Sappi Limited

Steve Binnie – Chief Executive Officer Mark Gardner – Chief Executive Officer, Sappi Fine Paper North America Barry John Wiersum - Chief Executive Officer, Sappi Fine Paper Europe Alexander van Coller Thiel - Chief Executive Officer, Sappi Southern Africa Glen Pearce – Chief Financial Officer

Nishal Ramloutan - UBS James Hutchinson - Barclays Africa Caroline Learmonth - Barclays Africa Lars Kjellberg - Crédit Suisse Sean Ungerer - Avior Research Chris Ellis - Babson Capital Management Bill Hoffman - RBC Capital Markets

Thank you. Good morning and good afternoon everybody.

First slide I am going to is on Slide 4. Firstly, just some highlights for the quarter, Q4 of 2014.

EBITDA excluding special items was $200 million and that was up 29% on a year ago. EPS increased from $0.01 to $0.12.

And importantly our cash generation for the quarter was $288 million compared to $111 million last year. Turning to the year as a whole and to some key summary items, we are pleased to say that our strategy has delivered strong earnings flow during the year.

We were able to turnaround a loss from last year into a profit this year. EBITDA excluding special items was up 25% year-on-year to $658 million.

EPS, moved from a loss of $0.04 to a profit of $0.22. And importantly, our net debt came in at $1946 million, and that’s down $300 million from a year ago.

On Slide 5, you can see our – graphically, our historical EBITDA and operating profits and you’ll see that we’ve been able to consistently improve our profits and margins throughout this financial year. Slide 6, just shows you the split in product contribution.

Firstly, operating profit Specialized Cellulose contributed 71% versus Paper of 29%. Turning to EBITDA which is reflective of the cash, you can see that Paper is still important for us and contributed 54% of EBITDA versus Specialized Cellulose of 46%.

On the next slide, which is Slide 7, you can see the historical net debt and as I mentioned earlier, below the $2 billion mark, you can see that it did pick up throughout 2013 and into Q4 of 2014, that was the funding for the dissolving pulp conversions that we did. We are now on a downward trend and we would expect this to decrease in the years ahead.

On Slide 8, it shows you the ratio of net debt-to-EBITDA and similarly you see the peak in Q1 of 2014, but we’ve seen a significant reduction throughout the rest of the financial year and just to remind you that our over – our medium-target is to get to two times EBITDA. On Slide 9, we show the CapEx numbers and you see that 2014 was just below the $300 million mark, split roughly half-half maintenance and expansion.

That will be similar to what we are expecting for the new financial year of 2015. On Slide 10, we have the maturity profile for all our debt.

Firstly, on the non-South African site, which is mainly represented by those dark blue bars. You can see that we have nothing material maturing before 2017.

We do have our 2018 and 2019 bonds, which enter their core windows in 2015 and that’s something that we are looking about at quite good for me to see if there is an opportunity there. On the South African debt, we have a small amount of bonds, $67 million maturing in 2015 and we don’t anticipate any problems refinancing that.

Turning to the divisional overviews and I’ll go to Slide 12. You can see the EBITDA margin developments for each of the respective regions and I am pleased to say that both North America and Europe picked up as we move through the year and then South Africa was consistently strong throughout 2014.

On Slide 13, just some of the key highlights from Europe, firstly. We saw encouraging improvements in margins as I’ve already indicated.

It is important to point out that Q4 is seasonally the best quarter and we achieved 10% EBITDA margin, that’s the first time since 2012. So that’s an important milestone for us.

And the coated wood free demand towards – was a little bit better than we expected and was flat year-on-year for the quarter. Unfortunately, coated mechanical paper demand continued to decline and was probably a little bit worse than we would have forecasted a year ago.

Lot of good work done by the business taking costs out and variable costs were down 6% year-on-year and reflective of the implementation of procurement initiatives as they were implemented. On Slide 14, North America, and we’ve talked about this previously.

Market conditions were tough throughout the year and that did put pressure on selling prices. However, we did see a pick up in the last quarter and we achieved – we were able to put through a price increase for our waste products, which helped the business return to operating profits during the last quarter.

The lowest selling prices for dissolving pulp did have impact on margins and the release paper was impacted by weak Chinese demand. Importantly, we were able to implement a number of cost reduction initiatives also in North America and that also helped the profitability and will help profitability in the new financial year.

In South Africa, I think it was a very good year for us. It was the first year of the expanded Specialized Cellulose and obviously, that contributed to the profit and we are pleased to say that the restructured paper business delivered enhanced margins and we saw basically, better quarterly performance there and the rand, we did benefit from the stronger rand, but we were also able to control our costs well despite that weaker rand and fixed costs were contained.

On Slide 16, just a brief summary for the specialized cellulose business and we’ve touched it on few of these points already, but we saw an increase in supply coming on the market in the last couple of years but demand is still pretty good, 5%, 6% and we anticipate that it will continue to be at those levels. In this business, we also have to focus on costs and we do expect the dissolving pulp selling prices to remain under pressure for the next year-and-a-half or so.

Fortunately, our capacity is amongst the lowest cost producers and the weaker rand is helping us a little bit there. Our strategy will be to continue to work with those key customers, keep the cost low and investigate further optimization opportunities.

Turning our attention to the strategic side of the business. Slide 20, just as a summary of our strategic focus and this is a slide you’ve seen previously just to emphasize that in the short-term our focus will be on achieving cost advantages across the businesses, rationalizing the declining businesses, mainly on the coated paper side and we’ll go through modern investments.

We will continue to focus on strengthening our balance sheet by reducing net debt and hopefully be in a position to accelerate growth in additional businesses much stronger base. The next slide talks to one of those – the next few slides will talk to each of those items.

Firstly, on achieving cost advantages on slide 21, we will continue to work to lower the fixed and variable costs and improve efficiencies and invest for cost advantages. Some examples of that in recent times, as you know, we’ve reduced the workforce in the US and we’ve got the gas conversion investment at our Somerset Mill in the US.

In Europe, we are making some investments in the Kirkniemi power plant, which will enable us to bring down costs there at that mill, and I think the results are a demonstration of the work that we are doing in variable and fixed costs. In South Africa, there has been a lot of focus on optimizing our product offering, simplifying our product offering good work from fixed cost savings.

At the Group level, we will seek opportunities whether it be on procurement supply chain or on shared services area. Slide 22 is the second pillar, which is optimizing and rationalizing declining business.

And the important aspect here is recognizing that there is decreasing demand for graphic paper and we need to manage our capacity around those anticipated reductions. In Europe, we’ve talked about it in the past, but we will continue to implement our self-help approach and the recent disposal of the Nijmegen Mill is reflective of that and then the investment we’re making in Gratkorn at the paper machine and in the pulp plant will improve our ability to fill our products.

In South Africa, I’ve talked about the fact that we are rationalizing the product offering. There is much more focus on packaging and less on graphic paper.

The next Slide 23, talks about the growth through modern investments and what I want to emphasize here that these are smaller investments where we see small opportunities in high growth markets and particularly on the specialty and packaging side. And in Europe, we think there are small opportunities there, we will go underutilized capacity there to allow us to make small investments in certain specialty products and in fact, the whole packaging strategy that we’ve been implementing is a good example of what we are doing.

On Slide 24, strengthening the balance sheet, I think, we’ve done a good job this year selling non-core assets focusing on working capital and going forward, we continue to talk about the excess softwood plantation. We think we’ve got approximately about $700 million, $60 million worth of assets there that we can sell and that’s an ongoing process.

And then at the Group level, focusing on working capital optimization benchmarking and ensuring we’ve got them at the right levels. We will contain CapEx below the $300 million and we’ve got a big opportunity to refinance our debt in the core window.

So finally, just turning our attention to the outlook for the year. In the last year, we’ve made significant strides in the implementation of our strategy and just a few examples of that; we’ve reduced the debt below our targeted level.

You’ve seen a turnaround in performance for the European and South African paper businesses. We’ve been able to deliver the increased dissolving pulp volumes.

We seen the divestiture of Nijmegen and the sale of the Usutu Forest and we’ve seen a pick up in the performance of the US business as have progressed through the year. We remain realistic about the markets that we are in.

We know that they are challenging for graphic paper and we know that dissolving pulp will have some short-term pressures. And as a result of that, we will continue to focus on cost efficiency and product optimization.

The dissolving pulp demand does remains strong. I’ve talked about the fact that demand is increasing at 5% to 6%.

So it’s still strong, but dollar prices in the short-term will be a little bit weak and they are linked to the cotton prices. Cloquet, as you know, has the ability to switch between NBHK and dissolving pulp and we will continue to look for opportunities there with the goal of optimizing our margins.

It’s important to recognize that these volumes were switching will not impact on key customers and our focus will be to control costs in that business as well. CapEx will be below $300 million, the split of that is a $150 million for maintenance CapEx and the other $150 million is largely for cost containment focus and the examples of Gratkorn and Kirkniemi are listed there.

Our first quarter results will be negatively impacted by some of these projects. Also at Gratkorn and the gas conversion project at Somerset.

The impact, and if you compare it to the same quarter last year, the impact – the incremental impact of each of these is $11 million each, so that $22 million in total. Despite that, we expect our Group EBITDA to be broadly similar to what we achieved last year.

Similarly, base on the market conditions as we currently see them, we believe that EBITDA excluding special items for the entire 2015 financial year will be broadly similar to that that we achieved this year. We will consider utilizing our increased cash reserves to repay and refinance a portion of our net debt in order to lower the future interest costs.

It’s important to recognize that every year in Q1, we do have an outflow of capital that’s representative of the seasonal working capital need and if you look back on our history, you’ll see that that’s always the case. So we will see an increase in net debt similar to last year.

But over the course of the year, we will bring down our net debt further and remain on target to reducing our net debt to EBITDA to the two time target that we’ve talked about. Okay, so that’s – I’ve gone through the slides.

So now we will put it back to everyone for questions.

Hi, yes, good day everyone. Just a couple of things from my side.

So, firstly on North America, so, quite good increased profitability there. Can you give us an indication of how much of that was seasonal strength and how much of that was – it is of the price increase that you put through in the market there?

And then, secondly, just moving to Europe on coated mechanical paper, as you say that market looks quite – it just seems to be getting worse. Can you just give us an indication of your coated mechanical paper mills?

Are you still cash flow positive and just what are the plans there in that paper grade? Then I think just thirdly on dissolving wood pulp, can you maybe just give us a sense of what’s going on in the market?

And then particularly on closures, I think, previously you mentioned that, there was a fair amount of capacity that’s had cash cost of over $1000, but dissolving pulp prices are below there for quite an extended time, but you still say that there is a quite a bit of supply coming through to the market. Maybe can you give us some color in terms of what’s happening there?

Okay, Nishal, we’ll take each of the questions in sequence. I firstly, on the North American business, you are right that there is a seasonal aspect to the business.

We also did take cost out of the – we implemented a fixed cost savings initiative. So the benefit of that fixed cost savings is about $20 per annum.

So, you would have a pro rata benefit from that coming through. Specifically, with regards to the market price increase, Mark, do you want to talk to that one?

Sure. Thanks, Steve.

We announced in May a price increase which did take effect during the course of a quarter – the last quarter and then we saw that price increase come through completely by the end of the quarter. So, it helped us quite a bit.

I would say, roughly about half of the improvement was on the cost side and the other half is on the pricing of our products on the paper side coming through.

Thanks Mark. Then on Europe, you are right that the coated mechanical markets are under more pressure and it’s obviously something we are watching very carefully.

We have two mills there, one Kirkniemi, the other at Lanaken. They are both cash positive at the moment and in fact, following the closing of Nijmegen and Lanaken has actually picked up in performance.

Barry is there anything else you want to add?

Well, just to say that the carousel is enabled by Nijmegen, because although Nijmegen was a wood free coated mill, when we sold it, we transferred that coated wood free production into Lanaken and transferred coated mechanical production from Lanaken into Kirkniemi. And this means that the assets are now well booked.

Thanks, Barry, and then on dissolving pulp, yes, you are right that the pulp that prices have been low for a sustained period. We have seen some of our competitors switching back to kraft pulp.

I don’t want to name them specifically on this call, but, some of them have switched, Canadian competitors and so on. We are at the low end of the cost curve.

We are in the lowest quartile and obviously the fact that the rand has been weaker, has cushioned the impact from that. So, as I said earlier, we will continue to focus on those large customers, servicing them and in making sure that we are cost competitor.

Okay, thank you.

Good afternoon, gentlemen. I have a couple of questions if I may.

Firstly, could you just remind us with the cost implications of switching between NBHK and dissolving pulp at Cloquet are, but from a capital and operating cost point of view and then related to that it may take to a switch between the two. And then secondly, following cost type of price increases announced in September for Europe, could you just give us an indication of how successful is it been in terms of uptake?

And then finally, in terms of the contract negotiations with your dissolving pulp customers, how those progressed since the last time which are sort of the third quarter results and is the current price weakness having any implications on contract prices agreed going forward? Thank you.

Okay, in terms of the first question on the switch between kraft pulp and dissolving pulp in North America and there are no capital implications and we can do it fairly quickly at a very short note. That’s one of the benefits of how we’ve built the machine to be able to switch back and forth.

In terms of the impact, it’s very difficult to say because these are moving targets and kraft pulp prices are changing over time and we estimate approximately about 220,000 tons of dissolving pulp will continue to be produced this year at that mill. But in terms of the exact financial impact of switching, you can’t give a number, because things are moving.

Sure. Thank you.

Mark, do you want to add to that?

No, I just would reinforce, Steve, what you said that, when we built the project in and designed it, we designed it to be able to do exactly what we are contemplating doing now going forward from time, to time and that is switch from dissolving pulp to kraft and back to dissolving pulp. We’ve done it once already and we can do it without any losses.

Yes, thanks, Mark and then on Europe, I think your question was about how is the latest price increase.

Yes, that was correct in Europe in September.

Barry, do you want to talk to that?

Yes, very briefly, it’s coated wood free not coated mechanical and it has gone through quite well. It’s gone through in two tranches, so the indent prices will go and the stock prices in November.

Uptake is the difference in country-by-country, but it’s going through in all countries.

Then on the dissolving pulp side, we still have some time to run on the existing contracts. Obviously, at a time, when you are negotiating at a time when prices are weak, you have to look at it very carefully.

So, that is an ongoing process. Alex, I don’t know if there is anything you want to add.

Yes, I do think we’ve managed to make a lot of progress since the last quarter and we are being able to extend some of the contracts – we are extending some of the contracts.

Okay, thank you.

Guys, thank you.

Thank you. Just a couple of quick questions please.

Any news on when you might be able to contemplate paying a dividend? I think you’ve given some previous guidance around your net debt-to-EBITDA target for example?

And then secondly, your sustainable tax rate going forward is around 30%, if I am correct and then you talked a little bit about packaging and some minor investments there. Could you give any more color around that in Europe and South Africa and the emphasis on packaging in South Africa?

And then maybe just finally, you’ve reiterated that you will manage your volumes going forward. Are there any other major volume initiatives in Europe that you are contemplating at the moment that you can comment on?

Thank you.

Thanks, Caroline. In terms of the dividend, we don’t expect to pay a dividend in the 2013 financial year.

We want to pay down the debt further. And in terms of the sustainable tax rate, Glenn if you?

It’s going to be between 25% and 30%.

Good, 25% to 30%. In terms of the packaging side, firstly on Europe, as you know, we made the investment at Alfeld and that’s been ramping up and progressively getting better as the year has gone on and they have been securing orders.

So we are feeling good about how that’s progressing and then in South Africa, we talked about less focus on fine paper and more on the packaging side and I’ll give it to Alex if you want to give any more details there.

The main investments is firstly in terms of increasing of pulp – the integrated pulp capacity and we are doing that at Enstra, Ngodwana and at Tugela. It will give us about another 150,000, 160,000 tons of pulp per year.

And then we are moving Enstra to a light-weight packaging operation and there is quite a strong demand in agricultural demand and the export market with a weaker end for that kind of product and we are seeing quite strong growth in that area.

Thanks, Alex. And then, I think your last question related to the volumes in Europe.

We don’t anticipate any major changes in the volumes. Obviously, on the graphic paper side, as we estimate forward, we talk about a 4% decline in coated wood free and a little bit higher declines in coated mechanical.

Thank you very much. That’s helpful, thanks.

Yes, thank you. Just a couple of question.

You’ve obviously done very well in the final quarter of the current year. If you look on to your guidance for next year, given the – what you are sensing of – in terms of the cost base, recent price increases and some benefits in the rand et cetera, wouldn’t one expect to see any increasing EBITDA next year versus the one just reported and on that note, can you give us any sense of if you see any meaningful differences in maintenance costs in 2015 versus 2014 and of course you mentioned the $22 million incremental cost for Gratkorn and Somerset in the first quarter.

But do you have any similar such sort of investments related cost that would hit the P&L if it’s not there?

Yes, look, I mean, broadly speaking, there are some positive elements in our numbers, because we have managed to get some price increases and we’ve talked about them already on the call. And however dissolving pulp markets are under pressure and pricing has come down further.

So, we obviously have to cautious about how we that’s going to impact on the numbers. The other factor and you touched it on already is the projects at Kirkniemi and Somerset and at Gratkorn, they are mainly in Q1, the $22 million that we talked about and then there is a little bit of impact in Q3 as well.

So, net them all of them together you are probably looking at about $30 million. So, the combination of that $30 million and slightly lower – and lower dissolving pulp prices has given us reason to say that we are being cautious with what our outlook for the full year.

Can you give us any sense of how you are timing for the various large mills in terms of maintenance or if there is any differences this year versus last?

No, there is no major differences. Only these projects that we’ve talked about.

Okay and just couple of detailed questions. You mentioned, expected output of dissolving wood pulp at Cloquet of 220,000 tons, how does that compare to the year we just come through and also in terms of cost output?

What do you expect? And how much should you produce in 2014, 2013 sorry, the fiscal year?

And then also if you look on your debt structure today, how much is available to pay down and how much do you have in distribution of currencies for the US dollar in your debt?

Okay, on the dissolving pulp question, the volumes that we produced this year for special items were just over 300,000. So, the difference next year I talked about 220,000.

So the difference will be – we’ll use that production availability to produce hard wood kraft pulp. Then on the debt side, Glenn, do you?

Well, as far as our currency is concerned, we’ve got about 75% to 80% of our debt is held outside of South Africa. So that would be either in US dollars on in euros.

The remainder is in South Africa.

And how much euro debt do you hold today?

Euro debt, well it’s included in the 74%, - I can’t give you that straightaway now. Euro debt is 60%.

60% of your debt is euro-denominated.

Yes, but there might, some that we swap to euros.

Okay, and in terms of interest cost – cash, go ahead, sorry, interest expenses for next year; do you have any sort of guidance on that?

Sorry, what was the question?

Interest expenses.

If you have any guidance for your interest cost, you – about $185 million in the current year, do you see that meaningfully coming down in 2015?

We don’t see it meaningfully coming down. Depending on what we’ve managed to achieve during the middle of next year, middle of the next 2015 fiscal, we’ll have an outcome on the interest costs, but, it will have a meaningful annual impact in 2016.

Understood. Thank you.

Good afternoon gentlemen, just a couple of questions. Just maybe looking to FY 2016, 2017, where do you sort of see further growth potential or we see there is a big drive in taking fixed costs and variable costs out?

And then just leading on from that, obviously, business CapEx is roughly about $150 million and that sort of guided through to FY 2016 as well. Is there any sort of feeling in what we should be expecting post that?

And then just secondly, in terms of ROCE for this quarter, 15.4%, has there been any sort of change in thinking of what your sustainable or target ratio is? And then just lastly, the coated wood free price increase seemingly went through quite easily.

Are you sort of bullish that we could be looking for a second round any time soon? Thanks.

Okay, I think with regards to the CapEx, as I’ve indicated already, I think 2015 and 2016 will be at these levels. We don’t anticipate any changes there.

In terms of future growth opportunities beyond that. As I said earlier, we continue to look at opportunities.

There is nothing in the immediate pipeline. We want to see how the speciality packaging business grows in Europe and the benefits from the carousel in the packaging in South Africa.

We need to see how those unfold. But as things currently stand, there are no plans to make any large capital investments beyond that period.

The return on capital employed, we’ve set ourselves a target of 12% over time. And then on the coated wood free you asked about further price increases.

Mark in the US, has about two weeks ago, announced a further increase. We need that would take effect from probably from about January.

We need to see whether that’s successful or not, but we are hopeful that it will be.

Sorry, let’s say that, mainly referring to Europe in terms of further price increases there.

Well, look, we have to see how demand unfolds. We have managed to get the one through and as I’ve said earlier, we are cautious about our outlook on demand, coated wood free down 4% or 5%.

We don’t want to be overly on pressure. We have been conservative about how we think about our market.

If the opportunities do come up and the market foresees moving the right direction, then naturally we would want to take advantage of that.

Great, thanks.

Hi, guys. Just a few follow-ups on the coated wood free price increase in Europe.

And so, I understand the quantum was 6% to 8% amounts. Did you achieved that 6% to 8% and where is that country and could you also just talk about, sort of current utilization levels, where you see now?

Okay, Barry, do you want to talk specifically about that price increase?

Yes, certainly. At the moment, it looks as if we will get about half our 8% target in the coated wood free area which would be a very good result given what has happened in previous price increases.

As far as utilization is concerned, for the coated wood free business at the moment is quite good, quite a lot of capacity has come out and we are operating little over 90%. At this time we believe the average is around about 90% at the moment.

Okay, that’s great. Thank you.

And just in terms of sustainability of - do you see that dynamic change in the next 12 months, is there any further capacity closure, just interested to see, how sustainable we think the price increase in Europe will be?

Yes, look, we’ve already talked about our demand expectations. It’s obviously going to – based on those levels, we don’t anticipate taking any further capacity out this year.

However, if things get much worse, then we have to look at it.

Okay. Thanks a lot.

Hi, yes, thanks. Good morning.

Just to follow-up on the last question, and I am not sure if you heard it earlier, that was in this prior call. What about the export levels out of Europe in fiscal 2014?

Any thoughts of that opportunity for 2015?

Look, obviously, with the exchange rates moving the way they are, it is making the European business more competitive, but Barry, do you want to add anything to that?

I think that the export business will be roughly stable. It’s normally, somewhere between 20% and 25% of our total with a seasonal weak quarter in this quarter and it gets stronger after Christmas.

Margins will certainly go up as a result of exchange rates, but we do not anticipate that being a significant rate improvement.

Great, thank you. That’s it.

Hi, just two things, just, can you give us – maybe some color on in terms of what’s happening on your wood costs? And then secondly, so with your net debt target of $2 billion you’ve clearly reset in this quarter.

I mean, do you have a new net debt target that you are looking for at the end of FY 2015?

Look, we’ve mentioned that our net debt target is two times EBITDA. And based on our numbers and as we look at our forecast, we think, we can generate about $150 million of cash per annum.

So, that will enable us to bring down debt further. Wood costs, I’ll let Mark talk in more detail, but they were high during the quarter that did put pressure.

Although, we are starting to see things come down a little bit. Mark, anything you want to add?

No, I would just say that, we are going into the winter season, freeze up, it looks like it’s actually happening a little bit earlier up in the Midwest. Those are good things for the ability to get wood and hopefully that will help us to go into the winter months to see wood cost come down a little bit.

Okay and just, so, your net debt to EBITDA target of two times, when do you think you’ll achieve that?

Nishal, I will be giving the profit number then.

Nothing wrong with that.

I think, I guess, what are saying is this $150 million of debt reduction each year.

Okay.