JOHANNESBURG, May 5 /PRNewswire-FirstCall/ -- Today Sappi Limited (NYSE: SPP) Announced Second Quarter Results. Reported: -- Global economic downturn/ weak demand impacted operating profitability -- Continued production curtailment -- Basic loss per share of 7 US cents -- Positive cash generation -- Acquisition synergies on track Summary Quarter ended Half-year ended March March Dec. March March 2009 2008 2008 2009 2008 Key figures: (US$ million) Sales 1,313 1,473 1,187 2,500 2,850 Operating profit 6 221 57 63 312 Special items - (gains) * (23) (124) (32) (55) (123) Operating (loss) profit excluding special items (17) 97 25 8 189 EBITDA excluding special items * 82 190 106 188 378 Basic EPS (US cents) (7) 43 6 (3) 54 Net debt * (excluding rights offer cash in Dec 08) 2,735 2,661 2,497 2,735 2,661 Key ratios (%) Operating profit to sales 0.5 15.0 4.8 2.5 11.0 Operating (loss) profit excluding special items to sales (1.3) 6.6 2.1 0.3 6.6 Operating (loss) profit excluding special items to Capital Employed (ROCE)* (1.6) 9.0 2.6 0.4 9.0 EBITDA excluding special items to sales 6.2 12.9 8.9 7.5 13.3 Return on average equity (ROE) (%) * (7.5) 35.9 5.3 (1.4) 22.6 Net debt to total capitalisation * (excluding rights offer Cash in Dec 08) 59.4 61.3 57.3 59.4 61.3 * 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 and the revision of comparative figures in accordance with IAS33 to reflect the impact of the rights offer. The table presented above has not been audited or reviewed. The quarter under review Commenting on the results, Sappi chief executive Ralph Boettger said: "The quarter was characterised by a sharp decline in our sales volumes, which was driven by declines in demand for coated paper and pulp in our major markets. Average prices realised by the group in the quarter were 6% lower in US dollar terms than a year ago mainly as a result of the sharp fall in pulp prices, which fell 32% relative to a year earlier. Prices realised for coated paper were higher than in the corresponding quarter a year ago. We curtailed production extensively in each of our regions during the quarter to match supply with demand and reduce inventories. Raw material, in particular pulp, and energy prices were lower in the quarter compared to the prior quarter and corresponding quarter last year. This had some effect on costs in the quarter; however, we expect that a greater effect on costs will be apparent in our third quarter now that higher cost inventories have been depleted. Net cash generated (excluding cash invested in the Acquisition) was US$75 million for the quarter compared to an outflow of US$108 million a year ago. Our liquidity situation is soundly managed. At March Sappi had cash and cash equivalents of US$711 million and undrawn commitments under the revolving credit facility of US$266 million. We do not have any major borrowings maturing in the next 12 months. While the recently acquired European mills were also impacted by low operating rates as a result of global economic conditions, the integration of the Acquisition has progressed well and the achievement of our previously announced synergies of Euro 120 million per annum within 3 years is on track." Outlook Looking forward, Boettger commented: "The general economic outlook and market conditions remain depressed. In these circumstances we expect demand for our products to remain weak and we will therefore continue to curtail production to match supply with demand. It has been difficult to identify the extent to which the fall in apparent demand for our products is an inventory effect, but it appears that the decline of inventories in the downstream supply chain has been significant. We are of the opinion that downstream inventories are stabilising and therefore expect apparent demand to start improving slightly in many of our markets. Demand for chemical cellulose, particularly in Asia, has started to improve and we are continuing to ramp up production at Saiccor Mill. We expect the operating rate to be close to the total expanded capacity by our financial year end. Pricing, however, is expected to remain weak for the rest of the year. The other Southern African businesses will continue to manage production to match demand. The Rand has recently strengthened relative to the US Dollar, which, if sustained, will put pressure on margins. In Europe stabilisation of downstream inventories is expected to help improve the supply/demand balance. M-real ceased coated fine paper production at Hallein and Gohrsmuhle at the end of April 2009. We were selling the output of these mills for M-real on an agency basis and therefore expect the operating rates of our own mills to improve following this cessation as we transfer this production to our mills. This, together with the continued achievement of Acquisition synergies, is expected to improve the region's profitability. In North America we do not expect a significant market improvement this year. The actions taken to restructure the business including suspending operations at Muskegon Mill are expected to help improve profitability. Although market conditions remain difficult and there is still little visibility, we expect our profitability to improve in the next quarter as a result of the actions we have taken to manage costs, continued declines in input costs and the gradual achievement of Acquisition synergies. Prioritising cash generation and liquidity remains our critical objective as we stated in our trading update at the group's Annual General Meeting in March. Each of our operating businesses is implementing production curtailment and variable and fixed cost reduction plans to minimise the cash impact of the current weak market conditions, including the suspension of operations at Muskegon Mill. We are also tightly managing working capital down to minimum levels without compromising on service excellence. We are targeting a further reduction in working capital by our financial year end. In addition, we are reducing capital expenditure to a minimum. In the current financial year we expect capital expenditure in our operations to be below US$200 million compared to US$505 million last year. As a result of these actions we expect positive cash generation for the full financial year. Given the weak global market conditions, we are expecting the rest of 2009 to remain challenging. Our actions and plans are focused on dealing with these tough market conditions and importantly to ensure that Sappi develops even closer relationships with our customers through the quality of our service and continued improvements in efficiencies and remains well positioned to take full advantage of our leading positions in coated graphic paper and chemical cellulose when markets start to recover." ENDS The full results announcement is available at http://www.sappi.com/ There will be a conference call to which investors are invited. Full details are available at http://www.sappi.com/ using the links Investor Info; Investor Calendar; 2Q09 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. 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, 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. 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. We have included in this announcement an estimate of total synergies from the acquisition of M-real's coated graphic paper business and the integration of the acquired business into our existing business. The estimate of synergies that we expect to achieve following the completion of the acquisition 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 for fiscal 2009 or beyond. DATASOURCE: Sappi Limited CONTACT: Robert Hope, Group Head Strategic Development, +27(0)11-407-8492, , or Andre F Oberholzer, Group Head Corporate Affairs, +27(0)11-407-8044, Mobile, +27(0)83-235-2973, , both of Sappi Limited Web Site: http://www.sappi.com/

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