Sappi Limited
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI
(“Sappi”)

Second quarter results for the period ended March 2023

Short-form SENS announcement


                                         Quarter ended                  Half-year ended
                                                              %                                %
 US$ million                      Mar 2023   Mar 2022    Change   Mar 2023   Mar 2022     Change
 Sales                               1 442     1 858       -22%     3 102      3 555        -13%
 EBITDA excluding special items        167       337       -50%       457        577        -21%
 Profit for the period                  69       188       -63%       259        311        -17%
 Net debt                            1 225     1 793       -32%     1 225      1 793        -32%

 Headline EPS (US Cents)               12         36       -67%       46           58       -21%
 Basic EPS (US Cents)                  12         33       -64%       46           55       -16%
 EPS excluding special items
 (US Cents)                            11         35       -69%       41           55       -25%
 Net asset value (US Cents)           447        417         7%      447          417         7%

Sappi is a leading global provider of everyday materials made from woodfibre-based
renewable resources. As a diversified, innovative and trusted leader focused on sustainable
processes and products, we are building a more circular economy by making what we should,
not just what we can.

Our raw material offerings (such as dissolving pulp, wood pulp, biomaterials and timber) and
end-use products (packaging papers, speciality papers, graphic papers, casting and release
papers and forestry products) are manufactured from woodfibre sourced from sustainably
managed forests and plantations, in production facilities powered, in many cases, with bio-
energy from steam and existing waste streams.

Together with our partners, Sappi works to build a thriving world by acting boldly to support
the planet, people and prosperity.


Commentary for the quarter (1)

Sappi delivered an EBITDA excluding special items of US$167 million against a backdrop of
a challenging global economy and significantly weaker paper and pulp markets. Following the
record profitability achieved last year, the group faced a severe downstream inventory
destocking cycle. This led to production curtailment in both the European and North American
regions to match the sluggish market demand and to prevent excess inventory accumulation.
Profitability was negatively affected by reduced sales volumes, cost inflation and operational
inefficiencies associated with the commercial downtime.
However, paper selling prices remained relatively stable through the quarter and were
significantly above the levels in the prior year.

Graphic paper markets were weaker, with demand across all product categories lower due to
the ongoing industry-wide destocking cycle and negative consumer sentiment related to a
slowing global economy. Additionally, the packaging and speciality business faced significant
headwinds from elevated downstream inventories. In South Africa, production difficulties at
the Ngodwana Mill following heavy rains and challenges associated with the recent upgrade
of the containerboard machine, further impacted supply. As a result of these difficult
conditions, sales volumes for graphic papers and packaging and speciality papers were 42%
and 29% below the prior year, respectively.

Dissolving pulp (DP) market conditions improved during the quarter. Downstream inventories
in the textile value chain dropped from the peaks of last year and clothing retail sales were
better than expected. Viscose staple fibre (VSF) operating rates in China improved through the
quarter with renewed economic activity following the Lunar New Year celebrations in January
2023 and the opening of the economy following the relaxation of COVID-19 pandemic
restrictions. The hardwood DP market price responded positively to the improved sentiment
and increased to US$920 per ton from a low of US$883 per ton in January. Sales volumes for
the pulp segment were 7% below the prior year primarily due to the reduced demand at the
beginning of the quarter and a swing to more paper pulp production at the Cloquet Mill. Lower
net selling prices and higher input costs relative to the prior year depressed margins for the
segment.

Earnings per share excluding special items for the quarter was 11 US cents, a decrease from
the 35 US cents in the prior year. Special items increased earnings by US$7 million due to a
positive plantation fair value adjustment of US$12 million offset by insurance-related
adjustments in South Africa.

Shareholders are referred to the announcement released on the Stock Exchange News
Service on 14 April 2023 wherein it was advised that the date for completion of the suspensive
conditions contained in the agreement to sell three European graphic paper mills to Aurelius
has lapsed and therefore the transaction will not proceed. Reducing exposure to graphic paper
markets remains a strategic imperative and Sappi will explore all options for these assets.
Collectively these graphic paper mills contribute positively to EBITDA and in the interim,
continue to be held-for-sale.

(1) “year-on-year”
                 or “prior/previous year” is a comparison between Q2 FY2023 versus Q2
FY2022; “Quarter-on-quarter” or “prior/previous quarter” is a comparison between Q2 FY2023
and Q1 FY2023

CASH FLOW AND DEBT
Net cash generated for the quarter of US$38 million was lower than the US$105 million
generated during the prior year. This was due to lower profitability and the dividend payment
of US$85 million, partially offset by a US$99 million inflow of working capital related to the
lower operating activities. Capital expenditure for the quarter of US$83 million was higher than
the previous year due to the commencement of the Somerset PM2 conversion and expansion
project.

Our long-term net debt target of approximately US$1 billion remains a strategic imperative
and we continued to progress towards this goal. Net debt decreased by US$568 million
compared to the prior year and ended the quarter at US$1,225 million. A stronger Euro/US
Dollar exchange rate resulted in Euro-denominated debt being converted at a higher rate and
increased net debt by US$112 million for the six months to March 2023. Net debt/EBITDA
improved materially to 1.0 from 2.0 in the prior year. Our liquidity position included US$557
million in cash on hand and US$670 million from committed but unutilised revolving credit
facilities (RCF) in South Africa and Europe.


Office paper and newsprint sales volumes were in line with the prior year and significantly
improved pricing helped to offset variable cost pressures.

Variable costs were 20% higher than the prior year primarily due to higher wood, energy and
chemical costs. Ongoing poor rail service levels necessitated increased road transport to
ensure reliable timber and raw material deliveries to the mills. However, reduced ocean freight
rates and bunker fuel charges provided some relief during the quarter. Fixed costs were well
managed with a below-inflation year-on-year increase due to savings in personnel and
maintenance expenditures.

POST-BALANCE SHEET EVENTS
At the AGM held on 3 February 2023, special resolution number 1 was passed granting general
authority for the repurchase of shares (not exceeding 10% of the number of Sappi shares in
issue). As at 3 May 2023, the group repurchased 9,256,685 shares at an average price of
ZAR43.21 per share for a combined value of US$23 million (ZAR400 million), representing
1.62% of Sappi shares in issue. The repurchased Sappi shares were cancelled and reverted
to authorised share capital.

OUTLOOK
VSF and DP markets are recovering and demand from our major customers is healthy. The
short-term DP supply/demand landscape is expected to remain relatively balanced. However,
the DP market price remains range-bound at current levels by stagnant textile fibre pricing,
which would need to increase to support further DP pricing gains. A planned maintenance shut
at Saiccor as well as lower contract pricing for certain customers will impact margins and
profitability for the pulp segment in the third quarter.

High levels of downstream inventory are obscuring our short-term visibility of underlying paper
demand and market conditions are anticipated to remain weak until the destocking cycle is
complete. Global logistics challenges are mostly resolved and destocking may take longer
than expected if customers delay replenishing their supply chains and drive down inventories
below historical levels in anticipation of pricing adjustments.

We will continue to diligently manage working capital through production curtailments and
adapt our product and market mix to match demand. Some relief may be expected from lower
input costs as many variable cost categories have passed their pricing peak and we anticipate
input cost benefits to be realised in the coming quarters.

Capital expenditure is estimated to be US$410 million for FY2023 and includes US$70 million
for the Somerset PM2 conversion and expansion project.

The third quarter is seasonally the weakest in terms of demand for our products. Given that
global macroeconomic uncertainties continue to weigh on consumer sentiment and paper
markets have yet to show signs of a sustained recovery in demand, we anticipate that EBITDA
for the third quarter of FY2023 will be below that of the second quarter.

Sappi is well positioned to withstand the current market pressures given our significantly
reduced debt profile and healthy cash reserves. We remain committed to our strategy to
reduce exposure to graphic paper markets while investing for growth in renewable packaging,
dissolving pulp and biomaterials.


On behalf of the board

SR Binnie
Director

GT Pearce
Director

11 May 2023


Short form announcement

This short-form announcement is the responsibility of the directors. It is only a summary of the
information in the full announcement and does not contain full or complete details. Any
investment decision should be based on the full announcement accessible from 11 May 2023
via the JSE link and also available on the home page of the Sappi website at www.sappi.com.

Copies of the full announcement may be requested by contacting Rosa Moodley on telephone:
+27 (0)11 407 8515, email: Rosa.Moodley@sappi.com.

The JSE link is as follows:

https://senspdf.jse.co.za/documents/2023/jse/isse/SAVVI/sappiQ223.pdf


JSE Sponsor: RAND MERCHANT BANK (A division of FirstRand Bank Limited)