SOURCE: Sappi Limited

July 28, 2005 09:38 ET

Sappi Limited announces 3rd Quarter Results

Johannesburg, SA -- (MARKET WIRE) -- July 28, 2005 --


Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SVVI
JSE Code: SAP
ISIN Code: ZAE 000006284

QUARTER RESULTS AND NINE MONTHS ENDED JUNE 2005

FINANCIAL HIGHLIGHTS
* Headline loss 4 US cents per share; Net loss 77 US centss per share
* Restructuring charge of US$180 million USA
* Price increases disappointing
* Weak demand in USA
* Major maintenance shut costs US$19 million in quarter

SUMMARY
Quarter ended Nine months ended
                                June   March    June    June    June
                                2005    2005    2004    2005    2004

Sales (US$ million)             1,144   1,230   1,188   3,630   3,493
Operating (loss) profit 
   (US$ million) **              (193)     47      60    (142)    116
EBITDA * (US$ million) **         (76)    172     175     225     462
Operating (loss) profit 
to sales (%)                    (16.9)    3.8     5.1    (3.9)    3.3
EBITDA to sales (%) *            (6.6)   14.0    14.7     6.2    13.2
Operating (loss) profit to 
average net
   assets (%) *                 (17.7)    4.0     5.3    (4.3)    3.4
Headline EPS (US cents) *          (4)     12      18      14      17
EPS (US cents)                    (77)     10      18     (80)     17
Return on average 
equity(ROE) (%) *               (34.6)    4.2     7.7   (11.9)    2.5
Net debt (US$ million) *        1,823   1,934   1,649   1,823   1,649
Net debt to total 
capitalisation (%) *             39.7    37.8    33.1    39.7    33.1

* Refer to Supplemental Information for the definition of the term. ** Includes pre-tax charge of US$180 million in respect of Muskegon Mill impairment.

comment Demand for most of our products is driven at the macro level by GDP growth, corporate profitability and advertising spend; indicators for all these factors continue to be positive. Our margins, however, remain unsatisfactory and worsened this quarter due to the combination of raw material cost pressure, difficulty in achieving price increases in Europe and associated production downtime, and a sharp drop in US apparent consumption which we think is linked to customer inventory reduction.

In North America apparent consumption of coated fine paper for the quarter dropped 11% compared to the unusual surge a year earlier. For our fiscal year to date North American apparent consumption was at the same level as last year. We believe that underlying demand in the market remains firm supported by continuing growth in advertising pages. In Europe apparent consumption was up 2% on a year earlier. Competition remained strong and we achieved only part of the price increases announced in Europe and North America.

We lost sales in Europe in the early part of the quarter as a result of our price increases but order books filled later in the quarter. We curtailed production from normal levels and operated at around 75% of paper capacity in both Europe and North America during the quarter to match production to customer requirements but this was insufficient to adjust our US inventories.

Our Southern African businesses had some relief from a slightly weaker Rand/US Dollar exchange rate in the quarter but currencies remain volatile. The businesses continued to drive costs down and achieved reasonable results in the circumstances.

As part of our ongoing plan to achieve acceptable returns in our North American business we have decided to restructure our Muskegon mill to eliminate high cost capacity and position the mill as a high quality, low cost mill. We will close PM4, which has a capacity of 105,000 tons of coated fine paper and close and mothball the pulp mill. We will also restructure our North American regional overhead to help offset increasing Sales, General and Administration (SG&A) costs.The combined effect will be a reduction of approximately 14% of our North American headcount.

Our 3rd quarter results reflect an asset impairment charge of US$180 million in respect of all of the Muskegon assets and our 4th quarter results are expected to reflect a restructuring charge of approximately US$31 million mainly in respect of the manpower reduction.

The closure and restructuring is expected to commence within 60 days. In a full year the Muskegon restructuring and repositioning and SG&A restructuring are expected to result in a pre-tax benefit of approximately US$50 million compared to the current year.

Sales for the quarter were US$1.144 billion, 3.7% lower than a year earlier mainly as a result of lower sales volumes. There was no relief from cost pressure in the quarter.The price impact of higher wood, energy and chemical costs reduced our operating results by US$32 million compared to last year and compared to last quarter the impact was US$6 million.

Maintenance shuts at our mills cost US$19 million in the quarter compared to US$2 million in the prior quarter and US$10 million a year earlier. There are only minor maintenance shuts scheduled in the final quarter.

We recorded an operating loss of US$193 million after the pre-tax charge of US$180 million in respect of asset write-off at Muskegon Mill.

For a period during the quarter we could not, for technical reasons, apply hedge accounting in respect of our interest rate swaps. This accounting mismatch resulted in a gain of US$12 million reflected in the fair value of financial instruments.

The headline loss for the quarter was 4 US cents and the net loss per share was 77 US cents.The primary difference between headline and net loss was the Muskegon impairment.

cash flow and debt Cash generated by operations was significantly lower at US$90 million during the quarter compared to US$154 million a year earlier as a result of lower operating profit. The net reduction of working capital of US$66 million in the quarter, mainly a result of lower debtors, resulted in cash retained from operating activities of US$125 million, similar to a year earlier and significantly better than the US$53 million utilization last quarter. We expect substantial reductions in inventory next quarter.

Net debt was US$1.823 billion at quarter end, a reduction of US$111 million compared to March, of which a net amount of approximately US$54 million was the result of currency translation offset by fair value adjustments. Our debt to total capitalization ratio increased from 37.8% to 39.7% and remains well within our target range.


OPERATING REVIEW FOR THE QUARTER
Sappi Fine Paper
                       Quarter      Quarter         %       Quarter
                       ended        ended        change     ended
                       June 2005    June 2004               March 2005
                       US$          US$                     US$
                       million      million                 million
Sales                      905         957       (5.4)        982
Operating (loss) profit * (213)          4          -          18
Operating (loss) profit to
   sales (%)             (23.5)        0.4          -         1.8
EBITDA *                  (128)         90          -         109
EBITDA to sales (%)      (14.1)        9.4          -        11.1
RONOA pa (%)             (26.3)        0.5          -         2.1

* Includes pre-tax charge of US$180 million in respect of Muskegon Mill asset impairment.

Our decision to increase prices cost us sales during the quarter and had limited success in our major markets, which remained highly competitive despite rising costs. However, order flow returned to normal in Europe and South Africa in the latter part of the quarter but remained sluggish in the USA.

Input costs in our fine paper business continued to grow faster than our ability to eliminate costs or improve price realisation.

Europe and North America reported operating losses in the quarter.

Despite the apparent consumption decline in North America we believe that underlying demand was firm and that advertising continues to show healthy growth.


Europe
                  Quarter      Quarter        %        %      Quarter
                  ended        ended        change   change   ended
                  June 2005    June 2004    (US$)    (Euro)   March 2005
                  US$          US$                            US$
                  million      million                        million
Sales               498          512       (2.7)    (7.5)      571
Operating (loss)              
   Profit           (13)          18         -        -         21
Operating (loss)
  profit to 
   sales (%)       (2.6)         3.5         -        -        3.7
EBITDA               36           67       (46.3)   (48.9)      71
EBITDA to sales (%) 7.2         13.1         -        -       12.4
RONOA pa (%)       (3.0)         4.2         -        -        4.5


Largely as a consequence of implementing a price increase from April 2005 our sales volumes were 63,000 tons lower than the prior quarter. We only succeeded in raising average prices approximately 1% and net sales in Euro terms declined approximately 43 million Euros (9.9%) compared to the prior quarter. Neither the lockout in the Finnish pulp and paper industry which lasted seven weeks nor the further escalation in energy and chemical input costs slowed the drive for market share by our European competitors. We held our price increases until late in the quarter and suffered a severe loss of volume. We have acted to regain our lost positions and will recover our market share.

More positively, industry order books are the highest since 2001, our web order books have improved and we are heading towards a period of seasonally higher demand.

Input costs were at a similar level to the prior quarter but increased US$11 million compared to a year earlier as a result of price increases for chemicals and energy.


North America
                      Quarter       Quarter                Quarter
                      ended         ended                  ended
                      June 2005 *   June 2004        %     March 2005
                      US$ million   US$ million   change   US$ million
Sales                       338           363         (6.9)       339
Operating loss             (200)          (17)          -          (2)
Operating loss to 
  sales (%)               (59.2)         (4.7)          -        (0.6)
EBITDA                     (168)           16           -          34
EBITDA to sales (%)       (49.7)          4.4          -         10.0
RONOA pa (%)              (60.7)         (5.0)         -         (0.6)


* Includes pre-tax charge of US$180 million in respect of Muskegon Mill asset impairment.

Apparent consumption was unexpectedly weak in the quarter, which is anyway typically seasonally weak; however it appears that underlying demand remained firm - a view supported by the approximately 2% increase in advertising pages. This would imply that merchant and end-use inventories declined significantly during the quarter.

Although our sales volume declined 15% in the quarter compared to a year earlier, more than the decline in apparent consumption, we have started rebuilding our market shares which improved compared to the prior quarter.

Average prices realised by the region increased approximately 2% compared to the prior quarter as a result of increased prices and product and customer mix.

The impact on input costs of price increases for wood, energy and chemicals was approximately US$17 million for the quarter compared to a year earlier and US$3 million compared to the prior quarter.

As a result of weak apparent consumption we did not achieve our inventory reduction targets despite production curtailment and will therefore take significant production curtailment in the next quarter.

Our repositioning of Muskegon mill will allow us to compete more effectively in the areas of the sheet market that are showing higher growth.


Fine Paper South Africa
                Quarter       Quarter                          Quarter
                ended         ended           %         %      ended
                June 2005     June 2004     change   change    March 2005
                US$ million   US$ million   (US$)    (Rands)   US$ million
Sales                 69            82        (15.9)    (18.7)         72
Operating profit       0             3           -        -           (1)
Operating profit
  to sales (%)         0           3.7           -        -          (1.4)
EBITDA                 4             7        (42.9)    (44.8)          4
EBITDA to sales (%)   5.8          8.5           -        -           5.6
RONOA pa (%)           0           7.0           -        -          (2.0)

Demand in our local markets was firm.

Operations performed well and with the slight weakening of the Rand relative to the US Dollar we expect to increase our exports in the next quarter.

Sales volumes were similar to the prior quarter but down significantly compared to a year earlier largely as a result of importers taking advantage of the strong Rand and lower exports. Average prices realised improved slightly in local currency compared to a year earlier and the prior quarter, resulting in a small improvement of operating profit to break even.


Forest Products
                Quarter       Quarter                          Quarter
                ended         ended              %         %   ended
                June 2005     June 2004     change   change    March 2005
                US$ million   US$ million   (US$)    (Rands)   US$ million
Sales                 239           231        3.5        0          248
Operating profit       21            62      (66.1)    (67.3)         30
Operating profit
   to sales (%)       8.8          26.8         -        -          12.1
EBITDA                 52            90      (42.2)    (44.2)         64
EBITDA to sales (%)   21.8         39.0         -        -          25.8
RONOA pa (%)           6.5         19.4         -        -           8.5

Demand for our chemical cellulose (dissolving pulp), and local demand for newsprint and kraft linerboard was strong in the quarter. Softwood pulp prices declined US$45 per ton from the start to the end of the quarter while hardwood pulp prices increased, almost eliminating the price gap between the two grades.

Management's cost initiatives continued to deliver savings and to partly offset high input costs.

The generally strong level of the Rand relative to the US Dollar continued to depress pricing.Although currencies remain volatile the recent slightly weaker levels of the Rand are likely to give some relief. At quarter end the exchange rate of R6.70 was 5% weaker than the quarter average.

Forest Products' operating income was US$21 million in the quarter compared to US$62 million last year. Approximately US$27 million of the difference is a result of lower plantation fair value adjustments net of silvicultural costs and fellings.

Outlook We expect demand in the final quarter to be seasonally stronger than our third quarter, particularly in North America, but do not expect significant market price increases during the quarter as a result of continuing strong industry competition for market share.

Our actions to close high cost capacity at Muskegon mill, reduce overhead costs and return our inventory to target levels will help to improve our North American business in the medium term but will contribute to disappointing results in the next quarter.

We will take further curtailment next quarter to reduce inventory in North America. This will impact the operating result but will help reduce working capital and generate cash flow. The inventory reduction is expected to result in an under-recovery of manufacturing overheads of approximately US$30 million next quarter.

We continue to focus on the reduction of costs throughout our businesses.

The Rand/US Dollar exchange rate remains strong, which continues to depress margins in our Southern African businesses but it is currently 5% weaker than this quarter's average which will boost margins on exports and over time will help boost margins on local sales.

For the group as a whole, we expect trading conditions to improve in the final quarter, which typically is our strongest quarter. Our inventory reduction action together with high input costs will, however, make it difficult to achieve positive earnings at the operating income level, before taking into account the additional Muskegon restructuring charges.

On behalf of the Board


J C A Leslie                  D G Wilson
Director                      Director                 28 July 2005

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. 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 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 and pricing), adverse changes in the markets for the group's products, consequences of substantial leverage, changing regulatory requirements, unanticipated production disruptions, 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. The company undertakes 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.


Financial results
For the third quarter and nine months ended June 2005

group income statement
                                   Reviewed     Reviewed
     Reviewed    Reviewed            Nine        Nine
     Quarter     Quarter             months      months
     ended       ended               ended       ended
     June        June                June        June
     2005        2004                2005        2004
     US$         US$          %      US$         US$          %
     million     million    Change   million     million    change

Sales  1,144       1,188     (3.7)     3,630       3,493       3.9
Cost of 
 sales 1,071       1,037               3,268       3,062
Gross 
 profit   73         151     (51.7)      362         431     (16.0)
Selling, 
general 
and
admini-
 strative
 expenses 85          91                 275         315
         (12)         60                  87         116   
Other 
expenses 181           -                 229          -        
Operating
  (loss) 
profit  (193)         60         -      (142)        116         -
Net 
finance
  costs    8          30                  60          84
Net paid  28          26                  83          78
Capitalised -         (1)                 (1)         (2)
Net foreign                
exchange 
 gains    (3)          1                  (6)         (5)

Change in 
fair value 
of 
financial
instruments(17)         4                 (16)         13
(Loss) 
profit
before 
tax       (201)        30         -       (202)        32         -                                   
Taxation                    
- current    3          9                   23         33
- deferred  (30)       (19)                (45)       (40)
Net (loss)   
profit     (174)        40         -       (180)       39          -
(Loss) 
earnings 
per    
share 
(US cents)  (77)        18                  (80)       17
Headline 
(loss)          
earnings 
per share
(US cents) * (4)        18                   14        17
Weighted 
average 
number of 
shares in
issue 
(millions) 225.7     226.3                225.8     226.3
Diluted 
(loss)            
earnings 
per share
(US cents)   (77)       17                  (79)       17
Diluted 
headline     
(loss)
earnings 
per 
share 
(US cents) *  (4)       17                   14        17
Weighted 
average 
number of 
shares on
fully 
diluted
basis 
(millions)  226.6    228.3                226.8      228.3
Calculation 
of
Headline
(loss) 
 earnings *
Net (loss) 
profit       (174)      40                 (180)        39
Profit 
on disposal                   
Of business 
and
property, 
plant &
equipment        1        -                    1          -
Write-off 
of
assets           -        -                    4          -
Net 
impairment
of 
property,
plant & 
equipment      165        -                  207           -
Headline 
(loss)
earnings        (8)      40                   32          39

* Headline (loss) earnings disclosure is required by the JSE Limited (formerly JSE Securities Exchange South Africa).


group balance sheet
                                             Reviewed        Reviewed
                                            June 2005       Sept 2004
                                            US$ million     US$ million
ASSETS
Non-current assets                            4,246           4,564
  Property, plant and equipment               3,298           3,670
  Plantations                                   547             548
  Deferred taxation                              76              84
  Other non-current assets                      325             262
Current assets                                1,341           1,580
  Cash and cash equivalents                     185             484
  Trade and other receivables                   297             331
  Inventories                                   859             765
Total assets                                  5,587           6,144
EQUITY AND LIABILITIES
Shareholders' equity
 Ordinary shareholders' interest              1,867           2,157
Non-current liabilities                       2,302           2,463
  Interest-bearing borrowings                 1,583           1,693
  Deferred taxation                             410             453
  Other non-current liabilities                 309             317
Current liabilities                           1,418           1,524
  Interest-bearing borrowings                   401             364
  Bank overdraft                                 24              11
  Taxation payable                              102             137
  Other current liabilities                     891           1,012
Total equity and liabilities                  5,587           6,144
Number of shares in issue at balance sheet date
(millions)                                    225.8           226.5

group cash flow statement
                                                Reviewed       Reviewed
                   Reviewed      Reviewed       Nine           Nine
                   Quarter       Quarter        months         months
                   ended         ended          ended          ended
                   June          June           June           June
                   2005          2004           2005           2004
                   US$ million   US$ million    US$ million    US$ million
Operating (loss)
  profit                (193)          60         (142)            116
Depreciation, fellings
  and Other amortisation 117          115          367              346
Other non-cash
  items (including
  impairment charges)    166          (21)         170              (18)
Cash generated by
  operations              90          154          395              444
Movement in working
  capital                 66           15         (200)            (129)
Net finance costs        (30)         (29)         (88)             (81)
Taxation paid             (1)         (11)         (40)             (30)
Dividends paid             -             -         (68)             (66)
Cash retained from             
  (utilised in) operating
  activities             125          129           (1)            (138)
Cash effects of
  investing activities   (64)         (62)        (270)            (247)
                          61           67         (271)            (109)
Cash effects of
  financing activities  (119)         (13)         (39)            (112)
Net movement in cash
  and cash equivalents   (58)          54         (310)            (221)

group statement of changes in shareholders' equity

                                              Reviewed        Reviewed
                                              Nine months     Nine months
                                              ended           ended
                                              June 2005       June 2004
                                              US$ million     US$ million
Balance - beginning of year as reported           2,119           1,945
Change in accounting policy - refer to note 1        38              38
Balance - beginning of year restated              2,157           1,983
Net (loss) profit                                  (180)             39
Foreign currency translation reserve                (39)            173
Revaluation of derivative instruments                12               3
Dividends paid - US$ 0.30 (2004: US$ 0.29)            
  per share                                         (68)            (66)
Share buybacks net of transfers to            
  participants of the share purchase trust          (15)            (10)
Balance - end of period                           1,867           2,122

notes to the group results

1. Basis of preparation

The annual financial statements are prepared in conformity with South African Statements of Generally Accepted Accounting Practice (SA GAAP). These quarterly results have been prepared in compliance with AC 127 (Interim financial reporting) and are based on accounting policies which are consistent with those used in the annual financial statements. The same accounting policies have been followed as in the annual financial statements for September 2004, except for the new accounting standard AC 501 - Accounting for "Secondary Tax on Companies (STC)" - which became effective from the beginning of the current financial year. This has resulted in the recognition of a deferred tax asset for unused tax credits to the extent that they will be utilised in the future.

The adoption of the new accounting policy resulted in an increase in shareholders' equity of US$38 million at September 2004 (September 2003: increase of US$38 million). The effect on net profit for the year to date is a decrease of US$8 million (June 2005 quarter: nil; March 2005 quarter: nil; December 2004 quarter: decrease of US$8 million; March 2004 and June 2004 quarters: nil). Where appropriate, comparative figures have been restated.

The preliminary results for the quarter have been reviewed in terms of South African Auditing Standards by the group's auditors, Deloitte & Touche. Their unqualified review report is available for inspection at the company's registered offices.

2. Comparative figures

Certain comparative amounts have been reclassified between deferred tax and current tax.This had no effect on reported net income or shareholders' equity.


                      Reviewed      Reviewed      Reviewed    Reviewed
                      Quarter ended Quarter ended Nine months Nine months
                      June 2005     June 2004     ended June  ended June
                      US$ million   US$ million   2005        2004
                                                  US$         US$
                                                  million     million
                                                        
                                                        
3. Operating profit
Included in operating profit
are the following non-cash
items:
Depreciation and amortisation

Depreciation
  of property, plant and
  equipment                101           102         317         305
Other amortisation           -             1           1           2
                           101           103         318         307
Impairment of property,
  plant & equipment *      181            -          223          -
Impairment or other assets * 3            -            3          -
Impairment reversal of
  property, plant & 
  equipment                 (4)           -           (4)         -
                           281           103         540         307

Fair value adjustment
(gains) on plantations
(included in cost of sales)

Changes in volume
Fellings                     16            12         49           39
Growth                      (16)          (16)       (49)         (44)
                              -            (4)         -           (5)

Changes in fair value        (8)          (29)       (25)         (53)
                             (8)          (33)       (25)         (58)

The above fair value
  adjustment gains have not
  been offset by silviculture
  costs                      12            10         34           28

4. Capital expenditure
  Property, plant and
  equipment                  83            57         221         224

* Impairment of assets for the nine months ended include US$180 million for Muskegon Mill and US$43 million for Usutu Mill

notes to the group results (continued)


                                       Reviewed             Reviewed
                                       June 2005            Sept 2004
                                       US$ million          US$ million
5. Capital commitments
Contracted but not provided                 99                   76
Approved but not contracted                173                  198
                                           272                  274
6. Contingent liabilities
Guarantees and suretyships                  80                   68
Other contingent liabilities                11                   15


supplemental information
definitions
Average - averages are calculated as the sum of the opening and closing
balances for the relevant period divided by two
* EBITDA - earnings before interest (net finance costs), tax, depreciation
and amortisation
* EBITDA to sales - EBITDA divided by sales
Fellings - the amount charged against the income statement representing the
standing value of the plantations harvested
Headline earnings - as defined in circular 7/2002 issued by the South African
Institute of Chartered Accountants, separates from earnings all items of a
capital nature. It is not necessarily a measure of sustainable earnings. It is
a listing requirement of the JSE Limited (formerly JSE Securities Exchange South
Africa) to disclose headline earnings per share
NBSK - Northern Bleached Softwood Kraft pulp. One of the main varieties of
market pulp, mainly produced from spruce trees in Scandinavia, Canada and north
eastern USA. The NBSK is a benchmark widely used in pulp and paper industry for
comparative purposes
* Net assets - total assets less current liabilities
* Net asset value - shareholders' equity plus net deferred tax
* Net asset value per share - net asset value divided by the number of shares
in issue at balance sheet date
* Net debt - current and non-current interest-bearing borrowings, and bank
overdrafts (net of cash, cash equivalents and short-term deposits)
* Net debt to total capitalisation - Net debt divided by shareholders' equity
plus minority interest, non-current liabilities, current interest-bearing
borrowings and overdraft
* ROE - return on average equity. Net profit divided by average shareholders'
equity
* RONA - operating profit divided by average net assets
* RONOA - operating profit divided by average net operating assets. Net
operating assets are total assets (excluding deferred taxation and cash) less
current liabilities (excluding interest- bearing borrowings and bank
overdraft)
* The above financial measures, other than headline earnings per share, 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.



supplemental information
additional information
                                               Reviewed      Reviewed
                   Reviewed      Reviewed      Nine          Nine
                   Quarter       Quarter       months        months
                   ended         ended         ended         ended
                   June          June          June          June
                   2005          2004          2005          2004
                   US$ million   US$ million   US$ million   US$ million
Net (loss) profit to
  EBITDA (1)
  reconciliation
Net (loss) profit   (174)                        (180)           39
Net finance costs      8              30           60            84
Taxation - current     3               9           23            33
         - deferred  (30)            (19)         (45)          (40)
Depreciation         101             102          317           305
Amortisation          16              13           50            41
  (including fellings)
EBITDA (1) (3)       (76)            175          225           462

                                              Reviewed         Reviewed
                                              June 2005        Sept 2004
                                              US$ million      US$ million
Net debt (US$ million) (2)                        1,823            1,584
Net debt to total capitalisation (%) (2)           39.7             31.7
Net asset value per share (US$) (2)                9.75            11.15

(1) In connection with the U.S. Securities Exchange Commission ("SEC") rules relating to "Conditions for Use of Non-GAAP Financial Measures", we have reconciled EBITDA to net profit rather than operating profit. As a result our definition retains other income/expenses as part of EBITDA.

We use EBITDA as an internal measure of performance and believe it is a useful and commonly used measure of financial performance in addition to operating profit and other profitability measures under SA GAAP. EBITDA is not a measure of performance under SA GAAP. EBITDA should not be construed as an alternative to operating profit as an indicator of the company's operations in accordance with SA GAAP. EBITDA is also presented to assist our shareholders and the investment community in interpreting our financial results. This financial measure is regularly used as a means of comparison of companies in our industry by removing certain differences between companies such as depreciation methods, financing structures and taxation regimes. Different companies and analysts may calculate EBITDA differently, so making comparisons among companies on this basis should be done very carefully.

(2) Refer to Supplemental Information for the definition of the term.

(3) EBITDA for the nine months ended June 2005 reduced by US$222 million (December 2004 quarter: US$41 million; March 2005 quarter: US$1 million) in respect of asset impairments.

regional information

                                             Nine        Nine
            Quarter     Quarter              months      months
            ended       ended                 ended       ended
            June        June                  + June      June
            2005        2004                  2005        2004
            Metric      Metric                Metric      Metric
            Tons        tons          %        tons        tons        %
           (000's)     (000's)     change    (000's)     (000's)    change
Sales
Fine Paper     
-North America 324         381     (15.0)      1,005       1,080     (6.9)
Europe         538         580      (7.2)      1,754       1,779     (1.4)
Southern Africa 68          85     (20.0)        215         231     (6.9)
        Total  930       1,046     (11.1)      2,974       3,090     (3.8)
Forest Products  
  -Pulp And paper
  operations   374         369       1.4       1,154       1,126      2.5
Forestry          
  operations   455         416       9.4       1,205       1,074     12.2
    Total    1,759       1,831      (3.9)      5,333       5,290      0.8


                                              Reviewed   Reviewed
             Reviewed   Reviewed              Nine       Nine
             Quarter    Quarter               months     months
             ended      ended                 ended      ended
             June       June                  + June     June
             2005       2004                  2005       2004
             US$        US$          %        US$        US$        %
             million    million     change    million    million    change
Sales
Fine Paper
-North America  338        363        (6.9)     1,034      1,018      1.6 
Europe          498        512        (2.7)     1,643      1,586      3.6
Southern Africa  69         82        (15.9)      224        225     (0.4)
         Total  905        957        (5.4)     2,901      2,829      2.5
Forest Products
  -Pulp and paper 
  operations    217        212         2.4        669        616      8.6
Forestry             
  operations     22         19        15.8         60         48     25.0
     Total    1,144      1,188        (3.7)     3,630      3,493      3.9
Operating profit
Fine Paper
-North America (200)       (17)   (1,076.5)     (217)       (91)   (138.5)
               (217)
Europe          (13)        18         -          36         60     (40.0)
Southern Africa   -          3      (100.0)        2         11     (81.8)
     Total     (213)         4         -        (179)       (20)   (795.0)
Forest 
Products *       21         62       (66.1)       40        145     (72.4)
Corporate        (1)        (6)       83.3        (3)        (9)     66.7
Total *        (193)        60           -      (142)       116         -

+ Sales and cost of sales were adjusted by US$5 million and US$3 million for the March 2005 and December 2004 quarters respectively in respect of a misclassification.


                                            Reviewed    Reviewed
          Reviewed   Reviewed               Nine        Nine
          Quarter    Quarter                months      months
          ended      ended                  ended       ended
          June       June                   June        June
          2005        2004                  2005        2004
          US$          US$         %         US$         US$        %
          Million    million      change    million     million    change
Earnings 
before
interest, 
tax,
depreciation 
and
amortisation 
charges
Fine Paper
-North America (168)      16          -        (113)        11         -
Europe           36       67       (46.3)       185        207     (10.6)
Southern Africa   4        7       (42.9)        14         21     (33.3)
        Total  (128)      90           -         86        239     (64.0)
Forest 
 Products *      52       90       (42.2)       141        231     (39.0)
Corporate         -       (5)      100.0         (2)        (8)     75.0
Total *         (76)     175           -        225        462     (51.3)
Net operating
  assets
Fine Paper
-North 
 America      1,218    1,343        (9.3)     1,218      1,343       (9.3)
Europe        1,666    1,708        (2.5)     1,666      1,708       (2.5)
Southern Africa 168      178        (5.6)       168        178       (5.6)
       Total  3,052    3,229        (5.5)     3,052      3,229       (5.5)
Forest 
Products      1,228    1,319        (6.9)     1,228      1,319       (6.9)
Corporate and
  other **       53      (21)          -         53        (21)         -
        Total 4,333    4,527        (4.3)     4,333      4,527       (4.3)

* Operating profit and EBITDA for the nine months ended June 2005 reduced by US$222 million (December 2004 quarter: US$41 million; March 2005 quarter: US$1 million) in respect of asset impairments and asset impairment reversals. ** Includes investment in joint venture in China. This investment was included in the net operating assets of Sappi Fine Paper Europe at December 2004.

summary rand convenience translation

                                            Reviewed   Reviewed
             Reviewed   Reviewed            Nine       Nine
             Quarter    Quarter             months     months
             ended      ended               ended      ended
             June       June         %      June       June         %
             2005       2004      change    2005       2004      change
      
Sales 
(ZAR million) 7,292      7,835     (6.9)    22,409     23,634     (5.2)
Operating 
(loss)  
  profit     (1,230)       396        -       (877)       785        -
(ZAR million) **
Net (loss) 
profit       (1,109)       264        -     (1,111)       264        -
  (ZAR million)
EBITDA * 
(ZAR           (484)     1,154        -      1,389      3.126     (55.6)
  million) **
Operating 
(loss)        (16.9)       5.1               (3.9)        3.3
  profit to sales 
  (%)
EBITDA * 
to sales       (6.6)      14.7                6.2        13.2
  (%)
Operating 
(loss)        (17.5)       5.4                (4.1)       3.4
  profit to 
average
  net assets (%)
EPS (SA cents) (491)       119        -       (494)       115        -
Headline EPS 
 (SA            (25)       119        -         86        115     (25.2)
  cents) *
Net debt (ZAR                               12,222     10,426      17.2
  million) *
Net debt to total                               39.7     33.1
  capitalisation (%)*
Cash 
generated by     574     1,016     (43.5)      2,438    3,004     (18.8)
  operations (ZAR
  million)
Cash from 
operating        797       851      (6.3)         (6)     934        -
  Activities (ZAR
  million)
Net movement in (370)      356        -        (1,914) (1,495)    (28.0)
  cash and
  cash equivalents
  (ZAR million)

* Refer to Supplemental Information for the definition of the term. ** Operating profit and EBITDA for the nine months ended June 2005 reduced by ZAR1,370 million (Quarter ended December 2004: ZAR247 million; March 2005 ZAR10 million) in respect of asset impairments.


exchange rates
                              June     March    Dec      Sept     June
                              2005     2005     2004     2004     2004
Exchange rates:
Period end rate: US $1 = ZAR  6.7041   6.2059   5.6480   6.4290   6.3224
Average rate for the Quarter: 
US
$1 = ZAR                      6.3738   5.9577   6.0649   6.3830   6.5953
Average rate for the YTD: 
US $1 =
ZAR                           6.1732   6.0632   6.0649   6.6824   6.7661
Period end rate: EUR 1 = US$  1.2097   1.2982   1.3456   1.2309   1.2138
Average rate for the Quarter: 
EUR
1 = US$                        1.2678   1.3110   1.2848   1.2233   1.2051
Average rate for the YTD: 
EUR 1 =
US$                            1.2811   1.2911   1.2848   1.2152   1.2118

The financial results of entities with reporting currencies other than the US Dollar are translated into US Dollars as follows: - Assets and liabilities at rates of exchange ruling at period end; and - Income, expenditure and cash flow items at average exchange rates.

this report is available on the Sappi website www.sappi.com

Other interested parties can obtain printed copies of this report from:


South Africa:             United States                United Kingdom:
                          ADR Depository:
Computershare Investor                                 Capita Registrars
Services 2004 Limited     The Bank of New York         The Registry
70 Marshall Street        Investor Relations           34 Beckenham Road
Johannesburg 2001         PO Box 11258                 Beckenham, Kent
PO Box 61051              Church Street Station        BR3 4TU, DX 91750
Marshalltown 2107         New York, NY 10286-1258      Beckenham West
Tel +27 (0)11 370 5000   Tel +1 610 382 7836           Tel +44 (0)208 639 2157



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