| Tue 6 May 2008, 8:59 | | SAP - Sappi Limited - Results For The Second Quart |
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SAP
SAVVI
SAP - Sappi Limited - Results For The Second Quarter Ended March 2008
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
Results for the second quarter ended March 2008
Highlights
- Operating profit excluding special items improved to US$97 million
- Special items US$124 million (pre-tax) - primarily plantation fair value
- Basic EPS 68 US cents (inclusive of special items)
- Prices up but only marginally so in Europe
- Continued input cost pressure
- Saiccor expansion on track
summary
March 2008
Quarter ended
March 2008 Dec 2007 March 2007
Key figures: (US$ million)
Sales 1,473 1,377 1,318
Operating profit 221 91 117
Special items - (gains) losses * (124) 1 (44)
Operating profit excluding special items 97 92 73
EBITDA excluding special items ** 190 188 167
Basic EPS (US cents) 68 18 25
Net debt * 2,661 2,495 2,236
Key ratios: (%)
Operating profit to sales 15.0 6.6 8.9
Operating profit excluding special
items to sales 6.6 6.7 5.5
EBITDA excluding special items to sales 12.9 13.7 12.7
Operating profit excluding special
items to average net assets * 8.9 8.3 7.3
Return on average equity (ROE) * 35.9 9.3 15.7
Net debt to total capitalisation * 50.3 45.6 46.2
Half-year ended
March 2008 March 2007
Key figures: (US$ million)
Sales 2,850 2,585
Operating profit 312 209
Special items - (gains) losses * (123) (73)
Operating profit excluding special items 189 136
EBITDA excluding special items ** 378 325
Basic EPS (US cents) 86 38
Net debt * 2,661 2,236
Key ratios: (%)
Operating profit to sales 11.0 8.1
Operating profit excluding special items to sales 6.6 5.3
EBITDA excluding special items to sales 13.3 12.6
Operating profit excluding special items to
average net assets * 8.6 6.9
Return on average equity (ROE) * 22.6 12.2
Net debt to total capitalisation * 50.3 46.2
* Refer to Supplemental Information for the definition of the term.
** Refer to additional information in Supplemental Information for
the reconciliation of EBITDA excluding special items to profit for the period.
Comment
Our profitability improved in the quarter compared to a year ago and to the
prior quarter. The performance of our southern African businesses was
supported by good demand, increasing prices and a weaker Rand against the
Dollar. Production was, however, unfavourably impacted by national power
curtailment and lower output at Saiccor. Sappi Fine Paper North America
continued its improving trend as a result of higher prices and improved
operating efficiencies and cost control, but margins remain under pressure from
rising input costs. Our key challenge remains to restore Sappi Fine Paper
Europe to acceptable profitability. We have achieved limited coated fine paper
price increases in parts of Europe which have been insufficient to recover the
increasing input costs.
Pulp prices have continued to increase with NBSK increasing to an average of
US$880 per ton from an average of US$840 per ton in the previous quarter. As
the group sells slightly more pulp than it purchases, the increase in pulp
prices is beneficial for the group; however, our European business is a large
net buyer of pulp and its margins are therefore squeezed by high pulp prices.
Our sales increased 11.8% compared to a year ago to US$1,473 million in the
quarter, largely as a result of price increases and the strengthening of the
Euro against the Dollar.
Operating profit excluding special items for the quarter increased by 33%
compared to a year ago, to US$97 million. Special items of US$124 million
include a favourable plantation fair value adjustment of US$118 million, mostly
as a result of wood price increases in South Africa. Details of special items
are set out in note 4. Operating profit was US$221 million, 89% higher than a
year ago.
Net finance costs for the quarter were US$27 million compared to US$33 million
a year ago. The change reflects the benefit of lower interest rates under
certain fixed to floating interest rate swaps implemented in 2002.
Taxation for the quarter of US$39 million represents an effective tax rate of
20% for the quarter after the favourable effect of the reduction in the South
African tax rate from 29% to 28% during the quarter.
Basic EPS was 68 US cents for the quarter (which included the favourable impact
of special items) compared to 25 US cents a year ago.
Cash flow and debt
Cash generated by operations was US$176 million for the quarter compared to
US$157 million a year ago. The increase was a result of improved operating
performance and a reclassification of US$31 million, included in Other Non-Cash
Items in the quarter ended December 2007, to Net Finance costs paid in the
current quarter. This was partly offset by post employment benefit payments of
US$39 million which was US$21 million higher than the equivalent quarter last
year. Post employment payments are expected to be US$84 million for the full
year compared to US$101 million in the previous year, and to decline further in
2009.
Working capital increased US$30 million during the quarter primarily as a
result of increased receivables which in turn was the result of increased sales
and the strength of the Euro against the Dollar.
Capital expenditure on property, plant and equipment was US$165 million, of
which US$75 million related to the purchase of previously leased equipment and
US$65 million to the Saiccor expansion project. During the next quarter a
similar amount will be spent on the Saiccor project.
Net debt was US$2,661 million at quarter end, an increase of US$166 million
during the quarter of which currency movement represented US$100 million.
Financing for the US$75 million purchase of leased equipment contributed to the
increase in net debt. Net debt was reduced by US$41 million of cash which was
not deducted from net debt in the previous quarter because its use was
restricted in that period. Current interest-bearing borrowings of US$935
million include US$377 million of securitised debtors under a facility which in
the normal course is expected to run until 2012.
Net debt to total capitalisation was 50.3% at quarter end compared to 45.6% for
the prior quarter. The change was due to an increase in net debt and a
reduction in equity caused by exchange rate movements.
Operating Review for the Quarter
Sappi Fine Paper
Quarter Quarter
ended ended
March 2008 March 2007
US$ million US$ million
Sales 1,209 1,057
Operating profit 47 49
Operating profit to sales (%) 3.9 4.6
Special items * (gains) (2) (32)
Operating profit excluding special items 45 17
Operating profit excluding special items to
sales (%) 3.7 1.6
EBITDA excluding special items 120 90
EBITDA excluding special items to sales (%) 9.9 8.5
RONOA pa (%) 5.5 2.2
Quarter
ended
% Dec 2007
change US$ million
Sales 14.4 1,109
Operating profit (4.1) 31
Operating profit to sales (%) - 2.8
Special items * (gains) - -
Operating profit excluding special items 164.7 31
Operating profit excluding special items to
sales (%) - 2.8
EBITDA excluding special items 33.3 106
EBITDA excluding special items to sales (%) - 9.6
RONOA pa (%) - 3.9
* See note 4 to the financial statements.
The performance of the fine paper business improved further in the quarter with
improved margins in North America and South Africa. In these markets price
improvements have helped us offset continued input cost pressure. In Europe
average price improvements have been marginal and not sufficient to offset
these input cost increases and restore margins to acceptable levels.
The speciality paper businesses in Europe and North America performed strongly
in the quarter.
Sales volumes improved by 5% compared to a year ago and average prices realised
in Dollar terms increased approximately 9%, partly as a result of currency
movements.
Europe
Quarter Quarter
ended ended %
March 2008 March 2007 change
US$ million US$ million (US$)
Sales 697 597 16.8
Operating profit 18 44 (59.1)
Operating profit to sales (%) 2.6 7.4 -
Special items * (gains) (2) (32) -
Operating profit excluding special items 16 12 33.3
Operating profit excluding special
items to sales (%) 2.3 2.0 -
EBITDA excluding special items 61 56 8.9
EBITDA excluding special items to sales (%) 8.8 9.4 -
RONOA pa (%) 3.1 2.6 -
% Quarter
change ended
(Euro) Dec 2007
US$ million
Sales 2.2 638
Operating profit (63.6) 19
Operating profit to sales (%) - 3.0
Special items * (gains) - (2)
Operating profit excluding special items 22.2 17
Operating profit excluding special items
to sales (%) - 2.7
EBITDA excluding special items (4.7) 62
EBITDA excluding special items to sales (%) - 9.7
RONOA pa (%) - 3.5
* See note 4 to the financial statements.
Although prices of coated fine paper in Euro terms have edged up marginally in
some markets compared to the prior quarter, they remain below the levels of a
year ago. The weakening of the US Dollar and British Pound relative to the Euro
reduced price realisation in Euro terms.
Our sales volume increased 5% compared to a year ago. Sales value in US Dollars
increased 16.8% largely as a result of volume increases and the impact of the
weakening of the Dollar against the Euro. For the half year sales volume
increased approximately 2%.
Industry shipments increased 2% for coated fine paper compared to a year ago.
Demand for our products remained firm and industry order books were strong.
We continue to manage our costs, offsetting the continued input cost pressures
to a large extent; however, profitability is unlikely to be restored to
acceptable levels without material increases in prices.
North America
Quarter Quarter
ended ended
March 2008 March 2007
US$ million US$ million
Sales 423 371
Operating profit 26 3
Operating profit to sales (%) 6.1 0.8
Special items * losses - -
Operating profit excluding special items 26 3
Operating profit excluding special items to
sales (%) 6.1 0.8
EBITDA excluding special items 51 29
EBITDA excluding special items to sales (%) 12.1 7.8
RONOA pa (%) 9.7 1.1
Quarter
% ended
change Dec 2007
US$ million
Sales 14.0 384
Operating profit 766.7 11
Operating profit to sales (%) - 2.9
Special items * losses - 2
Operating profit excluding special items 766.7 13
Operating profit excluding special items to
sales (%) - 3.4
EBITDA excluding special items 75.9 40
EBITDA excluding special items to sales (%) - 10.4
RONOA pa (%) - 5.0
* See note 4 to the financial statements.
Our North American business has shown a steadily improving profit trend as a
result of improvements across all disciplines. Demand for coated fine paper in
reel form remains strong and prices continue to improve; however, in sheet form
the markets continue to be negatively influenced by low priced imports. Strong
pulp prices contributed to the improved performance because the North American
business is a net seller of pulp.
Our sales volume increased 7% for the quarter and sales in US Dollars increased
14%, compared to a year ago.
We continue to reduce our raw material and energy consumption; however, pressure
on the prices of our major inputs more than offset these improvements during
the quarter.
South Africa
Quarter Quarter
ended ended %
March 2008 March 2007 change
US$ million US$ million (US$)
Sales 89 89 -
Operating profit 3 2 50.0
Operating profit to sales (%) 3.4 2.2 -
Special items * - - -
Operating profit excluding special
items 3 2 50.0
Operating profit excluding special
items 3.4 2.2 -
to sales (%)
EBITDA excluding special items 8 5 60.0
EBITDA excluding special items to
sales (%) 9.0 5.6 -
RONOA pa (%) 8.6 4.9 -
Quarter
% ended
change Dec 2007
(Rand) US$ million
Sales 4.2 87
Operating profit 57.1 1
Operating profit to sales (%) - 1.1
Special items * - -
Operating profit excluding special items 57.1 1
Operating profit excluding special items - 1.1
to sales (%)
EBITDA excluding special items 66.7 4
EBITDA excluding special items to sales (%) - 4.6
RONOA pa (%) - 2.6
* See note 4 to the financial statements.
The business has started to restore its margins through a combination of cost
control and improved price realisation. Increasing wood, pulp, energy and
labour costs continue to exert pressure on profitability.
Forest Products
Quarter Quarter
ended ended %
March 2008 March 2007 change
US$ million US$ million (US$)
Sales 264 261 1.1
Operating profit 172 69 149.3
Operating profit to sales (%) 65.2 26.4 -
Special items * (gains) losses (122) (12) -
Operating profit excluding special
items 50 57 (12.3)
Operating profit excluding special
items 18.9 21.8 -
to sales (%)
EBITDA excluding special items 67 78 (14.1)
EBITDA excluding special items to
sales (%) 25.4 29.9 -
RONOA pa (%) 11.3 15.6 -
Quarter
% ended
change Dec 2007
(Rand) US$ million
Sales 5.5 268
Operating profit 159.7 55
Operating profit to sales (%) - 20.5
Special items * (gains) losses - 1
Operating profit excluding special items (8.6) 56
Operating profit excluding special items - 20.9
to sales (%)
EBITDA excluding special items (10.4) 77
EBITDA excluding special items to sales (%) - 28.7
RONOA pa (%) - 12.9
* See note 4 to the financial statements.
The business performance in the quarter was supported by good demand, improving
pulp and paper prices and the weaker Rand. Inflationary pressure, particularly
wood, energy and labour costs, however, remain a concern.
Results were also unfavourably impacted by reduced production and sales volumes
as a result of some production problems at Saiccor and by the power disruptions
early in the quarter. After a major 3-4 day disruption we reached an agreement
with the national utility in terms of which we will meet their requirement to
reduce our purchases by generating more of our own power; however, doing so is
more costly. Since then we have operated without, and do not foresee, major
disruptions. Production at the Kraft mills continued to improve during the
quarter.
Special items were US$122 million for the quarter, predominantly due to
plantation fair value gains of US$118 million mostly as a result of wood price
increases.
The Saiccor expansion project is nearing completion with many of the
construction areas currently undergoing commissioning tests. Start-up is
expected during June 2008. The expansion includes power generation which after
start-up will increase our power self-sufficiency and reduce power purchases.
Directors
Eugene van As retired as Chairman of the board and as a non-executive director
of Sappi Limited with effect from the conclusion of the Annual General Meeting
held on 03 March 2008.
Dr Danie Cronje was appointed independent non-executive Chairman of the Sappi
Limited board effective upon Mr van As` retirement.
Outlook
Global capacity utilisation remains reasonably high with limited new capacity
coming on stream within the next year. Prices for coated fine paper continue to
strengthen in most regions in US Dollar terms. Improved price realisation in
Europe is, however, essential in order to achieve a much needed improvement in
margin.
Pulp prices remain high supported by strong demand, particularly from Asia, and
the weaker US Dollar.
While market conditions in terms of demand are generally favourable in our
industry, we cannot ignore the potential impact of economic slow-downs in
North America and Europe on our business.
Operating performance of our southern African operations is expected to remain
strong and in North America we expect the improving trend to continue on a year
on year basis. Europe`s performance will remain under pressure as a result of
the pricing situation and high input costs. Manufacturing and logistics
efficiencies and tight control over costs remain essential to manage the effect
of high energy, pulp and wood costs and labour cost inflation.
Our net debt is expected to start declining towards the end of the financial
year following the completion of the Saiccor expansion project. Improved cash
generation, continued attention to working capital and capital expenditure
management will remain priorities.
Operating profit excluding special items is expected to improve in the next
quarter compared to a year ago.
On behalf of the board
R J Boettger M R Thompson
Director Director 06 May 2008
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, including as a result of
adverse changes in credit markets that affect our ability to raise capital when
needed, changing regulatory requirements, unanticipated production disruptions
(including as a result of planned or unexpected power outages), 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 2008 March 2007
Notes US$ million US$ million % change
Sales 1,473 1,318 11.8
Cost of sales 1,162 1,141
Gross profit 311 177 75.7
Selling, general &
administrative expenses 102 93
Other operating income (7) (30)
Share of profit from
associates and joint
ventures (5) (3)
Operating profit 3&4 221 117 88.9
Net finance costs 27 33
Net interest 26 37
Finance cost capitalised (6) (3)
Net foreign exchange gains (4) (4)
Net fair value loss on
financial instruments 11 3
Profit before taxation 194 84 131.0
Taxation 39 26
Current 1 9
Deferred 38 17
Profit for the period 155 58 167.2
Basic earnings per share
(US cents) 68 25
Weighted average number
of shares in issue
(millions) 228.8 227.7
Diluted basic earnings
per share (US cents) 67 25
Weighted average number
of shares on fully
diluted basis (millions) 230.6 230.4
Reviewed Reviewed
Half-year ended Half-year ended
March 2008 March 2007
US$ million US$ million % change
Sales 2,850 2,585 10.3
Cost of sales 2,354 2,233
Gross profit 496 352 40.9
Selling, general &
administrative expenses 199 181
Other operating income (6) (34)
Share of profit from
associates and joint ventures (9) (4)
Operating profit 312 209 49.3
Net finance costs 55 70
Net interest 63 73
Finance cost capitalised (15) (4)
Net foreign exchange gains (5) (6)
Net fair value loss on
financial instruments 12 7
Profit before taxation 257 139 84.9
Taxation 60 51
Current 4 15
Deferred 56 36
Profit for the period 197 88 123.9
Basic earnings per share
(US cents) 86 38
Weighted average number of
shares in issue (millions) 228.7 227.4
Diluted basic earnings per
share (US cents) 85 38
Weighted average number of
shares on fully
diluted basis (millions) 230.5 229.6
group balance sheet
Reviewed Audited
March 2008 Sept 2007
US$ million US$ million
ASSETS
Non-current assets 4,641 4,608
Property, plant and equipment 3,531 3,491
Plantations 635 636
Deferred taxation 58 60
Other non-current assets 417 421
Current assets 1,710 1,736
Inventories 801 712
Trade and other receivables 708 660
Cash and cash equivalents 201 364
Total assets 6,351 6,344
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` interest 1,677 1,816
Non-current liabilities 2,656 2,612
Interest-bearing borrowings 1,905 1,828
Deferred taxation 387 385
Other non-current liabilities 364 399
Current liabilities 2,018 1,916
Interest-bearing borrowings 935 771
Bank overdraft 22 22
Other current liabilities 953 998
Taxation payable 108 125
Total equity and liabilities 6,351 6,344
Number of shares in issue at balance sheet date
(millions) 228.8 228.5
group cash flow statement
Quarter Quarter
ended ended
March 2008 March 2007
US$ million US$ million
Profit for the period 155 58
Adjustment for:
Depreciation, fellings and amortisation 112 111
Taxation charge 39 26
Net finance costs 27 33
Post employment benefits ** (39) (18)
Other non-cash items *** (118) (53)
Cash generated from operations ** 176 157
Movement in working capital (30) (5)
Net finance costs paid *** (8) (22)
Taxation (paid) received (9) 1
Dividends paid * (73) (68)
Cash retained from operating activities 56 63
Cash utilised in investing activities ** (164) (18)
(108) 45
Cash effects of financing activities (118) (39)
Net movement in cash and cash
equivalents (226) 6
Reviewed Reviewed
Half-year ended Half-year ended
March 2008 March 2007
US$ million US$ million
Profit for the period 197 88
Adjustment for:
Depreciation, fellings and amortisation 229 223
Taxation charge 60 51
Net finance costs 55 70
Post employment benefits ** (53) (45)
Other non-cash items *** (157) (105)
Cash generated from operations ** 331 282
Movement in working capital (163) (44)
Net finance costs paid *** (67) (68)
Taxation (paid) received (16) (3)
Dividends paid * (73) (68)
Cash retained from operating activities 12 99
Cash utilised in investing activities ** (253) (146)
(241) (47)
Cash effects of financing activities 105 55
Net movement in cash and cash
equivalents (136) 8
* Dividend number 84: 32 US cents per share (2007: 30 US cents per share)
Reclassifications
** Cash outflows relating to contributions to post employment benefit funds
previously reflected in cash utilised in investing activities, have been
included in cash generated from operations.
*** A US$31 million outflow, included in "Other non-cash items" in the quarter
ended December 2007 has been reclassified to "Net finance costs paid" in the
current quarter, with the resulting impact on "Cash generated from operations".
There is no impact on the movement for the half-year ended March 2008.
group statement of recognised income and expense
Quarter Quarter
ended ended
March 2008 March 2007
US$ million US$ million
Exchange differences on translation of
foreign operations (262) (35)
Sundry other movements in equity - 3
Net (expense) income recorded directly in equity (262) (32)
Profit for the period 155 58
Total recognised (expense) income for the period (107) 26
Reviewed Reviewed
Half-year ended Half-year ended
March 2008 March 2007
US$ million US$ million
Exchange differences on translation of
foreign operations (272) 78
Sundry other movements in equity 2 -
Net (expense) income recorded directly in equity (270) 78
Profit for the period 197 88
Total recognised (expense) income for the period (73) 166
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 2007 which are compliant with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board.
The preliminary results for the six month period ended March 2008 have been
reviewed in terms of the International Standard on Review Engagements 2410 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 March 2008 and December 2007 have not been audited or
reviewed on a stand-alone basis by the auditors.
Comparative figures - Cash outflows relating to contributions to post
employment benefit funds previously reflected in cash utilised in investing
activities, have been included in cash generated from operations.
2. Reconciliation of movement in shareholders` equity
Reviewed Reviewed
Half-year Half-year
ended ended
March 2008 March 2007
US$ million US$ million
Balance - beginning of year 1,816 1,386
Total recognised (expense) income for the period (73) 166
Dividends paid (73) (68)
Transfers to participants of the share purchase trust 3 8
Share based payment reserve 4 2
Balance - end of period 1,677 1,494
Quarter Quarter
ended ended
March 2008 March 2007
US$ million US$ million
3. Operating profit
Included in operating profit are the following
non-cash items:
Depreciation and amortisation 93 94
Fair value adjustment on plantations (included
in cost of sales)
Changes in volume
Fellings 19 17
Growth (17) (18)
2 (1)
Plantation price fair value adjustment (118) (12)
(116) (13)
Included in other operating income are items (b), (c), (d) and
(e) as disclosed in note 4.
4. Special items
Special items cover those operating items which management believe are material
by nature or amount to the results and require separate disclosure in
accordance with IAS 1 paragraph 86. Such items would generally include profit
and loss on disposal of property, investments and businesses, asset
impairments, restructuring charges, natural disasters and non-cash gains or
losses on the price fair value adjustment of plantations.
Special items, excluding interest and tax
effects, for the relevant periods are:
(a) Plantation price fair value adjustment (118) (12)
(b) Restructuring provisions released (2) (7)
(c) Profit on sale of assets (3) (25)
(d) Fire, flood, storm and related events (1) -
(e) Asset impairments - -
(124) (44)
The above fair value adjustments have been
offset by silviculture costs 11 10
5. Headline earnings per share
Headline earnings per share (US cents) * 66 17
Weighted average number of shares in issue
(millions) 228.8 227.7
Diluted headline earnings per share (US cents) * 65 17
Weighted average number of shares on fully
diluted basis (millions) 230.6 230.4
Calculation of Headline earnings *
Profit for the period 155 58
Profit on disposal of property, plant &
equipment (3) (25)
Asset impairments - -
Tax effect of above items (1) 6
Headline earnings 151 39
Reviewed Reviewed
Half-year Half-year
ended ended
March 2008 March 2007
US$ million US$ million
3. Operating profit
Included in operating profit are the following
non-cash items:
Depreciation and amortisation 189 189
Fair value adjustment on plantations (included
in cost of sales)
Changes in volume
Fellings 40 34
Growth (35) (35)
5 (1)
Plantation price fair value adjustment (117) (41)
(112) (42)
Included in other operating income
are items (b), (c), (d) and (e) as disclosed in
note 4.
4. Special items
Special items cover those operating items which management believe are material
by nature or amount to the results and require separate disclosure in
accordance with IAS 1 paragraph 86. Such items would generally include profit
and loss on disposal of property, investments and businesses, asset
impairments, restructuring charges, natural disasters and non-cash gains or
losses on the price fair value adjustment of plantations.
Special items, excluding interest and tax
effects, for the relevant periods are:
(a) Plantation price fair value adjustment (117) (41)
(b) Restructuring provisions released (3) (7)
(c) Profit on sale of assets (4) (25)
(d) Fire, flood, storm and related events (1) -
(e) Asset impairments 2 -
(123) (73)
The above fair value adjustments have been
offset by silviculture costs 41 43
5. Headline earnings per share
Headline earnings per share (US cents) * 85 30
Weighted average number of shares in issue
(millions) 228.7 227.4
Diluted headline earnings per share (US cents) * 85 30
Weighted average number of shares on fully
diluted basis (millions) 230.5 229.6
Calculation of Headline earnings *
Profit for the period 197 88
Profit on disposal of property, plant &
equipment (4) (25)
Asset impairments 2 -
Tax effect of above items - 6
Headline earnings 195 69
* Headline earnings disclosure is required by the JSE Limited.
Quarter Quarter Half-year Half-year
March 2008 March 2007 March 2008 March 2007
US$ million US$ million US$ million US$ million
6. Capital
expenditure
Property,
plant and equipment 165 76 274 214
March 2008 Sept 2007
7. Capital commitments US$ million US$ million
Contracted 130 188
Approved but not contracted 167 249
297 437
8. Contingent liabilities
Guarantees and suretyships 53 43
Other contingent liabilities * 7 26
60 69
* The decrease in contingent liabilities reflects management`s revised
estimate of losses which could arise from taxation queries to which certain
group companies are subject. These amounts have now been recognised as
liabilities.
9. Material balance sheet movements
Restricted cash
In the quarter ended 31 December 2007, the company classified US$41 million of
cash as specifically restricted to settle certain post retirement medical
liabilities, which did not result in any movement of cash and cash equivalents
for cash flow statement purposes. In the current quarter, certain agreements
were finalized which now permit the group to direct the use of this cash.
Therefore, management now considers this cash to be unrestricted. In the
quarter ended 31 December 2007, the restricted cash was not taken into account
in the determination of "net debt". However, in the current quarter the company
has reduced net debt by this cash which is now considered to be unrestricted.
Current and non-current interest bearing borrowings
The movement on these balances between September 2007 and March 2008 is largely
due to (i) US$146 million of expenditure on the Saiccor expansion project,
(ii) financing for the purchase of leased equipment for US$75 million and
(iii) US$137 million of currency movements and fair value adjustments.
Taxation
The movement is a result of certain tax liabilities which the group has settled
in the past six months.
Supplemental Information
General definitions
Average - averages are calculated as the sum of the opening and closing
balances for the relevant period divided by two
Fellings - the amount charged against the income statement representing the
standing value of the plantations harvested
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 the pulp and paper industry
for comparative purposes
SG&A - selling, general and administrative expenses
Non-GAAP measures
The group believes that it is useful to report these non-GAAP measures for the
following reasons:
- these measures are used by the group for internal performance analysis;
- the presentation by the group`s reported business segments of these measures
facilitates comparability with other companies in our industry, although the
group`s measures may not be comparable with similarly titled profit
measurements reported by other companies; and
- it is useful in connection with discussion with the investment analyst
community and debt rating agencies.
These non-GAAP measures should not be considered in isolation or construed as a
substitute for GAAP measures in accordance with IFRS.
EBITDA excluding special items - earnings before interest (net finance costs),
tax, depreciation, amortisation and special items
Headline earnings - as defined in circular 8/2007 issued by the South African
Institute of Chartered Accountants, separates from earnings all separately
identifiable re-measurements. It is not necessarily a measure of sustainable
earnings. It is a listing requirement of the JSE Limited to disclose headline
earnings per share
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
Net operating assets - total assets (excluding deferred taxation and cash) less
current liabilities (excluding interest-bearing borrowings and bank overdraft)
Net assets - total assets less current liabilities
Net asset value - shareholders` equity plus deferred tax liabilities minus
deferred tax assets
Net asset value per share - net asset value divided by the number of shares in
issue at balance sheet date
ROE - return on average equity. Profit for the period divided by average
shareholders` equity
RONOA - operating profit excluding special items divided by average net
operating assets
Special items - special items cover those items which management believe are
material by nature or amount to the operating results and require separate
disclosure in accordance with IAS 1 paragraph 86.
Such items would generally include profit and loss on disposal of property,
investments and businesses, asset impairments, restructuring charges, natural
disasters and non-cash gains or losses on the price fair value adjustment of
plantations.
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 2008 March 2007
US$ million US$ million
Profit for the period to EBITDA excluding
special items (1) reconciliation
Profit for the period 155 58
Net finance costs 27 33
Taxation 39 26
Special items - gains (124) (44)
Operating profit excluding special items 97 73
Depreciation and amortisation 93 94
EBITDA excluding special items (1) 190 167
Reviewed Reviewed
Half-year Half-year
ended ended
March 2008 March 2007
US$ million US$ million
Profit for the period to EBITDA excluding
special items (1) reconciliation
Profit for the period 197 88
Net finance costs 55 70
Taxation 60 51
Special items - gains (123) (73)
Operating profit excluding special items 189 136
Depreciation and amortisation 189 189
EBITDA excluding special items (1) 378 325
March 2008 Sept 2007
US$ million US$ million
Net debt (US$ million) (2) 2,661 2,257
Net debt to total capitalisation (%) (2) 50.3 43.2
Net asset value per share (US$) (2) 8.77 9.37
(1) In connection with the US Securities Exchange Commission ("SEC") rules
relating to "Conditions for Use of Non-GAAP Financial Measures", we have
reconciled EBITDA excluding special items to net profit rather than operating
profit. As a result our definition retains minority interest as part of EBITDA
excluding special items.
Operating profit excluding special items represents earnings before interest
(net finance costs), taxation and special items. 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. Special items cover those items which
management believe are material by nature or amount to the results and require
separate disclosure in accordance with IAS 1 paragraph 86.
Such items would generally include profit and loss on disposal of property,
investments and businesses, asset impairments, restructuring charges, natural
disasters and non-cash gains or losses on the price fair value adjustment of
plantations.
EBITDA excluding special items represents operating profit before depreciation,
amortisation and special items.
We use both operating profit excluding special items and EBITDA excluding
special items as internal measures of performance to benchmark and compare
performance, both between our own operations and as against other companies.
Operating profit excluding special items and EBITDA excluding special items are
measures used by the group, together with measures of performance under IFRS,
to compare the relative performance of operations in planning, budgeting and
reviewing the performances of various businesses. We believe they are useful
and commonly used measures of financial performance in addition to net profit,
operating profit and other profitability measures under IFRS because they
facilitate 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 both operating profit
excluding special items and EBITDA excluding special items can provide a useful
additional basis for comparing the current performance of the operations being
evaluated. For these reasons, we believe operating profit excluding special
items and EBITDA excluding special items 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 operating profit
excluding special items and EBITDA excluding special items differently, so
making comparisons among companies on this basis should be done very carefully.
Operating profit excluding special items and EBITDA excluding special items are
not measures of performance under IFRS and should not be considered in
isolation or construed as a substitute for operating profit or net profit as
indicators of the company`s operations in accordance with IFRS.
(2) Refer to Supplemental Information for the definition of the
term.
Supplemental Information
regional information
Quarter Quarter
ended ended
March 2008 March 2007
Metric tons Metric tons
(000`s) (000`s) % change
Sales volume
Fine Paper - North America 402 376 6.9
Europe 657 626 5.0
Southern Africa 83 87 (4.6)
Total 1,142 1,089 4.9
Forest Products - Pulp and paper
operations 347 378 (8.2)
Forestry operations 247 258 (4.3)
Total 1,736 1,725 0.6
Half-year Half-year
ended ended
March 2008 March 2007
Metric tons Metric tons
(000`s) (000`s) % change
Sales volume
Fine Paper - North America 775 748 3.6
Europe 1,281 1,261 1.6
Southern Africa 159 174 (8.6)
Total 2,215 2,183 1.5
Forest Products - Pulp and paper
operations 692 709 (2.4)
Forestry operations 447 529 (15.5)
Total 3,354 3,421 (2.0)
Quarter Quarter
ended ended
March 2008 March 2007
US$ million US$ million % change
Sales
Fine Paper - North America 423 371 14.0
Europe 697 597 16.8
Southern Africa 89 89 -
Total 1,209 1,057 14.4
Forest Products - Pulp and paper
operations 246 245 0.4
Forestry operations 18 16 12.5
Total 1,473 1,318 11.8
Operating profit
Fine Paper - North America 26 3 766.7
Europe 18 44 (59.1)
Southern Africa 3 2 50.0
Total 47 49 (4.1)
Forest Products 172 69 149.3
Corporate 2 (1) -
Total 221 117 88.9
Special items - (gains) losses
Fine Paper - North America - - -
Europe (2) (32) -
Southern Africa - - -
Total (2) (32) -
Forest Products (122) (12) -
Corporate - - -
Total (124) (44) -
Operating profit excluding special items
Fine Paper - North America 26 3 766.7
Europe 16 12 33.3
Southern Africa 3 2 50.0
Total 45 17 164.7
Forest Products 50 57 (12.3)
Corporate 2 (1) -
Total 97 73 32.9
EBITDA excluding special items
Fine Paper - North America 51 29 75.9
Europe 61 56 8.9
Southern Africa 8 5 60.0
Total 120 90 33.3
Forest Products 67 78 (14.1)
Corporate 3 (1) -
Total 190 167 13.8
Net operating assets
Fine Paper - North America 1,116 1,067 4.6
Europe 2,085 1,864 11.9
Southern Africa 127 156 (18.6)
Total 3,328 3,087 7.8
Forest Products 1,695 1,443 17.5
Corporate and other 8 8 -
Total 5,031 4,538 10.9
Reviewed Reviewed
Half-year Half-year
ended ended
March 2008 March 2007
US$ million US$ million % change
Sales
Fine Paper - North America 807 745 8.3
Europe 1,335 1,184 12.8
Southern Africa 176 172 2.3
Total 2,318 2,101 10.3
Forest Products - Pulp and paper
operations 498 452 10.2
Forestry
operations 34 32 6.3
Total 2,850 2,585 10.3
Operating profit
Fine Paper - North America 37 5 640.0
Europe 37 57 (35.1)
Southern Africa 4 3 33.3
Total 78 65 20.0
Forest Products 227 147 54.4
Corporate 7 (3) -
Total 312 209 49.3
Special items - (gains) losses
Fine Paper - North America 2 - -
Europe (4) (32) -
Southern Africa - - -
Total (2) (32) -
Forest Products (121) (41) -
Corporate - - -
Total (123) (73) -
Operating profit excluding special
items
Fine Paper - North America 39 5 680.0
Europe 33 25 32.0
Southern Africa 4 3 33.3
Total 76 33 130.3
Forest Products 106 106 -
Corporate 7 (3) -
Total 189 136 39.0
EBITDA excluding special items
Fine Paper - North America 91 57 59.6
Europe 123 117 5.1
Southern Africa 12 10 20.0
Total 226 184 22.8
Forest Products 144 144 -
Corporate 8 (3) -
Total 378 325 16.3
Net operating assets
Fine Paper - North America 1,116 1,067 4.6
Europe 2,085 1,864 11.9
Southern Africa 127 156 (18.6)
Total 3,328 3,087 7.8
Forest Products 1,695 1,443 17.5
Corporate and other 8 8 -
Total 5,031 4,538 10.9
Supplemental Information
summary rand convenience translation
Quarter Quarter
ended ended %
March 2008 March 2007 change
Key figures: (ZAR million)
Sales 10,988 9,428 16.5
Operating profit 1,649 837 97.0
Special items - gains * (925) (315) -
Operating profit excluding special items 724 522 38.7
EBITDA excluding special items * 1,417 1,195 18.6
Profit for the period 1,156 415 178.6
Basic EPS (SA cents) 507 179 183.2
Net debt * 21,669 16,245 33.4
Cash generated from operations 1,313 1,123 16.9
Cash retained from operating activities 418 451 (7.3)
Net movement in cash and cash equivalents (1,686) 43 -
Key ratios: (%)
Operating profit to sales 15.0 8.9
Operating profit excluding special items
to sales 6.6 5.5
EBITDA excluding special items to sales 12.9 12.7
Operating profit excluding special items
to average net assets 8.8 7.1
Net debt to total capitalisation * 50.3 46.2
Half-year Half-year
ended ended %
March 2008 March 2007 change
Key figures: (ZAR million)
Sales 20,368 18,814 8.3
Operating profit 2,230 1,521 46.6
Special items - gains * (879) (531) -
Operating profit excluding special items 1,351 990 36.5
EBITDA excluding special items * 2,701 2,365 14.2
Profit for the period 1,408 640 120.0
Basic EPS (SA cents) 615 277 122.0
Net debt * 21,669 16,245 33.4
Cash generated from operations 2,365 2,052 15.3
Cash retained from operating activities 86 721 (88.1)
Net movement in cash and cash equivalents (972) 58 -
Key ratios: (%)
Operating profit to sales 10.9 8.1
Operating profit excluding special items
to sales 6.6 5.3
EBITDA excluding special items to sales 13.3 12.6
Operating profit excluding special items
to average net assets 8.2 6.7
Net debt to total capitalisation * 50.3 46.2
* Refer to Supplemental Information for the definition of the term.
The above financial results have been translated into ZAR using the average
rate of exchange of the US Dollar at the end of the relevant period.
Supplemental Information
exchange rates
March Dec Sept
2008 2007 2007
Exchange rates :
Period end rate: US$1 = ZAR 8.1432 6.8068 6.8713
Average rate for the Quarter: US$1 = ZAR 7.4593 6.7488 7.0453
Average rate for the YTD: US$1 = ZAR 7.1465 6.7488 7.1741
Period end rate: EUR 1 = US$ 1.5802 1.4717 1.4272
Average rate for the Quarter: EUR 1 = US$ 1.5006 1.4556 1.3782
Average rate for the YTD: EUR 1 = US$ 1.4790 1.4556 1.3336
June March
2007 2007
Exchange rates :
Period end rate: US$1 = ZAR 7.0393 7.2650
Average rate for the Quarter: US$1 = ZAR 7.1095 7.1532
Average rate for the YTD: US$1 = ZAR 7.2121 7.2783
Period end rate: EUR 1 = US$ 1.3542 1.3358
Average rate for the Quarter: EUR 1 = US$ 1.3498 1.3160
Average rate for the YTD: EUR 1 = US$ 1.3178 1.3021
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.
6 May 2008
Sponsor: UBS Warburg
Date: 06/05/2008 08:59:01 Produced by the JSE SENS Department.
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