Year ended September 2018 compared to year ended September 2017

The overall result was in line with that of the prior year on a like-for-like basis, notwithstanding the downtime related to the completion of several large strategic growth projects during the year. Market demand for dissolving wood pulp (DWP) and speciality and packaging papers ensured our production capacity in these grades was fully utilised, further supporting our decision to invest in additional capacity in these business segments. In the graphic paper market, a series of successful selling price increases throughout the year enabled margins to be maintained notwithstanding significantly higher raw material costs, mainly from paper pulp and various process chemicals. A stronger Rand during most of the year placed the profitability of the South African business under pressure.

Increased capital expenditure in strategic growth projects, including the conversions of paper machines in Europe and North America as well as debottlenecking DWP plants in South Africa, was managed around our target of two times net debt to EBITDA. This facilitated a further shift in the product mix of the group away from the traditional graphic paper business towards higher margin and growth segments.

The group’s EBITDA excluding special items was US$762 million, declining US$3 million on a like-for-like basis (FY2017 benefited by approximately US$20 million due to an additional accounting week). Operating profit excluding special items for the year was US$480 million compared to US$526 million in the prior year.

Net finance costs for the year were US$68 million, a decrease from US$80 million in the prior year, due to lower average debt levels during the year.

Net profit for the year decreased by 4% to US$323 million due to an increased depreciation expense following the higher capital expenditure activity.

Fourth quarter commentary

The group generated EBITDA excluding special items of US$224 million, an increase of 1% over the same quarter last year. The production challenges of the prior quarter were resolved and combined with higher graphic paper prices and stable demand across most product categories led to the improved performance.

DWP demand and market pricing remain healthy, albeit that net sales for the quarter were negatively impacted by translation losses related to currency hedges contracted earlier in the year at a time when the Rand was significantly stronger. The impact of lost DWP production volumes in the third quarter, following start-up issues after mill upgrade projects, was felt in this quarter as inventory levels impacted sales volumes. We launched the Sappi Verve brand as the umbrella brand for our DWP products, which emphasises Sappi’s commitment to producing a natural fibre sourced from sustainably managed forests.

Demand for specialities and packaging papers continued to grow in each region and across all major product categories. EBITDA margins were impacted by higher raw material prices and a delay in implementing price increases due to the longer-term contracts typical in this market. The qualification process of the paperboard grades at the Somerset and Maastricht mills is under way, with positive customer response to date. This qualification and ramp-up process also negatively impacted average pricing and costs for the quarter.

The European business performed well, with coated paper price increases offsetting cost increases. Overall graphic paper markets in Europe weakened during the quarter, however, market share gains helped mitigate the impact.

Higher coated paper and DWP prices in addition to the ramp-up of sales volumes from Somerset PM1 led to an improved result for the North American business.

An increase in Rand selling prices offset variable costs pressures, some of which related to imported raw materials, in the South African business. Sales volumes were broadly in line with those of last year, being slightly affected by the lost DWP production volumes in the third quarter and a late citrus season which impacted containerboard sales.

Net finance costs were US$14 million compared to US$15 million in the equivalent quarter last year.

Earnings per share excluding special items for the quarter was 19 US cents.

Cash flow and debt

Net cash generated for the quarter was US$26 million, compared to US$41 million in the equivalent quarter last year. The reduction in net cash generation was as a result of a smaller decrease in working capital, offset somewhat by lower capital expenditure. Capital expenditure of US$146 million related mainly to the finalisation of debottlenecking of DWP production at the Ngodwana and Saiccor mills, the Saiccor mill woodyard upgrade as well as initial work related to the expansion at Saiccor. Agreement has yet to be reached with suppliers and contractors on the finalisation of the Somerset PM1 upgrade cost overrun, with the result that capital expenditure in the quarter was less than forecast.

Net cash utilised for the financial year was US$254 million (FY2017 US$108 million generated). The cash utilisation arose from the Cham Paper acquisition cost of US$132 million, combined with increases in capital expenditure, dividends and working capital. These were partially offset by lower cash interest and tax charges.

Net debt at financial year-end increased to US$1,568 million as a result of the cash utilisation. At the end of September 2018, liquidity comprised cash on hand of US$363 million and US$680 million from the unutilised committed revolving credit facilities in South Africa and Europe.

Operating review for the quarter

Quarter ended
€ million Sep 2018 Jun 2018 Mar 2018 Dec 2017 Sep 2017
Sales 671 636 616 571 583
Operating profit excluding special items 38 31 37 31 35
Operating profit excluding special items to sales (%) 5.7 4.9 6.0 5.4 6.0
EBITDA excluding special items 71 60 64 59 63
EBITDA excluding special items to sales (%) 10.6 9.4 10.4 10.3 10.8
RONOA pa (%) 11.3 9.3 11.7 10.6 12.2

The European business delivered a good result in a seasonally stronger quarter, with higher graphic and speciality paper pricing, in addition to market share gains in coated paper, more than offsetting a weaker graphic paper market and higher costs.

Graphic paper sales volumes were 3% below those of last year, with growth in coated mechanical sales not sufficient to offset declines in coated woodfree demand. The coated mechanical market began the quarter positively due to switching from other grades, however, demand weakened towards the end of the quarter. Coated woodfree demand was weak throughout the period. Coated woodfree and coated mechanical prices are now 9% and 8% higher respectively than they were last year following further price increases implemented during the quarter.

In the speciality paper business, year-on-year sales volumes and prices grew 9% and 4% respectively on a like-for-like basis. Price increases in this segment lagged cost inflation, largely due to contract duration. The Cham integration continues to exceed expectations, with EBITDA contribution ahead of expectations after seven months.

Variable costs increased 11% year-onyear, led by higher paper pulp and latex prices and exacerbated by the weakening in the Euro/US Dollar exchange rate. Fixed costs increased predominantly because of the increased headcount post the Cham acquisition.

North America
Quarter ended
US$ million Sep 2018 Jun 2018 Mar 2018 Dec 2017 Sep 2017
Sales 388 339 363 342 357
Operating profit (loss) excluding special items 31 1 18 (1) 27
Operating profit (loss) excluding special items to sales (%) 8.0 0.3 5.0 (0.3) 7.6
EBITDA excluding special items 51 20 37 18 47
EBITDA excluding special items to sales (%) 13.1 5.9 10.2 5.3 13.2
RONOA pa (%) 10.9 0.4 6.8 (0.4) 10.7

Following the completion of the Somerset PM1 conversion, profitability in the North American business improved. Graphic paper prices increased compared to the previous quarter, however, sales volumes were affected by historically low inventory levels at the start of the quarter.

The US coated paper market continued to be tightly supplied, and our average coated paper sales prices increased 13% year-on-year. Coated sales volumes were 9% lower than the equivalent quarter last year because of the lost production from Somerset PM1 in the third quarter as well as the intentional shift to packaging grades.

DWP sales volumes were higher than those achieved in both the prior quarter and the equivalent quarter last year. Average DWP sales prices improved compared to the prior year.

The packaging business, including the new paperboard grades from Somerset, nearly doubled sales volumes compared to the prior year. Sales prices reflect the impact of start-up and qualification of the new grades. We made good progress during the quarter with the ramp-up of first quality paperboard production.

Variable costs were reduced compared to the prior quarter as lower wood and chemical prices more than offset higher purchased paper pulp prices.

Southern Africa
Quarter ended
ZAR million Sep 2018 Jun 2018 Mar 2018 Dec 2017 Sep 2017
Sales 5,103 4,383 4,548 4,291 4,879
Operating profit excluding special items 1,081 553 950 940 1,106
Operating profit excluding special items to sales (%) 21.2 12.6 20.9 21.9 22.7
EBITDA excluding special items 1,344 742 1,168 1,144 1,344
EBITDA excluding special items to sales (%) 26.3 16.9 25.7 26.7 27.5
RONOA pa (%) 22.4 11.9 20.9 21.3 26.0

The performance of the Southern African business was very similar to that of the equivalent quarter last year, with higher Rand selling prices offsetting input cost pressure from timber, paper pulp, chemicals and energy. The weaker Rand/US Dollar exchange rate impacted both export sales prices and imported input costs, however, currency hedges on DWP sales entered into earlier in the year resulted in lower effective Rand pricing for some of our DWP sales during the quarter.

DWP sales volumes were flat year-on-year as the late start-up of both Ngodwana and Saiccor mills following plant upgrades in the third quarter resulted in low initial DWP inventory levels.

The paper business experienced robust demand notwithstanding a late citrus season which delayed some containerboard sales into the next quarter. Sales price increases have offset cost price pressure resulting from the weaker Rand and increased energy prices.

Environmental approval for the expansion of the Saiccor Mill was granted by the relevant authorities at the end of the quarter, and construction has now commenced.


Mr Bob DeKoch retired as independent non-executive director in August 2018 due to health reasons. Mr DeKoch was appointed to the board in March 2013 and also served as a member of the Social, Ethics, Transformation and Sustainability Committee.

The board is pleased to announce the appointment of Ms Zola Malinga as independent non-executive director with effect from 1 October 2018. Ms Malinga will also serve as a member of the Sappi Audit and Risk Committee with effect from 1 October 2018.


On 14 November 2018, the directors approved a dividend (number 88) of 17 US cents per share which will be paid to shareholders on 14 January 2019. This dividend was declared after year-end and was not included as a liability at the end of the financial year.

The 2018 dividend is covered three times by basic earnings per share, excluding non-cash special items. The group aims to declare ongoing annual dividends, and over time achieve a long-term average earnings to dividend ratio of three to one.


The debottlenecking of Saiccor, Ngodwana and Cloquet as well as fewer production disruptions in 2019 should lead to increased DWP sales volumes to meet growing demand. DWP spot prices are forecast to remain range-bound at current levels in the coming year as VSF prices are expected to be under pressure from excess VSF capacity, while paper pulp prices which are forecast to remain at high levels should provide support.

Demand for speciality and packaging papers continues to grow, driven by increasing consumer preference for paper-based packaging and legislative changes promoting recycling and the use of recyclable materials. The completion of the conversion projects at Somerset and Maastricht in the past year will allow us to increase production of paperboard grades to serve this growing market.

Industrywide conversion and closure of graphic paper machines in the US and Europe are expected to keep the markets balanced in the coming year should demand contract at similar levels to those of the past few years. Recent European data, however, indicates that a potential downturn may be realised in 2019. Cost control measures will be implemented in order to support margins as we manage the price elasticity in our paper markets.

Capital expenditure in 2019 is expected to increase to US$590 million as we proceed with the Saiccor 110kt expansion project, complete the Saiccor woodyard upgrade, convert Lanaken PM8 from coated mechanical to woodfree paper production and upgrade the Gratkorn mill.

Having completed significant projects in 2018 to convert paper machines to higher margin and growing packaging grades, in addition to the debottlenecking of both Saiccor and Ngodwana mills, we expect EBITDA in the first quarter of financial year 2019, given current exchange rates, to be comfortably higher than that of 2018.

On behalf of the board

S R Binnie
G T Pearce

14 November 2018

Dividend announcement

The directors have resolved to declare a gross dividend (number 88) of 17 US cents per share, payable in ZAR at an exchange rate (US$1=ZAR) of 14.43176, being ZAR245.33992 cents per share, for the year ended 30 September 2018 out of income, in respect of Sappi ordinary shares in issue on the record date as detailed below. Holders of Sappi "A" ordinary unlisted shares in issue on the record date shall be entitled to receive 8.5 US cents per share being 50% of the ordinary dividend so declared.

The South African dividend tax (DT) rate is 20% and the net dividend payable to shareholders who are not exempt from DT is ZAR196.27194 cents per share. Sappi currently has 557 202 573 ordinary shares in issue. The income tax reference number is 9175203711.

In compliance with the JSE Listings Requirements the salient dates in respect of the dividend are detailed below:

Declaration and finalisation date: 15 November 2018
Last day to trade to qualify for the dividend: 8 January 2019
Shares commence trading ex-dividend: 9 January 2019
Record date: 11 January 2019
Payment date: 14 January 2019

Dividends payable to shareholders on the South African register will be paid in South African Rand and all dividends attributable to holders of the ADR shares on the NYSE will be dealt with in accordance with their custody agreements in place with their local custodian.

Certificated shareholders who previously held their shares on the UK register, which has subsequently been discontinued, shall be paid in Pounds Sterling at the ruling exchange rate at the time.

No currency elections are permitted.

All shareholders need to ensure that their current bank mandates with their service providers are up to date. Furthermore, shareholders who have not yet done so, should submit their service providers with their tax numbers and other relevant information for dividend tax purposes. Where shareholders qualify for withholding tax exemptions they need to ensure that such exemption applications have been lodged with their service providers.

Certificated and own name shareholders can call Computershare in South Africa on 0861 100 950 for assistance in this regard.

Share certificates will not be dematerialised or rematerialised from 9 January 2019 to 11 January 2019, both days inclusive.

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 and which do not relate to historical matters, identify forward-looking statements. In addition, this document includes forwardlooking statements relating to our potential exposure to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity price risk. 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 adverse changes in global economic conditions;
  • 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;
  • the emergence of new technologies and changes in consumer trends including increased preferences for digital media;
  • 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 restructurings, investments, acquisitions, dispositions and other strategic initiatives (including related financing), any delays, unexpected costs or other problems experienced in connection with dispositions or with integrating acquisitions or implementing restructurings or other strategic initiatives, 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.