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SAP
SAVVI
SAP - Sappi Limited - Quarter results ended June 2008
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
Quarter results ended June 2008
Financial Summary
- Operating profit excluding special items US$88 million (Q3 2007: US$81
million)
- Special items an unfavourable pre-tax adjustment of US$111 million - mainly
plantation price fair value
- Basic EPS a loss of 28 US cents (unfavourably impacted by special items)
- Selling price increases in North America and South Africa
- Severe input cost increases
- Saiccor expansion commissioning in the fourth quarter
Quarter ended
Restated ****
June 2008 March 2008 June 2007
Key figures: (US$ million)
Sales 1,494 1,473 1,297
Operating (loss) profit (23) 221 87
Special items - losses
(gains) * 111 (124) (6)
Operating profit excluding
special items 88 97 81
EBITDA excluding special
items *** 182 190 176
Basic EPS (US cents) (28) 68 17
Net debt ** 2,667 2,661 2,313
Key ratios: (%)
Operating (loss) profit to
sales (1.5) 15.0 6.7
Operating profit excluding
special items to sales 5.9 6.6 6.2
EBITDA excluding special items
to sales 12.2 12.9 13.6
Operating profit excluding
special items to average
net assets ** 8.1 8.9 8.0
Return on average equity
(ROE) ** (15.1) 35.9 10.0
Net debt to total
capitalisation ** 50.2 50.3 46.1
Nine months ended
Restated ****
June 2008 June 2007
Key figures: (US$ million)
Sales 4,344 3,882
Operating (loss) profit 289 296
Special items - losses (gains) * (12) (79)
Operating profit excluding
special items 277 217
EBITDA excluding special
items *** 560 501
Basic EPS (US cents) 59 56
Net debt ** 2,667 2,313
Key ratios: (%)
Operating (loss) profit to sales 6.7 7.6
Operating profit excluding
special items to sales 6.4 5.6
EBITDA excluding special items
to sales 12.9 12.9
Operating profit excluding
special items to average
net assets ** 8.5 7.2
Return on average equity (ROE) ** 10.3 11.2
Net debt to total capitalisation ** 50.2 46.1
* Refer to special items information.
** Refer to Supplemental Information for the definition of the term.
*** Refer to Supplemental Information for the reconciliation of
EBITDA excluding special items to (loss) profit for the period.
**** Refer to note 2.
The results presented above have not been audited or reviewed
Comment
In a seasonally slower quarter, operating performance improved compared to last
year. The quarter was marked by severe input cost increases, offset to some
extent by our cost savings efforts across the group and successful price
increases in North America and South Africa. Selling prices in Europe were flat
quarter-on-quarter, but declined from last year. The unfavourable impact of
wood, energy and chemical price increases on the group results was US$19
million compared to the prior quarter and US$45 million compared to a year
earlier.
Pulp prices continued to increase with NBSK increasing to an average of US$900
per ton from an average of US$880 per ton in the previous quarter. The increase
in pulp prices was beneficial to the group as we sell slightly more pulp than
we purchase.
Operating profit excluding special items improved to US$88 million from US$81
million last year, but the group operating profit margin excluding special
items declined from 6.2% last year to 5.9% this quarter. Special items of
US$111 million include an unfavourable plantation price fair value revaluation
adjustment of US$105 million and a loss of contribution resulting from a flood
at Saiccor amounting to US$6 million. The negative plantation price fair value
adjustment was mainly due to a sharp increase in fuel prices. More details of
special items are set out later on in of this announcement.
An operating loss of US$23 million (including special items) was recorded,
compared to an operating profit of US$87 million a year ago.
Group sales for the quarter were US$1.5 billion, a 15.2% increase compared to
the third quarter last year, mainly as a result of higher sales volumes in our
fine paper businesses together with improved selling prices in North America
and Southern Africa.
Net finance costs of US$45 million for the quarter increased by US$8 million
from last year due to discontinuing capitalisation of interest on the Saiccor
expansion project during the quarter, higher debt levels and higher interest
rates.
Tax relief on the reported loss before taxation of US$68 million was limited
due to tax losses in certain regions that could not be brought to account.
Basic earnings per share (unfavourably impacted by special items) for the
quarter was a loss of 28 US cents, compared to earnings of 23 US cents a year
ago.
Cash flow and debt
Cash generated from operations for the quarter was US$156 million compared to
US$142 million a year ago. Working capital decreased by US$29 million during
the quarter compared to an increase of US$36 million during the third quarter
last year. We expect a further significant reduction in working capital in our
fourth quarter.
Included in our cash flow for the quarter were post employment benefit payments
of US$12 million compared to US$35 million in the equivalent quarter last year.
Post employment benefit payments are expected to be US$90 million for the year,
compared to US$101 million last year, and are expected to decline in 2009.
Net finance costs paid increased to US$83 million compared to US$42 million a
year ago, mainly as a result of the settlement of forward exchange contracts
related to long term debt and higher debt levels.
Taxation paid of US$40 million, was US$25 million higher than a year ago mainly
due to a provisional tax payment made by our South African business.
Capital expenditure of US$103 million included US$52 million for the Saiccor
expansion project. We expect to make the final capital expenditure payments on
the Saiccor expansion project of approximately US$50 million over the next two
quarters.
Net debt was US$2,667 million at quarter end, a net increase of US$6 million
from the prior quarter. This increase was the net effect of cash utilised
offset by a positive currency movement for the quarter.
Current interest-bearing borrowings of US$990 million include US$393 million
of securitised trade debtors under a facility, which in the normal course of
business is expected to run until 2012. The group has access to US$620 million
as part of a committed revolving loan facility as at the end of June 2008 and
cash resources of US$227 million.
Net debt to total capitalisation was 50.2% at the end of the quarter compared
to 50.3% for the prior quarter.
Operating review for the quarter
Sappi Fine Paper
Quarter Quarter Quarter
ended ended ended
June 2008 June 2007 % March 2008
US$ million US$ million change US$ million
Sales 1,224 1,037 18.0 1,209
Operating profit 36 25 44.0 47
Operating profit to
sales (%) 2.9 2.4 - 3.9
Special items *
(gains) - - - (2)
Operating profit
excluding
special items 36 25 44.0 45
Operating profit
excluding
special items to
sales (%) 2.9 2.4 - 3.7
EBITDA excluding
special items 113 100 13.0 120
EBITDA excluding
special items
to sales (%) 9.2 9.6 - 9.9
RONOA pa (%) 4.4 3.2 - 5.5
* Refer to special items information.
Sales volumes for our Fine Paper business increased by 6.5% from last year,
while average prices in Dollar terms improved 11%, partly due to currency
movements. Pricing and margins improved in our North American business, but
worsened in our European business.
Cost pressure, particularly in raw materials and energy, increased in all
regions.
Europe
Quarter Quarter
ended ended %
June 2008 June 2007 change
US$ million US$ million (US$)
Sales 705 584 20.7
Operating profit 10 14 (28.6)
Operating profit to sales (%) 1.4 2.4 -
Special items * (gains) - - -
Operating profit excluding
special items 10 14 (28.6)
Operating profit excluding
special items to sales (%) 1.4 2.4 -
EBITDA excluding special items 55 57 (3.5)
EBITDA excluding special items
to sales (%) 7.8 9.8 -
RONOA pa (%) 1.9 2.9 -
* Refer to special items information.
Quarter
% ended
change March 2008
(Euro) US$ million
Sales 3.5 697
Operating profit (40.0) 18
Operating profit to sales (%) - 2.6
Special items * (gains) - (2)
Operating profit excluding
special items (40.0) 16
Operating profit excluding
special items to sales (%) - 2.3
EBITDA excluding special items (16.7) 61
EBITDA excluding special items
to sales (%) - 8.8
RONOA pa (%) - 3.1
* Refer to special items information.
In a tough economic and trading environment, we recovered some market share in
Europe during the quarter with sales volumes improving 6% compared to last
year. Selling prices for coated fine paper sheets were down from last year and
flat compared to last quarter, while there was an improvement in coated fine
paper reel prices in some European countries.
Demand for our graphics paper was seasonally weaker in the quarter, except for
coated mechanical paper, which showed no sign of seasonal decline. Our
speciality paper performed well in the quarter.
Despite our continued focus on cost savings efforts, our operating margin
excluding special items declined from 2.4% to 1.4%, mainly due to significant
increases in input cost prices. The impact of energy and chemical cost
increases compared to the equivalent quarter last year was US$18 million.
These cost increases were partially offset by the sale of carbon credits to the
value of US$9 million during the quarter.
We have announced price increases effective from 1 September 2008 of between 8%
and 10%, in order to offset the input cost price increases.
North America
Quarter Quarter
ended ended
June 2008 June 2007
US$ million US$ million
Sales 424 362
Operating profit 25 8
Operating profit to sales (%) 5.9 2.2
Special items * losses - -
Operating profit excluding
special items 25 8
Operating profit excluding
special items to sales (%) 5.9 2.2
EBITDA excluding special items 53 36
EBITDA excluding special items
to sales (%) 12.5 9.9
RONOA pa (%) 9.2 3.0
Quarter
ended
% March 2008
change US$ million
Sales 17.1 423
Operating profit 212.5 26
Operating profit to sales (%) - 6.1
Special items * losses - -
Operating profit excluding
special items 212.5 26
Operating profit excluding
special items to sales (%) - 6.1
EBITDA excluding special items 47.2 51
EBITDA excluding special items
to sales (%) - 12.1
RONOA pa (%) - 9.7
* Refer to special items information.
Our North American business continued to improve with stronger reel volumes and
increased reel and pulp selling prices, compared to last year. Sales volumes
increased 8% compared to the equivalent quarter last year. Our order books for
reels remained strong; however, we saw the impact of a slowing US economy on
our sheet business.
Realised paper prices improved 6% on last year, while realised pulp prices
increased by 14%. During the quarter, coated fine paper price increases have
been widely announced by the US industry.
The operating profit margin increased to 5.9% compared to 2.2% last year
despite significant input cost increases, particularly in wood, energy and
chemicals. Price escalation of these input costs had a negative impact of US$20
million compared to the equivalent quarter last year.
US imports of coated paper continued to decline during the quarter due to the
weakness of the US Dollar, increased transport costs and improved demand in the
Far East.
South Africa
Quarter Quarter
ended ended %
June 2008 June 2007 change
US$ million US$ million (US$)
Sales 95 91 4.4
Operating profit 1 3 (66.7)
Operating profit to sales (%) 1.0 3.3 -
Special items * - - -
Operating profit excluding
special items 1 3 (66.7)
Operating profit excluding special
items to sales (%) 1.1 3.3 -
EBITDA excluding special items 5 7 (28.6)
EBITDA excluding special items
to sales (%) 5.3 7.7 -
RONOA pa (%) 3.2 7.8 -
Quarter
% ended
change March 2008
(Rand) US$ million
Sales 15.1 89
Operating profit (61.9) 3
Operating profit to sales (%) - 3.4
Special items * - -
Operating profit excluding
special items (61.9) 3
Operating profit excluding special
items to sales (%) - 3.4
EBITDA excluding special items (22.0) 8
EBITDA excluding special items
to sales (%) - 9.0
RONOA pa (%) - 8.6
* Refer to special items information.
Although we saw improved pricing during the quarter, margins came under
pressure from increased input costs, mainly pulp and chemicals. Sales volume
was flat on last year. The results were negatively impacted by a seasonal
slowing of demand and a temporary shut of the pulp plant at Stanger due to the
unavailability of bagasse fibre.
Forest Products
Quarter Quarter
ended ended %
June 2008 June 2007 change
US$ million US$ million (US$)
Sales 270 260 3.8
Operating profit (60) 65 -
Operating profit to sales (%) (22.2) 25.0 -
Special items * losses (gains) 111 (8) -
Operating profit excluding
special items 51 57 (10.5)
Operating profit excluding
special items to sales (%) 18.9 21.9 -
EBITDA excluding special items 68 76 (10.5)
EBITDA excluding special items
to sales (%) 25.2 29.2 -
RONOA pa (%) 12.0 15.1 -
Quarter
% ended
change March 2008
(Rand) US$ million
Sales 14.5 264
Operating profit - 172
Operating profit to sales (%) - 65.2
Special items * losses (gains) - (122)
Operating profit excluding
special items (1.2) 50
Operating profit excluding
special items to sales (%) - 18.9
EBITDA excluding special items (1.3) 67
EBITDA excluding special items
to sales (%) - 25.4
RONOA pa (%) - 11.3
* Refer to special items information.
Demand remained strong for chemical cellulose, but softened for our other
products. Our pulp and paper sales volumes were down 3% for the quarter
compared to a year ago.
Pricing improved in our Kraft business, chemical cellulose prices remained
strong and our export margins benefited from a weaker Rand against the US
Dollar compared to last year.
Special items include an unfavourable plantation price fair value adjustment of
US$105 million. The valuation takes into account the cost of delivering wood to
market which was impacted by increased fuel prices.
The results of Saiccor were negatively impacted by production interruptions
related to our expansion project and a severe flood giving rise to property
damage and business interruption that was self-insured. The US$6 million
financial impact of the flood is included under special items. The Saiccor
expansion is substantially complete and is now expected to be commissioned
towards the end of August.
Input cost pressure, particularly from chemicals, has increased in recent
months and has put increased pressure on margins.
Outlook
Continued upward pressure on input costs remains our biggest challenge in the
short term. Further increases are expected in energy, fibre and chemical costs
during the fourth quarter. In South Africa wage negotiations have been
completed. Wage inflation remains an important factor in all our businesses.
To mitigate high energy costs, we have initiated further energy projects in all
regions.
Although demand remains fairly robust for our products in all regions, a global
economic slow-down would impact demand. We are responding to these challenges
by continuing to focus on cost control, harnessing our buying power through a
global procurement drive and through maximising manufacturing efficiencies.
Increasing selling prices continues to be essential to restore and improve
profitability. We are implementing price increases in all our businesses.
The operating performance for our Southern African and US businesses is
expected to remain strong, while margins in all our businesses, particularly in
Europe, will be under pressure due to high input costs. Our Southern African
business will be further impacted by a recovery boiler rebuild at our Usutu
mill, which will have an unfavourable impact of approximately US$12 million on
operating profit in the fourth quarter.
In light of unrelenting input cost increases, we expect our fourth quarter
operating profit, excluding special items, to be lower than the third quarter,
however for the full year, we expect operating profit, excluding special items,
to be well above last year.
On behalf of the board
R J Boettger M R Thompson
Director Director 31 July 2008
Sappi limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
Other information (This information has not been reviewed)
Special items
Special items cover those operating items which management believe are material
by nature or amount to the results and require separate disclosure. Such items
would generally include profit and loss on disposal of property, investments
and businesses, asset impairments, restructuring charges, financial impacts of
natural disasters and non-cash gains or losses on the price fair value
adjustment of plantations.
Special items, excluding interest and tax effects, for the relevant periods
are:
Quarter Quarter Nine months Nine months
ended ended ended ended
June 2008 June 2007 June 2008 June 2007
US$ million US$ million US$ million US$ million
Plantation
price fair value
adjustment 105 (15) (12) (56)
Restructuring
provisions released - - (3) (7)
Profit on sale
of assets (1) - (5) (25)
Asset impairments 1 - 3 -
Fire, flood, storm and
related events (1) 6 9 5 9
111 (6) (12) (79)
(1) The quarter ended June 2008 includes the US$6 million business
interruption impact of the flood at Saiccor mill in South Africa.
key regional
figures Quarter Quarter Nine months Nine months
ended ended ended ended
June 2008 June 2007 June 2008 June 2007
Metric tons Metric tons Metric tons Metric tons
(000`s) (000`s) (000`s) (000`s)
Sales volume
Fine Paper -
North America 389 360 1,164 1,108
Europe 637 599 1,918 1,860
Southern Africa 87 86 246 260
Total 1,113 1,045 3,328 3,228
Forest
Products -
Pulp and paper
operations 347 358 1,039 1,067
Forestry
operations 279 259 726 788
Total 1,739 1,662 5,093 5,083
US$ million US$ million US$ million US$ million
Sales
Fine Paper -
North America 424 362 1,231 1,107
Europe 705 584 2,040 1,768
Southern Africa 95 91 271 263
Total 1,224 1,037 3,542 3,138
Forest Products
- Pulp and
paper
operations 249 242 747 694
Forestry
operations 21 18 55 50
Total 1,494 1,297 4,344 3,882
Operating
(loss) profit
Fine Paper -
North America 25 8 62 13
Europe 10 14 47 71
Southern Africa 1 3 5 6
Total 36 25 114 90
Forest Products (60) 65 167 212
Corporate 1 (3) 8 (6)
Total (23) 87 289 296
Special -
losses (gains)
Fine Paper -
North America - - 2 -
Europe - - (4) (32)
Southern Africa - - - -
Total - - (2) (32)
Forest Products 111 (8) (10) (49)
Corporate - 2 - 2
Total 111 (6) (12) (79)
Operating
profit
excluding
special items
Fine Paper -
North America 25 8 64 13
Europe 10 14 43 39
Southern Africa 1 3 5 6
Total 36 25 112 58
Forest Products 51 57 157 163
Corporate 1 (1) 8 (4)
Total 88 81 277 217
EBITDA
excluding
special items
Fine Paper -
North America 53 36 144 93
Europe 55 57 178 174
Southern Africa 5 7 17 17
Total 113 100 339 284
Forest Products 68 76 212 220
Corporate 1 - 9 (3)
Total 182 176 560 501
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
Restated
Reviewed Reviewed
Quarter Quarter
ended ended
June 2008 June 2007
Notes US$ million US$ million % change
Sales 1,494 1,297 15.2
Cost of sales 1,428 1,116
Gross profit 66 181 (63.5)
Selling, general &
administrative expenses 95 87
Other operating expenses
(income) - 9
Share of profit from
associates and joint
ventures (6) (2)
Operating (loss) profit 4 (23) 87 -
Net finance costs 45 37
Net interest 43 39
Finance cost capitalised (1) (4)
Net foreign exchange
losses (gains) 2 (3)
Net fair value loss on
financial instruments 1 5
(Loss) profit before
taxation (68) 50 -
Taxation (5) 11
Current 7 17
Deferred (12) (6)
(Loss) profit for the
period (63) 39 -
Basic (loss) earnings per
share (US cents) (28) 17
Weighted average number
of shares in issue
(millions) 228.9 227.9
Diluted basic (loss)
earnings
per share (US cents) (28) 17
Weighted average number
of shares on fully
diluted basis (millions) 231.2 231.4
Restated
Reviewed Reviewed
Nine months Nine months
ended ended
June 2008 June 2007
US$ million US$ million % change
Sales 4,344 3,882 11.9
Cost of sales 3,782 3,349
Gross profit 562 533 5.4
Selling, general &
administrative expenses 294 268
Other operating expenses
(income) (6) (25)
Share of profit from
associates and joint
ventures (15) (6)
Operating (loss) profit 289 296 (2.4)
Net finance costs 100 107
Net interest 106 112
Finance cost capitalised (16) (8)
Net foreign exchange
losses (gains) (3) (9)
Net fair value loss on
financial instruments 13 12
(Loss) profit before taxation 189 189 -
Taxation 55 62
Current 11 32
Deferred 44 30
(Loss) profit for the period 134 127 5.5
Basic (loss) earnings per
share (US cents) 59 56
Weighted average number
of shares in issue (millions) 228.7 227.5
Diluted basic (loss) earnings
per share (US cents) 58 55
Weighted average number
of shares on fully
diluted basis (millions) 230.9 230.4
Group balance sheet
Reviewed Reviewed
June 2008 Sept 2007
US$ million US$ million
ASSETS
Non-current assets 4,574 4,608
Property, plant and equipment 3,568 3,491
Plantations 556 636
Deferred taxation 56 60
Other non-current assets 394 421
Current assets 1,758 1,736
Inventories 789 712
Trade and other receivables 742 660
Cash and cash equivalents 227 364
Total assets 6,332 6,344
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` interest 1,669 1,816
Non-current liabilities 2,629 2,612
Interest-bearing borrowings 1,882 1,828
Deferred taxation 384 385
Other non-current liabilities 363 399
Current liabilities 2,034 1,916
Interest-bearing borrowings 990 771
Bank overdraft 22 22
Other current liabilities 946 998
Taxation payable 76 125
Total equity and liabilities 6,332 6,344
Number of shares in issue at balance sheet date
(millions) 229.1 228.5
Group cash flow statement
Restated Restated
Reviewed Reviewed Reviewed Reviewed
Quarter Quarter Nine months Nine months
ended ended ended ended
June 2008 June 2007 June 2008 June 2007
US$ million US$ million US$ million US$ million
(Loss) profit
for the period (63) 39 134 127
Adjustment for:
Depreciation,
fellings and
amortisation 115 113 344 336
Taxation (relief)
charge (5) 11 55 62
Net finance costs 45 37 100 107
Post employment
benefits ** (12) (35) (65) (80)
Other non-cash items 76 (23) (81) (128)
Cash generated
from operations
** 156 142 487 424
Movement in
working capital 29 (36) (134) (80)
Net finance
costs paid (83) (42) (150) (110)
Taxation paid (40) (15) (56) (18)
Dividends paid * - - (73) (68)
Cash retained
from operating
activities 62 49 74 148
Cash utilised
in investing
activities ** (98) (119) (351) (265)
(36) (70) (277) (117)
Cash effects of
financing
activities 56 19 161 74
Net movement in
cash and cash
equivalents 20 (51) (116) (43)
* Dividend number 84: 32 US cents per share (2007: 30 US cents per share)
** Reclassification - Refer note 1
Group statement of recognised income and expense
Restated Restated
Reviewed Reviewed Reviewed Reviewed
Quarter Quarter Nine months Nine months
ended ended ended ended
June 2008 June 2007 June 2008 June 2007
US$ million US$ million US$ million US$ million
Exchange
differences on
translation of
foreign
operations 50 45 (222) 123
Pension fund
asset not
recognised - 48 - 44
Deferred tax
asset (raised)
released - (13) 2 (14)
Sundry other
movements in
equity (1) - (1) 5
Net income
(expense)
recorded
directly
in equity 49 80 (221) 158
(Loss) profit
for the period (63) 39 134 127
Total
recognised
(expense)
income for
the period (14) 119 (87) 285
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 quarter and nine month period ended June 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.
Reclassification of 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. Restatement
During third quarter 2007, the group recognised a taxation credit of US$14
million related to a tax rate change in Germany. The recognition was based on
the group`s judgment that the change in the German tax rate from 38% to 30% had
been substantively enacted during the quarter ended June 2007. The group has
subsequently concluded that the tax law change was substantively enacted on 6
July 2007, and accordingly, the impact of the tax rate change should have been
reflected in its fourth quarter results. The change has no impact on the
group`s results for the year ended September 2007, however it does impact the
deferred taxation and profit for the period for the quarters ended June and
September 2007 and for the nine months ended June 2007 as follows:
Reviewed Reviewed
Quarter Quarter
ended ended
June 2007 Sept 2007
US$ million US$ million
Deferred taxation as reported (20) (7)
Change in timing of taxation credit 14 (14)
Deferred taxation as restated (6) (21)
Profit for the period as reported 53 61
Taxation credit (14) 14
Profit for the period as restated 39 75
Basic earnings per share (US cents) as
reported 23 27
Basic earnings per share (US cents) as
restated 17 33
Diluted basic earnings per share (US cents)
as reported 23 26
Diluted basic earnings per share (US
cents) as restated 17 32
Reviewed Reviewed
Nine months Year
ended ended
June 2007 Sept 2007
US$ million US$ million
Deferred taxation as reported 16 9
Change in timing of taxation credit 14 -
Deferred taxation as restated 30 9
Profit for the period as reported 141 202
Taxation credit 14 -
Profit for the period as restated 127 202
Basic earnings per share (US cents) as
reported 62 89
Basic earnings per share (US cents) as
restated 56 89
Diluted basic earnings per share (US cents)
as reported 61 88
Diluted basic earnings per share (US cents)
as restated 55 88
3. Reconciliation of movement in shareholders` equity
Restated
Reviewed Reviewed
Nine months Nine months
ended ended
June 2008 June 2007
US$ million US$ million
Balance - beginning of year 1,816 1,386
Total recognised (expense) income for the period (87) 285
Dividends paid (73) (68)
Transfers to participants of the share purchase
trust 6 14
Share based payment reserve 7 4
Balance - end of period 1,669 1,621
notes to the group results
Restated
Reviewed Reviewed
Quarter Quarter
ended ended
June 2008 June 2007
US$ million US$ million
4. Operating (loss) profit
Included in operating (loss) profit are the
following
non-cash items:
Depreciation and amortisation 94 95
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 21 18
Growth (20) (22)
1 (4)
Plantation price fair value adjustment 105 (15)
106 (19)
Included in other operating (expenses) income
are the following:
Asset impairments 1 -
Profit on disposal of property, plant &
equipment (1) 1
Restructuring provisions released - (1)
5. Headline (loss) earnings per share
Headline (loss) earnings per share (US cents) * (27) 18
Weighted average number of shares in issue (millions) 228.9 227.9
Diluted headline (loss) earnings per share
(US cents) * (27) 17
Weighted average number of shares on fully diluted
basis (millions) 231.2 231.4
Calculation of Headline (loss) earnings *
(Loss) profit for the period (63) 39
Asset impairments 1 -
Profit on disposal of property, plant & equipment (1) 1
Tax effect of above items 1 -
Headline (loss) earnings (62) 40
* Headline earnings disclosure is required by
the JSE Limited.
6. Capital expenditure
Property, plant and equipment 103 116
Restated
Reviewed Reviewed
Nine months Nine months
ended ended
June 2008 June 2007
US$ million US$ million
4. Operating (loss) profit
Included in operating (loss) profit are the
following
non-cash items:
Depreciation and amortisation 283 284
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 61 52
Growth (55) (57)
6 (5)
Plantation price fair value adjustment (12) (56)
(6) (61)
Included in other operating (expenses) income
are the following:
Asset impairments 3 1
Profit on disposal of property, plant &
equipment (5) (24)
Restructuring provisions released (3) (11)
5. Headline (loss) earnings per share
Headline (loss) earnings per share (US cents) * 58 48
Weighted average number of shares in issue
(millions) 228.7 227.5
Diluted headline (loss) earnings per share
(US cents) * 58 47
Weighted average number of shares on fully diluted
basis (millions) 230.9 230.4
Calculation of Headline (loss) earnings *
(Loss) profit for the period 134 127
Asset impairments 3 1
Profit on disposal of property, plant & equipment (5) (24)
Tax effect of above items 1 5
Headline (loss) earnings 133 109
* Headline earnings disclosure is required by
the JSE Limited.
6. Capital expenditure
Property, plant and equipment 377 330
June 2008 Sept 2007
US$ million US$ million
7. Capital commitments
Contracted 102 188
Approved but not contracted 169 249
271 437
June 2008 Sept 2007
US$ million US$ million
8. Contingent liabilities
Guarantees and suretyships 47 43
Other contingent liabilities * 7 26
54 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
Current and non-current interest bearing borrowings
The movement on these balances between September 2007 and June 2008 is largely
due to (i) US$190 million of expenditure on the Saiccor expansion project, (ii)
financing for the purchase of leased equipment for US$75 million and (iii)
US$133 million of currency movements and fair value adjustments.
Taxation
The movement is a result of certain tax liabilities which the group has
settled in the past nine months.
10. Regional information
Reviewed Reviewed
Quarter Quarter
ended ended
June 2008 June 2007
US$ million US$ million % change
Sales
Fine Paper - North America 424 362 17.1
Europe 705 584 20.7
Southern Africa 95 91 4.4
Total 1,224 1,037 18.0
Forest Products - Pulp and paper
operations 249 242 2.9
Forestry operations 21 18 16.7
Total 1,494 1,297 15.2
Operating (loss) profit
Fine Paper - North America 25 8 212.5
Europe 10 14 (28.6)
Southern Africa 1 3 (66.7)
Total 36 25 44.0
Forest Products (60) 65 -
Corporate 1 (3) -
Total (23) 87 -
Net operating assets
Fine Paper - North America 1,064 1,061 0.3
Europe 2,098 1,947 7.8
Southern Africa 124 153 (19.0)
Total 3,286 3,161 4.0
Forest Products 1,714 1,572 9.0
Corporate and other 27 40 (32.5)
Total 5,027 4,773 5.3
Reviewed Reviewed
Nine months Nine months
ended ended
June 2008 June 2007
US$ million US$ million % change
Sales
Fine Paper - North America 1,231 1,107 11.2
Europe 2,040 1,768 15.4
Southern Africa 271 263 3.0
Total 3,542 3,138 12.9
Forest Products - Pulp and paper
operations 747 694 7.6
Forestry operations 55 50 10.0
Total 4,344 3,882 11.9
Operating (loss) profit
Fine Paper - North America 62 13 376.9
Europe 47 71 (33.8)
Southern Africa 5 6 (16.7)
Total 114 90 26.7
Forest Products 167 212 (21.2)
Corporate 8 (6) -
Total 289 296 (2.4)
Net operating assets
Fine Paper - North America 1,064 1,061 0.3
Europe 2,098 1,947 7.8
Southern Africa 124 153 (19.0)
Total 3,286 3,161 4.0
Forest Products 1,714 1,572 9.0
Corporate and other 27 40 (32.5)
Total 5,027 4,773 5.3
Supplemental information (This information has not been reviewed)
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 - return on net operating assets. 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. Such items would generally include profit and loss on disposal of
property, investments and businesses, asset impairments, restructuring charges,
financial impacts of 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.
Restated Restated
Quarter Quarter Nine months Nine months
ended ended ended ended
June 2008 June 2007 June 2008 June 2007
US$ million US$ million US$ million US$ million
(Loss) profit
for the period
to EBITDA excluding
special items (1)
reconciliation
(Loss) profit
for the period (63) 39 134 127
Net finance costs 45 37 100 107
Taxation (5) 11 55 62
Special items -
losses (gains) 111 (6) (12) (79)
Operating profit
excluding
special items 88 81 277 217
Depreciation and
amortisation 94 95 283 284
EBITDA excluding
special items (1) 182 176 560 501
June 2008 Sept 2007
US$ million US$ million
Net debt (US$ million) (2) 2,667 2,257
Net debt to total capitalisation (%) (2) 50.2 43.2
Net asset value per share (US$) (2) 8.72 9.37
(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 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. Such items would generally include profit and loss on
disposal of property, investments and businesses, asset impairments,
restructuring charges, financial impacts of 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 Supplemental Information for the definition of the term.
summary Rand convenience translation
Restated
Quarter Quarter
ended ended %
June 2008 June 2007 change
Key figures: (ZAR million)
Sales 11,711 9,221 27.0
Operating (loss) profit (180) 619 -
Special items - losses (gains) * 870 (43) -
Operating profit excluding
special items 690 576 19.8
EBITDA excluding special items * 1,427 1,251 14.1
(Loss) profit for the period (494) 277 -
Basic EPS (SA cents) (219) 121 -
Net debt * 21,108 16,282 29.6
Cash generated from operations 1,223 1,010 21.1
Cash retained from operating activities 486 348 39.7
Net movement in cash and
cash equivalents 157 (363) -
Key ratios: (%)
Operating (loss) profit to sales (1.5) 6.7
Operating profit excluding special
items to sales 5.9 6.2
EBITDA excluding special items to sales 12.2 13.6
Operating profit excluding special
items to average net assets 8.0 7.8
Net debt to total capitalisation * 50.2 46.1
Restated
Nine months Nine months
ended ended %
June 2008 June 2007 change
Key figures: (ZAR million)
Sales 31,814 27,997 13.6
Operating (loss) profit 2,117 2,135 (0.8)
Special items - losses (gains) * (88) (570) -
Operating profit excluding
special items 2,029 1,565 29.6
EBITDA excluding special items * 4,101 3,613 13.5
(Loss) profit for the period 981 916 7.1
Basic EPS (SA cents) 432 404 6.9
Net debt * 21,108 16,282 29.6
Cash generated from operations 3,567 3,058 16.6
Cash retained from operating activities 542 1,067 (49.2)
Net movement in cash and
cash equivalents (850) (310) -
Key ratios: (%)
Operating (loss) profit to sales 6.7 7.6
Operating profit excluding special
items to sales 6.4 5.6
EBITDA excluding special items to sales 12.9 12.9
Operating profit excluding special
items to average net assets 8.4 7.1
Net debt to total capitalisation * 50.2 46.1
* Refer to Supplemental Information for the definition of the term.
The above financial results have been translated into ZAR from 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.
exchange rates
June March Dec
2008 2008 2007
Exchange rates :
Period end rate: US$1 = ZAR 7.9145 8.1432 6.8068
Average rate for the Quarter: US$1 = ZAR 7.8385 7.4593 6.7488
Average rate for the YTD: US$1 = ZAR 7.3236 7.1465 6.7488
Period end rate: EUR 1 = US$ 1.5795 1.5802 1.4717
Average rate for the Quarter: EUR 1 = US$ 1.5747 1.5006 1.4556
Average rate for the YTD: EUR 1 = US$ 1.5071 1.4790 1.4556
Sept June
2007 2007
Exchange rates :
Period end rate: US$1 = ZAR 6.8713 7.0393
Average rate for the Quarter: US$1 = ZAR 7.0453 7.1095
Average rate for the YTD: US$1 = ZAR 7.1741 7.2121
Period end rate: EUR 1 = US$ 1.4272 1.3542
Average rate for the Quarter: EUR 1 = US$ 1.3782 1.3498
Average rate for the YTD: EUR 1 = US$ 1.3336 1.3178
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.
Other interested parties can obtain printed copies of this report from:
South Africa:
Computershare Investor
Services (Proprietary) Limited
70 Marshall Street
Johannesburg 2001
PO Box 61051
Marshalltown 2107
Tel +27 (0)11 370 5000
United States
ADR Depositary:
The Bank of New York Mellon
Investor Relations
PO Box 11258
Church Street Station
New York, NY 10286-1258
Tel +1 610 382 7836
United Kingdom:
Capita Registrars
The Registry
34 Beckenham Road
Beckenham, Kent
BR3 4TU, DX 91750
Beckenham West
Tel +44 (0)208 639 2157
this report is available on the Sappi website www.sappi.com
Date: 31/07/2008 08:59:32 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
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