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Improved Demand Across All Markets Boosts Sappi's Q4 Results

Tuesday, November 09, 2004

Press release from the issuing company

JOHANNESBURG, South Africa--Nov. 8, 2004-- Commenting on the results, Sappi Chief Executive Officer Jonathan Leslie, said: "We are pleased to report a solid performance across all markets for the quarter following an improvement in demand for coated paper and continued strong order inflow. The cyclical recovery is clearly underway with price increases for coated fine paper in North America and strong volume growth, particularly in Europe and South Africa. However, increasing input cost pressure remains a concern and the strengthening Rand continues to squeeze margins in our South African businesses particularly Sappi Forest Products where competition from imports increases. "One of Sappi's strengths lies in its strong geographic spread and post year-end we announced the extension of our manufacturing footprint into Asia through our participation in the Jiangxi Chenming joint venture. This project is due for completion in 2005 and includes a 350,000 ton per year light weight coated machine, a mechanical pulp plant and a de-inked pulp plant. We believe this investment is a solid first move into a growing market. Looking forward, Leslie said: "We believe coated paper will continue to generate superior growth and therefore Sappi remains focused on using our competency in coating across a spectrum of coated products. We are also continuing to invest in growing our chemical cellulose (dissolving pulp) business." "In terms of market changes, many of the factors driving the increased demand for our products including economic growth and advertising spend are favourable and expected to sustain strong demand going forward. Furthermore, demand improvement and higher operating rates support price increases in our major markets. However, benefits of improved market conditions are likely to be offset in the near term by increased input costs." "The strength of the Rand against the US Dollar continues to place pressure on the price realisations of our South African business despite good demand for its products. The Rand has in fact strengthened further since the end of the reporting period and if sustained at this level will have a detrimental effect on future earnings." "We are nonetheless positive about the outlook for our business. Operating rates are high and we expect significant price improvement in the beginning of the new calendar year." "However, the result in our first financial quarter will reflect scheduled maintenance downtime across the group and repair work at Somerset with a direct cost of approximately US$20 million. These costs, coupled with rising energy and raw materials prices and a charge from the implementation of a new South African accounting standard relating to secondary tax on companies (STC), will make it difficult for us to achieve positive earnings in the first financial quarter."




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