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SAP
SAVVI
SAP - Sappi Limited - 2nd quarter results and half-year ended March 2007
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN Code: ZAE000006284
2nd quarter results and half-year ended March 2007
Highlights
- EPS 25 US cents
- Forest Products performance strong
- Price increase in Europe achieved
- Nash mill site sold - contributed 8 US cents
- Wood costs in Europe soar
- Strong cash flow
summary
Quarter Half-year
ended ended
March Dec March March March
2007 2006 2006 2007 2006
Sales (US$ million) 1,318 1,267 1,256 2,585 2,431
Operating profit (US$ million) 117 92 59 209 108
Operating profit to sales (%) 8.9 7.3 4.7 8.1 4.4
EBITDA ** (US$ million) * 211 187 158 398 304
EBITDA ** to sales (%) * 16.0 14.8 12.6 15.4 12.5
Operating profit to average
net assets (%) * 11.7 9.4 5.9 10.7 5.3
EPS (US cents) 25 13 4 38 4
Return on average equity
(ROE) (%) * 15.7 8.4 2.4 12.2 1.1
Net debt (US$ million) * 2,236 2,278 2,172 2,236 2,172
Net debt to total
capitalisation (%) * 46.2 46.7 44.3 46.2 44.3
* Refer to Supplemental Information for the definition of the term.
** Refer to additional information in Supplemental Information for
the reconciliation of EBITDA to profit.
Comment
The operating performance of the group continued to improve in the quarter and
was led by the Forest Products business which benefited from strong pulp prices
and a weaker Rand against the US Dollar compared to a year ago. The
profitability of our European and North American regions has lagged despite
favourable market developments, largely as a result of high input costs.
Group sales increased 5% to US$1.3 billion reflecting higher volumes and price
improvements in the Southern African businesses and a price increase in Europe.
High raw material input costs and energy costs remain an issue. As a group we
are economically integrated as far as pulp is concerned. We sell slightly more
pulp than we purchase and therefore have a net benefit from strong pulp prices.
However, high pulp prices squeeze the margin of our European business which is
only partially integrated. In Europe we also suffer from the impact of severely
increased wood costs. In other regions the rate of input price rises has abated
to some extent but input prices remain very high.
Manufacturing fixed costs continue to be tightly managed with cost saving
initiatives more than off-setting inflation. Selling, General and
Administrative (SG&A) costs of US$93 million were US$6 million higher than a
year ago largely as a result of credits for pension costs and the sale of
carbon credits, which reduced SG&A last year. The restructuring of our European
business is progressing and we have been able to release part of the provision
we recorded in the fourth quarter last year in respect of this restructuring
because of higher natural attrition and lower severance costs than estimated.
The release had a favourable impact of US$6 million before tax in this quarter.
The plantation fair value price adjustment for the quarter was US$12 million
(Q2 2006: US$57 million) as a result of higher market prices for wood partly
offset by higher costs to deliver the wood to market.
During the quarter we sold the site of the Nash mill, Hemel Hempstead, UK for
GBP24.5 million (US$46 million). We stopped operations at the mill in May 2006.
A pre-tax profit of US$25 million on the sale is reported in these results.
Operating profit for the quarter increased to US$117 million in the quarter up
from US$59 million a year ago. This includes the profit on the sale of Nash
mill, the plantation fair value adjustment and the release of the restructuring
provision.
Net finance costs were US$33 million up US$2 million for the quarter compared
to a year ago, largely as a result of higher interest rates and average debt
levels.
The effective tax rate for the group for the quarter was 31%. This rate was
negatively impacted by the regional split of profit (specifically the tax
losses in our US business were not relieved) and the effect of tax rate changes
on deferred tax assets.
Net profit for the group increased to US$58 million compared to US$9 million in
the equivalent quarter last year. Earnings per share were 25 US cents per share
which includes the profit from the sale of Nash mill and the plantation fair
value adjustment.
Cash flow and debt
Cash generated by operations was US$175 million for the quarter, approximately
50% higher than a year ago. This excludes the sale of the Nash mill site.
Capital expenditure was US$72 million, a significant reduction from the prior
quarter which included up front payments for the Saiccor expansion. Cash
utilised in investing activities includes the US$46 million proceeds on the
sale of the Nash mill site.
Cash retained after investing activities was US$45 million after paying the
annual dividend of US$68 million in the quarter which was declared in November
2006.
The net debt of US$2.2 billion was US$42 million lower than December 2006
despite funding the ongoing Saiccor expansion. Net debt to total capitalisation
was slightly lower at 46.2% compared to 46.7% at December 2006.
Operating Review for the Quarter
Sappi Fine Paper
Quarter ended
March 2007* March 2006 % Dec 2006
US$ million US$ million change US$ million
Sales 1,057 1,018 3.8 1,044
Operating profit (loss) 49 (6) - 16
Operating profit
(loss) to sales (%) 4.6 (0.6) - 1.5
EBITDA * 122 75 62.7 94
EBITDA to sales (%) 11.5 7.4 - 9.0
RONOA pa (%) 6.3 (0.8) - 2.1
* Includes profit before tax on sale of the Nash mill site of US$25 million
We experienced steady demand for coated fine paper in our major markets.
Apparent consumption in North America was slightly below that of a year ago but
shipments from domestic suppliers grew 6%. In Europe demand remained strong.
There were a number of favourable market developments in the quarter. The long
trend of declining prices in Europe was finally reversed when we realised
higher coated fine paper prices during the quarter. A preliminary determination
by the United States Department of Commerce containing substantial
countervailing duties against Asian coated woodfree imports was announced at
the end of the quarter. These duties are expected to help pricing in the USA
which has been dragged down for several years by increasing volumes of lower
priced imports from Asia.
The performance of our fine paper business continues to reflect inadequate
margins as a result of continued pressure on particular input costs.
Europe
Quarter ended
March 2007 March 2006 % change % change
US$ million US$ million (US$) (Euro)
Sales 597 569 4.9 (4.5)
Operating profit 44* 6 - -
Operating profit to
sales (%) 7.4 1.1 - -
EBITDA 88* 53 66.0 51.2
EBITDA to sales (%) 14.7 9.3 - -
RONOA pa (%) 9.4 1.4 - -
Dec 2006
US$ million
Sales 587
Operating profit 13
Operating profit to sales (%) 2.2
EBITDA 61
EBITDA to sales (%) 10.4
RONOA pa (%) 2.8
* Includes profit before tax on sale of the Nash mill site of US$25 million
We increased prices in Europe at the beginning of the quarter and initially
encountered strong resistance and as a result sacrificed some market share.
This was compensated for in the short-term by increasing our exports, but we
aim to regain the lost volumes. Our average price in Europe increased by Euro
10/ton on the prior quarter. By the end of the quarter we had attained price
increases of Euro 30/ton on sheets and Euro 20/ton on reels.
This is not sufficient to produce acceptable margins and further price
increases are needed.
Input costs remain high, particularly wood costs which increased by 15% from
the last quarter and were approximately 50% higher than a year ago.
Manufacturing fixed costs are well managed and are below those of a year ago.
North America
Quarter ended
March 2007 March 2006 % Dec 2006
US$ million US$ million change US$ million
Sales 371 367 1.1 374
Operating profit
(loss) 3 (10) - 2
Operating profit
(loss) to sales (%) 0.8 (2.7) - 0.5
EBITDA 29 19 52.6 28
EBITDA to sales (%) 7.8 5.2 - 7.5
RONOA pa (%) 1.1 (3.4) - 0.7
Market conditions were competitive with pressure on prices particularly for
publication paper. We implemented price increases in the quarter on certain
sheet products. We expect that the provisional countervailing duties
implemented in the USA against Asian imports will result in higher prices for
these imports and further opportunities to improve price levels for similar
products. Pulp sales remain strong.
We are working to reduce unit costs and will start to see the benefit in our
fourth quarter results. These actions will help offset high input costs and
contribute to improving margins.
South Africa
Quarter ended
March 2007 March 2006 % change % change
US$ million US$ million (US$) (Rand)
Sales 89 82 8.5 25.5
Operating profit
(loss) 2 (2) - -
Operating profit
(loss) to sales (%) 2.2 (2.4) - -
EBITDA 5 3 66.7 92.7
EBITDA to sales (%) 5.6 3.7 - -
RONOA pa (%) 4.9 (4.6) - -
Dec 2006
US$ million
Sales 83
Operating profit (loss) 1
Operating profit (loss) to sales (%) 1.2
EBITDA 5
EBITDA to sales (%) 6.0
RONOA pa (%) 2.5
The business had strong sales volumes and improved price realisation in the
quarter. Although it continues to generate a profit its margins are under
pressure from high pulp prices as it purchases much of its pulp from Forest
Products at market prices.
Forest Products
Quarter ended
March 2007 March 2006 % change % change
US$ million US$ million (US$) (Rand)
Sales 261 238 9.7 26.8
Operating profit 69 69 - 15.6
Operating profit to
sales (%) 26.4 29.0 - -
EBITDA 90 87 3.4 19.6
EBITDA to sales (%) 34.5 36.6 - -
RONOA pa (%) 18.9 19.2 - -
Plantation fair value
gain 12 57 - -
Dec 2006
US$ million
Sales 223
Operating profit 78
Operating profit to sales (%) 35.0
EBITDA 95
EBITDA to sales (%) 42.6
RONOA pa (%) 23.4
Plantation fair value gain 29
Forest Products had a strong quarter with sales volumes of pulp and paper up
9% compared to a year ago. Prices in Rand terms showed a substantial
improvement largely as a result of strong pulp prices and the weaker Rand
relative to the US Dollar. The Saiccor and Usutu mills benefited particularly
from the strong pulp markets. The Kraft business continued to improve its
productivity during the quarter and benefited from modest price increases in
the South African market.
The result for the quarter included the plantation fair value gain of US$12
million as a result of higher wood prices and was partly offset by higher costs
to deliver the wood to market. The gain in the equivalent quarter last year was
US$57 million.
The Saiccor expansion is progressing well.
Directors
Karen Osar was appointed a non-executive director with effect from 01 May 2007.
Outlook
The demand for all our products is strong and pulp prices have recently risen
again, but coated fine paper operating margins remain low. Global capacity
utilisation for coated fine paper remains at a high level; however,
profitability in the sector does not yet reflect the improved market
fundamentals. We expect to see further coated fine paper price increases
before the end of this financial year to restore margins.
In North America the implementation of duties against Asian imports is likely
to lead to higher prices of certain coated fine papers.
The Forest Products business is performing well and we expect further
improvements particularly in Sappi Kraft.
We continue to focus on the reduction of costs, which remain a challenge. We
expect further improvement in underlying earnings for the second half of the
year.
On behalf of the Board
E van As M R Thompson
Director Director 08 May 2007
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, 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.
group income statement
Quarter Quarter
ended ended
March 2007 March 2006 %
US$ million US$ million change
Sales 1,318 1,256 4.9
Cost of sales 1,141 1,099
Gross profit 177 157 12.7
Selling, general and
administrative expenses 93 87
Share of (profit) loss from
associates and joint ventures (3) -
Other operating (income)
expenses (30) 11
Operating profit 117 59 98.3
Net finance costs 33 31
Net paid 37 33
Capitalised (3) -
Net foreign exchange gains (4) (3)
Change in fair value
of financial instruments 3 1
Profit before tax 84 28 200.0
Taxation - current 9 7
- deferred 17 12
Profit for the period 58 9 544.4
Basic earnings
per share (US cents) 25 4
Weighted average
number of shares
in issue (millions) 227.7 226.0
Diluted earnings
per share (US cents) 25 4
Weighted average
number of shares
on fully diluted
basis (millions) 230.4 227.0
Reviewed Reviewed
Half-year Half-year
ended ended
March 2007 March 2006 %
US$ million US$ million change
Sales 2,585 2,431 6.3
Cost of sales 2,233 2,140
Gross profit 352 291 21.0
Selling, general and
administrative expenses 181 170
Share of (profit) loss from
associates and joint ventures (4) 1
Other operating (income)
expenses (34) 12
Operating profit 209 108 93.5
Net finance costs 70 58
Net paid 73 65
Capitalised (4) (1)
Net foreign exchange gains (6) (4)
Change in fair value
of financial instruments 7 (2)
Profit before tax 139 50 178.0
Taxation - current 15 15
- deferred 36 26
Profit for the period 88 9 877.8
Basic earnings
per share (US cents) 38 4
Weighted average
number of shares
in issue (millions) 227.4 225.9
Diluted earnings
per share (US cents) 38 4
Weighted average
number of shares
on fully diluted
basis (millions) 229.6 226.7
group balance sheet
Reviewed Audited
March 2007 Sept 2006
US$ million US$ million
ASSETS
Non-current assets 4,253 3,997
Property, plant and equipment 3,284 3,129
Plantations 598 520
Deferred taxation 63 74
Other non-current assets 308 274
Current assets 1,569 1,500
Inventories 750 699
Trade and other receivables 581 577
Cash and cash equivalents 238 224
Assets held for sale - 20
Total assets 5,822 5,517
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` interest 1,494 1,386
Non-current liabilities 2,497 2,465
Interest-bearing borrowings 1,626 1,634
Deferred taxation 374 336
Other non-current liabilities 497 495
Current liabilities 1,831 1,666
Interest-bearing borrowings 808 694
Bank overdraft 40 9
Other current liabilities 863 862
Taxation payable 120 101
Total equity and liabilities 5,822 5,517
Number of shares in issue at balance sheet
date (millions) 227.9 227.0
group cash flow statement
Quarter Quarter
ended ended
March 2007 March 2006
US$ million US$ million
Operating profit 117 59
Depreciation, fellings and other
amortisation 111 117
Other non-cash items (including impairment
charges) (53) (59)
Cash generated by operations 175 117
Movement in working capital (5) (33)
Net finance costs (22) (23)
Taxation received (paid) 1 (5)
Dividends paid * (68) (68)
Cash retained from (absorbed by) operating
activities 81 (12)
Cash utilised in investing activities (36) (78)
45 (90)
Cash effects of financing activities (39) (91)
Net movement in cash and cash equivalents 6 (181)
Reviewed Reviewed
Half-year Half-year
ended ended
March 2007 March 2006
US$ million US$ million
Operating profit 209 108
Depreciation, fellings and other
amortisation 223 231
Other non-cash items (including impairment
charges) (105) (100)
Cash generated by operations 327 239
Movement in working capital (44) (113)
Net finance costs (68) (68)
Taxation received (paid) (3) (12)
Dividends paid * (68) (68)
Cash retained from (absorbed by) operating
activities 144 (22)
Cash utilised in investing activities (191) (152)
(47) (174)
Cash effects of financing activities 55 3
Net movement in cash and cash equivalents 8 (171)
* Dividend number 83: 30 US cents per share (2006: 30 US cents per share)
group statement of recognised income and expense
Quarter Quarter
ended ended
March 2007 March 2006
US$ million US$ million
Pension fund asset not recognised (2) (2)
Deferred taxation on above (1) -
Valuation allowance against deferred
tax asset and actuarial losses recognised 6 -
Exchange differences on translation of
foreign operations (35) 31
Net (expense) income recorded directly
in equity (32) 29
Profit for the period 58 9
Total recognised income for the period 26 38
Reviewed Reviewed
Half-year Half-year
ended ended
March 2007 March 2006
US$ million US$ million
Pension fund asset not recognised (4) (4)
Deferred taxation on above (1) 1
Valuation allowance against deferred
tax asset and actuarial losses recognised 5 -
Exchange differences on translation of
foreign operations 78 20
Net (expense) income recorded directly
in equity 78 17
Profit for the period 88 9
Total recognised income for the period 166 26
notes to the group results
1.Basis of preparation
The condensed financial statements have been prepared in accordance with
International Accounting Standard 34 Interim Financial Reporting. The
accounting policies and methods of computation used in the preparation of the
results are consistent, in all material respects, with those used in the annual
financial statements for September 2006 which are compliant with International
Financial Reporting Standards.
The preliminary results for the six month period ended March 2007 have been
reviewed in terms of International Standards on Review Engagements 2400 by the
group`s auditors, Deloitte & Touche. Their unmodified review report is
available for inspection at the company`s registered offices. The results for
the quarters ended 31 March 2007 and 31 December 2006 have not been audited or
reviewed on a stand-alone basis by the auditors.
2. Reconciliation of movement in shareholders` equity
Reviewed Reviewed
Half-year Half-year
ended ended
March 2007 March 2006
US$ million US$ million
Balance - beginning of year 1,386 1,589
Total recognised income for the period 166 26
Dividends paid (68) (68)
Transfers to (from) participants of the
share purchase trust 8 (1)
Share Based Payment Reserve 2 4
Balance - end of period 1,494 1,550
Quarter Quarter
ended ended
March 2007 March 2006
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 93 98
Other amortisation 1 1
94 99
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 17 18
Growth (18) (21)
(1) (3)
Changes in fair value (12) (57)
(13) (60)
Included in other operating expenses
(income) are the following:
Asset impairments 1 5
Restructuring provision (released) raised (6) 4
Profit on sale of assets (25) (1)
Written off assets - 1
Reviewed Reviewed
Half-year Half-year
ended ended
March 2007 March 2006
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 188 195
Other amortisation 1 1
189 196
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 34 35
Growth (35) (35)
(1) -
Changes in fair value (41) (67)
(42) (67)
Included in other operating expenses
(income) are the following:
Asset impairments 1 6
Restructuring provision (released) raised (10) 3
Profit on sale of assets (25) (2)
Written off assets - 2
Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
March 2007 March 2006 March 2007 March 2006
US$ million US$ million US$ million US$ million
4.Headline
earnings per
share
Headline
earnings
per share (US
cents) * 17 5 30 6
Weighted
average number
of shares in
issue
(millions) 227.7 226.0 227.4 225.9
Diluted headline
earnings per
share
(US cents) * 17 5 30 6
Weighted average
number of shares
on fully diluted
basis (millions) 230.4 227.0 229.6 226.7
Calculation of
Headline
earnings *
Profit for the
period 58 9 88 9
Profit on
disposal
of business and
property,
plant and
equipment (19) (2) (19) (2)
Write-off of
assets - 1 - 2
Impairment of
property,
plant and
equipment - 4 - 5
Headline
earnings 39 12 69 14
* Headline earnings disclosure is a listings requirement by the JSE Limited.
5. Capital expenditure
Property, plant and
equipment 76 67 214 139
Reviewed Audited
March 2007 Sept 2006
US$ million US$ million
6. Capital commitments
Contracted but not provided 310 294
Approved but not contracted 167 255
477 549
7. Contingent liabilities
Guarantees and suretyships 47 52
Other contingent liabilities 13 11
8. Assets held for sale
Other operating income includes an amount of US$25 million in respect of the
sale of the site of the Nash mill which was previously classified as "assets
held for sale".
9. Secondary Tax on Companies (STC)
During the annual South African "budget speech" the Minister of Finance
announced a rate reduction in South Africa`s STC rate from 12.5% to 10% and the
proposed replacement of STC with a tax on dividends. The rate reduction
resulted in a US$2 million charge because of the write-down of the related STC
asset. There is a remaining asset of US$10 million which may be impacted by the
proposed change in legislation in this area.
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 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
The above financial measures 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
additional information
Quarter Quarter
ended ended
March 2007 March 2006
US$ million US$ million
Profit for the period to EBITDA (1)
reconciliation
Profit for the period 58 9
Net finance costs 33 31
Taxation - current 9 7
- deferred 17 12
Depreciation 93 98
Amortisation 1 1
EBITDA (1) (2) 211 158
Reviewed Reviewed
Half-year Half-year
ended ended
March 2007 March 2006
US$ million US$ million
Profit for the period to EBITDA (1)
reconciliation
Profit for the period 88 9
Net finance costs 70 58
Taxation - current 15 15
- deferred 36 26
Depreciation 188 195
Amortisation 1 1
EBITDA (1) (2) 398 304
Reviewed Audited
March 2007 Sept 2006
US$ million US$ million
Net debt (US$ million) (3) 2,236 2,113
Net debt to total capitalisation (%) (3) 46.2 46.4
Net asset value per share (US$) (3) 7.92 7.26
(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 non-trading profit/loss and minority interest as part of
EBITDA. EBITDA represents earnings before interest (net finance costs),
taxation, depreciation and amortisation. Net finance costs includes: gross
interest paid; interest received; interest capitalised; net foreign exchange
gains; and net fair value adjustments on interest rate financial instruments.
See the Group income statement for an explanation of the computation of net
finance costs. We use EBITDA as an internal measure of performance to benchmark
and compare performance, both between our own operations and as against other
companies. EBITDA is a measure used by the group, together with measures of
performance under IFRS and US GAAP, to compare the relative performance of
operations in planning, budgeting and reviewing the performances of various
businesses. We believe EBITDA is a useful and commonly used measure of
financial performance in addition to net profit, operating profit and other
profitability measures under IFRS or US GAAP because it facilitates operating
performance comparisons from period to period and company to company. By
eliminating potential differences in results of operations between periods or
companies caused by factors such as depreciation and amortisation methods,
historic cost and age of assets, financing and capital structures and taxation
positions or regimes, we believe EBITDA can provide a useful additional basis
for comparing the current performance of the underlying operations being
evaluated. For these reasons, we believe EBITDA and similar measures are
regularly used by the investment community as a means of comparison of
companies in our industry. Different companies and analysts may calculate
EBITDA differently, so making comparisons among companies on this basis should
be done very carefully. EBITDA is not a measure of performance under IFRS or US
GAAP and should not be considered in isolation or construed as a substitute for
operating profit or net profit as an indicator of the company`s operations in
accordance with IFRS or US GAAP.
(2) The EBITDA calculation was amended at the beginning of the financial
year to eliminate the adjustment for fellings which previously resulted in
fellings being added back in the calculation as part of amortisation. Given the
current accounting treatment of plantations, management has concluded that
eliminating such an adjustment would be more appropriate in determining the
EBITDA performance measure in future both for internal and reporting purposes.
Prior year figures have been recalculated for comparison purposes as follows:
March 2006 quarter: decreased by US$18 million; March 2006 half-year:
decreased by US$35 million.
(3) Refer to Supplemental Information for the definition of the term.
supplemental information
regional information
Quarter Quarter
ended ended
March 2007 March 2006
Metric tons Metric tons %
(000`s) (000`s) change
Sales volumes
Fine Paper - North America 376 365 3.0
Europe 626 646 (3.1)
Southern Africa 87 79 10.1
Total 1,089 1,090 (0.1)
Forest Products - Pulp and paper
operations 378 347 8.9
Forestry operations 258 372 (30.6)
Total 1,725 1,809 (4.6)
Half-year Half-year
ended ended
March 2007 March 2006
Metric tons Metric tons %
(000`s) (000`s) change
Sales volumes
Fine Paper - North America 748 709 5.5
Europe 1,261 1,248 1.0
Southern Africa 174 158 10.1
Total 2,183 2,115 3.2
Forest Products - Pulp and paper
operations 709 702 1.0
Forestry operations 529 748 (29.3)
Total 3,421 3,565 (4.0)
Quarter Quarter
ended ended
March 2007 March 2006 %
US$ million US$ million change
Sales
Fine Paper - North America 371 367 1.1
Europe 597 569 4.9
Southern Africa 89 82 8.5
Total 1,057 1,018 3.8
Forest Products - Pulp and paper
operations 245 215 14.0
Forestry operations 16 23 (30.4)
Total 1,318 1,256 4.9
Reviewed Reviewed
Half-year Half-year
ended ended
March 2007 March 2006 %
US$ million US$ million change
Sales
Fine Paper - North America 745 712 4.6
Europe 1,184 1,089 8.7
Southern Africa 172 160 7.5
Total 2,101 1,961 7.1
Forest Products - Pulp and paper
operations 452 427 5.9
Forestry operations 32 43 (25.6)
Total 2,585 2,431 6.3
supplemental information
Quarter Quarter
ended ended
March 2007 March 2006 %
US$ million US$ million change
Operating profit
Fine Paper - North America 3 (10) -
Europe 44 6 633.3
Southern Africa 2 (2) -
Total 49 (6) -
Forest Products 69 69 -
Corporate and other (1) (4) -
Total 117 59 98.3
Earnings before interest, tax,
depreciation and amortisation
charges
Fine Paper - North America 29 19 52.6
Europe 88 53 66.0
Southern Africa 5 3 66.7
Total 122 75 62.7
Forest Products 90 87 3.4
Corporate and other (1) (4) -
Total 211 158 33.5
Net operating assets
Fine Paper - North America 1,067 1,163 (8.3)
Europe 1,864 1,781 4.7
Southern Africa 156 177 (11.9)
Total 3,087 3,121 (1.1)
Forest Products 1,443 1,490 (3.2)
Corporate and other 8 29 (72.4)
Total 4,538 4,640 (2.2)
Reviewed Reviewed
Half-year Half-year
ended ended
March 2007 March 2006 %
US$ million US$ million change
Operating profit
Fine Paper - North America 5 (9) -
Europe 57 20 185.0
Southern Africa 3 (2) -
Total 65 9 622.2
Forest Products 147 106 38.7
Corporate and other (3) (7) -
Total 209 108 93.5
Earnings before interest, tax,
depreciation and amortisation
charges
Fine Paper - North America 57 50 14.0
Europe 149 114 30.7
Southern Africa 10 6 66.7
Total 216 170 27.1
Forest Products 185 140 32.1
Corporate and other (3) (6) -
Total 398 304 30.9
Net operating assets
Fine Paper - North America 1,067 1,163 (8.3)
Europe 1,864 1,781 4.7
Southern Africa 156 177 (11.9)
Total 3,087 3,121 (1.1)
Forest Products 1,443 1,490 (3.2)
Corporate and other 8 29 (72.4)
Total 4,538 4,640 (2.2)
supplemental information
summary rand convenience translation
Quarter Quarter
ended ended
March March %
2007 2006 change
Sales (ZAR million) 9,428 7,769 21.4
Operating profit (ZAR million) 837 365 129.3
Profit for the period (ZAR million) 415 56 641.1
EBITDA (ZAR million) * 1,509 977 54.5
Operating profit to sales (%) 8.9 4.7
EBITDA to sales (%) * 16.0 12.6
Operating profit to average net assets (%) 11.7 6.1
EPS (SA cents) 179 25 616.0
Net debt (ZAR million) * 16,245 13,391 21.3
Net debt to total capitalisation (%) * 46.2 44.3
Cash generated by operations (ZAR million) 1,252 724 72.9
Cash from operating activities (ZAR million) 579 (74) -
Net movement in cash and cash
equivalents (ZAR million) 43 (1,120) -
Half-year Half-year
ended ended
March March %
2007 2006 change
Sales (ZAR million) 18,814 15,396 22.2
Operating profit (ZAR million) 1,521 684 122.4
Profit for the period (ZAR million) 640 57 1,022.8
EBITDA (ZAR million) * 2,897 1,925 50.5
Operating profit to sales (%) 8.1 4.4
EBITDA to sales (%) * 15.4 12.5
Operating profit to average net assets (%) 10.3 5.3
EPS (SA cents) 277 25 1,008.0
Net debt (ZAR million) * 16,245 13,391 21.3
Net debt to total capitalisation (%) * 46.2 44.3
Cash generated by operations (ZAR million) 2,380 1,514 57.2
Cash from operating activities (ZAR million) 1,048 (139) -
Net movement in cash and cash
equivalents (ZAR million) 58 (1,083) -
* Refer to Supplemental Information for the definition of the term.
exchange rates
March Dec Sept
2007 2006 2006
Exchange rates:
Period end rate: US$ 1 = ZAR 7.2650 7.0076 7.7738
Average rate for the Quarter/Period:
US$ 1 = ZAR 7.1532 7.3358 7.2475
Average rate for the YTD: US$ 1 = ZAR 7.2783 7.3358 6.6039
Period end rate: EUR 1 = US$ 1.3358 1.3199 1.2672
Average rate for the Quarter/Period:
EUR 1 = US$ 1.3160 1.2926 1.2744
Average rate for the YTD: EUR 1 = US$ 1.3021 1.2926 1.2315
June March
2006 2006
Exchange rates:
Period end rate: US$ 1 = ZAR 7.1700 6.1655
Average rate for the Quarter/Period: US$ 1 = ZAR 6.4658 6.1858
Average rate for the YTD: US$ 1 = ZAR 6.4031 6.3334
Period end rate: EUR 1 = US$ 1.2789 1.2119
Average rate for the Quarter/Period: EUR 1 = US$ 1.2570 1.1983
Average rate for the YTD: EUR 1 = US$ 1.2191 1.1964
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.
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
www.sappi.com
Date: 08/05/2007 09:00:01 Produced by the JSE SENS Department.
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