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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). Operating conditions continued to present major challenges this quarter.

Input costs, especially energy and chemicals, escalated still further due in part to the hurricanes in the US. There were no paper price increases to offset these higher costs but there were some encouraging signs in terms of demand improvement. As highlighted in last quarter’s outlook, our results were negatively impacted by a charge related to the restructuring of the Muskegon mill and the fact that we took a considerable amount of commercial downtime in order to reduce our inventories. Notwithstanding these issues, our businesses generally performed better in terms of cost containment and market share. Group sales were US$1.388 billion, an improvement of US$244 million on the prior quarter and US$153 million on the same quarter last year. This increase in sales does reflect a recovery of our market shares after the sharp losses in the prior quarter; however, another significant reason for the increase is the fact that this quarter included an additional accounting week. The additional week had a minimal impact at the earnings level, however, based on average weekly sales, it resulted in a sales volume increase of 153,000 tons and US$99 million increase in sales value.

Raw material costs continued to escalate this quarter. The price impact of higher wood, energy and chemical costs reduced our operating earnings by US$9 million compared to last quarter and US$38 million compared to the same quarter last year. For the full year, this impact was US$136 million. We have been extremely vigilant in controlling costs and offsetting increases where possible. On a constant currency basis, group fixed costs for the year increased only 1% in comparison to the prior year.

The many initiatives that we put in place to offset cost increases delivered US$96 million in savings for the fiscal year. The overall operating profit of US$5 million was negatively impacted by other expenses including the Muskegon restructuring charge of US$21 million, US$10 million of impairment charges related to the Usutu and Muskegon mills, and a gain of US$6 million from the release of a European restructuring provision. Also included in the operating result was a gain of US$27 million from the fair value adjustment on plantations net after fellings. We estimate that overhead under-recovery from US commercial downtime was approximately US$30 million. Industry shipments in our major markets were better than the levels seen in the last two quarters, and order inflow picked up in line or ahead of normal seasonal movements.

However, the operating result for Sappi Fine Paper was heavily impacted by downtime related to inventory reduction in North America as well as the Muskegon mill restructuring charge. The performance of our South African fine paper business also deteriorated as a result of a lower than expected proportion of domestic sales and commercial downtime to reduce inventories. Although much better than the prior quarter, US industry apparent consumption was still weak, declining 5.1% in comparison to the same quarter last year. The year on year change in advertising pages, however, was only marginally negative for the quarter and printer consumption of coated fine paper increased 3.4%, suggesting that the poor apparent consumption data does not reflect underlying demand. A rapid decline in imports meant that shipments by domestic manufacturers actually increased 1.5% in comparison to the same quarter last year, which is a sharp turnaround from the 9.5% decline seen in the prior quarter. The process of turning around the earnings of our North American business is gaining traction.

Inventories were successfully reduced through the combination of increased sales and commercial downtime this quarter by 97,000 tons in comparison to the prior quarter. Despite the increase in fuel prices, domestic delivery costs were almost 30% lower by the end of the fiscal year than the peak seen in the first quarter. On-time delivery performance has increased sharply and complaint levels have reduced significantly. These improvements have resulted in a recovery of our market share.

The restructuring plan at the Muskegon mill and the Boston head office is progressing well. Paper Machine #4 and the pulp mill were both closed in August.

Approximately 60% of the targeted headcount reduction has already been completed, with further significant reductions to come in the first fiscal quarter of 2006. The headcount reduction target remains the same as that announced last quarter; however, the restructuring charge taken this quarter was lower than anticipated due to reduced severance costs from attrition and a shorter than expected service profile of departing employees. Previously unrecognised actuarial employee benefit gains and losses will be recognised, resulting in an increase in pension and other post retirement benefit liabilities and a corresponding reduction in equity. This adjustment will lead to a reduction in employee benefit expenses in 2006 and future financial years because the amortisation of past losses is no longer required. The cost of share options and grants, as calculated using the binomial method will be reflected in the income statement over the vesting period. A significant portion of our. This volatile environment provides poor earnings visibility.

However, it is clear that some of the prerequisites for earnings improvement including sharply reduced inventories and improving order and shipment levels are now in place. The drivers of coated paper demand, namely advertising spend and GDP growth, continue to support demand growth in excess of that seen in fiscal 2005, although customer inventory movements make it difficult to discern actual trends in the end-use of our products. The capacity closures announced thus far in the grades in which we participate, while not sufficient on their own to effect a major change, will still go some way to improving the supply-demand balance. We have targeted similar cost savings in fiscal 2006 to those achieved this year in order to help offset continued input cost escalation.

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