation*                   (11.6)       5.3      (21.4)
          -----------------                  -----        ---      -----
                                              60.0       57.3       58.9
                                              ----       ----       ----
    
    

*        Refer to the published results for details on special items, the definition of the terms, the reconciliation of profit/loss for the period to EBITDA excluding special items.

The table above has not been audited or reviewed.

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

"The operating results excluding special items for the group improved substantially compared both to the equivalent quarter last year and to the prior quarter. Demand continued to improve for our major products with a steady improvement in demand for coated woodfree paper. Paper pulp prices and prices for chemical cellulose have continued to rise, driven by improved demand in general and good demand from China. Demand for coated mechanical paper has, however, not recovered and demand conditions in the South African domestic market remained challenging.

"The Fine Paper business results excluding special items improved compared to a year earlier but fell short of the prior quarter primarily as a result of seasonal factors. The Southern African business returned to profitability excluding special items largely as a result of the improving performance of the expanded Saiccor Mill.

"Group sales for the quarter increased by 36% to US$1.6 billion over the equivalent quarter last year largely as a result of the European Acquisition completed in December 2008 and the Saiccor expansion. Sales increased 4% compared to the September 2009 quarter. Cash generated from operations increased to US$245 million for the quarter.

"Synergy achievement from the European Acquisition for the 12 months to December 2009 was euro 102 million, which is ahead of our target for that period. We expect to achieve our announced target of euro 120 million of synergies earlier than the original 3 year time frame.

"Operating profit for the quarter excluding special items improved substantially to US$81 million, compared to US$25 million a year ago and US$38 million in the quarter ended September 2009. Taking into account the largely non-cash special items of US$80 million, operating profit for the quarter was US$1 million compared to a profit of US$57 million for the equivalent quarter a year ago, but which included favourable special items of US$32 million.

"Net finance costs increased to US$73 million, mainly as a result of the higher interest rates on the debt refinanced in September 2009 and our decision to maintain high cash balances.

"The loss per share for the quarter was 10 US cents, including a loss of 11 US cents in respect of special items. For the equivalent quarter last year, the earnings per share was 6 US cents, which included a gain of 7 US cents in respect of special items.

Action Plan and Outlook

Looking forward, Boettger commented:

"Conditions in our major markets are expected to improve gradually in 2010, resulting in rising demand for our products.  Although we expect demand and our capacity utilisation rates to improve compared to financial 2009, we do not expect demand to return to 2008 levels.  We will therefore continue to manage our output to meet customer demand.  Current indications are that recovery of coated mechanical paper is lagging coated woodfree paper, which will impact our European business.

"As markets improve, it is likely that input prices for our raw materials and energy will also rise.  The strong demand for pulp and chemical cellulose, accompanied by rising prices, is expected to have a favourable effect on the Southern Africa and North American businesses, which are net pulp sellers.  Increased pulp prices are, however, expected to result in rising costs for our European business which purchases more than half of its pulp requirements.

"The achievement of Acquisition synergies and the effect of our cost reduction initiatives and mill closures over the past year are expected to help us offset rising input costs.

"Against this background, we expect the operating profit excluding special items to remain positive in the second financial quarter but to be below the level achieved this quarter."

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; 1Q10 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. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results and company plans and objectives to differ materially from those expressed or implied in the forward-looking statements (or from past results). Such risks, uncertainties and factors include, but are not limited to, the impact of the global economic downturn, the risk that the Acquisition will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected, expected revenue synergies and cost savings from the Acquisition may not be fully realized or realized within the expected time frame, revenues following the Acquisition may be lower than expected, any anticipated benefits from the consolidation of the European paper business may not be achieved, 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), adverse changes in the markets for the group's products, consequences of substantial leverage, including as a result of adverse changes in credit markets that affect our ability to raise capital when needed, changing regulatory requirements, possible early termination of alternative fuel tax credits, unanticipated production disruptions (including as a result of planned or unexpected power outages), economic and political conditions in international markets, the impact of investments, acquisitions and dispositions (including related financing), any delays, unexpected costs or other problems experienced 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.

We have included in this announcement an estimate of total synergies from the Acquisition and the integration of the acquired business into our existing business. The estimate of synergies is based on assumptions which in the view of our management were prepared on a reasonable basis, reflect the best currently available estimates and judgments, and present, to the best of our management's knowledge and belief, the expected course of action and the expected future financial impact on our performance due to the Acquisition. However, the assumptions about these expected synergies are inherently uncertain and, though considered reasonable by management as of the date of preparation, are subject to a wide variety of significant business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those contained in this estimate of synergies. There can be no assurance that we will be able to successfully implement the strategic or operational initiatives that are intended, or realise the estimated synergies. This synergy estimate is not a profit forecast or a profit estimate and should not be treated as such or relied on by shareholders or prospective investors to calculate the likely level of profits or losses for Sappi.

Issued by: Brunswick South Africa on behalf of Sappi Limited

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SOURCE Sappi Limited