JOHANNESBURG, South Africa--Nov. 12, 2001--Sappi Limited, the world's largest producer of coated fine paper, today announced results for the quarter and year-ended September 2001. Comment for the year The year was characterised by difficult market conditions resulting in low demand for most of our products. Apparent consumption for coated woodfree paper as measured by shipments from producers net of imports and exports was 14% below the equivalent period last year in the US and 8% in Europe. Real consumption was probably considerably better than was indicated by apparent consumption, as most customers reduced inventory throughout the period. Sappi Fine Paper It was a tough year in the fine paper markets, particularly in North America, which experienced its biggest ever percentage decline in demand. A significant portion of reduced North American shipments was due to de-stocking amongst merchants and printers. Local US producers were further affected by a high level of imports from Europe and Asia, which resulted in significant pressure on price and volume. The North American business responded to this softening market with rigorous cost control and was also helped by the falling pulp price. Sappi's strong brands held up better than most in this difficult period. In Europe there was also a significant decline in orders throughout the coated woodfree sector as the inventory throughout the pipeline was reduced. Producers reduced production to keep supply and demand in balance. Against this background, Sappi Fine Paper Europe performed well due to a relentless focus on managing fixed costs, curtailing production and by driving for maximum efficiency from operations. Sappi Fine Paper South Africa had an excellent year, producing record profits in Rand terms. It recovered its coated market position in South Africa, which had been eroded in the previous year by imports. The uncoated and tissue markets remained strong. As in the other producing regions, cost control and lower pulp price helped. Sappi Forest Products Paper pulp prices started the year at US$710 per ton and ended the year at US$450 per ton. Producers continued to curtail production and by year end inventories of the North American and Scandinavian producers had dropped to 1.5 million tons and consumer inventories were at the lowest September level for at least 5 years. Price increases of US$30 per ton were announced for October. Despite the significant reduction in the pulp price the Forest Products business delivered good results, primarily due to its low cost base and some currency benefits. In a tough environment both locally and internationally, the division continued to generate good returns against the weighted average cost of capital. Group Against this very challenging background the group produced robust results, reflecting the benefits of strong fundamentals. In particular, the geographic spread of our assets allowed us to take advantage of strong markets and minimize the impact of weaker markets and reduced the impact of any one currency movement. In addition, the scale and efficiency of our operating assets and our leading brands combined to assist the group perform at the top end of the sector. We continued to idle capacity and cut back production to match demand. In the final quarter of the year we curtailed over 250,000 tons of production. The group's net profit before exceptional items for the year was US$263 million, 24% below last year and earnings per share before exceptional items were 113 US cents, 23% below last year, an acceptable performance in the very difficult circumstances that prevailed. We closed the Mobile mill in Alabama, US and have provided for the write off of the assets and closure costs. Subsequent to year end we announced the intention to close Transcript Mill in Scotland. Had the Mobile mill been closed (with associated overhead cost reductions) at the beginning of the year, there would have been a benefit of approximately $35 million before tax or approximately 9 US cents per share after tax in this year. The group's earnings after closure and one-time adjustments were $138 million, 62% below last year, and earnings per share were 59 cents. Sales volumes were 5% below last year on a comparable basis. This reflects the slowing economic activity and the inventory reduction by merchants and printers. Average prices achieved were 2% lower in dollar terms than a year earlier, although prices in the last quarter were 5% lower than a year ago. The lower sales volume and prices impacted operating margins. Operating profit was 34% lower at $446 million. We have continued to reduce our finance costs through both lower indebtedness and refinancing at lower cost. Net finance costs paid before capitalised interest were 13% lower than a year earlier. The finance charge for the final quarter was however adversely impacted by marking foreign exchange contracts to market mainly as a result of the weakness of the Rand towards the end of September. The group tax charge for the year was reduced by the $73 million tax credit relating to the Mobile closure charge, resulting in a 6% effective rate for the year. The effective rate for ongoing operations excluding Mobile and Transcript was approximately 25% for the full financial year and was reduced by the geographic split of earnings, in particular the lower proportion of earnings in North America, and a reduction in the German tax rate. We expect the effective tax rate to be similar in the new financial year. Cash flow and debt The group ends the year with a strong balance sheet and our business continues to generate healthy cash flows. The group generated a cash flow of US$797 million (EBITDA) for the year. Capital expenditure for the year of US$321 million represented 91% of depreciation amortization and fellings. This percentage is expected to decline to approximately 70% next year. Net debt declined in the final quarter to US$1,128 million, a reduction of US$142 million for the full year. The net debt to totalcapitalisation ratio was 30.4% compared to 32.5% a year ago. In September we completed the refinancing of the North American credit and revolving credit facility utilising part of the facilities available to the group. This resulted in the write off of $9.1 million of deferred finance costs and will result in lower ongoing cash finance costs. We will refinance the approximately $140 million 14% debentures remaining in the US structure in December which will result in future savings of approximately $12 million before tax in a full year and eliminate the last of the high cost debt incurred to acquire SD Warren. Thereafter, net finance costs are expected to be approximately $17 million per quarter. We ended the year with an increased proportion of short term borrowings, mainly as a result of the $243 million convertible notes which mature in August 2002. The company has adequate cash on hand and long term banking facilities to meet these short term commitments. Production curtailments were again taken in all our operations in a difficult quarter and pressure to reduce prices continued. This was partly offset by lower pulp prices that dropped to US$450 per ton in the quarter before showing some improvement in prices in October. As a result of our geographic spread, strong market positions and well invested assets we produced strong results in Europe and Southern Africa. Europe Due to low order levels for coated woodfree paper, sales volumes were 16% lower than a year earlier. Average prices achieved were at a similar level in Euros and only slightly lower in dollars. We curtailed production by approximately one week per month. Tight control over manufacturing and overhead costs and the favourable impact of lower pulp prices helped maintain margins. The return on net operating assets was a healthy 17%. North America Operating conditions in North America worsened in the quarter even before September 11. Overall apparent consumption of coated woodfree paper was considerably lower than a year earlier and imports had a further impact on local producers' market shares. Although our volumes excluding Mobile mill grew relative to the previous quarter, total volumes were 11% lower than the equivalent quarter last year. There has been ongoing pressure on prices and our prices for the benchmark No. 3 coated woodfree in 60lb rolls declined 7% for the quarter compared to a year earlier. Operating margins for the quarter were at break-even. Strong action has been taken through the closure of Mobile mill and corporate overhead reductions. Our business is now lean and well positioned to improve performance once the shock waves of recent events have passed and the US economy starts to strengthen. Fine Paper SA The Southern African business had a good quarter. Sales volumes were 7% higher than a year ago. Average prices achieved in local currency were 17% higher but in dollars were slightly lower. Costs, which are predominantly in local currency, were tightly controlled. Operating income increased 60%, resulting in a 14% operating margin and a healthy 32% return on net operating assets. Forest Products Our forest products business has been impacted by weakening international prices, particularly for pulp. Dissolving pulp demand remained low and we continued to cut back on production to match customer requirements. Demand in the South African market has not yet been affected significantly by global conditions and prices for paper were higher in local currency than a year earlier. Volumes for ongoing business for the quarter were 6% lower than a year earlier and average prices achieved were 9% lower in dollar terms and 9% higher in Rands. Outlook World economic conditions, which were looking difficult prior to the tragic events of September 11, have worsened and the timing of any upturn has become more obscure. In our North American business the shock will be fully felt in the first quarter of 2002 as the drop in advertising flows through to paper demand. On the positive side, the high level of curtailment by producers means that pulp and paper inventories are being well controlled. North American and Scandinavian pulp inventories dropped to almost 1.5 million tons in September and pulp prices lifted off their recent trough level of US$450 per ton. We expect a slow start to the year with the North American business bearing the brunt of the downturn. In Europe, however, demand for coated free sheet is reasonably stable. Global industry inventory levels are low at consumer and merchant level, as best we can judge, and although end use consumption is likely to be lower because of a weaker economy, demand for our products should not decline much, if at all, in the coming year. Our results in the first quarter will be sharply down, however, not only because of the US situation and curtailment on all continents, but in particular because two of the group's largest profit contributors, Somerset and Ngodwana, will have their main maintenance shuts (held every 30 months) in October. In terms of the new international accounting standard the charges will be taken in the quarter and not spread over the period between shuts as in the past. With the information now at our disposal and barring further deterioration of the global economic outlook, we expect earnings after the first quarter to return to levels similar to the recent past. The group has a strong balance sheet, a high cash interest cover and is geographically spread, which puts us in a position to take advantage of an upturn when it comes.