SAZ Sappi

 

TIDMSAZ 
 
RNS Number : 1405O 
Sappi Ld 
02 March 2009 
 
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|                                                           | Sappi Limited       | 
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Stock Exchange Announcement 
Sappi Limited 
(Registration number 1936/008963/06) 
(Incorporated in the Republic of South Africa) 
Share code : SAP ISIN : ZAE000006284 
("Sappi" or the "Company") 
 
 
02 March 2009 
 
 
Sappi Trading Update as at the Annual General Meeting of 02 March 2009 
 
 
Speaking today at the Annual General Meeting, Sappi non-executive chairman Dr 
Danie Cronjé provided the following update on trading conditions for the group: 
 
 
We reported our results for our first quarter on 2 February 2009 which reflected 
a weak operating profit as a result of deteriorating global market conditions. 
At the same time we said that our short term outlook was for difficult global 
economic conditions to continue and for these to be reflected in demand for our 
products and our operating results. We also said at that time we expected some 
improvement in demand from the very low levels experienced in December and in 
the first part of January. We expected the operating profit for the quarter 
ending March to remain weak. 
 
 
Since then we have seen no improvement in market conditions and have in fact 
experienced lower demand than expected as well as weaker pricing in some markets 
as global market conditions continued to deteriorate. 
 
 
In Europe, demand for coated paper deteriorated further particularly for coated 
fine paper sheets. Prices have held up and we are implementing a further 
increase in the February/March timeframe for coated fine paper. 
 
 
The integration of the recently acquired mills is proceeding well and we will 
start integrating the acquired order books and brands of the Gohrsmühle and 
Hallein mills when M-real ceases coated fine paper production at these two 
mills, which have a capacity of 640,000 tons, in April. We have generally had 
good support from our existing and new customers following the acquisition. 
 
 
Demand levels in Europe are expected to remain substantially below last year for 
the remainder of this year and we expect to continue to curtail production for 
the rest of this year. The second largest European coated fine paper producer 
announced in February that it expected to curtail its coated fine paper 
production more than 20% in the first 4 months of 2009 and that it had completed 
its previously announced permanent closure of 160,000 tons of coated fine paper 
capacity. 
 
 
In North America, demand levels for coated fine paper are even weaker than in 
Europe and prices have also weakened further. Our North American business is 
further impacted by low demand for market pulp with prices which have continued 
to decline. We will continue to curtail production, and we have decided to 
suspend operations at our Muskegon Mill, which has a capacity of 170,000 tons of 
coated fine paper, pending developments in market conditions over the course of 
the year. 
 
 
The Southern African business, which had previously experienced less 
deterioration in its domestic markets, is now also facing lower demand for 
newsprint and packaging paper. Demand for chemical cellulose pulp remains weak 
and prices have declined further in line with NBSK pulp prices. 
 
 
Input costs continue to decrease gradually but the positive impact is partly 
offset by the relative weakness of the Rand and Euro against the Dollar, each a 
major operating currency for us. The disruption caused by stopping and starting 
production also has an unfavourable impact on usage of raw materials. 
 
 
Visibility of future market demand remains poor but we now expect an operating 
loss before special items for the quarter to March 2009. 
 
 
In light of current challenging market conditions and lack of visibility about 
future market developments we are prioritising cash generation and liquidity. 
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. At current levels of business 
we are targeting a US$100 million reduction in working capital from December 
2008 to 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. 
 
 
We do not have any major borrowings maturing in the next 15 months and the group 
has sufficient cash and committed facilities to cover short term obligations. 
 
 
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 remains well 
positioned to take full advantage of our leading positions in coated graphic 
paper and chemical cellulose when markets start to recover. 
 
 
 
 
 
 
ENDS 
 
 
 
 
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 
European 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. 
 
 
 
 
For further information contact: 
 
 
Robert Hope 
Group Head Strategic Development 
Sappi Limited 
Tel +27 (0) 11 407 8492 
Robert.Hope@sappi.com 
 
 
André F Oberholzer 
Group Head Corporate Affairs 
Sappi Limited 
Tel +27 (0) 11 407 8044 
Mobile +27 (0) 83 235 2973 
Andre.Oberholzer@sappi.com 
 
 
 
 
Or Brunswick South Africa Tel + 27 (0) 11 502 7300 
 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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