Sappi Results for the Second Quarter Ended March 2010

JOHANNESBURG, May 7 /PRNewswire-FirstCall/ --

• Operating profit excluding special items increased year on year to US$54 million (Q2 2009: US$17 million loss)
• Demand trends improving
• Net cash generated US$109 million
• Basic loss per share of 6 US cents (unfavourably impacted by 3 US cents special items)

The quarter under review

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

"Demand for our products continued to improve through the quarter with the result that our sales volume increased 17% compared to a year earlier and 3% compared to the December quarter.  Our North American business performed strongly in the quarter as a result of our market positioning, continued cost reduction and improved pulp sales prices, and each of the other regions generated operating profits (excluding special items).

"The quarter was characterised by rapid increases in market pulp prices accelerated by a major earthquake in Chile and a strike by stevedores in Finland which disrupted pulp supplies from Chile and pulp and paper deliveries from Finland. Pulp prices (NBSK) rose from an average of $796 per ton in December to $889 per ton at the end of March.  Our Southern African and North American businesses, which are net sellers of pulp, benefited from the pulp price increases but our European business, which buys more than half of its pulp requirements, experienced a significant margin squeeze as it could not raise its paper selling prices enough to absorb the higher pulp  costs. In March, we implemented price increases on coated fine paper in Europe to help mitigate the higher pulp prices and have announced a further 10% increase with effect from June in response to strengthening demand and the spike in pulp prices.

"Operating profit excluding special items was US$54 million for the quarter, a substantial improvement compared to the US$17 million loss reported a year ago.  As expected, higher pulp prices in Europe and maintenance shuts in South Africa negatively impacted our result which was below the US$81 million reported in the December quarter.  Including special items, operating profit was US$28 million compared to US$6 million a year ago.

"Cash generated from operations increased to US$122 million for the quarter, up from US$99 million a year ago as a result of improved operating performance and increased sales volumes.

"Net debt decreased to US$2.4 billion, which is below the debt level prior to the financing of the European Acquisition in December 2008.  Liquidity remains strong, and cash and cash equivalents at the end of the quarter were US$724 million. Net finance costs of US$62 million were US$11 million lower than the prior quarter largely as a result of a US$7 million gain on the redemption of US$106 million of US Municipal Bonds.

"EPS was a loss of 6 US cents (including a loss of 3 US cents in respect of special items) compared to a loss of 7 US cents for the equivalent quarter last year (including a gain of 3 US cents in respect of special items)."

Outlook

Looking forward, Boettger commented:

"We expect conditions in our major markets to continue to improve gradually this year; however, the extent of the economic recovery is still uncertain.

"There has been significant order inflow of coated woodfree paper in Europe and a modest improvement in demand for coated mechanical paper.  As the Euro has weakened, our export markets have strengthened significantly and we expect demand to remain firm in these markets.

"A major factor for our industry will be the level of pulp prices and the availability of pulp following the disruption caused by the earthquake in Chile.  An extended period of high pulp prices would benefit our North American and Southern African businesses directly, as they are net sellers of pulp.  Continued high pulp prices would act as a catalyst for further price increases for coated paper in Europe beyond the 10% increase we have announced to take effect in June 2010, which are expected to start improving margins in our European business.

"In our Southern African business, we expect to see continued good demand for Saiccor's product, as well as firmer price levels.  The Kraft business is starting to see signs of improved demand, and its performance should improve in the second half of the year.

"We expect the operating profit excluding special items in the third financial quarter to be at a similar level to that achieved in our second financial 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; 2Q10 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 European Acquisition ("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 realised or realised 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 judgements, 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.

SOURCE Sappi Limited