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, 2004 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 X 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 No X ------- 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 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 The word for fine paper results for the quarter and half-year ended March 2004 [graphic omitted] second quarter 2004 Sappi is the world's leading producer of coated fine paper Sales by product group * [pie chart omitted] -----Coated fine paper 64% magno -----Uncoated fine paper 5% -----Coated specialities 9% -----Pulp 12% HannoArt -----Commodity paper 9% -----Other 1% Lustro Sales: where the product is manufactured* [pie chart omitted] -----North America 28% Somerset -----Europe 47% -----Southern Africa 25% McCoy Sales: where the product is sold* [pie chart omitted] -----North America 30% AVALON -----Europe 43% -----Asia and other 13% -----Southern Africa 14% enigma Georgraphic ownership** Typek [pie chart omitted] -----Europe and ROW+ 14% -----Southern Africa 48% -----North America 38% * ended March 2004 ** as at 31 March 2004 + Rest of the world SAPPI LIMITED RESULTS FOR THE QUARTER ENDED MARCH 2004 o EPS 10 US cents o Coated paper prices low; increases announced in Europe and North America o Strong demand in Europe o US shipments increasing o Forest Products performance strong despite continued Rand strength ------------------------------------------------------------------------------- SUMMARY Quarter ended Half-year ended March Dec March** March March** 2004 2003 2003 2004 2003 --------------------------------------------- --------- --------- ----------- --------- ---------- Sales (US$ million) 1,185 1,120 1,095 2,305 2,114 Operating profit (US$ million) 56 - 108 56 203 EBITDA (US$ million) * 173 114 194 287 383 Operating profit to sales (%) 4.7 - 9.9 2.4 9.6 EBITDA to sales (%) * 14.6 10.2 17.7 12.5 18.1 Operating profit to average net assets (%) 4.9 - 10.9 2.5 10.5 Headline EPS (US cents) 10 (9) 25 1 47 EPS (US cents) 10 (9) 25 1 47 Return on equity (%) * 4.7 (4.3) 13.1 0.2 12.7 Net debt (US$ million) * 1,753 1,694 1,509 1,753 1,509 Net debt to total capitalisation (%) * 35.6 34.7 34.6 35.6 34.6 --------------------------------------------- --------- --------- ----------- --------- ---------- *Refer to page 15, Supplemental Information for the definition of the term **Restated for AC137 2004 second quarter 1 ------------------------------------------------------------------------------- COMMENT ------------------------------------------------------------------------------- The underlying performance for the quarter improved compared to the prior quarter as a result of a better performance from our European fine paper and South African forest products businesses and a reduction in the losses from our North American business. In North America, commercial printers are starting to show clear signs of a turnaround in demand for paper, reflecting improvements in the US economy. This pick-up in consumption was only evident towards the end of the quarter and did not have a major impact on demand statistics. Shipments of coated fine paper from US producers were up 3% on the same quarter last year while net imports fell sharply. Magazine advertising pages were 2% below the equivalent quarter last year. Demand for coated fine paper in Western Europe continued to show healthy improvement with apparent consumption for the quarter 6% above the equivalent quarter last year and total shipments by European manufacturers were up 8% on the prior year. Prices in both major markets remained at cyclical lows in the quarter. Tightening supply conditions only presented the opportunity to announce price increases for implementation after the end of the reporting period. Against this background, Sappi's earnings and headline earnings per share were 10 US cents compared to 25 US cents a year earlier and a loss in the December quarter, after charges related to a machine closure and additional maintenance shut costs. We maintain our focus on costs, which were generally well managed in local currency terms in the quarter. Costs of wood and energy remain high in North America. Selling, General and Administrative costs fell from the prior quarter but were US$24 million higher than last year primarily due to currency (US$10 million) and the US$10 million credit relating to retirement costs reported last year. The favourable impact of applying the Agriculture Accounting Standard - AC137 (IAS41) in the quarter compared to applying our previous accounting policy was US$7 million after tax. Net finance costs at US$26 million were US$2 million below the December quarter. Taxation for the quarter was at an effective rate of 23%, which is higher than the expected rate for the full year. 2 2004 second quarter ------------------------------------------------------------------------------- CASH FLOW AND DEBT ------------------------------------------------------------------------------- Cash generated by operations increased strongly compared to the December quarter to US$184 million, a similar level to last year. Working capital increased by US$31 million mainly as a result of higher inventories. Capital expenditure for the quarter was US$84 million, similar to the first quarter and approximately 82% of depreciation. Net debt increased by US$59 million during the quarter. The annual dividend payment of US$66 million was paid in January 2004 and a pension funding payment of US$19 million was also made in the quarter. 2004 second quarter 3 ------------------------------------------------------------------------------- OPERATING REVIEW FOR THE QUARTER ------------------------------------------------------------------------------- SAPPI FINE PAPER ----------------------------------------------------------------------------------------------------------- QUARTER ENDED Quarter ended MARCH 2004 March 2003 % US$ MILLION US$ million change ----------------------------------------------------------------------------------------------------------- Sales 967 904 7.0 ----------------------------------------------------------------------------------------------------------- Operating profit 10 72 (86.1) ----------------------------------------------------------------------------------------------------------- Operating profit to sales (%) 1.0 8.0 - ----------------------------------------------------------------------------------------------------------- EBITDA 98 147 (33.3) ----------------------------------------------------------------------------------------------------------- EBITDA to sales (%) 10.1 16.3 - ----------------------------------------------------------------------------------------------------------- RONOA pa (%) 1.2 9.2 - ----------------------------------------------------------------------------------------------------------- Sappi Fine Paper volumes and average prices in Dollar terms both increased; however, low prices in local currencies and increases in pulp, wood and energy costs continue to squeeze our margins. Demand in Europe and South Africa remains good and we are seeing signs of a pick up, in domestic volumes, in North America. EUROPE ---------------------------------------------------------------------------------------------------------- QUARTER ENDED Quarter ended MARCH 2004 March 2003 % change % change US$ MILLION US$ million (US$) (Euros) ---------------------------------------------------------------------------------------------------------- Sales 556 503 10.5 ( 5.5) ---------------------------------------------------------------------------------------------------------- Operating profit 27 42 (35.7) (45.0) ---------------------------------------------------------------------------------------------------------- Operating profit to sales (%) 4.9 8.3 - - ---------------------------------------------------------------------------------------------------------- EBITDA 77 83 (7.2) (20.7) ---------------------------------------------------------------------------------------------------------- EBITDA to sales (%) 13.8 16.5 - - ---------------------------------------------------------------------------------------------------------- RONOA pa (%) 6.1 11.0 - - ---------------------------------------------------------------------------------------------------------- Our sales volume has continued to grow and was 3% higher than the equivalent quarter last year and 4% above the December quarter. Domestic European sales volumes increased 6% on the prior quarter but export volumes to the US which are included in Sappi Fine Paper Europe's total volumes have declined. Prices in European and overseas markets fell early in the quarter but stabilised in March. Average prices realised in Euros were 9% below a year earlier and slightly down on the December quarter. During the quarter we announced a price increase of 5% to 7% for coated fine paper which should become effective in the June quarter. We have continued to manage our costs effectively and despite the low prices have achieved an EBITDA to sales margin of 13.8% for the quarter. 4 2004 second quarter North America ---------------------------------------------------------------------------------------------------- QUARTER ENDED Quarter ended MARCH 2004 March 2003 % US$ MILLION US$ million change ---------------------------------------------------------------------------------------------------- Sales 339 338 0.3 ---------------------------------------------------------------------------------------------------- Operating profit (20) 20 - ---------------------------------------------------------------------------------------------------- Operating profit to sales (%) (5.9) 5.9 - ---------------------------------------------------------------------------------------------------- EBITDA 15 51 (70.6) ---------------------------------------------------------------------------------------------------- EBITDA to sales (%) 4.4 15.1 - ---------------------------------------------------------------------------------------------------- RONOA pa (%) 5.8 5.4 - ---------------------------------------------------------------------------------------------------- Although our North American business improved on the prior quarter, it still reported an operating loss in the quarter under review. Volumes sold were higher than the equivalent quarter last year representing some gain in share. Volumes were up 7% from the December quarter. Prices remained at approximately the same low level as in the December quarter. As a result of improving operating rates and order backlogs, we have announced a price increase of US$50 per ton on certain coated fine paper sheets and an increase of US$60 per ton on coated fine paper web products which becomes effective in June. Costs of wood and energy continue to impact profitability and remain at high levels. These costs were US$9 million above the same quarter last year and US$3 million higher than the prior quarter. South Africa --------------------------------------------------------------------------------------------------------- QUARTER ENDED Quarter ended MARCH 2004 March 2003 % change % change US$ MILLION US$ million (US$) (Rands) --------------------------------------------------------------------------------------------------------- Sales 72 63 14.3 (6.9) --------------------------------------------------------------------------------------------------------- Operating profit 3 10 (70.0) (75.6) --------------------------------------------------------------------------------------------------------- Operating profit to sales (%) 4.2 15.9 - - --------------------------------------------------------------------------------------------------------- EBITDA 6 13 (53.8) (62.4) --------------------------------------------------------------------------------------------------------- EBITDA to sales (%) 8.3 20.6 - - --------------------------------------------------------------------------------------------------------- RONOA pa (%) 7.4 33.3 - - --------------------------------------------------------------------------------------------------------- 2004 second quarter 5 The performance of our South African fine paper business was affected by low prices resulting from increased competition and the strong Rand. There are some signs that growing demand in Asia will absorb greater volumes and therefore reduce import pressure. SAPPI FOREST PRODUCTS ------------------------------------------------------------------------------------------------------- QUARTER ENDED Quarter ended MARCH 2004 March 2003 % change % change US$ MILLION US$ million (US$) (Rands) ------------------------------------------------------------------------------------------------------- Sales 218 191 14.1 (7.0) ------------------------------------------------------------------------------------------------------- Operating profit 48 33 45.5 18.5 ------------------------------------------------------------------------------------------------------- Operating profit to sales (%) 22.0 17.3 - - ------------------------------------------------------------------------------------------------------- EBITDA 77 44 75.0 42.5 ------------------------------------------------------------------------------------------------------- EBITDA to Sales (%) 35.3 23.0 - - ------------------------------------------------------------------------------------------------------- RONOA pa (%) 15.4 14.4 - - ------------------------------------------------------------------------------------------------------- Demand for our pulp and packaging paper was firm during the quarter. Our paper exports were lower as a result of the strong Rand and newsprint sales were lower as customers adjusted inventories. Demand for dissolving pulp produced by our Saiccor mill remains strong. Saiccor has a world-class cost position and is taking a number of steps to increase capacity through de-bottlenecking projects. The first step, which is already underway, will increase output by 20,000 tons based on the current product mix. Further plans are being investigated to add an additional 30,000 tons of capacity. Pulp prices have continued to increase with average NBSK prices for the quarter up US$ 35 per ton on the previous quarter and have partly offset the impact of the strong Rand on our pricing. 6 2004 second quarter ------------------------------------------------------------------------------- OUTLOOK ------------------------------------------------------------------------------- We are seeing signs of a turnaround in profitability for coated fine paper. Advertising spending in Europe is growing, as is apparent consumption of coated fine paper, which bodes well for the price increases currently being introduced. Imports of coated fine paper to the US from Asia and Europe have declined partly as a result of improved demand in those regions and partly as a result of less attractive price realisations. US domestic shipments have strengthened and order backlogs are increasing. The combination of these factors and signs of improved printer activity will support the announced price increases. However, these coated paper price increases in North America are not expected to have a major impact on our results until the fourth fiscal quarter. Pulp prices continue to strengthen, which will support the performance of our Forest Products business. We will have to absorb the costs of two major maintenance shuts next quarter at our Cloquet and Ngodwana mills. In addition to this, we face continued pressure from rising energy costs globally and high wood costs in North America. Overall, market developments are encouraging and with rising price trends, we expect to see further improvement in our earnings in our third quarter compared to the second quarter. On behalf of the Board J C A LESLIE D G WILSON Director Director 10 May 2004 sappi limited (Registration number 1936/008963/06) ISSUER CODE: SAVVI JSE CODE: SAP ISIN CODE: ZAE 000006284 2004 second quarter 7 ------------------------------------------------------------------------------- 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 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 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. 8 2004 second quarter FINANCIAL RESULTS FOR THE QUARTER AND HALF-YEAR ENDED MARCH 2004 [graphic omitted] 2004 second quarter 9 Sappi Limited ------------------------------------------------------------------------------- GROUP INCOME STATEMENT ------------------------------------------------------------------------------- Reviewed Reviewed Reviewed Reviewed Half-year Half-year Quarter ended Quarter ended ended ended March 2004 March 2003 March 2004 March 2003 US$ million US$ million % change US$ million US$ million % change ------------------------------------------------------------------------------------------------------------------------ Sales 1,185 1,095 8.2 2,305 2,114 9.0 Cost of sales 1,030 913 2,025 1,760 --------------------------------------------------------------------- Gross profit 155 182 (14.8) 280 354 (20.9) Selling, general & administrative expenses 99 75 224 152 --------------------------------------------------------------------- 56 107 56 202 Other income - 1 - 1 --------------------------------------------------------------------- Operating profit 56 108 (48.1) 56 203 (72.4) Net finance costs 26 32 54 61 ------------- ------------ ------------- ---------- Net paid | 26 | | 29 | | 52 | | 54 | Capitalised | - | | - | | (1) | | (1)| Net foreign exchange (gains) losses | (4)| | 3 | | (6) | | 8 | Change in fair value of financial instruments | 4 | | - | | 9 | | - | --------------------------------------------------------------------- Profit before tax 30 76 (60.5) 2 142 (98.6) Taxation - current 10 17 18 31 - deferred (3) 1 (18) 2 --------------------------------------------------------------------- Net profit 23 58 (60.3) 2 109 (98.2) ===================================================================== Earnings per share (US cents) 10 25 1 47 Headline earnings per share (US cents) * 10 25 1 47 Weighted average number of shares in issue (millions) 226.1 229.4 226.3 229.8 Diluted earnings per share (US cents) 10 25 1 47 Diluted headline earnings per share (US cents) * 10 25 1 47 Weighted average number of shares on fully diluted basis (millions) 228.3 232.1 228.4 232.5 Calculation of Headline earnings * Net profit 23 58 2 109 Profit on disposal of business and property, plant & equipment - (1) - (1) Mill closure costs - 1 - 1 --------------------------------------------------------------------- Headline earnings 23 58 2 109 ===================================================================== * Headline earnings disclosure is required by the JSE Securities Exchange South Africa. 10 2004 second quarter Sappi Limited ------------------------------------------------------------------------------- GROUP BALANCE SHEET ------------------------------------------------------------------------------- Reviewed Audited March 2004 Sept 2003 US$ million US$ million ------------------------------------------------------------------------------------------ ASSETS Non-current assets 4,501 4,242 -------------------------------- Property, plant and equipment 3,679 3,554 Plantations 491 432 Deferred taxation 51 41 Other non-current assets 280 215 -------------------------------- Current assets 1,373 1,575 -------------------------------- Cash and cash equivalents 332 584 Trade and other receivables 265 290 Inventories 776 701 -------------------------------- -------------------------------- Total assets 5,874 5,817 -------------------------------- EQUITY AND LIABILITIES Shareholders' equity Ordinary shareholders' interest 1,991 1,945 Non-current liabilities 2,506 2,541 -------------------------------- Interest-bearing borrowings 1,652 1,742 Deferred taxation 537 517 Other non-current liabilities 317 282 -------------------------------- Current liabilities 1,377 1,331 -------------------------------- Interest-bearing borrowings and bank overdraft 433 333 Taxation payable 85 82 Other current liabilities 859 916 -------------------------------- -------------------------------- Total equity and liabilities 5,874 5,817 -------------------------------- Number of shares in issue at balance sheet date (millions) 226.2 226.9 2004 second quarter 11 Sappi Limited ------------------------------------------------------------------------------- GROUP CASH FLOW STATEMENT ------------------------------------------------------------------------------- Reviewed Reviewed Reviewed Reviewed Quarter ended Quarter ended Half-year ended Half-year ended March 2004 March 2003 March 2004 March 2003 US$ million US$ million US$ million US$ million ------------------------------------------------------------------------------------------------------------------------- Cash generated by operations 184 195 290 373 Movement in working capital (31) (23) (144) (165) Net finance costs (26) (31) (52) (61) Taxation (paid) recovered (4) 30 (19) 25 Dividends paid (66) (65) (66) (65) ---------------------------------------------------------------------- Cash retained from operating activities 57 106 9 107 Cash effects of investing activities (96) (58) (185) (92) ---------------------------------------------------------------------- (39) 48 (176) 15 Cash effects of financing activities (25) (36) (99) 3 ---------------------------------------------------------------------- Net movement in cash and cash equivalents (64) 12 (275) 18 ====================================================================== Sappi Limited ------------------------------------------------------------------------------- GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY ------------------------------------------------------------------------------- Reviewed Reviewed Half-year ended Half-year ended March 2004 March 2003 US$ million US$ million ----------------------------------------------------------------------------------------------------------- Balance - beginning of year 1,958 1,601 Change in accounting policy (13) (4) ------------------------------------------ Balance - beginning of year restated 1,945 1,597 Net profit 2 109 Foreign currency translation reserve 128 224 Revaluation of derivative instruments (7) (17) Dividends declared - US$ 0.29 (2003: US$ 0.28) per share (66) (65) Share buybacks net of transfers to participants of the share purchase trust (11) (19) ------------------------------------------ Balance - end of period 1,991 1,829 ========================================== 12 2004 second quarter Sappi Limited ------------------------------------------------------------------------------- NOTES TO THE GROUP RESULTS ------------------------------------------------------------------------------- 1. Basis of preparation The annual financial statements are prepared in conformity with South African Statements of Generally Accepted Accounting Practice (SA GAAP). These quarterly results have been prepared in compliance with AC 127 (Interim financial reporting) and are based on accounting policies which are consistent with those used in the annual financial statements. The same accounting policies have been followed as in the annual financial statements for September 2003, except for the new agriculture accounting standard - Agriculture - AC 137 (IAS 41) which became effective from the beginning of the current financial year. The effect on equity for the above change is reflected in the Group statement of changes in shareholders' equity. The effect on net profit for the current quarter is an increase of US$7 million, net of US$3 million tax (December 2003 quarter: increase of US$7 million, net of US$3 million tax; March 2003 quarter: minimal impact) and an increase of US$14 million, net of US$6 million tax for the half-year end (March 2003: a decrease of US$1 million, net of US$1 million tax). Where appropriate, comparative figures have been restated. The preliminary results for the quarter have been reviewed by the group's auditors, Deloitte & Touche. Their unqualified review report is available for inspection at the company's registered offices. 2. Comparative figures Comparative figures have been restated to take into account the effects of the new agriculture accounting standard which became effective from the beginning of the current financial year. The effect on operating profit is the inclusion of the fair value changes in the value of plantations and the expensing of the costs incurred to establish and maintain plantations (silviculture costs) and the amortisation of interest which had been previously capitalised. Net finance costs have increased. In terms of the new accounting standard, interest is no longer capitalised to the carrying value of plantations. The effect on the cash flow statement is a reclassification of investments in plantations from cash utilised in investing activities to cash generated by operations. Net cash flows remain the same. Operating profit has been restated to take into account the requirements of circular 3/2004 issued by the South African Institute of Chartered Accountants. Previously non-trading (profit) loss items were excluded from operating profit. The impact of the inclusion is an increase in operating profit of US$1 million for the quarter and half-year ended March 2003. In September 2003, cash and overdraft were restated to gross up amounts previously set-off. The March 2003 cash flow statement has been restated to take the effects of this into account. 2004 second quarter 13 ------------------------------------------------------------------------------- NOTES TO GROUP RESULTS (CONTINUED) ------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- Reviewed Reviewed Reviewed Reviewed Quarter ended Quarter ended Half-year ended Half-year ended March 2004 March 2003 March 2004 March 2003 US$ million US$ million US$ million US$ million ---------------------------------------------------------------------------------------------------------------------- 3. Operating profit Included in operating profit are the following non-cash items: Depreciation and amortisation Depreciation of property, plant and equipment 103 85 203 170 Fellings 13 1 27 9 Other amortisation 1 - 1 1 -------------------------------------------------------------------- 117 86 231 180 -------------------------------------------------------------------- Fair value adjustment (gains) on plantations (included in cost of sales) Changes in volume (13) (10) (28) (20) Changes in fair value (17) (2) (24) (1) -------------------------------------------------------------------- (30) (12) (52) (21) -------------------------------------------------------------------- 4. Capital expenditure Property, plant and equipment 84 62 167 100 ---------------------------------------------------------------------------------------------------------------------- Reviewed Audited March 2004 Sept 2003 US$ million US$ million ---------------------------------------------------------------------------------------------------------------------- 5. Capital commitments Contracted but not provided 101 86 Approved but not contracted 174 193 -------------------------------------------------------------------- 275 279 -------------------------------------------------------------------- 6. Contingent liabilities Guarantees and suretyships 49 47 Other contingent liabilities 25 24 -------------------------------------------------------------------- 14 2004 second quarter Sappi Limited ------------------------------------------------------------------------------- SUPPLEMENTAL INFORMATION ------------------------------------------------------------------------------- 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 Securities Exchange South Africa to disclose headline earnings per share. * 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) * 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. 2004 second quarter 15 Sappi Limited ------------------------------------------------------------------------------- SUPPLEMENTAL INFORMATION ------------------------------------------------------------------------------- additional information Reviewed Reviewed Reviewed Reviewed Quarter ended Quarter ended Half-year ended Half-year ended March 2004 March 2003 March 2004 March 2003 US$ million US$ million US$ million US$ million --------------------------------------------------------------------------------------------------------------------- Net profit to EBITDA * reconciliation Net profit 23 58 2 109 Net finance costs 26 32 54 61 Taxation - current 10 17 18 31 - deferred (3) 1 (18) 2 Depreciation 103 85 203 170 Amortisation (including fellings) 14 1 28 10 --------------------------------------------------------------------------------------------------------------------- EBITDA * 173 194 287 383 --------------------------------------------------------------------------------------------------------------------- Reviewed Audited March 2004 Sept 2003 US$ million US$ million --------------------------------------------------------------------------------------------------------------------- Net debt (US$ million) ** 1,753 1,491 Net debt to total capitalisation (%) ** 35.6 30.9 Net asset value per share (US$) ** 10.95 10.67 * In connection with the US 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 and recalculated EBITDA to exclude interest (net finance costs), taxes, depreciation and amortisation (including fellings). As a result our definition has been amended to retain other income/expenses (previously non-trading profit/loss) as part of EBITDA. The comparative information has been restated to take this into account. The effect on EBITDA for the amended definition is an increase of US$1m for the quarter and half- year ended March 2003. There was no impact on the current quarter and half-year ended March 2004. 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 SA GAAP. EBITDA is not a measure of performance under SA GAAP. EBITDA should not be construed as an alternative to operating profit as an indicator of the company's operations in accordance with SA GAAP. 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. **Refer to page 13, Supplemental Information for the definition of the term. 16 2004 second quarter Sappi Limited ------------------------------------------------------------------------------- SUPPLEMENTAL INFORMATION ------------------------------------------------------------------------------- regional information Reviewed Reviewed Reviewed Reviewed Quarter ended Quarter ended Half-year ended Half-year ended March 2004 March 2003 March 2004 March 2003 Metric tons Metric tons Metric tons Metric tons (000's) (000's) % change (000's) (000's) % change ----------------------------------------------------------------------------------------------------------------------- Sales - Fine Paper -North America 362 343 5.5 699 711 (1.7) Europe 611 592 3.2 1,199 1,117 7.3 Southern Africa 74 69 7.2 146 143 2.1 ----------------------------------------------------------------------------------------------------------------------- Total 1,047 1,004 4.3 2,044 1,971 3.7 Forest Products Pulp and paper operations 373 395 (5.6) 757 732 3.4 Forestry operations 341 309 10.4 658 607 8.4 ----------------------------------------------------------------------------------------------------------------------- Total 1,761 1,708 3.1 3,459 3,310 4.5 ======================================================================================================================= Reviewed Reviewed Reviewed Reviewed Quarter ended Quarter ended Half-year ended Half-year ended March 2004 March 2003 March 2004 March 2003 US$ million US$ million US$ million US$ million ----------------------------------------------------------------------------------------------------------------------- Sales Fine Paper -North America 339 338 0.3 655 707 (7.4) Europe 556 503 10.5 1,074 937 14.6 Southern Africa 72 63 14.3 143 122 17.2 ----------------------------------------------------------------------------------------------------------------------- Total 967 904 7.0 1,872 1,766 6.0 Forest Products Pulp and paper operations 203 178 14.0 404 323 25.1 Forestry operations 15 13 15.4 29 25 16.0 ----------------------------------------------------------------------------------------------------------------------- Total 1,185 1,095 8.2 2,305 2,114 9.0 ======================================================================================================================= Operating profit Fine Paper -North America (20) 20 - (74) 29 - Europe 27 42 (35.7) 42 81 (48.1) Southern Africa 3 10 (70.0) 8 19 (57.9) ----------------------------------------------------------------------------------------------------------------------- Total 10 72 (86.1) (24) 129 - Forest Products 48 33 45.5 83 70 18.6 Corporate (2) 3 - (3) 4 - ----------------------------------------------------------------------------------------------------------------------- Total 56 108 (48.1) 56 203 (72.4) ======================================================================================================================= Earnings before interest, tax, depreciation and amortisation charges Fine Paper -North America 15 51 (70.6) (5) 91 - Europe 77 83 (7.2) 140 165 (15.2) Southern Africa 6 13 (53.8) 14 24 (41.7) ----------------------------------------------------------------------------------------------------------------------- Total 98 147 (33.3) 149 280 (46.8) Forest Products 77 44 75.0 141 99 42.4 Corporate (2) 3 - (3) 4 - ----------------------------------------------------------------------------------------------------------------------- Total 173 194 (10.8) 287 383 (25.1) ======================================================================================================================= Net operating assets Fine Paper -North America 1,396 1,458 (4.3) 1,396 1,458 (4.3) Europe 1,742 1,560 11.7 1,742 1,560 11.7 Southern Africa 166 130 27.7 166 130 27.7 ----------------------------------------------------------------------------------------------------------------------- Total 3,304 3,148 5.0 3,304 3,148 5.0 Forest Products 1,283 946 35.6 1,283 946 35.6 Corporate (40) (49) 18.4 (40) (49) 18.4 ----------------------------------------------------------------------------------------------------------------------- Total 4,547 4,045 12.4 4,547 4,045 12.4 ======================================================================================================================= 2004 second quarter 17 Sappi Limited ------------------------------------------------------------------------------- SUPPLEMENTAL INFORMATION ------------------------------------------------------------------------------- summary and convenience translation ------------------------------------------------------------------------------------------------------------------------------------ Reviewed Reviewed Reviewed Reviewed Quarter ended Quarter ended Half-year ended Half-year ended March 2004 March 2003 % change March 2004 March 2003 % change ------------------------------------------------------------------------------------------------------------------------------------ Sales (ZAR million) 8,064 9,149 (11.9) 15,758 19,209 (18.0) Operating profit (ZAR million) 381 902 (57.8) 383 1,845 (79.2) Net profit (ZAR million) 157 485 (67.6) 14 990 (98.6) EBITDA * (ZAR million) 1,177 1,621 (27.4) 1,962 3,480 (43.6) Operating profit to sales (%) 4.7 9.9 2.4 9.6 EBITDA * to sales (%) 14.6 17.7 12.5 18.1 Operating profit to average net assets (%) 5.0 10.9 2.5 10.4 EPS (SA cents) 68 209 (67.5) 7 427 (98.4) Headline EPS (SA cents) * 68 209 (67.5) 7 427 (98.4) Net debt (ZAR million) * 11,524 12,004 (4.0) Net debt to total capitalisation (%) * 35.6 34.6 Cash generated by operations (ZAR million) 1,252 1,629 (23.1) 1,983 3,389 (41.5) Cash retained from operating activities (ZAR million) 388 886 (56.2) 62 972 (93.6) Net movement in cash and cash equivalents (ZAR million) (436) 100 - (1,880) 164 - ------------------------------------------------------------------------------------------------------------------------------------ * Refer to page 15, Supplemental Information for the definition of the term. exchange rates ------------------------------------------------------------------------------------------------------------------------ March Dec Sept June March 2004 2003 2003 2003 2003 ------------------------------------------------------------------------------------------------------------------------ Exchange rates : Period end rate: US$1 = ZAR 6.5738 6.7951 7.1288 7.4300 7.9550 Average rate for the Quarter: US$1 = ZAR 6.8054 6.8569 7.3866 7.6305 8.3550 Average rate for the YTD: US$1 = ZAR 6.8363 6.8569 8.3300 8.6173 9.0866 Period end rate: EUR1 = US$ 1.2150 1.2410 1.1475 1.1417 1.0729 Average rate for the Quarter: EUR1 = US$ 1.2497 1.1887 1.1328 1.1236 1.0686 Average rate for the YTD: EUR1 = US$ 1.2161 1.1887 1.0804 1.0655 1.0334 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. 18 2004 second quarter ------------------------------------------------------------------------------- SAPPI ORDINARY SHARES ------------------------------------------------------------------------------- [GRAPHIC OMITTED] ------------------------------------------------------------------------------- ADR PRICE (NYSE TICKER: SPP) NOTE: (1 ADR = 1 SAPPI SHARE) ------------------------------------------------------------------------------- [GRAPHIC OMITTED] 2004 second quarter 19 ------------------------------------------------------------------------------- NOTES ------------------------------------------------------------------------------- 20 2004 second quarter this report is available on the Sappi website - www.sappi.com [GRAPHIC OMITTED] Other interested parties can obtain printed copies of this report from: South Aftica: United States United Kingdom: Computershare Limited ADR Depository: Capita Registrars 70 Marshall Street The Bank of New York The Registry Johannesburg 2001 Investor Relations 34 Beckenham Road PO Box 61051 PO Box 11258 Beckenham, Kent Marshallton 2107 Church Street Station BR3 4TU, DX 91750 Tel +27 (0)11 370-5000 New York, NY 10286-1258 Beckenham West Tel +1 610 382 7836 Tel +44 (0)208 639-2157 2004 second quarter 21 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, 2004 SAPPI LIMITED, by /s/ D.G. Wilson ---------------------------------- Name: D. G. Wilson Title: Executive Director: Finance