| Mon 2 Feb 2009, 9:00 | | SAP - Sappi limited - Results for the first quarter ended 28 December 2008 |
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SAP
SAVVI
SAP - Sappi limited - Results for the first quarter ended 28 December 2008
Sappi limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
Results for the first quarter ended 28 December 2008
Financial summary
- European acquisition completed on 31 December (post quarter end)
- Declining global demand leads to weak operating profit
- Significant production curtailment in December
- Coated paper prices increased in Europe;
under pressure elsewhere
- Pulp prices declined more than US$200 per ton
- Basic EPS 6 US cents (favourably impacted by special items)
Quarter ended
Dec 2008 Dec 2007 Sept 2008
Key figures: (US$ million)
Sales 1,187 1,377 1,519
Operating profit 57 91 25
Special items - (gains) losses * (32) 1 64
Operating profit excluding special items 25 92 89
EBITDA excluding special items *** 106 188 180
Basic EPS (US cents) **** 6 12 (9)
Net debt ** including rights offer cash 1,965 2,495 2,405
Net debt ** excluding rights offer cash 2,497 2,495 2,405
Key ratios: (%)
Operating profit to sales 4.8 6.6 1.6
Operating profit excluding
special items to sales 2.1 6.7 5.9
Operating profit excluding special items to
Capital Employed (ROCE) ** 2.6 8.8 8.5
EBITDA excluding special items to sales 8.9 13.7 11.8
Return on average equity (ROE) ** 5.3 9.3 (7.8)
Net debt to total capitalisation **
including rights offer cash 51.3 58.3 60.0
Net debt to total capitalisation **
excluding rights offer cash 57.3 58.3 60.0
* 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 profit for the period.
**** Comparative figures have been revised in accordance with IAS 33 to reflect
the impact of the rights offer.
The table above has not been audited or reviewed.
Commentary
Sales volumes declined 8% in the quarter compared to a year earlier as a result
of the global market downturn. Prices for coated paper increased relative to
the prior quarter and a year earlier in Europe but were under pressure in the
USA and many other markets. Pulp prices, including prices for chemical
cellulose, fell sharply and by the end of the quarter NBSK prices were more
than US$200 per ton lower than at the end of the previous quarter.
Demand fell off sharply as the quarter progressed, resulting in lower sales in
all our businesses, particularly Saiccor. We took extensive production
curtailment in December to match output to demand in addition to major planned
maintenance outages during the quarter.
Although the prices of energy, wood and chemicals declined, the impact was
delayed as we worked through higher cost inventories. Reduced production levels
and stopping and starting our mills resulted in less efficient raw material
usage. Input costs therefore remained at a high level.
Operating profit for the quarter was US$57 million compared to US$91 million a
year earlier and US $25 million in the prior quarter. Special items for the
quarter of US$32 million comprised favourable plantation price fair value
adjustments which resulted from lower costs of harvesting and delivering to
market, as energy costs fell, and higher wood prices. This compared with
favourable special items of US$1 million a year ago and unfavourable special
items of US$64 million in the prior quarter. Operating profit excluding special
items was US$25 million for the quarter compared to US$92 million a year ago
and US$89 million in the prior quarter.
Net finance costs for the quarter were US$21 million, US$7 million lower than a
year ago as a result of lower interest rates, exchange gains and interest
earned on the cash proceeds of the rights offer for approximately 10 days,
partly offset by the effect of interest capitalised a year ago.
The effective tax rate for the quarter was 36%, similar to a year ago.
Taxation for the quarter includes Secondary Tax on Companies of US$4 million
relating to dividends declared in the quarter.
Basic EPS of 6 US cents per share for the quarter was favourably impacted by
special items of 6 US cents per share. Basic EPS a year ago was 12 US cents per
share (revised to reflect the rights offer in accordance with IAS 33).
Cash flow and debt
Cash generated from operations was US$95 million, down from US$155 million a
year ago, as a result of lower operating profit. Working capital increased
US$96 million during the quarter compared to an increase of US$133 million a
year ago.
Following the commissioning of the Saiccor expansion we have contained capital
expenditure to maintenance and short pay back items throughout the group. The
cash effect of investing activities reduced to US$40 million compared to US$89
million a year ago.
We paid a dividend of US$37 million during the quarter prior to the rights
offer. Historically dividends have been paid early in the second quarter.
The net proceeds of the rights offer conducted during the quarter of
approximately US$532 million were received during December and were on hand at
quarter end pending the completion of the acquisition of M-real`s coated
graphic paper business (the "European Acquisition") on 31 December 2008. Net
debt reported at quarter-end was therefore reduced by the additional cash on
hand to US$2.0 billion from US$2.4 billion at September 2008. Excluding the
proceeds of the rights offer, net debt was US$2.5 billion.
Operating review for the quarter ended December 2008 compared to the quarter
ended December 2007
Sappi Fine Paper
Quarter Quarter
ended ended
Dec 2008 Sept 2007
US$ million US$ million
Sales 998 1,109
Operating profit 8 31
Operating profit to sales (%) 0.8 2.8
Special items - -
Operating profit excluding special items 8 31
Operating profit excluding special
items to sales (%) 0.8 2.8
EBITDA excluding special items 74 106
EBITDA excluding special items
to sales (%) 7.4 9.6
RONOA pa (%) 1.1 3.9
Quarter
ended
% Sept 2008
change US$ million
Sales (10.0) 1,222
Operating profit (74.2) (80)
Operating profit to sales (%) - (6.5)
Special items - 124
Operating profit excluding special items (74.2) 44
Operating profit excluding special
items to sales (%) - 3.6
EBITDA excluding special items (30.2) 118
EBITDA excluding special items
to sales (%) - 9.7
RONOA pa (%) - 5.6
Europe
Quarter Quarter
ended ended %
Dec 2008 Dec 2007 change
US$ million US$ million (US$)
Sales 561 638 (12.1)
Operating profit 13 19 (31.6)
Operating profit to sales (%) 2.3 3.0 -
Special items - (2) -
Operating profit excluding
special items 13 17 (23.5)
Operating profit excluding
special items to sales (%) 2.3 2.7 -
EBITDA excluding special items 50 62 (19.4)
EBITDA excluding special
items to sales (%) 8.9 9.7 -
RONOA pa (%) 3.1 3.5 -
Quarter
% ended
change Sept 2008
(Euro) US$ million
Sales (5.1) 680
Operating profit (23.4) (111)
Operating profit to sales (%) - (16.3)
Special items - 123
Operating profit excluding
special items (14.4) 12
Operating profit excluding
special items to sales (%) - 1.8
EBITDA excluding special items (13.1) 57
EBITDA excluding special
items to sales (%) - 8.4
RONOA pa (%) - 2.5
Volumes for the quarter were affected by deteriorating market conditions. The
latest available industry statistics for the quarter show an 11% year on year
decline in coated woodfree paper deliveries in Europe for the quarter. We took
significant downtime in December to match supply to demand, which had an
unfavourable impact on margins.
We realised higher prices in Euro terms during the quarter with the average up
7% compared to a year earlier.
Input prices are declining, particularly for pulp and energy; however, we will
only benefit once higher-priced raw material inventories have been utilised.
Blackburn Mill and Maastricht Mill`s Paper Machine No. 5 ceased production
during the quarter, reducing our capacity of coated fine paper by 190,000 tons.
The charges related to these closures were reported in the quarter ended
September 2008.
North America
Quarter Quarter
ended ended
Dec 2008 Sept 2007
US$ million US$ million
Sales 363 384
Operating profit (7) 11
Operating profit to sales (%) (1.9) 2.9
Special items - 2
Operating profit excluding
special items (7) 13
Operating profit excluding
special items to sales (%) (1.9) 3.4
EBITDA excluding special items 19 40
EBITDA excluding special
items to sales (%) 5.2 10.4
RONOA pa (%) (2.6) 5.0
Quarter
ended
% Sept 2008
change US$ million
Sales (5.5) 433
Operating profit (163.6) 30
Operating profit to sales (%) - 6.9
Special items - 1
Operating profit excluding
special items (153.8) 31
Operating profit excluding
special items to sales (%) - 7.2
EBITDA excluding special items (52.5) 57
EBITDA excluding special
items to sales (%) - 13.2
RONOA pa (%) - 11.5
Demand declined sharply during the quarter for both paper and pulp and we
curtailed a significant amount of output to match the reduced demand.
Industry shipments of coated fine paper show a decline of 18% year on year for
the quarter.
Prices for coated paper came under pressure towards the end of the quarter.
Prices realised for pulp, however, collapsed in line with the NBSK prices.
Demand for pulp also declined sharply.
Major planned maintenance outages at the pulp mills, early in the quarter, had
a further unfavourable impact on operating profit in the quarter.
South Africa
Quarter Quarter
ended ended %
Dec 2008 Dec 2007 change
US$ million US$ million (US$)
Sales 74 87 (14.9)
Operating profit 2 1 100
Operating profit to sales (%) 2.7 1.1 -
Special items - - -
Operating profit excluding
special items 2 1 100
Operating profit excluding
special items to sales (%) 2.7 1.1 -
EBITDA excluding special items 5 4 25
EBITDA excluding special
items to sales (%) 6.8 4.6 -
RONOA pa (%) 5.7 2.6 -
Quarter
% ended
change Sept 2008
(Rand) US$ million
Sales 24.4 109
Operating profit 185.7 1
Operating profit to sales (%) - 0.9
Special items - -
Operating profit excluding
special items 185.7 1
Operating profit excluding
special items to sales (%) - 0.9
EBITDA excluding special items 81.5 4
EBITDA excluding special
items to sales (%) - 3.7
RONOA pa (%) - 3.4
Sales volumes for the quarter were similar to a year earlier despite signs of
weakening demand. In local currency, prices were above last year. High input
costs continued to put pressure on margins.
Forest Products
Quarter Quarter
ended ended %
Dec 2008 Dec 2007 change
US$ million US$ million (US$)
Sales 189 268 (29.5)
Operating profit 49 55 (10.9)
Operating profit to sales (%) 25.9 20.5 -
Special items (32) 1 -
Operating profit excluding
special items 17 56 (69.6)
Operating profit excluding
special items to sales (%) 9 .0 20.9 -
EBITDA excluding special items 32 77 (58.4)
EBITDA excluding special
items to sales (%) 16.9 28.7 -
RONOA pa (%) 4.3 12.9 -
Quarter
% ended
change Sept 2008
(Rand) US$ million
Sales 3.0 297
Operating profit 30.1 106
Operating profit to sales (%) - 35.7
Special items - (60)
Operating profit excluding
special items (55.5) 46
Operating profit excluding
special items to sales (%) - 15.5
EBITDA excluding special items (55.5) 63
EBITDA excluding special
items to sales (%) - 21.2
RONOA pa (%) - 10.7
Although the domestic sales of newsprint and packaging paper were lower than a
year ago, prices in Rand terms improved. The chemical cellulose business,
however, was impacted by a substantial reduction in demand as from December as
a result of reduced demand for textiles, particularly in Asia. Prices for
chemical cellulose also fell, in line with NBSK prices which fell more than
US$200 per ton during the quarter. The approximately 30% decline of the
exchange rate of the Rand relative to the US Dollar from the September to the
December quarter offset the US Dollar decline in NBSK prices. This, however,
was not sufficient to offset the combined effect of the sharp decline in pulp
prices, lower demand for chemical cellulose pulp and high input costs.
Production during the quarter was reduced by maintenance shuts at Ngodwana Mill
and Usutu Mill and as a result of a gas leak at Saiccor Mill.
European acquisition
The European acquisition for an enterprise value of Euro 750 million, was
completed on 31 December 2008, which was after our quarter end and is subject
to minor adjustments for working capital and assumed debt. Payment for the
business comprised cash of Euro 400 million from the proceeds of the rights
offer conducted during the quarter (see Note 1), vendor loan notes of Euro 220
million, with the balance made up of 11 million Sappi shares and assumed debt.
Action Plan and Outlook
The sharp decline in demand and the inventory reductions in the downstream
supply chains for our products in the latter part of the last quarter has
continued in January in most of our businesses. The impact on the sales of
chemical cellulose was particularly sudden and is continuing.
In Europe demand for coated graphic paper was particularly weak in the first
half of January. We curtailed output by about 25% in January and will continue
to match output to demand going forward. M-real has announced that it will
cease coated graphic paper production at Gohrsmuhle and Hallein mills, which
have a capacity of 640,000 tons, by the end of April, which is expected to
improve the industry supply/demand balance. Pricing for coated paper in Europe
remains firm.
The integration of the European Acquisition is proceeding well. The focus
remains on customer relations and service, engaging our new and existing
employees, integration of systems and delivery of synergies. The enlarged
business gives us greater flexibility to manage our output to match demand, to
negotiate improved input prices and to improve our service and product offering
to customers. Although current market conditions, and particularly a slow-down
in demand, will make it more difficult to realise the synergies in the short
term, we remain confident that we should deliver the targeted Euro 120 million
per annum of synergies within 3 years.
In North America demand for coated paper was very low in the first weeks of
January accompanied by downward pressure on pricing. We continue to curtail
production to match output to demand. In addition, the weakness of pulp demand
and the fall in pulp prices will impact the region`s profitability as it is a
net seller of pulp. Release paper is also experiencing weak markets
particularly in China and to the US motor industry. The North American business
has taken steps to reduce its overhead costs and is exploring all means to
further streamline its operations to reduce its cost base.
We expect the Southern African fine paper and packaging paper businesses to
continue to perform moderately well. Demand in the local market has weakened
less than global markets generally. We have taken and will continue to take
commercial downtime when necessary. The viscose grade chemical cellulose and
other exports, however, continue to be significantly affected by the major fall
in demand and sharp fall in prices which has continued into the current
quarter. The additional capacity at Saiccor following the commissioning of the
expansion in September 2008 is not being utilised. We are therefore shutting
certain elements of the old plant to reduce output to match demand while
utilising the more efficient new plant as much as possible.
We expect input prices to continue to decline and for the reduction in our
variable costs to accelerate as our higher cost inventories are utilised. We
continue to focus on managing input price reductions and more efficient usage
of raw materials. Curtailing output is likely to result in less efficient usage
of raw materials, which will slow the expected reduction in input costs.
The European business, which is a major pulp buyer, should benefit from the
sharp fall in pulp prices. NBSK prices declined to US$610 per ton in January
from an average of US$739 for the quarter ended December 2008 and US$885 for
the quarter ended September 2008. The other regions will, however, be
unfavourably impacted by this. Following the European Acquisition the group is
a net buyer of pulp. Our level of pulp integration is now approximately 92%.
Our short term outlook is for difficult global economic conditions to continue
and for these to be reflected in demand for our products and our operating
results. We do, however, expect some improvement in demand levels from the very
low levels experienced late last quarter and in the first part of January. The
operating profit excluding special items for the quarter ending March 2009 is
expected to remain weak.
We will continue to prioritise cash flow management including managing
inventory levels and reducing capital expenditure to the minimum level needed
to keep our assets in good condition.
We have implemented a number of actions which position the group well going
forward, and we will continue to act decisively to manage our business through
the current turmoil.
The greater flexibility to manage output following the European Acquisition,
the improved efficiency of the Saiccor mill combined with our actions to reduce
input costs and reduction of fixed costs will all help deal with current tough
market conditions.
When market conditions improve, both the European Acquisition and the Saiccor
expansion will help us to achieve the improvement in return on capital employed
which we target.
On behalf of the board
R J Boettger M R Thompson
Director Director 02 February 2009
Other information (This information has not been reviewed)
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 or 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
ended ended
Dec 2008 Dec 2007
US$ million US$ million
Plantation price fair value adjustment (34) 1
Restructuring provisions raised (released) - (1)
Profit on disposal of property, plant &
equipment (1) (1)
Asset impairments 3 2
(32) 1
key regional figures
Quarter Quarter
ended ended
Dec 2008 Dec 2007
Metric tons Metric tons
(000`s) (000`s)
Sales volume
Fine Paper - North America 330 373
Europe 556 624
Southern Africa 77 76
Total 963 1,073
Forest Products - Pulp and paper operations 279 345
Forestry operations 242 200
Total 1,484 1,618
US$ million US$ million
Sales
Fine Paper - North America 363 384
Europe 561 638
Southern Africa 74 87
Total 998 1,109
Forest Products - Pulp and paper operations 174 252
Forestry operations 15 16
Total 1,187 1,377
Other information (this information has not been reviewed)
Quarter Quarter
ended ended
Dec 2008 Dec 2007
US$ million US$ million
Operating profit
Fine Paper - North America (7) 11
Europe 13 19
Southern Africa 2 1
Total 8 31
Forest Products 49 55
Corporate and other - 5
Total 57 91
Special items - (gains) losses
Fine Paper - North America - 2
Europe - (2)
Total - -
Forest Products (32) 1
Total (32) 1
Operating profit excluding special items
Fine Paper - North America (7) 13
Europe 13 17
Southern Africa 2 1
Total 8 31
Forest Products 17 56
Corporate and other - 5
Total 25 92
EBITDA excluding special items
Fine Paper - North America 19 40
Europe 50 62
Southern Africa 5 4
Total 74 106
Forest Products 32 77
Corporate and other - 5
Total 106 188
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 impact of the global economic downturn,
the risk that the European Acquisition 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, 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
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 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 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 fiscal 2009 or beyond.
Group income statement
Reviewed
Quarter
ended
Dec 2008
Notes US$ million
Sales 1,187
Cost of sales 1,042
Gross profit 145
Selling, general & administrative expenses 86
Other operating expenses 3
Share of profit from associates and joint ventures (1)
Operating profit 3 57
Net finance costs 21
Net interest 31
Finance cost capitalised -
Net foreign exchange gains (7)
Net fair value (gain) loss on financial instruments (3)
Profit before taxation 36
Taxation 13
Current 10
Deferred 3
Profit for the period 23
Basic earnings per share (US cents) 1 6
Weighted average number of shares in issue (millions) 1 383.0
Diluted basic earnings per share (US cents) 1 6
Weighted average number of shares on fully
diluted basis (millions) 1 385.5
Reviewed
Quarter
ended
Dec 2007
US$ million % change
Sales 1,377 (14)
Cost of sales 1,197
Gross profit 180 (19)
Selling, general & administrative expenses 92
Other operating expenses 1
Share of profit from associates and joint ventures (4)
Operating profit 91 (37)
Net finance costs 28
Net interest 37
Finance cost capitalised (9)
Net foreign exchange gains (1)
Net fair value (gain) loss on financial instruments 1
Profit before taxation 63 (43)
Taxation 21
Current 3
Deferred 18
Profit for the period 42 (45)
Basic earnings per share (US cents) 12
Weighted average number of shares in issue (millions) 361.6
Diluted basic earnings per share (US cents) 12
Weighted average number of shares on fully
diluted basis (millions) 365.0
Group balance sheet
Reviewed Reviewed
Dec 2008 Sept 2008
US$ million US$ million
ASSETS
Non-current assets 4,049 4,408
Property, plant and equipment 3,081 3,361
Plantations 558 631
Deferred taxation 48 41
Other non-current assets 362 375
Current assets 2,275 1,701
Inventories 766 725
Trade and other receivables 568 702
Cash and cash equivalents 941 274
Total assets 6,324 6,109
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` interest 1,863 1,605
Non-current liabilities 2,503 2,578
Interest-bearing borrowings 1,819 1,832
Deferred taxation 354 399
Other non-current liabilities 330 347
Current liabilities 1,958 1,926
Interest-bearing borrowings 1,058 821
Bank overdraft 29 26
Other current liabilities 801 1,025
Taxation payable 70 54
Total equity and liabilities 6,324 6,109
Number of shares in issue at balance sheet date
(millions) 504.8 229.2
Group cash flow statement
Reviewed Reviewed
Quarter Quarter
ended ended
Dec 2008 Dec 2007
US$ million US$ million
Profit for the period 23 42
Adjustment for:
Depreciation, fellings and amortisation 97 117
Taxation 13 21
Net finance costs 21 28
Post employment benefits (8) (14)
Other non-cash items (51) (39)
Cash generated from operations 95 155
Movement in working capital (96) (133)
Net finance costs (44) (59)
Taxation recovered (paid) 1 (7)
Dividends paid * (37) -
Cash utilised in operating activities (81) (44)
Cash utilised in investing activities (40) (89)
(121) (133)
Cash effects of financing activities 793 223
Net movement in cash and cash equivalents 672 90
* Dividend no 85: 16 US cents per share paid on 28 November 2008
Group statement of recognised income and expense
Reviewed Reviewed
Quarter Quarter
ended ended
Dec 2008 Dec 2007
US$ million US$ million
Exchange differences on translation of foreign
operations (293) (10)
Unrealised gain on cash flow hedge 32 -
Tax effect of cash flow hedge (9) 2
Net expense recorded directly in equity (270) (8)
Profit for the period 23 42
Total recognised (expense) income for the period (247) 34
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 2008 which are compliant with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board.
The preliminary results for the three month period ended December 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.
In November and December 2008, Sappi conducted a renounceable rights offer of
286,886,270 new ordinary shares of ZAR1.00 each to qualifying Sappi
shareholders recorded in the shareholders register at the close of business on
Friday 21 November 2008, at a subscription price of ZAR20.27 per rights offer
share in the ratio of 6 rights offer shares for every 5 Sappi shares held. The
rights offer was fully subscribed and the shareholders received their shares on
15 December 2008. The rights offer raised ZAR5,8 billion which was used to
partly finance the acquisition of the coated graphic paper business of M-real
and the related costs.
Following the rights offer, prior period Basic and Diluted earnings per share
have been restated for the bonus element of the rights offer in accordance with
IAS 33. Please refer to Supplemental Information for a summary of this
calculation.
2. Reconciliation of movement in shareholders` equity
Reviewed Reviewed
Quarter Quarter
ended ended
Dec 2008 Dec 2007
US$ million US$ million
Balance - beginning of period 1,605 1,816
Total recognised (expense) income for the period (247) 34
Dividends declared (37) (73)
Rights issue net of directly attributable costs 536 -
Transfers to participants of the share purchase
trust 3 2
Share based payment reserve 3 2
Balance - end of period 1,863 1,781
3. Operating profit
Included in operating profit are the following
non-cash items:
Depreciation and amortisation 81 96
Fair value adjustment on plantations (included
in cost of sales)
Changes in volume
Fellings 16 21
Growth (16) (18)
- 3
Plantation price fair value adjustment (34) 1
(34) 4
Included in other operating expenses are the
following:
Asset impairments 3 2
Profit on disposal of property, plant &
equipment (1) (1)
Restructuring provisions released - (1)
Notes to the group results
Reviewed Reviewed
Quarter Quarter
ended ended
Dec 2008 Dec 2007
US$ million US$ million
4. Headline earnings per share *
Headline earnings per share (US cents) ** 7 12
Weighted average number of shares in issue
(millions) ** 383.0 361.6
Diluted headline earnings per share (US cents) ** 6 12
Weighted average number of shares on fully
diluted basis (millions) ** 385.5 365.0
Calculation of Headline earnings *
Profit for the period 23 42
Asset impairments 3 2
Profit on disposal of property, plant &
equipment (1) -
Tax effect of above items - -
Headline earnings 25 44
* Headline earnings disclosure is required by the JSE Limited.
** Prior period headline earnings per share has been restated for the bonus
element of the rights offer in accordance with IAS 33. Please refer to
Supplemental Information for a summary of this calculation.
5. Capital expenditure
Property, plant and equipment 47 109
Dec 2008 Sept 2008
US$ million US$ million
6. Capital commitments
Contracted 111 76
Approved but not contracted 178 130
289 206
7. Contingent liabilities
Guarantees and suretyships 44 38
Other contingent liabilities 7 7
51 45
8. Material balance sheet movements
Plantations
The decrease in the value of plantations arises upon translation of the
plantations from Rands to US Dollars.
Trade and other receivables and other current liabilities.
The lower operating performance has resulted in a reduction of both trade
payables and trade receivables.
Interest-bearing borrowings and cash and cash equivalents
Included in cash and cash equivalents is US$532 million which is the net cash
proceeds from the rights issue (after directly attributable costs). During the
quarter, the group also drew down US$70 million of its committed facilities.
9. Subsequent events
The acquisition of M-real`s coated graphic paper business for an enterprise
value of Euro 750 million, was completed on 31 December 2008, which was after
our quarter end and is subject to minor adjustments for working capital and
assumed debt. Payment for the business comprised cash of Euro 400 million from
the proceeds of the rights offer conducted during the quarter (see Note 1),
vendor loan notes of Euro 220 million, with the balance made up of 11 million
Sappi shares and assumed debt.
Notes to the group results
Reviewed Reviewed
Quarter Quarter
ended ended
Dec 2008 Dec 2007
US$ million US$ million % change
10. Regional information
Sales
Fine Paper - North America 363 384 (5)
Europe 561 638 (12)
Southern Africa 74 87 (15)
Total 998 1,109 (10)
Forest Products - Pulp and paper
operations 174 252 (31)
Forestry operations 15 16 (6)
Total 1,187 1,377 (14)
Operating profit
Fine Paper - North America (7) 11 -
Europe 13 19 (32)
Southern Africa 2 1 100
Total 8 31 (74)
Forest Products 49 55 (11)
Corporate and other - 5 -
Total 57 91 (37)
Net operating assets
Fine Paper - North America 1,100 1,029 7
Europe 1,599 1,991 (20)
Southern Africa 170 153 11
Total 2,869 3,173 (10)
Forest Products 1,456 1,830 (20)
Corporate and other 139 (38) -
Total 4,464 4,965 (10)
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 certain 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
Capital employed - shareholders` equity plus net debt
EBITDA excluding special items - earnings before interest (net finance costs),
taxation, depreciation, amortisation and special items
European acquisition - the aquisition of M-real`s coated graphic business on
31 December 2008
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
overdraft (net of cash, cash equivalents and short-term deposits)
Net debt to total capitalisation - net debt divided by capital employed
Net operating assets - total assets (excluding deferred taxation and cash and
cash equivalents) less current liabilities (excluding interest-bearing
borrowings and bank overdraft)
Net assets - total assets less total liabilities
Net asset value per share - net assets divided by the number of shares in issue
at balance sheet date
ROCE - return on average capital employed. Operating profit excluding special
items divided by average capital employed
ROE - return on average equity. Profit for the period divided by average
shareholders` equity
RONOA - return on average 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 or 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.
Restatement of earnings per share numbers for bonus element of rights issue
In accordance with IAS 33, prior period basic, headline and diluted earnings
per share have been restated to take into account the bonus element of the
rights offer. The prior period weighted average number of shares has been
adjusted by a factor of 1.58 (the adjustment factor) for the issuance of
286,886,270 new ordinary shares of ZAR1.00 each, at a subscription price of
ZAR20.27 per rights offer share in the ratio of 6 rights offer shares for every
5 Sappi shares held. The adjustment factor is calculated using the pre
-announcement share price divided by the theoretical ex-rights price (TERP).
TERP is the ((Number of new shares multiplied by the Subscription price) plus
the (Number of shares held multiplied by the ex-dividend share price)) all
divided by the (Number of new shares plus the number of shares held prior to
the rights offer).
Supplemental Information (this information has not been reviewed)
EBITDA excluding special items
Quarter Quarter
ended ended
Dec 2008 Dec 2007
US$ million US$ million
Reconciliation of profit for the period to
EBITDA excluding
special items (1)
Profit for the period 23 42
Net finance costs 21 28
Taxation 13 21
Special items - (gains) losses (32) 1
Operating profit excluding special items 25 92
Depreciation and amortisation 81 96
EBITDA excluding special items (1) 106 188
Dec 2008 Sept 2008
US$ million US$ million
Net debt including cash from rights offer
(US$ million) (2) 1,965 2,405
Net debt excluding cash from rights offer
(US$ million) (2) 2,497 2,405
Net debt to total capitalisation (2) including
rights offer cash 51.3 60.0
Net debt to total capitalisation (2) excluding
rights offer cash 57.3 60.0
Net asset value per share (US$) (2) 3.69 7.00
(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 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.
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
Quarter Quarter
ended ended
Dec 2008 Dec 2007 % change
Key figures: (ZAR million)
Sales 11,702 9,293 26
Operating profit 562 614 (8)
Special items - (gains) losses * (315) 7 -
Operating profit excluding special items 246 621 (60)
EBITDA excluding special items * 1,045 1,269 (18)
Basic EPS (SA cents) 59 81 (27)
Net debt * including rights offer cash 19,090 16,983 12
Net debt * excluding rights offer cash 24,258 16,983 43
Key ratios: (%)
Operating profit to sales 4.8 6.6
Operating profit excluding special items
to sales 2.1 6.7
Operating profit excluding special items
to Capital Employed (ROCE) 1.8 5.8
EBITDA excluding special items to sales 8.9 13.7
Net debt to total capitalisation *
including rights offer cash 51.3 58.3
Net debt to total capitalisat ion *
excluding rights offer cash 57.3 58.3
* 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
Dec Sept June
2008 2008 2008
Exchange rates:
Period end rate: US$1 = ZAR 9.7148 8.0751 7.9145
Average rate for the Quarter: US$1 = ZAR 9.8584 7.8150 7.8385
Average rate for the YTD: US$1 = ZAR 9.8584 7.4294 7.3236
Period end rate: EUR 1 = US$ 1.4064 1.4615 1.5795
Average rate for the Quarter: EUR 1 = US$ 1.3471 1.5228 1.5747
Average rate for the YTD: EUR 1 = US$ 1.3471 1.5064 1.5071
March Dec
2008 2007
Exchange rates:
Period end rate: US$1 = ZAR 8.1432 6.8068
Average rate for the Quarter: US$1 = ZAR 7.4593 6.7488
Average rate for the YTD: US$1 = ZAR 7.1465 6.7488
Period end rate: EUR 1 = US$ 1.5802 1.4717
Average rate for the Quarter: EUR 1 = US$ 1.5006 1.4556
Average rate for the YTD: EUR 1 = US$ 1.4790 1.4556
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)208 639 3399
this report is available on the Sappi website www.sappi.com
Date: 02/02/2009 09:00:01 Produced by the JSE SENS Department.
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