| Thu 6 Nov 2008, 9:03 | | SAP - Sappi Limited - Results for the fourth quarter and year ended September |
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SAP
SAVVI
SAP - Sappi Limited - Results for the fourth quarter and year ended September
2008 and dividend declaration
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
4th quarter
and year ended
September 2008 results
Financial summary
- Operating profit excluding special items US$89 million (Q3 2008: US$88
million; Q4 2007: US$96 million)
- Special items a net pre-tax charge of US$64 million
- Basic EPS a loss of 14 US cents (unfavourably impacted by special items of 35
US cents)
- Quarter benefited from higher prices in Europe and North America
- Input costs remained high, including wood, energy and chemical costs
- Major strategic achievements:
- Strong shareholder support and approval for announced acquisition of
M-real`s coated graphic paper business for Euro750 million
- Saiccor expansion commissioned
Quarter ended
Restated ****
Sept 2008 June 2008 Sept 2007
Key figures: (US$ million)
Sales 1,519 1,494 1,422
Operating profit (loss) 25 (23) 87
Special items - losses (gains) * 64 111 9
Operating profit excluding
special items 89 88 96
EBITDA excluding special items *** 180 182 187
Basic EPS (US cents) (14) (28) 33
Net debt ** 2,405 2,667 2,257
Key ratios: (%)
Operating profit (loss) to sales 1.6 (1.5) 6.1
Operating profit excluding
special items to sales 5.9 5.9 6.8
EBITDA excluding special items
to sales 11.8 12.2 13.2
Operating profit excluding
special items to average
net assets ** 8.3 8.1 9.0
Return on average equity (ROE) ** (7.8) (15.1) 17.4
Net debt to total capitalisation
** 47.8 50.2 43.2
Year ended
Sept 2008 Sept 2007
Key figures: (US$ million)
Sales 5,863 5,304
Operating profit (loss) 314 383
Special items - losses (gains) * 52 (70)
Operating profit excluding
special items 366 313
EBITDA excluding special items *** 740 688
Basic EPS (US cents) 45 89
Net debt ** 2,405 2,257
Key ratios: (%)
Operating profit (loss) to sales 5.4 7.2
Operating profit excluding
special items to sales 6.2 5.9
EBITDA excluding special items
to sales 12.6 13.0
Operating profit excluding
special items to average
net assets ** 8.5 7.6
Return on average equity (ROE) ** 6.0 12.6
Net debt to total capitalisation ** 47.8 43.2
* Refer to details on special items.
** 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 table above has not been audited or reviewed.
Comment
Although economic conditions in our major markets became increasingly uncertain
through the quarter, our order books remained strong. Sales volumes were at
similar levels to the equivalent quarter last year and the prior quarter.
Prices realised improved in all regions which, together with the
effect of currency translation, in particular of Euros to US Dollars, resulted
in a 7% increase in net sales for the quarter compared to a year ago. Prices
for coated fine paper in Europe improved towards the end of the quarter,
helping to offset high input costs.
High input costs including wood, energy and chemical costs continued to have
an unfavourable impact on our margins in all regions. The impact of price
increases on input costs of wood, energy and chemicals for the quarter was
US$78 million compared to a year ago. We were able to mitigate part of the
increase through reduced usage and efficiency programmes. Fixed costs were
tightly managed across the group. Despite inflationary pressure in all regions.
Operating profit for the quarter was US$25 million. Operating profit excluding
special items was US$89 million compared to US$96 million a year ago and US$88
million in the third quarter.
Special items of US$64 million comprised charges of US$124 million for the
planned closures of Blackburn Mill and Maastricht Mill`s Paper Machine No 5
announced in August 2008, US$37 million in respect of the impairment of Usutu
Mill, US$11 million in respect of fire damage to plantations partly offset by a
favourable adjustment for the fair value of plantations of US$108 million.
Net finance costs for the quarter were US$26 million compared to US$27 million
a year ago.
The effective tax rate for the quarter was unusually high, mainly as a result of
tax relief not being available on the asset impairments and the restructuring
provisions raised.
Basic loss per share for the quarter was 14 US cents after the impact of
unfavourable special items of approximately of 35 US cents, compared to earnings
of 33 US cents a year ago, which included a favourable impact of special items
of approximately 3 US cents.
Year ended September 2008 compared to year ended September 2007
Sales for the year increased 11% to US$5.9 billion as a result of higher prices
and the effect of translation of Euro sales to US Dollars at a higher Euro/US
Dollar exchange rate. Sales volumes were at similar levels.
Operating profit for the year was US$314 million compared to US$383 million
last year. Operating profit excluding special items increased 17% to US$366
million. Special items for the year were an unfavourable US$52 million
comprising charges relating to the shutting of Blackburn Mill and Paper Machine
No. 5 at Maastricht Mill, and asset impairments partly offset by the favourable
adjustment of fair value of plantations net of fire damage. In 2007, special
items was a favourable US$70 million.
Net finance costs for the year were US$126 million compared to US$134 million
last year.
The effective tax rate for the year was 46% which was higher than 19% last year
as a result of no tax relief on closures being recorded, on the asset
impairments and the restructuring provisions raised.
Basic earnings per share for the year was 45 US cents after an approximate
30 US cents unfavourable impact of special items compared to 89 US cents last
year which included an approximate 22 US cents favourable impact of special
items.
Cash flow and debt
Cash generated by operations was US$136 million for the quarter compared to
US$161 million a year ago.
On a cash flow basis, net finance costs for the quarter were an inflow of
US$24 million, compared to a payment of US$52 million a year ago, partly as a
result of a Euro 25 million (US$37 million) cash inflow arising from rolling
forward cover contracts which hedge the income statement impact of a currency
exposure in a subsidiary.
The cash effect of investing activities was US$143 million in the quarter, well
above a year ago, mainly as a result of expenditure to complete the Saiccor
expansion project.
Net debt at September 2008 was US$2.4 billion compared to US$2.7 billion at the
end of June. The reduction was a result of good cash generation in the quarter
and a US$124 million favourable currency translation effect.
There are no long term debt repayments scheduled for the remainder of 2008 or
2009. The securitisation programme (US$360 million utilised at September 2008)
has functioned effectively throughout the period, despite the financial turmoil
over recent months. We believe that our committed facilities and cash holdings
provide liquidity assurance in respect of our short term debt.
Operating review for the quarter
Sappi Fine Paper
Quarter Quarter
ended ended
Sept 2008 Sept 2007
US$ million US$ million
Sales 1,222 1,118
Operating (loss) profit (80) 29
Operating (loss) profit to sales (%) (6.5) 2.6
Special items 124 -
Operating profit excluding special items 44 29
Operating profit excluding special
items to sales (%) 3.6 2.6
EBITDA excluding special items 118 102
EBITDA excluding special items
to sales (%) 9.7 9.1
RONOA pa (%) 5.6 3.7
Quarter
ended
% June 2008
change US$ million
Sales 9.3 1,224
Operating (loss) profit - 36
Operating (loss) profit to sales (%) - 2.9
Special items - -
Operating profit excluding special items 51.7 36
Operating profit excluding special
items to sales (%) - 2.9
EBITDA excluding special items 15.7 113
EBITDA excluding special items
to sales (%) - 9.2
RONOA pa (%) - 4.4
The performance of our Fine Paper business was enhanced by the improvements in
the North American business, which achieved a 11.5% return on net operating
assets for the quarter.
Sales volumes were at similar levels to the equivalent period last year. Prices
in US Dollar terms were 6% higher than a year earlier.
Europe
Quarter Quarter
ended ended %
Sept 2008 Sept 2007 change
US$ million US$ million (US$)
Sales 680 619 9.9
Operating (loss) profit (111) 17 -
Operating (loss) profit to sales (%) (16.3) 2.7 -
Special items 123 - -
Operating profit excluding
special items 12 17 (29.4)
Operating profit excluding
special items to sales (%) 1.8 2.7 -
EBITDA excluding special items 57 60 (5)
EBITDA excluding special
items to sales (%) 8.4 9.7 -
RONOA pa (%) 2.5 3.5 -
Quarter
% ended
change June 2008
(Euro) US$ million
Sales (0.4) 705
Operating (loss) profit - 10
Operating (loss) profit to sales (%) - 1.4
Special items - -
Operating profit excluding
special items (33.3) 10
Operating profit excluding
special items to sales (%) - 1.4
EBITDA excluding special items (15.9) 55
EBITDA excluding special
items to sales (%) - 7.8
RONOA pa (%) - 1.9
Prices realised by our European business improved towards the end of the
quarter as a result of price increases implemented in September,
the last month of the quarter, which helped offset the pressure of continued
high input costs.
Sales volumes were, however, slightly lower than a year ago partly as a result
of the implementation of price increases in September. Input costs continued
to increase in the quarter but were partly offset by reduced consumption of
raw materials and operating efficiencies.
Negotiations on the future of Blackburn Mill and Maastricht Paper Machine No.5
continued through the quarter, and it was decided to stop production at
Blackburn Mill on 17 October 2008. Production at Maastricht Paper Machine No. 5
is expected to close before the end of 2008. Charges related to the planned
closures were taken in this quarter amounting to US$124 million, of which
US$78 million were non-cash impairment charges. We expect future annual
benefits to operating profit of US$30 million as a result of the closures.
North America
Quarter Quarter
ended ended
Sept 2008 Sept 2007
US$ million US$ million
Sales 433 404
Operating profit 30 9
Operating profit to sales (%) 6.9 2.2
Special items 1 -
Operating profit excluding
special items 31 9
Operating profit excluding
special items to sales (%) 7.2 2.2
EBITDA excluding special items 57 35
EBITDA excluding special
items to sales (%) 13.2 8.7
RONOA pa (%) 11.5 3.4
Quarter
ended
% June 2008
change US$ million
Sales 7.2 424
Operating profit 233.3 25
Operating profit to sales (%) - 5.9
Special items - -
Operating profit excluding
special items 244.4 25
Operating profit excluding
special items to sales (%) - 5.9
EBITDA excluding special items 62.9 53
EBITDA excluding special
items to sales (%) - 12.5
RONOA pa (%) - 9.2
Average prices realised for the quarter were 10% above the equivalent quarter
last year; however, volumes were about 2% lower largely in line with a decline
in industry shipments.
Raw material prices remained high in the quarter but with tight management of
costs and efficiencies and a strong operating performance across all mills,
together with the improved price realisation, we achieved the best quarterly
performance for several years. The business exceeded its target return on net
operating assets for the quarter.
South Africa
Quarter Quarter
ended ended %
Sept 2008 Sept 2007 change
US$ million US$ million (US$)
Sales 109 95 14.7
Operating profit 1 3 (66.7)
Operating profit to sales (%) 0.9 3.2 -
Special items - - -
Operating profit excluding
special items 1 3 (66.7)
Operating profit excluding
special items to sales (%) 0.9 3.2 -
EBITDA excluding special items 4 7 (42.9)
EBITDA excluding special
items to sales (%) 3.7 7.4 -
RONOA pa (%) 3.4 7.9 -
Quarter
% ended
change June 2008
(Rand) US$ million
Sales 27.4 95
Operating profit (61.9) 1
Operating profit to sales (%) 1.1
Special items - -
Operating profit excluding
special items (61.9) 1
Operating profit excluding
special items to sales (%) - 1.1
EBITDA excluding special items (36.7) 5
EBITDA excluding special
items to sales (%) - 5.3
RONOA pa (%) - 3.2
The business improved its sales volumes and pricing in Rand terms compared to a
year ago. High input costs, particularly fibre, chemicals and energy, however,
had a severe impact on margins.
Forest Products
Quarter Quarter
ended ended %
Sept 2008 Sept 2007 change
US$ million US$ million (US$)
Sales 297 304 (2.3)
Operating profit 106 52 103.8
Operating profit to sales (%) 35.7 17.1 -
Special items (60) 9 -
Operating profit excluding
special items 46 61 (24.6)
Operating profit excluding
special items to sales (%) 15.5 20.1 -
EBITDA excluding special items 63 79 (20.3)
EBITDA excluding special items
to sales (%) 21.2 26.0 -
RONOA pa (%) 10.7 15.1 -
Quarter
% ended
change June 2008
(Rand) US$ million
Sales 8.4 270
Operating profit 126.0 (60)
Operating profit to sales (%) - (22.2)
Special items - 111
Operating profit excluding
special items (16.5) 51
Operating profit excluding
special items to sales (%) - 18.9
EBITDA excluding special items (11.6) 68
EBITDA excluding special items
to sales (%) - 25.2
RONOA pa (%) - 12.0
Sales volumes for the quarter were below a year ago mainly as a result of
output constraints at Saiccor Mill as the major expansion was completed and a
refurbishment shut at Usutu Mill.
International prices for pulp softened during the quarter which was offset by
the weaker Rand to the US Dollar. Demand for chemical cellulose was strong. In
the South African market, demand for our packaging paper and newsprint was
firm.
During the quarter the Saiccor expansion project was commissioned. The start up
went well and we expect a rapid ramp up of production. The expected increase in
sales volumes was, however, impacted by the approximate 3-month delay in the
start up. At full capacity, which we expect to reach during the first calendar
quarter of 2009, the expansion will increase output by 225,000 tons of chemical
cellulose to an annual capacity of 800,000 tons. Our plantations in South
Africa and Swaziland were severely damaged by fires during August (following
severe fires during 2007) resulting in damage to approximately 26,000 hectares
of planted trees. The damage to plantations resulted in a charge of US$11
million in the quarter. The volume of trees lost in Swaziland reduced the value
of Usutu Mill which has therefore been impaired. During the quarter a charge of
US$37 million was recorded in respect of this impairment.
The plantation fair value (price) adjustment for the quarter was a gain of
US$108 million.
Dividend
Taking into account factors including the macro economic and global financial
market conditions, the board has decided to rebase the dividend.
Accordingly the board has approved a dividend, number 85, of 16 US cents
per share for the year ended September 2008. The dividend will be payable
on all shares in issue on 28 November 2008, which is prior to completion
of the proposed rights offer. A dividend of 32 US cents per share was paid
for the previous year.
Acquisition
On 29 September 2008 we announced the proposed acquisition of M-real`s coated
graphic paper business, for Euro 750 million. On 03 November 2008, Sappi
shareholders approved the resolutions authorising the transaction and placing
newly created shares under the control of directors for the purposes of a
rights offer to finance the transaction. On 31 October 2008, we announced that
Sappi intends to raise the Rand equivalent of Euro 450 million through a fully
underwritten renounceable rights offer. Further details of the rights offer are
expected to be announced on 07 November 2008.
The acquisition was cleared by the European Commission on 31 October 2008. The
acquisition is subject to the implementation of our planned rights offer and
certain adverse change conditions.
We plan to fund the transaction with Euro 500 million of equity with the
balance in long term debt, which will therefore strengthen our balance sheet
ratios.
Outlook
Given the turmoil in world financial markets and predictions of lower global
economic growth following from this, we expect demand in our major markets to
be lower in the near term. Developments in the supply and demand balance for
coated fine paper remain favourable. A number of producers, including
ourselves, have announced capacity reductions in Europe amounting to
approximately one million tons of coated woodfree paper (around 10% of
capacity) over the next few months.
We also believe that circumstances are right for the reduction of many of our
input costs including wood, chemicals and energy, and we will work with our
suppliers to achieve this. We expect reduced input costs to help offset the
unfavourable impact on our margins if demand slows.
The decline in the value of both the Rand and the Euro against the US Dollar
will have a net positive effect on margins in South Africa, and to a lesser
extent in Europe, respectively. The strong US Dollar does, however, make the
North American market more susceptible to imports. We expect the net effect of
recent currency movements to be positive for our business in terms of both
margin and debt.
We expect the quarter ahead to be weak as it is typically a seasonally
slower quarter and we plan a number of major mill maintenance shuts
during the quarter.
Our strategic initiatives, including the acquisition of M-real`s coated graphic
paper business are progressing well. We expect the acquisition to be
completed on 31 December 2008, resulting in a stronger European business with
excellent brands and strong customer relations. We estimate total annual
synergies of approximately Euro 120 million from the acquisition and the
integration of the acquired business into our existing business. We expect to
achieve these synergies within three years and without material capital
investments.
Production at our expanded Saiccor Mill is ramping up well and although NBSK
pulp prices have softened over the last few months, prospects for this business
are excellent - the business has exciting markets and price realisation in Rand
terms has increased compared to the previous quarter.
Following the completion of the Saiccor expansion, we plan to reduce the level
of capital expenditure and expect to reduce debt levels during financial year
2009 with internally generated cash flow. Given the uncertain conditions in
global financial markets, refinancing existing or raising additional debt and
the associated terms are likely to be more challenging.
We believe that successful implementation of our strategic initiatives, coupled
with capacity closures in Europe and input cost reductions across all our
businesses, will place the group in a good position to face the year ahead.
On behalf of the board
R J Boettger M R Thompson
Director Director 06 November 2008
sappi limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
Dividend Announcement
The directors have declared a dividend (number 85) of 16 US cents per share for
the year ended September 2008:
In compliance with the requirements of STRATE, the JSE electronic settlement
system which is applicable to Sappi, the salient dates in respect of the
dividend will be as follows:
Last day to trade to qualify for dividend: Friday 21 November 2008
Date on which shares commence trading ex-dividend: Monday 24 November 2008
Record date: Friday 28 November 2008
Payment date: Tuesday 02 December 2008
Dividends payable from the Johannesburg transfer office will be paid in South
African Rands except that dividends payable to nominee shareholders in respect
of shares which they hold on behalf of non-residents of the Republic of South
Africa will without exception be paid in United States Dollars. There will not
be any currency election.
Dividends payable from the London transfer office will be paid in British
Pounds Sterling or in the case of shareholders with registered addresses in the
USA, in United States Dollars.
Dividends payable other than in United States Dollars will be calculated at the
respective rates of exchange ruling at 21h15 Central European Time as per
Reuters on Thursday, 13 November 2008 and announced on Friday, 14 November
2008.
There will not be any de-materialisation nor re-materialisation of Sappi
Limited share certificates from Friday 21 November 2008 to Friday 28 November
2008 both days inclusive.
Sappi Management Services (Pty) Limited
Secretaries
Per D J O`Connor
06 November 2008
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:
Other information (This information has not been reviewed)
Quarter Quarter
ended ended
Sept 2008 Sept 2007
US$ million US$ million
Plantation price fair value adjustment (108) 2
Restructuring provisions raised (released) 44 -
Profit on sale of assets - (1)
Asset impairments 116 -
Fire, flood, storm and related events(1) 12 8
64 9
Year Year
ended ended
Sept 2008 Sept 2007
US$ million US$ million
Plantation price fair value adjustment (120) (54)
Restructuring provisions raised (released) 41 (7)
Profit on sale of assets (5) (26)
Asset impairments 119 -
Fire, flood, storm and related events(1) 17 17
52 (70)
(1) The year ended September 2008 includes the US$6 million business
interruption impact of the flood at Saiccor mill in South Africa.
key regional figures
Quarter Quarter
ended ended
Sept 2008 Sept 2007
Metric tons Metric tons
(000`s) (000`s)
Sales volume
Fine Paper - North America 389 398
Europe 628 633
Southern Africa 93 90
Total 1,110 1,121
Forest Products - Pulp and paper operations 380 417
Forestry operations 268 242
Total 1,758 1,780
Year Year
ended ended
Sept 2008 Sept 2007
Metric tons Metric tons
(000`s) (000`s)
Sales volume
Fine Paper - North America 1,553 1,506
Europe 2,546 2,493
Southern Africa 339 350
Total 4,438 4,349
Forest Products - Pulp and paper operations 1,419 1,484
Forestry operations 994 1,030
Total 6,851 6,863
US$ million US$ million
Sales
Fine Paper - North America 433 404
Europe 680 619
Southern Africa 109 95
Total 1,222 1,118
Forest Products - Pulp and paper operations 276 285
Forestry operations 21 19
Total 1,519 1,422
US$ million US$ million
Sales
Fine Paper - North America 1,664 1,511
Europe 2,720 2,387
Southern Africa 380 358
Total 4,764 4,256
Forest Products - Pulp and paper operations 1,023 979
Forestry operations 76 69
Total 5,863 5,304
Quarter Quarter
ended ended
Sept 2008 Sept 2007
US$ million US$ million
Operating profit
Fine Paper - North America 30 9
Europe (111) 17
Southern Africa 1 3
Total (80) 29
Forest Products 106 52
Corporate and other (1) 6
Total 25 87
Special items - losses (gains)
Fine Paper - North America 1 -
Europe 123 -
Southern Africa - -
Total 124 -
Forest Products (60) 9
Corporate and other - -
Total 64 9
Operating profit excluding special items
Fine Paper - North America 31 9
Europe 12 17
Southern Africa 1 3
Total 44 29
Forest Products 46 61
Corporate and other (1) 6
Total 89 96
EBITDA excluding special items
Fine Paper - North America 57 35
Europe 57 60
Southern Africa 4 7
Total 118 102
Forest Products 63 79
Corporate and other (1) 6
Total 180 187
Year Year
ended ended
Sept 2008 Sept 2007
US$ million US$ million
Operating profit
Fine Paper - North America 92 22
Europe (64) 88
Southern Africa 6 9
Total 34 119
Forest Products 273 264
Corporate and other 7 -
Total 314 383
Special items - losses (gains)
Fine Paper - North America 3 -
Europe 119 (32)
Southern Africa - -
Total 122 (32)
Forest Products (70) (40)
Corporate and other - 2
Total 52 (70)
Operating profit excluding special items
Fine Paper - North America 95 22
Europe 55 56
Southern Africa 6 9
Total 156 87
Forest Products 203 224
Corporate and other 7 2
Total 366 313
EBITDA excluding special items
Fine Paper - North America 201 128
Europe 235 234
Southern Africa 21 24
Total 457 386
Forest Products 275 299
Corporate and other 8 3
Total 740 688
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 risk
that the Acquired Business will not be integrated successfully or such
integration may be more difficult, time-consuming or costly than expected,
expected revenue synergies and cost savings from the acquisition may not
be fully realized or realized within the expected time frame, revenues
following the acquisition may be lower than expected, any anticipated
benefits from the consolidation of the European paper business may not be
achieved or the related financings, 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.
We have included in this announcement an estimate of total synergies from the
proposed acquisition of M-real`s coated graphic paper business and the
integration of the acquired business into our existing business. The estimate
of synergies that we expect to achieve following the completion of the proposed
acquisition is based on assumptions which in the view of our management were
prepared on a reasonable basis, reflect the best currently available estimates
and judgments, and present, to the best of our management`s knowledge and
belief, the expected course of action and the expected future financial impact
on our performance due to the proposed acquisition. However, the assumptions
about these expected synergies are inherently uncertain and, though considered
reasonable by management as of the date of preparation, are subject to a wide
variety of significant business, economic and competitive risks and
uncertainties that could cause actual results to differ materially from those
contained in this estimate of synergies. There can be no assurance that we
will be able to successfully implement the strategic or operational initiatives
that are intended, or realise the estimated synergies. This synergy estimate
is not a profit forecast or a profit estimate and should not be treated as such
or relied on by shareholders or prospective investors to calculate the likely
level of profits or losses for Sappi for the fiscal 2008 or beyond.
Group income statement
Restated
Reviewed Reviewed
Quarter Quarter
ended ended
Sept 2008 Sept 2007
Note US$ million US$ million % change
Sales 1,519 1,422 6.8
Cost of sales 1,234 1,242
Gross profit 285 180 58.3
Selling, general &
administrative expenses 91 94
Other operating expenses
(income) 171 3
Share of profit from
associates and joint
ventures (2) (4)
Operating profit 4 25 87 (71.3)
Net finance costs 26 27
Net interest 37 40
Finance cost capitalised - (6)
Net foreign exchange gains (5) (4)
Net fair value (gain) loss
on financial instruments (6) (3)
(Loss) profit before taxation (1) 60 -
Taxation 31 (15)
Current (5) 6
Deferred 36 (21)
(Loss) profit for the period (32) 75 -
Basic (loss) earnings per
share (US cents) (14) 33
Weighted average number
of shares in issue (millions) 228.8 228.4
Diluted basic (loss) earnings
per share (US cents) (14) 32
Weighted average number
of shares on fully
diluted basis (millions) 230.7 231.2
Reviewed Reviewed
Year Year
ended ended
Sept 2008 Sept 2007
US$ million US$ million % change
Sales 5,863 5,304 10.5
Cost of sales 5,016 4,591
Gross profit 847 713 18.8
Selling, general &
administrative expenses 385 362
Other operating expenses (income) 165 (22)
Share of profit from
associates and joint ventures (17) (10)
Operating profit 314 383 (18.0)
Net finance costs 126 134
Net interest 143 152
Finance cost capitalised (16) (14)
Net foreign exchange gains (8) (13)
Net fair value (gain) loss
on financial instruments 7 9
(Loss) profit before taxation 188 249 (24.5)
Taxation 86 47
Current 6 38
Deferred 80 9
(Loss) profit for the period 102 202 (49.5)
Basic (loss) earnings per
share (US cents) 45 89
Weighted average number
of shares in issue (millions) 228.8 227.8
Diluted basic (loss) earnings
per share (US cents) 44 88
Weighted average number
of shares on fully
diluted basis (millions) 231.1 230.5
Group balance sheet
Reviewed Reviewed
Sept 2008 Sept 2007
US$ million US$ million
ASSETS
Non-current assets 4,408 4,608
Property, plant and equipment 3,361 3,491
Plantations 631 636
Deferred taxation 41 60
Other non-current assets 375 421
Current assets 1,701 1,736
Inventories 725 712
Trade and other receivables 702 660
Cash and cash equivalents 274 364
Total assets 6,109 6,344
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` interest 1,605 1,816
Non-current liabilities 2,578 2,612
Interest-bearing borrowings 1,832 1,828
Deferred taxation 399 385
Other non-current liabilities 347 399
Current liabilities 1,926 1,916
Interest-bearing borrowings 821 771
Bank overdraft 26 22
Other current liabilities 1,025 998
Taxation payable 54 125
Total equity and liabilities 6,109 6,344
Number of shares in issue at balance sheet date
(millions) 229.2 228.5
Group cash flow statement
Restated
Reviewed Reviewed
Quarter Quarter
ended ended
Sept 2008 Sept 2007
US$ million US$ million
(Loss) profit for the period (32) 75
Adjustment for:
Depreciation, fellings and amortisation 110 109
Taxation 31 (15)
Net finance costs 26 27
Post employment benefits ** (23) (21)
Other non-cash items 24 (14)
Cash generated from operations ** 136 161
Movement in working capital 135 140
Net finance costs 24 (52)
Taxation paid (14) (9)
Dividends paid * - -
Cash retained from operating activities 281 240
Cash utilised in investing activities ** (143) (99)
138 141
Cash effects of financing activities (112) 24
Net movement in cash and cash equivalents 26 165
Reviewed Reviewed
Year Year
ended ended
Sept 2008 Sept 2007
US$ million US$ million
(Loss) profit for the period 102 202
Adjustment for:
Depreciation, fellings and amortisation 454 445
Taxation 86 47
Net finance costs 126 134
Post employment benefits ** (88) (101)
Other non-cash items (57) (142)
Cash generated from operations ** 623 585
Movement in working capital 1 60
Net finance costs (126) (162)
Taxation paid (70) (27)
Dividends paid * (73) (68)
Cash retained from operating activities 355 388
Cash utilised in investing activities ** (494) (364)
(139) 24
Cash effects of financing activities 49 98
Net movement in cash and cash equivalents (90) 122
* 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
Reviewed Reviewed
Quarter Quarter
ended ended
Sept 2008 Sept 2007
US$ million US$ million
Exchange differences on translation of
foreign operations (40) 28
Actuarial gains on pension funds 8 101
Pension fund assets recognised - 1
Sundry other movements in equity - 1
Deferred tax effect of above (3) (12)
Net (expense) income recorded directly in equity (35) 119
(Loss) profit for the period (32) 75
Total recognised (expense) income for the period (67) 194
Reviewed Reviewed
Year Year
ended ended
Sept 2008 Sept 2007
US$ million US$ million
Exchange differences on translation of
foreign operations (262) 151
Actuarial gains on pension funds 7 101
Pension fund assets recognised - 45
Sundry other movements in equity - 1
Deferred tax effect of above (1) (21)
Net (expense) income recorded directly in equity (256) 277
(Loss) profit for the period 102 202
Total recognised (expense) income for the period (154) 479
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 year ended September 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 (loss) earnings per share (US cents)
as reported 23 26
Diluted basic (loss) 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 (loss) earnings per share (US cents)
as reported 61 88
Diluted basic (loss) earnings per share (US cents)
as restated 55 88
3. Reconciliation of movement in shareholders` equity
Reviewed Reviewed
Year Year
ended ended
Sept 2008 Sept 2007
US$ million US$ million
Balance - beginning of year 1,816 1,386
Total recognised (expense) income for the period (154) 479
Dividends paid (73) (68)
Transfers to participants of the share purchase trust 6 14
Share based payment reserve 10 5
Balance - end of year 1,605 1,816
Restated
Reviewed Reviewed
Quarter Quarter
ended ended
Sept 2008 Sept 2007
US$ million US$ million
4. Operating profit
Included in operating profit are the following
non-cash items:
Depreciation and amortisation 91 91
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 19 18
Growth (15) (19)
4 (1)
Plantation price fair value adjustment (108) 2
(104) 1
Included in other operating (expenses) income
are the following:
Asset impairments 116 1
Profit on disposal of property, plant & equipment - -
Restructuring provisions raised (released) 44 -
5. Headline earnings per share
Headline earnings per share (US cents) * 36 34
Weighted average number of shares in issue
(millions) 228.8 228.4
Diluted headline earnings per share (US cents)
* 36 33
Weighted average number of shares on fully diluted
basis (millions) 230.7 231.2
Calculation of Headline earnings *
(Loss) profit for the period (32) 75
Asset impairments 116 1
Profit on disposal of property, plant & equipment - -
Tax effect of above items (1) 1
Headline earnings 83 77
* Headline earnings disclosure is required by
the JSE Limited.
6. Capital expenditure
Property, plant and equipment 133 128
Reviewed Reviewed
Year Year
ended ended
Sept 2008 Sept 2007
US$ million US$ million
Included in operating profit are the following
non-cash items:
Depreciation and amortisation 374 375
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 80 70
Growth (70) (76)
10 (6)
Plantation price fair value adjustment (120) (54)
(110) (60)
Included in other operating (expenses) income
are the following:
Asset impairments 119 2
Profit on disposal of property, plant & equipment (5) (24)
Restructuring provisions raised (released) 41 (11)
5. Headline earnings per share
Headline earnings per share (US cents) * 94 82
Weighted average number of shares in issue
(millions) 228.8 227.8
Diluted headline earnings per share (US cents)* 93 81
Weighted average number of shares on fully diluted
basis (millions) 231.1 230.5
Calculation of Headline earnings *
(Loss) profit for the period 102 202
Asset impairments 119 2
Profit on disposal of property, plant & equipment (5) (24)
Tax effect of above items - 6
Headline earnings 216 186
* Headline earnings disclosure is required by
the JSE Limited.
6. Capital expenditure
Property, plant and equipment 510 458
Sept 2008 Sept 2007
US$ million US$ million
7. Capital commitments
Contracted 76 188
Approved but not contracted 130 249
206 437
Sept 2008 Sept 2007
US$ million US$ million
8. Contingent liabilities
Guarantees and suretyships 38 43
Other contingent liabilities * 7 26
45 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
Taxation payable
The movement is a result of certain tax liabilities which the group has settled
in fiscal 2008.
10. Regional information
Reviewed Reviewed
Quarter Quarter
ended ended
Sept 2008 Sept 2007
US$ million US$ million % change
Sales
Fine Paper - North America 433 404 7.2
Europe 680 619 9.9
Southern Africa 109 95 14.7
Total 1,222 1,118 9.3
Forest Products - Pulp and paper
operations 276 285 (3.2)
Forestry operations 21 19 10.5
Total 1,519 1,422 6.8
Operating profit
Fine Paper - North America 30 9 233.3
Europe (111) 17 -
Southern Africa 1 3 (66.7)
Total (80) 29 -
Forest Products 106 52 103.8
Corporate and other (1) 6 -
Total 25 87 (71.3)
Net operating assets
Fine Paper - North America 1,087 1,031 5.4
Europe 1,758 1,941 (9.4)
Southern Africa 110 149 (26.2)
Total 2,955 3,121 (5.3)
Forest Products 1,721 1,655 4.0
Corporate and other 39 21 85.7
Total 4,715 4,797 (1.7)
Reviewed Reviewed
Year Year
ended ended
Sept 2008 Sept 2007
US$ million US$ million % change
Sales
Fine Paper - North America 1,664 1,511 10.1
Europe 2,720 2,387 14.0
Southern Africa 380 358 6.1
Total 4,764 4,256 11.9
Forest Products - Pulp and paper
operations 1,023 979 4.5
Forestry operations 76 69 10.1
Total 5,863 5,304 10.5
Operating profit
Fine Paper - North America 92 22 318.2
Europe (64) 88 -
Southern Africa 6 9 (33.3)
Total 34 119 (71.4)
Forest Products 273 264 3.4
Corporate and other 7 - 100.0
Total 314 383 (18.0)
Net operating assets
Fine Paper - North America 1,087 1,031 5.4
Europe 1,758 1,941 (9.4)
Southern Africa 110 149 (26.2)
Total 2,955 3,121 (5.3)
Forest Products 1,721 1,655 4.0
Corporate and other 39 21 85.7
Total 4,715 4,797 (1.7)
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.
Supplemental information (This information has not been reviewed)
EBITDA excluding special items
Restated
Quarter Quarter
ended ended
Sept 2008 Sept 2007
US$ million US$ million
Reconciliation of (loss) profit for the period
to EBITDA excluding special items (1)
(Loss) profit for the period (32) 75
Net finance costs 26 27
Taxation 31 (15)
Special items - losses (gains) 64 9
Operating profit excluding special items 89 96
Depreciation and amortisation 91 91
EBITDA excluding special items (1) 180 187
Year Year
ended ended
Sept 2008 Sept 2007
US$ million US$ million
Reconciliation of (loss) profit for the period
to EBITDA excluding special items (1)
(Loss) profit for the period 102 202
Net finance costs 126 134
Taxation 86 47
Special items - losses (gains) 52 (70)
Operating profit excluding special items 366 313
Depreciation and amortisation 374 375
EBITDA excluding special items (1) 740 688
Sept 2008 Sept 2007
US$ million US$ million
Net debt (US$ million) (2) 2,405 2,257
Net debt to total capitalisation (%) (2) 47.8 43.2
Net asset value per share (US$) (2) 8.56 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 to Supplemental Information for the definition of the term.
Supplemental information (This information has not been reviewed)
summary Rand convenience translation
Restated
Quarter Quarter
ended ended %
Sept 2008 Sept 2007 change
Key figures: (ZAR million)
Sales 11,871 10,018 18.5
Operating profit 195 613 (68.2)
Special items - losses (gains) * 500 63 693.7
Operating profit excluding
special items 696 676 3.0
EBITDA excluding special items * 1,407 1,317 6.8
(Loss) profit for the period (250) 528 -
Basic EPS (SA cents) (109) 232 -
Net debt * 19,421 15,509 25.2
Cash generated from operations 1,063 1,134 (6.3)
Cash retained from operating activities 2,196 1,691 29.9
Net movement in cash and
cash equivalents 203 1,162 (82.5)
Key ratios: (%)
Operating profit to sales 1.6 6.1
Operating profit excluding special
items to sales 5.9 6.7
EBITDA excluding special items to sales 11.8 13.2
Operating profit excluding special
items to average net assets 8.2 9.0
Net debt to total capitalisation * 47.8 43.2
Year Year
ended ended %
Sept 2008 Sept 2007 change
Key figures: (ZAR million)
Sales 43,559 38,051 14.5
Operating profit 2,333 2,748 (15.1)
Special items - losses (gains) * 386 (502) -
Operating profit excluding
special items 2,719 2,245 21.1
EBITDA excluding special items * 5,498 4,936 11.4
(Loss) profit for the period 758 1,449 (47.7)
Basic EPS (SA cents) 334 638 (47.6)
Net debt * 19,421 15,509 25.2
Cash generated from operations 4,629 4,197 10.3
Cash retained from operating activities 2,637 2,784 (5.3)
Net movement in cash and
cash equivalents (669) 875 -
Key ratios: (%)
Operating profit to sales 5.4 7.2
Operating profit excluding special
items to sales 6.2 5.9
EBITDA excluding special items to sales 12.6 13.0
Operating profit excluding special
items to average net assets 8.5 7.4
Net debt to total capitalisation * 47.8 43.2
* 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
Sept June March
2008 2008 2008
Exchange rates :
Period end rate: US$1 = ZAR 8.0751 7.9145 8.1432
Average rate for the Quarter: US$1 = ZAR 7.8150 7.8385 7.4593
Average rate for the YTD: US$1 = ZAR 7.4294 7.3236 7.1465
Period end rate: EUR 1 = US$ 1.4615 1.5795 1.5802
Average rate for the Quarter: EUR 1 = US$ 1.5228 1.5747 1.5006
Average rate for the YTD: EUR 1 = US$ 1.5064 1.5071 1.4790
Dec Sept
2007 2007
Exchange rates :
Period end rate: US$1 = ZAR 6.8068 6.8713
Average rate for the Quarter: US$1 = ZAR 6.7488 7.0453
Average rate for the YTD: US$1 = ZAR 6.7488 7.1741
Period end rate: EUR 1 = US$ 1.4717 1.4272
Average rate for the Quarter: EUR 1 = US$ 1.4556 1.3782
Average rate for the YTD: EUR 1 = US$ 1.4556 1.3336
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
Channel Islands:
Capita Registrars (Jersey) Limited
12 Castle Street
St Helier
Jersey
JE2 3RT
Tel +44 (0)20 8639 3399
this report is available on the Sappi website www.sappi.com
Date: 06/11/2008 09:03:14 Produced by the JSE SENS Department.
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