Edgar Filing: SAPPI LTD

Page 1

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

under the Securities Exchange Act of 1934

For the month of May 10 2006

Commission file number: 1-14872

SAPPI LIMITED

(Translation of registrant’s name into English)

48 Ameshoff Street

Braamfontein

Johannesburg 2001

REPUBLIC OF SOUTH AFRICA

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or
Form 40-F.

Form 20-F

-------

Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted

by Regulation S-T Rule 101(b) (1):

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted

by Regulation S-T Rule 101(b) (7):

Indicate by check mark whether by furnishing the information contained in this Form, the

registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934.

Yes

-------

If “Yes” is marked, indicated below the file number assigned to the registrant in

connection with Rule 12g3-2(b): 82-

FORWARD-LOOKING STATEMENTS

In order to utilize the "Safe Harbor" provisions of the United States Private Securities Litigation Reform
Act of 1995 (the "Reform Act"), Sappi Limited (the "Company") is providing the following cautionary
statement. Except for historical information contained herein, statements contained in this Report on Form
6-K may constitute "forward-looking statements" within the meaning of the Reform Act. 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 which do not relate to historical matters identify forward-looking statements. In addition, this Report
on Form 6-K may include forward-looking statements relating to the Company's potential exposure to
various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity price
risk. Reliance should not be placed on forward-looking statements because they involve known and
unknown risks, uncertainties and other factors which are in some cases beyond the control of the Company,
together with its subsidiaries (the "Group"), and may cause the actual results, performance or achievements
of the Group 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; pulp and paper production, production capacity, input costs including raw material,
energy and employee costs, and pricing levels in North America, Europe, Asia and southern Africa; any
major disruption in production at the Group's key facilities; changes in environmental, tax and other laws
and regulations; adverse changes in the markets for the Group's products; any delays, unexpected costs or
other problems experienced with any business acquired or to be acquired; consequences of the Group's
leverage; adverse changes in the South African political situation and economy or the effect of
governmental efforts to address present or future economic or social problems; and the impact of future
investments, acquisitions and dispositions (including the financing of investments and acquisitions) and any
delays, unexpected costs or other problems experienced in connection with dispositions. These and other
risks, uncertainties and factors are discussed in the Company's Annual Report on Form 20-F and other
filings with and submissions to the Securities and Exchange Commission, including this Report on Form 6-
K. Shareholders and prospective investors are cautioned not to place undue reliance on these forward-
looking statements. These forward-looking statements are made as of the date of the submission of this
Report on Form 6-K and are not intended to give any assurance as to future results. 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.

sappi

quarter

results and

half-year

ended
March

2006

2nd

3rd

4th

Sappi is the world’s leading
producer of coated fine paper

for the six months ended March 2006

** Estimate as at 31 March 2006

† Rest of World

Sales by product group *

Sales: where the product
is sold *

Sales: where the product
is manufactured *

Geographic ownership **

■

Coated fine paper

■

Uncoated fine paper

■

Coated specialities

■

Packaging and

newsprint

■

Pulp

■

Other

63%

12%

■

North America

■

Europe

■

Southern Africa

■

Asia and other

30%

41%

16%

13%

■

North America

■

Europe

■

Southern Africa

29%

45%

26%

■

South Africa

■

North America

■

Europe and ROW †

50%

40%

10%

●

Strong demand growth

●

Headline EPS 5 US cents; EPS 4 US cents

●

Limited price increase realisation

●

Continued input cost pressure

●

Strong Rand depresses earnings

●

19 US cents plantation fair value gain

summary

Quarter

Half-year

ended

March

Dec

March

2006

2005

2005**

2006

2005**

Sales (US$ million)

1,256

1,175

1,230

2,431

2,486

Operating profit (US$ million)

108

Operating profit to sales (%)

4.7

4.2

4.5

4.4

2.7

EBITDA (US$ million) *

176

163

180

339

317

EBITDA to sales (%) *

14.0

13.9

14.6

13.9

12.8

Operating profit to average net assets (%)

5.9

4.8

5.3

3.0

Headline EPS (US cents) *

EPS (US cents)

–

Return on average equity (ROE) (%) *

2.4

–

8.1

1.1

2.3

Net debt (US$ million) *

2,172

2,072

2,382

2,172

2,382

Net debt to total capitalisation (%) *

44.3

42.3

43.4

44.3

43.4

* Refer to page 19, Supplemental Information for the definition of the term.

** Comparative amounts have been restated to take into account the effect of the adoption of International Financial Reporting

Standards (Refer to note 2).

financial highlights

Our performance continued to be disappointing in the quarter with the non-cash fair value plantation credit

lifting an otherwise negative result to a net profit of US$9 million compared to US$40 million a year earlier.

In general, demand levels for our products have been strong and the primary reasons for our weak

performance were rising input costs and unplanned maintenance at our Somerset and Ngodwana mills as

well as poor output at several mills.

By the end of the quarter we had realised slightly higher prices in Europe and in North America.

Group sales were US$1.3 billion for the quarter, an increase of US$26 million compared to the year earlier

mainly as a result of a 3% increase in volume.

Escalating energy prices together with high wood and chemicals prices impacted our pre-tax results by

US$7 million compared to the prior quarter and US$38 million compared to a year earlier. Rising pulp prices,

which affect the European business are usually compensated by pulp sales from the South African

business, but this was offset this quarter by the strengthening of the Rand.

The fair value adjustment on plantations, net after fellings, was US$60 million before tax for the quarter.

This is significantly higher than the US$7 million gain reported in the prior quarter and the US$3 million gain

a year ago, as a result of higher hardwood pulpwood prices in the quarter. These adjustments cannot

continue indefinitely and we may expect a reversal at some time in the future.

We recorded a pre-tax charge for the closure of Nash mill (UK) of US$10 million. No revaluation was made

for the potential development value of the land. The mill’s customers will in future be supplied from other

Sappi operations and the closure is not expected to have a significant impact on operating profit.

Our operating profit for the quarter was US$59 million compared to US$55 million a year ago and

US$49 million in the prior quarter.

The tax of US$19 million for the quarter represents an effective rate of 68%. The high effective tax rate is a

result of unrelieved tax losses in certain countries. This will only change when profitability improves in those

countries. It was, however, lower than the prior quarter which included tax on the dividend (secondary tax on

companies). The equivalent quarter last year was impacted by a tax credit resulting from the reduction of the

South African tax rate from 30% to 29%.

Headline earnings for the quarter were 5 US cents and earnings per share were 4 US cents. In the

equivalent quarter last year, headline earnings were 20 US cents and earnings per share were 18 US cents.

cash flow and debt

Cash generated by operations was US$117 million compared to US$172 million a year ago, a reduction of

US$55 million mainly as a result of lower profits excluding fair value adjustments. Working capital increased

by US$33 million in the quarter (second quarter 2005: US$104 million).

The annual dividend of US$68 million which was declared in November 2005 was paid in the quarter.

Capital expenditure for the quarter was US$67 million, representing 68% of the depreciation charge for the

period. We expect a similar level for the full year.

comment

sappi limited – second quarter page 2

Net debt at quarter end was US$2.172 billion, an increase of US$100 million compared to the prior quarter

end including a currency effect of US$10 million. The ratio of net debt to total capitalisation was 44.3%

compared to 42.3% at December 2005. During the quarter, Moody’s Investor Services downgraded the

debt of subsidiary Sappi Papier Holding GmbH to Ba1 with a stable outlook. Our debt remains well

structured with an average maturity of 7.8 years and we have adequate undrawn committed debt facilities.

operating review for the quarter

Sappi Fine Paper

Quarter

ended

March 2006

March 2005

Dec 2005

US$ million

change

US$ million

Sales

1,018

982

3.7

943

Operating (loss) profit

(6)

–

Operating (loss) profit to sales (%)

(0.6)

2.4

–

1.6

EBITDA

115

(34.8)

EBITDA to sales (%)

7.4

11.7

–

10.1

RONOA pa (%)

(0.8)

2.6

–

1.9

Despite strong sales volumes, which were up approximately 9% compared to a year ago, the business

recorded an operating loss of US$6 million in the quarter. Against a background of increasing raw material

and energy input costs, achieving higher prices and managing the realisation of better margins remains a

key issue in each of the regions.

Europe

Quarter

ended

March 2006

March 2005

change

Dec 2005

US$ million

(US$)

(Euro)

US$ million

Sales

569

571

(0.4)

9.0

520

Operating profit

(73.9)

(71.5)

Operating profit to sales (%)

1.1

4.0

–

2.7

EBITDA

(27.4)

(20.6)

EBITDA to sales (%)

9.3

12.8

–

11.7

RONOA pa (%)

1.4

4.6

–

3.2

sappi limited – second quarter page 3

Demand for our products remains strong, particularly in Germany and eastern Europe, and our sales volume

was up 7.5% compared to a year earlier. Realisation of our price increase has not been sufficient to offset

the rise in our input costs (led by energy and wood costs), resulting in unacceptable margins.

North America

Quarter

ended

March 2006

March 2005

Dec 2005

US$ million

change

US$ million

Sales

367

339

8.3

345

Operating (loss) profit

(10)

–

Operating (loss) profit to sales (%)

(2.7)

0.3

–

0.3

EBITDA

(48.6)

EBITDA to sales (%)

5.2

10.9

–

9.0

RONOA pa (%)

(3.4)

0.3

–

0.3

Our sales volume increased strongly relative to a year earlier and the prior quarter but high input costs and

product mix diminished the impact of higher prices and put further pressure on our margins. The slower

than planned achievement of the Muskegon restructuring benefits resulted mainly from a slower ramp up

of output and changes to the product range. These savings will take until the end of the year to achieve.

Significant production cost variances arising from unplanned production issues have also impacted our

margins.

Fine Paper South Africa

Quarter

ended

March 2006

March 2005

change

Dec 2005

US$ million

(US$)

(Rand)

US$ million

Sales

13.9

18.2

Operating loss

(2)

–

Operating loss to sales (%)

(2.4)

–

EBITDA

(40.0)

(37.7)

EBITDA to sales (%)

3.7

6.9

–

3.8

RONOA pa (%)

(4.6)

–

sappi limited – second quarter page 4

operating review for the quarter (continued)

Sales volumes in the domestic market remained strong in the quarter and export volumes increased.

The strong Rand contributed to competitive pricing in the domestic market and put pressure on margins.

Forest Products

Quarter

ended

March 2006

March 2005

change

Dec 2005

US$ million

(US$)

(Rand)

US$ million

Sales

238

248

(4.0)

(0.4)

232

Operating profit

115.6

123.9

Operating profit to sales (%)

29.0

12.9

–

15.9

EBITDA

105

59.1

65.2

EBITDA to sales (%)

44.1

26.6

–

30.2

RONOA pa (%)

19.2

8.4

–

10.9

Demand for chemical cellulose continues to be strong and in the domestic market demand for our other

products was generally buoyant. The underlying performance of this business was unfavourably affected by

unplanned production stoppages at several mills resulting in reduced output and higher operating costs.

The strong Rand more than offset the effect of rising pulp prices and the exchange rate continues to affect

margins in the containerboard business. Pulp prices (NBSK) increased by US$30 per ton by the end of the

quarter relative to the prior quarter end. There has been another NBSK pulp price increase announced

subsequent to the quarter end.

The operating profit includes US$60 million of plantation fair value adjustment net of fellings.

Subsequent to the quarter we announced our intention to sell a 25% interest in our plantation land

(without the trees) to a black economic empowerment consortium for approximately US$36 million, which

will be vendor financed. We expect benefits to accrue from the consortium’s identification and development

of opportunities on the unplantable land, which makes up 36% of the total.

sappi limited – second quarter page 5

outlook

Demand for our products continues to be positive and the global coated fine paper industry operating rate

is at one of the highest levels seen in at least the last 15 years.

We have already identified significant cost improvements and operating efficiencies which without any

benefit of price increases could substantially improve earnings. These improvements are being addressed

vigorously and are likely to start having an impact towards the end of the financial year.

In the current cost environment, our pricing model in many markets has led to a significant proportion of

business being conducted at unprofitable levels. We are in the process of changing this. Furthermore, we

are limiting the time horizon on which we will commit prices. We are evaluating the effectiveness and the

costs of our distribution model and will be working with our distribution partners to streamline the supply

chain. During this process, average selling prices should continue to rise.

To reverse the trend of continuing consumption of cash, we have cut back capital expenditure and we will

rigorously manage our working capital – in particular our finished goods inventories, and will curtail

manufacturing operations whenever necessary to ensure that we operate to our customers’ requirements

at a normalised inventory holding.

We do not expect to see much impact from our turnaround actions next quarter and are likely to see a

similar underlying result to the current quarter.

changes of directors

As previously announced, Jonathan Leslie resigned as Chief Executive of the group on 5 March 2006.

Sir Nigel Rudd was appointed a non-excutive director of Sappi Limited with effect from 3 April 2006.

On behalf of the Board

E van As

D G Wilson

Director

8 May 2006

sappi limited

(Registration number 1936/008963/06)

Issuer Code: SAVVI

JSE Code: SAP

ISIN Code: ZAE 000006284

sappi limited – second quarter page 6

operating review for the quarter (continued)

sappi limited – second quarter page 7

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 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, changing regulatory requirements, unanticipated production disruptions,
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.

forward-looking statements

sappi limited – second quarter page 8

financial results

for

the

quarter

and

half

year

ended

March

2006

sappi limited – second quarter page 9

group income statement

sappi limited – second quarter page 10

Restated

Reviewed

Quarter

Half-year

Year

ended

March 2006

March 2005

March 2006

March 2005

Sept 2005

US$ million

US$ million change

US$ million

US$ million change US$ million

Sales

1,256

1,230

2.1

2,431

2,486

(2.2)

5,018

Cost of sales

1,098

1,079

2,140

2,193

4,507

Gross profit

158

151

4.6

291

293

(0.7)

511

Selling, general and

administrative expenses

170

178

361

121

115

150

Other expenses

259

Operating profit (loss)

7.3

108

61.2

(109)

Net finance costs

Net paid

125

Capitalised

–

(1)

Net foreign exchange

gains

(3)

(1)

(4)

(3)

(5)

Change in fair value

of financial instruments

(5)

(2)

(15)

(39)

Profit (loss) before tax

(9.7)

127.3

(189)

Taxation – current

– deferred

(21)

(20)

(50)

Net profit (loss)

(77.5)

(59.1)

(184)

Earnings (loss)

per share (US cents)

(81)

Weighted average

number of shares

in issue (millions)

226.0

225.6

225.9

225.8

Diluted earnings

(loss) per share

(US cents)

(81)

Weighted average

number of shares

on fully diluted

basis (millions)

227.0

226.8

226.7

227.1

226.7

Note: Refer to notes to the group results (page 18) for Headline earnings and calculation thereof.

group balance sheet

sappi limited – second quarter page 11

Restated

Reviewed

March 2006

Sept 2005

US$ million

ASSETS

Non-current assets

4,305

4,244

Property, plant and equipment

3,307

3,333

Plantations

690

604

Deferred taxation

Other non-current assets

237

Current assets

1,517

1,645

Inventories

765

711

Trade and other receivables

556

567

Cash and cash equivalents

196

367

Total assets

5,822

5,889

EQUITY AND LIABILITIES

Shareholders’ equity

Ordinary shareholders’ interest

1,550

1,589

Non-current liabilities

2,492

2,547

Interest-bearing borrowings

1,503

1,600

Deferred taxation

402

367

Other non-current liabilities

587

580

Current liabilities

1,780

1,753

Interest-bearing borrowings

845

616

Bank overdraft

159

Other current liabilities

790

858

Taxation payable

125

120

Total equity and liabilities

5,822

5,889

Number of shares in issue at balance sheet date (millions)

226.3

225.9

group cash flow statement

sappi limited – second quarter page 12

group statement of recognised income and
expense

Restated

Reviewed

Quarter

Half-year

Year

ended

March 2006

March 2005

March 2006

March 2005

Sept 2005

US$ million

US$ million US$ million

Operating profit (loss)

108

(109)

Depreciation, fellings and other amortisation

117

125

231

250

490

Other non-cash items (including impairment

charges)

(59)

(8)

(100)

(3)

188

Cash generated by operations

117

172

239

314

569

Movement in working capital

(33)

(104)

(113)

(207)

(30)

Net finance costs

(23)

(28)

(68)

(67)

(127)

Taxation paid

(5)

(12)

(39)

(43)

Dividends paid

(68)

Cash (utilised in) retained from operating

activities

(12)

(40)

(22)

(67)

301

Cash effects of investing activities

(78)

(79)

(152)

(206)

(379)

(90)

(119)

(174)

(273)

(78)

Cash effects of financing activities

(91)

(3)

(37)

Net movement in cash and

cash equivalents

(181)

(122)

(171)

(252)

(115)

Restated

Reviewed

Quarter

Half-year

Year

ended

March 2006

March 2005

March 2006

March 2005

Sept 2005

US$ million

US$ million US$ million

Pension fund asset not recognised

(2)

–

(4)

–

Actuarial losses on pension and other post

employment benefit liabilities

–

(62)

Deferred taxation on above items

–

Valuation allowance against deferred

tax asset on actuarial losses

–

(62)

–

(62)

Exchange differences on translation

of foreign operations

(115)

Net income (expense) recorded

directly in equity

(177)

(106)

Net income (loss) for the period

(184)

Total recognised income (expense)

for the period

(137)

(290)

notes to the group results

Basis of preparation

The condensed quarterly financial statements have been prepared in accordance with International

Financial Reporting Standards (IFRS). Sappi is reporting under IFRS for the first time for the year ending

September 2006. The date of first transition to IFRS is October 2004 and comparative results have

been restated accordingly. The condensed consolidated interim financial statements do not include all

of the information required for full annual financial statements.

These quarterly results have been prepared in accordance with IAS 34 (Interim financial reporting).

The accounting policies used in the preparation of the quarterly results are compliant with IFRS and

consistent with those used in the annual financial statements for September 2005, except as

disclosed below.

The preliminary results for the quarter have been reviewed in terms of International Standards on

Review Engagements by the group’s auditors, Deloitte & Touche. Their unqualified review report includes

an emphasis of matter that amendments to the interpretive guidance issued between the date of this

announcement and the finalisation of the financial statements for the year ending September 2006,

may result in changes to the restatements published. This report is available for inspection at the

company’s registered offices.

Effect of the first time adoption of IFRS

As discussed in Note 1, the group has adopted International Financial Reporting Standards (IFRS) in

preparing their consolidated financial statements for the year ending September 2006. For purposes of

these interim financial statements, the group has developed accounting policies based on IFRS issued

to date that will be effective at our reporting date of September 2006. IFRS 1, First-time Adoption of

International Financial Reporting Standards, requires that an entity develop accounting policies based on

the standards and related interpretations effective at the reporting date of its first IFRS financial

statements. IFRS 1 also requires that those policies be applied as of the date of transition to IFRS and

throughout all periods presented in the first IFRS financial statements. The accounting policies used in

these financial statements are subject to change up to the reporting date of our first IFRS financial

statements. Management does not believe the final accounting policies will change materially from those

utilised in the preparation of the accompanying interim financial statements.

The following exemptions in accordance with IFRS 1 were considered:

• Business Combinations – IFRS 3

The group has elected not to retrospectively apply the requirements of IFRS 3 for Business

Combinations that occurred prior to October 2004.

• Share based payments – IFRS 2

The group has applied the share based payment exemption therefore IFRS 2 is only applicable to

equity instruments granted after 7 November 2002 that were not vested by 1 January 2005.

Liabilities arising from cash-settled share-based payments settled after 1 January 2005 are subject

to IFRS 2. For instruments vesting on or after 1 January 2005, Sappi has recognised a charge in the

income statement and set up a separate category in shareholders’ equity for all share options and

awards, based on the fair value of the awards as calculated at the grant date.

sappi limited – second quarter page 13

• The effects of changes in foreign exchange rates – IAS 21

Adjustments on adoption of IFRS

The adoption of IFRS led to changes in the Group’s financial position, financial performance and cash
flows. The significant differences between previously reported SA GAAP financial statements and IFRS
are as follows:

• Employee benefits – IAS 19

Previously unrecognised actuarial employee benefit losses were recognised at October 2004,
resulting in an increase in pension and other post employment benefits liabilities and a
corresponding reduction in equity and deferred tax liability. These adjustments also led to a reduction
in employee benefit expense in profit for the period. Sappi has elected to adopt the policy of
recognising actuarial gains and losses in the period in which they occur. The gains and losses are
recognised outside of profit for the period in the statement of recognised income and expense
(SORIE). Items processed through SORIE are tax effected through SORIE. Part of the first time
adoption of this method of accounting included a historic analysis of all pension fund movements to
determine the portion of our deferred tax balances that relate to SORIE.

• Share based payments – IFRS 2

Sappi has recognised a charge in the income statement and set up a separate category in
shareholders’ equity for all share options and awards, based on the fair value of the awards as
calculated at the grant date. The cost of the share options and grants are reflected in the income
statement over the vesting period. This IFRS change had no impact on the comparative total
shareholders’ equity as a Share Based Payment Reserve is created with the equal and opposite
amount included in retained earnings.

• Financial instruments – IAS 39

A significant portion of our securitised receivables was brought back on balance sheet, increasing
trade and other receivables by US$268 million and short term debt by US$346 million and
decreasing other payables by US$78 million at September 2005. The related expense is no longer
reflected in S,G&A but is included under finance costs. This caused an increase in finance costs
and decrease in S,G&A of US$15 million for the year ended September 2005 (March 2005:
US$9 million).

Cash flow hedges on inter-company loans, accounted for in equity, no longer qualify for hedge
accounting under IAS 39. As a result these instruments are now recognised at fair value through
profit and loss.

• The effects of changes in foreign exchange rates – IAS 21

Sappi has elected to apply the exemption in IFRS 1 which allows the cumulative translation
differences of all foreign operations to be reduced to zero at the date of transition to IFRS which is
October 2004. The Foreign Currency Translation Reserve (Non-Distributable Reserve) was
transferred to retained earnings. This IFRS change has no impact on total shareholders’ equity.

There are no other accounting policy changes relevant to the first time adoption of IFRS.

sappi limited – second quarter page 14

notes to the group results (continued)

sappi limited – second quarter page 15

Reconciliation of previous SA GAAP to IFRS for shareholders’ equity

Reviewed

Year

Half-year

IFRS

ended

transition

Sept 2005

March 2005

Oct 2004

US$ million

Total equity presented under SA GAAP

1,881

2,151

2,157

Impact on retained earnings:

Recognition of previously unrecognised actuarial

losses – IAS 19

(340)

(289)

(300)

Deferred taxation impact of IAS 19 change

Share based payments – IFRS 2

(20)

(15)

(9)

Release of cash flow hedge reserve – IAS 39

(2)

Foreign Currency Translation Reserve cleared

at October 2004

244

Share based payment reserve – IFRS 2

Hedging Reserves – IAS 39

(13)

(9)

Foreign Currency Translation Reserve

(240)

(250)

(244)

Total equity and reserves presented under IFRS

1,589

1,899

1,950

Reconciliation of previous SA GAAP to IFRS for net (loss) profit

Reviewed

Year

Half-year

ended

Sept 2005

March 2005

US$ million

Net loss under SA GAAP

(213)

(6)

Reduction in expense due to recognition of actuarial gains

and losses – IAS 19

Deferred taxation impact of IAS 19

Share based payment expense – IFRS 2

(10)

(5)

Gains from cash flow hedges that do not qualify for hedge

accounting – IAS 39

Deferred taxation impact of IAS 39

(7)

(5)

Net (loss) profit under IFRS

(184)

IFRS cash flow statement impact

The reduction in employee benefit expense attributed to an increase in operating profit (loss) and a

corresponding decrease in non-cash items. Share based payment costs led to a decrease in operating

profit and an increase in non-cash items. The recognition of securitised debtors caused the relating

costs to be reflected under finance costs instead of included in operating profit.

notes to the group results (continued)

sappi limited – second quarter page 16

IFRS impact on net debt

In accordance with IAS 39 a significant portion of our securitised receivables was brought back on

balance sheet, increasing trade and other receivables by US$268 million and short term debt by

US$346 million and decreasing other payables by US$78 million at September 2005. This resulted

in an increase in net debt of US$346 million from US$1,662 million to US$2,008 million at

September 2005.

Restated

Reviewed

Half-year

Year

ended

March 2006

March 2005

Sept 2005

US$ million

Reconciliation of movement in shareholders’ equity

Balance – beginning of year as reported

1,881

2,157

IFRS adoption (refer note 2)

(292)

(207)

Recognition of previously unrecognised actuarial

losses – IAS 19

(340)

(300)

Deferred taxation impact of IAS 19 change

Translation differences

–

Balance – beginning of year restated

1,589

1,950

Total recognised income (expense) for the period

(290)

Dividends paid

(68)

Share buybacks net of transfers to participants

of the share purchase trust

(1)

(14)

Share based payment reserve

Balance – end of period

1,550

1,899

1,589

sappi limited – second quarter page 17

Restated

Reviewed

Quarter

Half-year

Year

ended

March 2006

March 2005

March 2006

March 2005

Sept 2005

US$ million

Operating profit

Included in operating profit are

the following non-cash items:

Depreciation and amortisation

Depreciation of property,

plant and equipment

108

195

216

422

Other amortisation

–

108

196

217

424

Impairment of property,

plant and equipment

233

Impairment of other assets

–

Impairment reversal of property,

plant and equipment

–

(4)

103

109

201

259

656

Fair value adjustment gains

on plantations (included in

cost of sales)

Changes in volume

Fellings

Growth

(21)

(19)

(35)

(33)

(58)

(3)

(2)

–

Changes in fair value

(57)

(1)

(67)

(17)

(60)

(3)

(67)

(17)

(52)

The above fair value adjustment

gains have been offset

by silviculture costs

sappi limited – second quarter page 18

notes to the group results (continued)

Restated

Reviewed

Quarter

Half-year

Year

ended

March 2006

March 2005

March 2006

March 2005

Sept 2005

US$ million

Headline earnings per share

(US cents) *

Weighted average number

of shares in issue (millions)

226.0

225.6

225.9

225.8

Diluted headline earnings

per share (US cents) *

Weighted average number

of shares on fully diluted basis
(millions)

227.0

226.8

226.7

227.1

226.7

Calculation of Headline earnings *

Net profit (loss)

(184)

(Profit) loss on disposal of

business and property, plant
and equipment

(2)

–

(2)

–

Write-off of assets

Impairment of property, plant

and equipment

219

Debt restructuring costs

–

Headline earnings

* Headline earnings disclosure is required by the JSE Limited.

Capital expenditure

Property, plant and equipment

139

138

345

Reviewed

March 2006

Sept 2005

US$ million

Capital commitments

Contracted but not provided

130

115

Approved but not contracted

171

198

301

313

Contingent liabilities

Guarantees and suretyships

Other contingent liabilities

supplemental information

sappi limited – second quarter page 19

definitions

Average – averages are calculated as the sum of the opening and closing balances for the relevant period

divided by two

* EBITDA – earnings before interest (net finance costs), tax, depreciation and amortisation

* EBITDA to sales – EBITDA divided by sales

Fellings – the amount charged against the income statement representing the standing value of the

plantations harvested

Headline earnings – as defined in circular 7/2002 issued by the South African Institute of Chartered

Accountants, separates from earnings all items of a capital nature. It is not necessarily a measure of

sustainable earnings. It is a listing requirement of the JSE Limited to disclose headline earnings per share

NBSK – Northern Bleached Softwood Kraft pulp. One of the main varieties of market pulp, mainly produced

from spruce trees in Scandinavia, Canada and north eastern USA. The NBSK is a benchmark widely used

in pulp and paper industry for comparative purposes

* Net assets – total assets less current liabilities

* Net asset value – shareholders’ equity plus net deferred tax

* Net asset value per share – net asset value divided by the number of shares in issue at

balance sheet date

* Net debt – current and non-current interest-bearing borrowings, and bank overdrafts (net of cash,

cash equivalents and short-term deposits)

* Net debt to total capitalisation – Net debt divided by shareholders’ equity plus minority interest,

non-current liabilities, current interest-bearing borrowings and overdraft

* ROE – return on average equity. Net profit divided by average shareholders’ equity

* RONA – operating profit divided by average net assets

* RONOA – operating profit divided by average net operating assets. Net operating assets are total assets

(excluding deferred taxation and cash) less current liabilities (excluding interest-bearing borrowings

and bank overdraft)

* SG&A – selling, general and administrative expenses

* Silviculture costs – growing and tending costs of trees in forestry operations

* The above financial measures, other than headline earnings per share, are presented to assist our

shareholders and the investment community in interpreting our financial results. These financial measures

are regularly used and compared between companies in our industry.

supplemental information

sappi limited – second quarter page 20

additional information

Restated

Reviewed

Quarter

Half-year

Year

ended

March 2006

March 2005

March 2006

March 2005

Sept 2005

US$ million

Net profit (loss) to EBITDA

(1)

reconciliation

Net profit (loss)

(184)

Net finance costs

Taxation – current

– deferred

(21)

(20)

(50)

Depreciation

108

195

216

422

Amortisation (including fellings)

EBITDA

(1)

176

180

339

317

381

Restated

Reviewed

March 2006

Sept 2005

US$ million

Net debt (US$ million)

(2)

2,172

2,008

Net debt to total capitalisation (%)

(2)

44.3

40.9

Net asset value per share (US$)

(2)

8.31

8.35

(1)

In connection with the U.S. Securities Exchange Commission (“SEC”) rules relating to “Conditions for Use
of Non-GAAP Financial Measures”, we have reconciled EBITDA to net profit rather than operating profit.
As a result our definition retains other income/expenses as part of EBITDA.

We use EBITDA as an internal measure of performance and believe it is a useful and commonly used
measure of financial performance in addition to operating profit and other profitability measures under
IFRS. EBITDA is not a measure of performance under IFRS. EBITDA should not be construed as an
alternative to operating profit as an indicator of the company’s operations in accordance with IFRS.
EBITDA is also presented to assist our shareholders and the investment community in interpreting our
financial results. This financial measure is regularly used as a means of comparison of companies in our
industry by removing certain differences between companies such as depreciation methods, financing
structures and taxation regimes. Different companies and analysts may calculate EBITDA differently, so
making comparisons among companies on this basis should be done very carefully.

(2)

Refer to page 19, Supplemental Information for the definition of the term.

supplemental information

sappi limited – second quarter page 21

regional information

Quarter

Half-year

Year

ended

March 2006

March 2005

March 2006

March 2005

Sept 2005

Metric tons

% Metric tons

(000’s)

(000’s) change

(000’s)

(000’s) change

(000’s)

Sales

Fine Paper –

North America

365

331

10.3

709

681

4.1

1,433

Europe

646

601

7.5

1,248

1,216

2.6

2,427

Southern Africa

14.5

158

147

7.5

317

Total

1,090

1,001

8.9

2,115

2,044

3.5

4,177

Forest Products – Pulp and paper

operations

347

389

(10.8)

702

780

(10.0)

1,565

Forestry operations

372

369

0.8

748

750

(0.3)

1,737

Total

1,809

1,759

2.8

3,565

3,574

(0.3)

7,479

Restated

Reviewed

Quarter

Half-year

Year

ended

March 2006

March 2005

March 2006

March 2005

% Sept 2005

US$ million

change

US$ million

change US$ million

Sales

Fine Paper –

North America

367

339

8.3

712

696

2.3

1,458

Europe

569

571

(0.4)

1,089

1,145

(4.9)

2,239

Southern Africa

13.9

160

155

3.2

323

Total

1,018

982

3.7

1,961

1,996

(1.8)

4,020

Forest Products – Pulp and paper

operations

215

230

(6.5)

427

452

(5.5)

908

Forestry operations

27.8

13.2

Total

1,256

1,230

2.1

2,431

2,486

(2.2)

5,018

sappi limited – second quarter page 22

supplemental information

Restated

Reviewed

Quarter

Half-year

Year

ended

March 2006

March 2005

March 2006

March 2005

% Sept 2005

US$ million

change

US$ million

change US$ million

Operating profit

Fine Paper –

North America

(10)

–

(9)

(12)

25.0

(259)

Europe

(73.9)

(63.0)

Southern Africa

(2)

–

(2)

–

(11)

Total

(6)

–

(80.0)

(186)

Forest Products

115.6

106

324.0

Corporate

(4)

(1)

(300.0)

(7)

(3)

(133.3)

(6)

Total

7.3

108

61.2

(109)

Earnings before interest, tax,

depreciation and amortisation

charges

Fine Paper –

North America

(48.6)

(16.7)

(122)

Europe

(27.4)

114

153

(25.5)

284

Southern Africa

(40.0)

(50.0)

Total

115

(34.8)

170

225

(24.4)

166

Forest Products

105

59.1

175

84.2

220

Corporate

(4)

(1)

(300.0)

(6)

(3)

(100.0)

(5)

Total

176

180

(2.2)

339

317

6.9

381

Net operating assets

Fine Paper –

North America

1,163

1,504

(22.7)

1,163

1,504

(22.7)

1,199

Europe

1,781

1,945

(8.4)

1,781

1,945

(8.4)

1,735

Southern Africa

177

229

(22.7)

177

229

(22.7)

160

Total

3,121

3,678

(15.1)

3,121

3,678

(15.1)

3,094

Forest Products

1,490

1,460

2.1

1,490

1,460

2.1

1,325

Corporate and other

(23.7)

Total

4,640

5,176

(10.4)

4,640

5,176

(10.4)

4,474

supplemental information

sappi limited – second quarter page 23

summary rand convenience translation

Restated

Quarter

Half-year

Year

ended

March

Sept

2006

2005 change

2006

2005 change

2005

Sales (ZAR million)

7,769

7,328

6.0

15,396

15,073

2.1

31,321

Operating profit (loss) (ZAR million)

365

328

11.3

684

406

68.5

(680)

Net profit (loss) (ZAR million)

238

(76.5)

133

(57.1)

(1,148)

EBITDA * (ZAR million)

1,089

1,072

1.6

2,147

1,922

11.7

2,378

Operating profit (loss) to sales (%)

4.7

4.5

4.4

2.7

(2.2)

EBITDA * to sales (%)

14.0

14.6

13.9

12.8

7.6

Operating profit (loss) to average

net assets (%)

6.1

5.1

5.3

3.1

(2.4)

EPS (SA cents)

107

(76.6)

(59.0)

(506)

Headline EPS (SA cents) *

119

(73.9)

182

(79.1)

125

Net debt (ZAR million) *

13,391

14,782

(9.4)

12,782

Net debt to total capitalisation (%) *

44.3

43.4

40.9

Cash generated by operations

(ZAR million)

724

1,025

(29.4)

1,514

1,904

(20.5)

3,552

Cash (utilised in) retained

from operating activities (ZAR million)

(74)

(238)

68.9

(139)

(406)

65.8

1,879

Net movement in cash and cash

equivalents (ZAR million)

(1,120)

(727)

(54.1)

(1,083)

(1,528)

29.1

(718)

* Refer to page 19, Supplemental Information for the definition of the term.

exchange rates

March

Dec

Sept

June

March

2006

2005

Exchange rates:

Period end rate: US $1 = ZAR

6.1655

6.3275

6.3656

6.7041

6.2059

Average rate for the Quarter: US $1 = ZAR

6.1858

6.4795

6.5289

6.3738

5.9577

Average rate for the YTD: US $1 = ZAR

6.3334

6.4795

6.2418

6.1732

6.0632

Period end rate: EUR 1 = US$

1.2119

1.1843

1.2030

1.2097

1.2982

Average rate for the Quarter: EUR 1 = US$

1.1983

1.1915

1.2139

1.2678

1.3110

Average rate for the YTD: EUR 1 = US$

1.1964

1.1915

1.2659

1.2811

1.2911

The financial results of entities with reporting currencies other than the US Dollar are translated into

US Dollars as follows:

– Assets and liabilities at rates of exchange ruling at period end; and

– Income, expenditure and cash flow items at average exchange rates.

sappi limited – second quarter page 24

note: (1 ADR = 1 sappi share)

sappi ordinary shares

ADR price (NYSE TICKER: SPP)

this report is available on the Sappi website

www.sappi.com

Other interested parties can obtain printed copies of this report from:

South Africa:

United States

United Kingdom:

Computershare Investor

ADR Depository:

Capita Registrars

Services 2004 Limited

The Bank of New York

The Registry

70 Marshall Street

Investor Relations

34 Beckenham Road

Johannesburg 2001

PO Box 11258

Beckenham, Kent

PO Box 61051

Church Street Station

BR3 4TU, DX 91750

Marshalltown 2107

New York, NY 10286-1258

Beckenham West

Tel +27 (0)11 370 5000

Tel +1 610 382 7836

Tel +44 (0)208 639 2157

Printed on Sappi Avalon Supreme Matt 250g/m

and 150g/m

www.sappi.com

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 10, 2006

SAPPI LIMITED,

by /s/ D. G. Wilson

Name: D. G. Wilson
Title: Executive Director: Finance