| Fri 7 May 2010, 8:59 | | SAP - Sappi limited - 2nd Quarter results for the period ended March 2010 |
|
SAP
SAVVI
SAP - Sappi limited - 2nd Quarter results for the period ended March 2010
Sappi limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
2nd Quarter
results for the period ended March 2010
Financial summary for the quarter
Operating profit excluding special items increased year on year to US$54
million (Q2 2009: US$17 million loss)
Demand trends improving
Net cash generated US$109 million
Basic loss per share of 6 US cents (unfavourably impacted by 3 US cents
special items)
Quarter ended
Mar 2010 Mar 2009 Dec 2009
Key figures: (US$ million)
Sales 1,576 1,313 1,620
Operating profit 28 6 1
Special items - losses (gains) 1 26 (23) 80
Operating profit (loss) excluding
special items 2 54 (17) 81
EBITDA excluding special items 3 156 82 193
Basic loss per share (US cents) (6) (7) (10)
Net debt 4 2,429 2,735 2,581
Key ratios: (%)
Operating profit to sales 1.8 0.5 0.1
Operating profit (loss) excluding
special items to sales 3.4 (1.3) 5.0
Operating profit (loss) excluding
special items to Capital Employed (ROCE) 5.1 (1.6) 7.5
EBITDA excluding special items to sales 9.9 6.2 11.9
Return on average equity (ROE) 5 (7.3) (7.5) (11.6)
Net debt to total capitalisation 5 59.1 59.4 60.0
Half-year ended
Mar 2010 Mar 2009
Key figures: (US$ million)
Sales 3,196 2,500
Operating profit 29 63
Special items - losses (gains) 1 106 (55)
Operating profit (loss) excluding
special items 2 135 8
EBITDA excluding special items 3 349 188
Basic loss per share (US cents) (16) (3)
Net debt 4 2,429 2,735
Key ratios: (%)
Operating profit to sales 0.9 2.5
Operating profit (loss) excluding
special items to sales 4.2 0.3
Operating profit (loss) excluding
special items to Capital Employed (ROCE) 6.4 0.4
EBITDA excluding special items to sales 10.9 7.5
Return on average equity (ROE) 5 (9.4) (1.4)
Net debt to total capitalisation 5 59.1 59.4
1 Refer to details on special items.
2 Refer to note 10 to the group results for the reconciliation of
operating profit excluding special items to operating profit (loss).
3 Refer to note 10 to the group results for the reconciliation of
EBITDA excluding special items to (loss) profit before taxation.
4 Refer to Supplemental Information for the reconciliation of net
debt to interest-bearing borrowings.
5 Refer to Supplemental Information for the definition of the term.
The table above has not been audited or reviewed.
Commentary on the quarter
Demand for our products continued to improve through the quarter with the
result that our sales volume increased 17% compared to a year earlier and 3%
compared to the December quarter.
The quarter was characterised by rapid increases in market pulp prices
accelerated by a major earthquake on February 28th which disrupted pulp supply
from Chile. A strike by stevedores in Finland lasted approximately 2 weeks and
restricted all trade flows in and out of Finland, disrupting pulp shipments and
paper deliveries. Pulp prices (NBSK) rose from an average of US$796 per ton in
December to US$889 per ton at the end of March. Our Southern African and North
American businesses, which are net sellers of pulp, benefited from the pulp
price increases. Our European business, which buys more than half of its pulp
requirements, experienced a margin squeeze as it could not raise its paper
selling prices enough to absorb the higher pulp costs. Pulp prices had an
unfavourable impact of US$35 million on operating profit in our European
business compared to the corresponding quarter last year.
The North American business performed strongly in the quarter as a result of
our market positioning, continued cost reduction and improved pulp sales
prices, and each of the other regions generated operating profits (excluding
special items).
In March, we implemented price increases on coated fine paper in Europe to help
mitigate the higher pulp prices and have announced a further 10% increase with
effect from June in response to strengthening demand and the spike in pulp
prices. Prices for coated mechanical paper continued to decline in Europe
during the quarter.
Average prices realised by the group in US dollar terms in the quarter were 2%
higher than a year ago, mainly as a result of higher pulp prices and currency
movements. US dollar prices realised for coated paper were, however, lower than
in the corresponding quarter a year ago. Coated paper prices realised in US
dollar terms were also lower than in the December quarter. Local currency
prices realised for coated paper in Europe were higher than in the December
quarter, while US prices were lower.
Variable costs excluding pulp were at similar levels to the prior quarter, but
still well below the levels of a year ago. Fixed costs were well controlled in
the quarter, and were 4% lower than the December quarter.
Synergies related to the European Acquisition completed in December 2008 (the
"Acquisition") were EUR31 million for the quarter, and the run rate is in line
with our target to achieve EUR120 million of synergies per annum by 2011.
Special items for the quarter amounted to US$26 million, and reflected a
plantation fair value price adjustment charge of US$11 million and a net charge
in respect of other special items of US$15 million including the effect of the
electrical fire at Stockstadt Mill in late December 2009, which interrupted
coated paper production in this mill during the quarter.
Operating profit excluding special items was US$54 million for the quarter, a
substantial improvement compared to the US$17 million loss reported a year ago.
As expected, higher pulp prices in Europe and maintenance shuts in South Africa
negatively impacted our result which was below the US$81 million reported in
the December quarter. Including special items, operating profit was US$28
million compared to US$6 million a year ago.
Net finance costs of US$62 million were US$11 million lower than the prior
quarter largely as a result of a US$7 million gain on the redemption of US$106
million of US Municipal Bonds.
EPS was a loss of 6 US cents (including a loss of 3 US cents in respect of
special items) compared to a loss of 7 US cents for the equivalent quarter last
year (including a gain of 3 US cents in respect of special items).
Cash flow and debt
Cash generated from operations increased to US$122 million for the quarter, up
from US$99 million a year ago as a result of improved operating performance and
increased sales volumes.
Net cash generated was US$109 million for the quarter, up from US$75 million a
year ago (excluding cash invested in the European Acquisition). The increase
was a result of improved operating profit and working capital management which
released US$68 million (including the US$38 million receipt of alternative fuel
tax credits in North America), partially offset by higher finance cost
payments. Capital expenditure for the quarter was US$52 million and year to
date was US$89 million. This is in line with our aim to limit capital
expenditure for the full year to approximately US$200 million.
Net debt decreased to US$2.4 billion, which is below the debt level prior to
the financing of the European Acquisition in December 2008. Liquidity remains
strong, and cash and cash equivalents at the end of the quarter were US$724
million.
Operating Review for the Quarter
Sappi Fine Paper
Quarter Quarter
ended ended
Mar 2010 Mar 2009
US$ million US$ million
Sales 1,208 1,038
Operating profit (loss) 50 (45)
Operating profit (loss) to sales (%) 4.1 (4.3)
Special items (gains) losses (7) 8
Operating profit (loss) excluding special items 43 (37)
Operating profit (loss) excluding
special items to sales (%) 3.6 (3.6)
EBITDA excluding special items 120 42
EBITDA excluding special items to sales (%) 9.9 4.0
RONOA pa (%) 5.3 (4.8)
Quarter
ended
% Dec 2009
change US$ million
Sales 16.4 1,256
Operating profit (loss) - 79
Operating profit (loss) to sales (%) - 6.3
Special items (gains) losses - (35)
Operating profit (loss) excluding special items - 44
Operating profit (loss) excluding
special items to sales (%) - 3.5
EBITDA excluding special items 185.7 130
EBITDA excluding special items to sales (%) - 10.4
RONOA pa (%) - 5.3
The Fine Paper business achieved an operating profit excluding special items of
US$43 million for the quarter due to the strong performance from North America.
The European business experienced improved demand, a stronger order book and
increased operating rates, however, its margins were adversely affected by
rapidly increasing pulp prices. Price realisation started to increase late in
the quarter but was insufficient to offset the input cost increases.
Europe
Quarter Quarter
ended ended %
Mar 2010 Mar 2009 change
US$ million US$ million (US$)
Sales 866 737 17.5
Operating profit (loss) 9 (21) -
Operating profit (loss) to sales (%) 1.0 (2.8) -
Special items (gains) losses (5) - -
Operating profit (loss) excluding
special items 4 (21) -
Operating profit (loss) excluding
special items to sales (%) 0.5 (2.8) -
EBITDA excluding special items 64 34 88.2
EBITDA excluding special items to sales (%) 7.4 4.6 -
RONOA pa (%) 0.7 (4.2) -
Quarter
% ended
change Dec 2009
(Euro) US$ million
Sales 12.4 936
Operating profit (loss) - 12
Operating profit (loss) to sales (%) - 1.3
Special items (gains) losses - 13
Operating profit (loss) excluding
special items - 25
Operating profit (loss) excluding
special items to sales (%) - 2.7
EBITDA excluding special items 79.9 88
EBITDA excluding special items to sales (%) - 9.4
RONOA pa (%) - 4.3
European industry shipments of coated woodfree paper increased by approximately
10% compared to the equivalent quarter last year. Shipments of mechanical
coated paper showed similar levels of growth over the prior year.
Average prices realised for the quarter in dollar terms were 3% below the
equivalent quarter last year and decreased by 5% compared to the prior quarter,
primarily due to exchange rate movements. Prices in Euro terms were higher than
the previous quarter but remain below the level of the corresponding quarter
last year. While prices for coated mechanical paper continued to decline during
the quarter, we implemented price increases for coated woodfree paper in March
which reversed the declining trend of prices experienced since May 2009.
Our European business purchases more than half of its pulp requirements. The
rapidly rising pulp prices therefore resulted in a major margin squeeze in the
quarter. Other input costs such as wood and chemicals also rose, while energy
costs declined.
A 15-day Finnish stevedore strike in March led to the suspension of production
at Kirkniemi Mill for the duration of the strike, during which time we supplied
our customers to the extent possible from our Lanaken Mill in Belgium.
The Stockstadt Mill restarted coated woodfree paper production at the end of
March after a 3 month disruption as a result of an electrical fire. The cost of
restoration and business interruption was approximately US$30 million which was
largely self-insured.
North America
Quarter Quarter
ended ended
Mar 2010 Mar 2009
US$ million US$ million
Sales 342 301
Operating profit (loss) 41 (24)
Operating profit (loss) to sales (%) 12.0 (8.0)
Special items (gains) losses (2) 8
Operating profit (loss) excluding special items 39 (16)
Operating profit (loss) excluding
special items to sales (%) 11.4 (5.3)
EBITDA excluding special items 56 8
EBITDA excluding special items to sales (%) 16.4 2.7
RONOA pa (%) 16.0 (5.9)
Quarter
ended
% Dec 2009
change US$ million
Sales 13.6 320
Operating profit (loss) - 67
Operating profit (loss) to sales (%) - 20.9
Special items (gains) losses - (48)
Operating profit (loss) excluding special items - 19
Operating profit (loss) excluding
special items to sales (%) - 5.9
EBITDA excluding special items 600 42
EBITDA excluding special items to sales (%) - 13.1
RONOA pa (%) - 7.8
During the quarter, the North American business continued to improve its
performance as a result of its market position in coated woodfree paper,
improved market pulp demand and prices and the strong performance of the
speciality business.
US coated paper demand has not returned to 2008 levels but has shown an
improving trend. US industry shipments of coated woodfree paper for the quarter
increased 16% compared to a year ago.
Prices realised for coated paper were 11% below the equivalent quarter last
year and 2% lower than the December quarter. Pulp prices continued to increase
compared to the prior quarter and the equivalent quarter last year.
Margins improved in the quarter as a result of cost management, strong market
pulp performance and retaining good customer mix.
Southern Africa - Forest and Paper Products
Quarter Quarter
ended ended %
Mar 2010 Mar 2009 change
US$ million US$ million (US$)
Sales 368 275 33.8
Operating (loss) profit (4) 50 -
Operating (loss) profit to sales (%) (1.1) 18.2 -
Special items (gains) losses 16 (31) -
Operating profit excluding special items 12 19 (36.8)
Operating profit excluding
special items to sales (%) 3.3 6.9 -
EBITDA excluding special items 37 38 (2.6)
EBITDA excluding special items to sales (%) 10.1 13.8 -
RONOA pa (%) 2.7 4.6 -
Quarter
% ended
change Dec 2009
(Rand) US$ million
Sales 2.2 364
Operating (loss) profit - (86)
Operating (loss) profit to sales (%) - (23.6)
Special items (gains) losses - 115
Operating profit excluding special items (51.6) 29
Operating profit excluding
special items to sales (%) - 8.0
EBITDA excluding special items (25.6) 55
EBITDA excluding special items to sales (%) - 15.1
RONOA pa (%) - 6.3
The Southern African business benefited from rising pulp prices; however, the
domestic markets remained weak until late in the quarter in terms of demand and
price levels.
The Saiccor mill continued to optimise production but had a scheduled
maintenance shut which reduced output for the quarter. Prices for chemical
cellulose increased largely in step with paper pulp prices through the quarter,
offsetting the effect of the stronger exchange rate of the Rand relative to the
US Dollar and resulting in a good performance for Saiccor mill.
The overall performance of the Southern African business was unfavourably
impacted by the weak domestic demand and weak prices for fine paper and
packaging paper. This was exacerbated by an extended maintenance shut at
Ngodwana mill in the quarter which reduced output and sales of pulp and
packaging paper.
The Usutu pulp mill was permanently closed at the end of January and
discussions continue with stakeholders on the future of the site and related
plantations.
Black Economic Empowerment (BEE)
At an extraordinary General Meeting on 29 April 2010 shareholders approved the
BEE transaction which was proposed in the circular to shareholders dated 31
March 2010.
Appointment of Lead Independent Director
The Sappi board has appointed Professor Meyer Feldberg as lead independent
director with immediate effect.
Outlook
We expect conditions in our major markets to continue to improve gradually this
year; however, the extent of the economic recovery is still uncertain.
There has been significant order inflow of coated woodfree paper in Europe and
a modest improvement in demand for coated mechanical paper. As the Euro has
weakened, our export markets have strengthened significantly and we expect
demand to remain firm in these markets.
A major factor for our industry will be the level of pulp prices and the
availability of pulp following the disruption caused by the earthquake in
Chile. An extended period of high pulp prices would benefit our North American
and Southern African businesses directly, as they are net sellers of pulp.
Continued high pulp prices would act as a catalyst for further price increases
for coated paper in Europe beyond the 10% increase we have announced to take
effect in June 2010, which are expected to start improving margins in our
European business.
In our Southern African business, we expect to see continued good demand for
Saiccor`s product, as well as firmer price levels. The Kraft business is
starting to see signs of improved demand, and its performance should improve in
the second half of the year.
We expect the operating profit excluding special items in the third financial
quarter to be at a similar level to that achieved in our second financial
quarter.
On behalf of the board
R J Boettger M R Thompson
Director Director 07 May 2010
sappi limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
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.
The words `believe`, `anticipate`, `expect`, `intend`, `estimate`, `plan`,
`assume`, `positioned`, `will`, `may`, `should`, `risk` and other similar
expressions, which are predictions of or indicate future events and future
trends, which do not relate to historical matters, identify forward-looking
statements. 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
("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 realised or
realised 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, possible early termination of alternative fuel tax credits,
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. We undertake 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 and the integration of the acquired business into our existing
business. The estimate of synergies is based on assumptions which in the view
of our management were prepared on a reasonable basis, reflect the best
currently available estimates and judgements, 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.
Group income statement
Reviewed
Quarter Quarter
ended ended
Mar 2010 Mar 2009
Note US$ million US$ million
Sales 1,576 1,313
Cost of sales 1,443 1,196
Gross profit 133 117
Selling, general and
administrative expenses 114 97
Other operating (income) expense (4) 11
Share of (profit) loss from
associates and joint ventures (5) 3
Operating profit 3 28 6
Net finance costs 62 40
Net interest 79 41
Net foreign exchange gains (6) (4)
Net fair value (gain) loss on
financial instruments (11) 3
(Loss) profit before taxation (34) (34)
Taxation (3) 1
Current (1) (6)
Deferred (2) 7
Loss for the period (31) (35)
Basic loss per share (US cents) (6) (7)
Weighted average number of
shares in issue (millions) 515.5 515.8
Diluted basic loss per share (US cents) (6) (7)
Weighted average number of shares
on fully diluted basis (millions) 515.5 515.8
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2010 Mar 2009
US$ million US$ million
Sales 3,196 2,500
Cost of sales 2,974 2,238
Gross profit 222 262
Selling, general and administrative expenses 221 183
Other operating (income) expense (20) 14
Share of (profit) loss from associates
and joint ventures (8) 2
Operating profit 29 63
Net finance costs 135 61
Net interest 158 72
Net foreign exchange gains (9) (11)
Net fair value (gain) loss on
financial instruments (14) -
(Loss) profit before taxation (106) 2
Taxation (24) 14
Current 3 4
Deferred (27) 10
Loss for the period (82) (12)
Basic loss per share (US cents) (16) (3)
Weighted average number of
shares in issue (millions) 515.6 449.4
Diluted basic loss per share (US cents) (16) (3)
Weighted average number of shares on fully
diluted basis (millions) 515.6 449.4
Group statement of comprehensive income
Reviewed
Quarter Quarter
ended ended
Mar 2010 Mar 2009
US$ million US$ million
Loss for the period (31) (35)
Other comprehensive loss, net of tax - (17)
Exchange differences on translation
of foreign operations (1) 6
Movements in hedging reserves 1 (32)
Deferred tax effects on above - 9
Total comprehensive loss for the period (31) (52)
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2010 Mar 2009
US$ million US$ million
Loss for the period (82) (12)
Other comprehensive loss, net of tax (24) (287)
Exchange differences on translation
of foreign operations (26) (287)
Movements in hedging reserves 2 -
Deferred tax effects on above - -
Total comprehensive loss for the period (106) (299)
Group balance sheet
Reviewed Reviewed
Mar 2010 Sept 2009
US$ million US$ million
ASSETS
Non-current assets 4,401 4,867
Property, plant and equipment 3,638 3,934
Plantations 457 611
Deferred taxation 52 56
Other non-current assets 254 266
Current assets 2,401 2,430
Inventories 777 792
Trade and other receivables 824 868
Cash and cash equivalents 724 770
Assets held for sale 76 -
Total assets 6,802 7,297
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` interest 1,683 1,794
Non-current liabilities 3,201 3,662
Interest-bearing borrowings 2,360 2,726
Deferred taxation 324 355
Other non-current liabilities 517 581
Current liabilities 1,918 1,841
Interest-bearing borrowings 775 601
Bank overdraft 18 19
Other current liabilities 1,057 1,165
Taxation payable 50 56
Liabilities associated with assets held for sale 18 -
Total equity and liabilities 6,802 7,297
Number of shares in issue at balance sheet date
(millions) 515.2 515.7
Group cash flow statement
Reviewed
Quarter Quarter
ended ended
Mar 2010 Mar 2009
US$ million US$ million
Loss for the period (31) (35)
Adjustment for:
Depreciation, fellings and amortisation 117 114
Taxation (3) 1
Net finance costs 62 40
Post-employment benefits (20) (11)
Plantation fair value adjustment 11 (35)
Other non-cash items (14) 25
Cash generated from operations 122 99
Movement in working capital 68 28
Net finance costs (29) (10)
Taxation paid - (3)
Dividends paid - -
Cash retained from operating activities 161 114
Cash utilised in investing activities (52) (625)
Capital expenditure and other non-current assets (52) (39)
Acquisition - (586)
Net cash generated (utilised) 109 (511)
Cash effects of financing activities (122) 243
Net movement in cash and cash equivalents (13) (268)
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2010 Mar 2009
US$ million US$ million
Loss for the period (82) (12)
Adjustment for:
Depreciation, fellings and amortisation 249 211
Taxation (24) 14
Net finance costs 135 61
Post-employment benefits (33) (19)
Plantation fair value adjustment 106 (69)
Other non-cash items 16 8
Cash generated from operations 367 194
Movement in working capital (102) (68)
Net finance costs (93) (54)
Taxation paid (4) (2)
Dividends paid - (37)
Cash retained from operating activities 168 33
Cash utilised in investing activities (89) (665)
Capital expenditure and other non-current assets (89) (79)
Acquisition - (586)
Net cash generated (utilised) 79 (632)
Cash effects of financing activities (65) 1,036
Net movement in cash and cash equivalents 14 404
Group statement of changes in equity
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2010 Mar 2009
US$ million US$ million
Balance - beginning of period 1,794 1,605
Total comprehensive loss for the period (106) (299)
Dividends paid - (37)
Rights offer - 575
Costs directly attributable to the rights offer (5) (31)
Issue of new shares to M-real - 45
Transfers (to) from the share purchase trust (6) 3
Share-based payment reserve 6 5
Balance - end of period 1,683 1,866
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. Apart from
the adoption of IFRS 8 "Operating Segments", 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 2009 which are compliant with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board.
The preliminary results for the six-month period ended March 2010 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 office.
2. Adoption of IFRS 8 "Operating Segments"
The adoption of IFRS 8 "Operating Segments" did not have an impact on the
group`s reported results or financial position.
IFRS 8 requires an entity to report financial and descriptive information about
its reportable segments. Reportable segments are components of an entity for
which separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate resources and
assessing performance. Prior year segment disclosure has been restated as
reflected in note 10.
Reviewed
Quarter Quarter
ended ended
Mar 2010 Mar 2009
US$ million US$ million
3. Operating profit
Included in operating profit are
the following non-cash items:
Depreciation and amortisation 102 99
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 15 15
Growth (14) (16)
1 (1)
Plantation price fair value
adjustment 11 (35)
12 (36)
Included in other operating (income) expense
are the following:
Asset (impairment reversals) impairments (5) 2
(Profit) loss on disposal of property,
plant and equipment (1) -
Profit on disposal of investment (1) -
Restructuring provisions raised 3 8
Fuel tax credit (2) -
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2010 Mar 2009
US$ million US$ million
3. Operating profit
Included in operating profit are
the following non-cash items:
Depreciation and amortisation 214 180
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 35 31
Growth (33) (32)
2 (1)
Plantation price fair value adjustment 106 (69)
108 (70)
Included in other operating (income) expense
are the following:
Asset (impairment reversals) impairments (13) 5
(Profit) loss on disposal of property,
plant and equipment 1 (1)
Profit on disposal of investment (1) -
Restructuring provisions raised 41 8
Fuel tax credit (51) -
Reviewed
Quarter Quarter
ended ended
Mar 2010 Mar 2009
US$ million US$ million
4. Headline loss per share *
Headline loss per share (US cents) (7) (6)
Weighted average number of shares in issue (millions) 515.5 515.8
Diluted headline loss per share (US cents) (7) (6)
Weighted average number of shares
on fully diluted basis (millions) 515.5 515.8
Calculation of headline loss *
Loss for the period (31) (35)
Asset (impairment reversals) impairments (5) 2
(Profit) loss on disposal of property,
plant and equipment (1) -
Profit on disposal of investment (1) -
Tax effect of above items - -
Headline loss (38) (33)
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2010 Mar 2009
US$ million US$ million
4. Headline loss per share *
Headline loss per share (US cents) (18) (2)
Weighted average number of shares in issue (millions) 515.6 449.4
Diluted headline loss per share (US cents) (18) (2)
Weighted average number of shares
on fully diluted basis (millions) 515.6 449.4
Calculation of headline loss *
Loss for the period (82) (12)
Asset (impairment reversals) impairments (13) 5
(Profit) loss on disposal of property,
plant and equipment 1 (1)
Profit on disposal of investment (1) -
Tax effect of above items - -
Headline loss (95) (8)
*Headline earnings disclosure is required by the JSE Limited.
5. Capital expenditure
Reviewed
Quarter Quarter
ended ended
Mar 2010 Mar 2009
US$ million US$ million
Property, plant and equipment 41 46
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2010 Mar 2009
US$ million US$ million
Property, plant and equipment 78 93
Mar 2010 Sept 2009
US$ million US$ million
6. Capital commitments
Contracted 71 62
Approved but not contracted 146 126
217 188
7. Contingent liabilities
Guarantees and suretyships 45 44
Other contingent liabilities (refer to note 9) 28 8
73 52
On the cessation of production at the Usutu Pulp Mill, Sappi is undertaking an
environmental assessment to determine whether there are any potential
environmental obligations at the site. The nature and amount of any such
obligations cannot be measured reliably until the assessments have been
completed.
8. Material balance sheet movements year on year
On the cessation of production at the Usutu Pulp Mill, the assets and the
liabilities forming part of this disposal group, consisting mainly of
plantations, have been classified as held for sale.
9. Subsequent events
As part of the group`s recently announced empowerment transaction as described
in the circular sent to shareholders, dated 31 March 2010, Sappi has in the
second fiscal quarter of 2010 reached an agreement with its strategic partners
in the land empowerment transaction concluded in 2006. As at the end of March
2010 Sappi had the intention to issue ordinary shares to the strategic partners
to settle the group`s obligation under the land empowerment transaction. The
settlement has the effect of unwinding the land empowerment transaction and
incorporating the strategic partners in the recently announced empowerment
transaction.
The issue of shares was authorised by the shareholders in a special meeting
held on 29 April 2010. In accordance with IAS 37, a contingent liability to
issue shares to the value of US$ 19 million (ZAR 141 million) which existed at
the end of the group`s second fiscal quarter of 2010 has been included in note
7, Contingent liabilities.
10. Segment information
Restatement of prior year disclosures
Sappi Fine Paper South Africa is now reported as part of the Forest and Paper
Products segment in accordance with the geographical management of our
business. The table below shows the effect of this change for the quarter and
half-year ended March 2009:
Restated
Reviewed
Quarter ended
Mar 2009
US$ million
As previously
reported Adjustment Restated
Fine Paper
Sales 1,112 (74) 1,038
Operating profit (43) (2) (45)
Net operating assets 3,627 (181) 3,446
Forest and Paper Products -
Pulp and paper operations
Sales 189 74 263
Operating profit 48 2 50
Net operating assets 1,531 181 1,712
Restated
Reviewed
Half-year ended
Mar 2009
US$ million
As previously
reported Adjustment Restated
Fine Paper
Sales 2,110 (148) 1,962
Operating profit (35) (4) (39)
Net operating assets 3,627 (181) 3,446
Forest and Paper Products -
Pulp and paper operations
Sales 363 148 511
Operating profit 97 4 101
Net operating assets 1,531 181 1,712
The information below is presented in the way that it is reviewed by the chief
operating decision maker as required by IFRS 8 "Operating Segments".
Restated Restated
Reviewed Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2010 Mar 2009 Mar 2010 Mar 2009
Metric tons Metric tons Metric tons Metric tons
(000`s) (000`s) (000`s) (000`s)
Sales volume
Fine Paper -
North America 345 289 667 619
Europe 919 759 1,863 1,315
Total 1,264 1,048 2,530 1,934
Forest and Paper
Products -
Pulp and paper
operations 425 409 875 765
Forestry operations 244 189 412 431
Total 1,933 1,646 3,817 3,130
US$ million US$ million US$ million US$ million
Sales
Fine Paper -
North America 342 301 662 664
Europe 866 737 1,802 1,298
Total 1,208 1,038 2,464 1,962
Forest and Paper
Products -
Pulp and paper
operations 351 263 701 511
Forestry operations 17 12 31 27
Total 1,576 1,313 3,196 2,500
Operating profit
excluding special items
Fine Paper -
North America 39 (16) 58 (23)
Europe 4 (21) 29 (8)
Total 43 (37) 87 (31)
Forest and
Paper Products 12 19 41 38
Corporate and other (1) 1 7 1
Total 54 (17) 135 8
Special items -
losses (gains)
Fine Paper -
North America (2) 8 (50) 8
Europe (5) - 8 -
Total (7) 8 (42) 8
Forest and
Paper Products 16 (31) 131 (63)
Corporate and other 17 - 17 -
Total 26 (23) 106 (55)
Operating profit
Fine Paper -
North America 41 (24) 108 (31)
Europe 9 (21) 21 (8)
Total 50 (45) 129 (39)
Forest and
Paper Products (4) 50 (90) 101
Corporate and other (18) 1 (10) 1
Total 28 6 29 63
EBITDA excluding
special items
Fine Paper -
North America 56 8 98 27
Europe 64 34 152 84
Total 120 42 250 111
Forest and
Paper Products 37 38 92 75
Corporate and other (1) 2 7 2
Total 156 82 349 188
Restated Restated
Reviewed Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2010 Mar 2009 Mar 2010 Mar 2009
US$ million US$ million US$ million US$ million
Net operating assets
Fine Paper -
North America 966 1,070 966 1,070
Europe 2,126 2,376 2,126 2,376
Total 3,092 3,446 3,092 3,446
Forest and
Paper Products 1,777 1,712 1,777 1,712
Corporate and other 32 126 32 126
Total 4,901 5,284 4,901 5,284
Reconciliation of operating profit (loss) excluding special items to operating
profit.
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,
non-recurring integration costs related to acquisitions, financial impacts of
natural disasters, non-cash gains or losses on the price fair value adjustment
of plantations and alternative fuel tax credits receivable in cash.
Operating profit
(loss) excluding
special items 54 (17) 135 8
Special Items (26) 23 (106) 55
Plantation
price fair
value adjustment (11) 35 (106) 69
Restructuring
provisions raised (3) (8) (41) (8)
Profit (loss) on
disposal of property,
plant and equipment 1 - (1) 1
Profit on disposal
of investment 1 - 1 -
Asset impairment
reversals (impairments) 5 (2) 13 (5)
Fuel tax credit 2 - 51 -
Fire, flood, storm
and related events (21) (2) (23) (2)
Operating profit 28 6 29 63
Reconciliation of
EBITDA excluding
special
items and operating
profit excluding
special items to
(loss) profit
before taxation
EBITDA excluding
special items 156 82 349 188
Depreciation and
amortisation (102) (99) (214) (180)
Operating profit
(loss) excluding
special items 54 (17) 135 8
Special items -
(losses) gains (26) 23 (106) 55
Net finance costs (62) (40) (135) (61)
(Loss) profit
before taxation (34) (34) (106) 2
Reconciliation of net
operating assets
to total assets
Net operating
assets 4,901 5,284 4,901 5,284
Deferred tax 52 36 52 36
Cash and cash
equivalents 724 711 724 711
Other current
liabilities 1,057 959 1,057 959
Taxation payable 50 52 50 52
Liabilities
associated
with assets held
for sale 18 - 18 -
Total assets 6,802 7,042 6,802 7,042
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, produced from coniferous trees (i.e. spruce, pine) in Scandinavia,
Canada and northern USA. The price of 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
Headline earnings - as defined in circular 3/2009 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 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
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)
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,
non-recurring integration costs related to acquisitions, financial impacts of
natural disasters, non-cash gains or losses on the price fair value adjustment
of plantations and alternative fuel tax credits receivable in cash
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)
Summary rand convenience translation
Quarter Quarter
ended ended
Mar 2010 Mar 2009
Key figures: (ZAR million)
Sales 11,914 12,996
Operating profit 212 59
Special items - losses (gains) * 197 (228)
Operating profit (loss) excluding
special items * 408 (168)
EBITDA excluding special items * 1,179 812
Basic loss per share (SA cents) (45) (69)
Net debt * 18,047 26,215
Key ratios: (%)
Operating profit to sales 1.8 0.5
Operating profit (loss) excluding
special items to sales 3.4 (1.3)
Operating profit (loss) excluding
special items to
Capital employed (ROCE) * 5.2 (1.7)
EBITDA excluding special items to sales 9.9 6.2
Return on average equity (ROE) (7.4) (7.7)
Net debt to total capitalisation * 59.1 59.4
Half-year Half-year
ended ended
Mar 2010 Mar 2009
Key figures: (ZAR million)
Sales 24,067 24,754
Operating profit 218 624
Special items - losses (gains) * 798 (545)
Operating profit (loss) excluding
special items * 1,017 79
EBITDA excluding special items * 2,628 1,861
Basic loss per share (SA cents) (120) (30)
Net debt * 18,047 26,215
Key ratios: (%)
Operating profit to sales 0.9 2.5
Operating profit (loss) excluding
special items to sales 4.2 0.3
Operating profit (loss) excluding
special items to
Capital employed (ROCE) * 6.5 0.4
EBITDA excluding special items to sales 10.9 7.5
Return on average equity (ROE) (9.6) (1.5)
Net debt to total capitalisation * 59.1 59.4
* 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.
Reconciliation of net debt to interest-bearing borrowings
Mar 2010 Sept 2009
US$ million US$ million
Interest-bearing borrowings 3,153 3,346
Non-current interest-bearing borrowings 2,360 2,726
Current interest-bearing borrowings 775 601
Bank overdraft 18 19
Cash and cash equivalents (724) (770)
Net debt 2,429 2,576
Exchange rates
Mar Dec Sept
2010 2009 2009
Exchange rates:
Period end rate: US$1 = ZAR 7.4298 7.5315 7.4112
Average rate for the Quarter: US$1 = ZAR 7.5597 7.5009 7.7174
Average rate for the YTD: US$1 = ZAR 7.5302 7.5009 9.0135
Period end rate: EUR 1 = US$ 1.3413 1.4397 1.4688
Average rate for the Quarter: EUR 1 = US$ 1.3891 1.4737 1.4317
Average rate for the YTD: EUR 1 = US$ 1.4302 1.4737 1.3657
June Mar
2009 2009
Exchange rates:
Period end rate: US$1 = ZAR 7.8990 9.5849
Average rate for the Quarter: US$1 = ZAR 8.6197 9.8979
Average rate for the YTD: US$1 = ZAR 9.4205 9.9015
Period end rate: EUR 1 = US$ 1.4054 1.3301
Average rate for the Quarter: EUR 1 = US$ 1.3651 1.3300
Average rate for the YTD: EUR 1 = US$ 1.3432 1.3288
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.
SEE PRESS FOR GRAPHS
Other interested parties can obtain printed copies of this report from:
South Africa: United States:
Computershare Investor ADR Depositary:
Services (Proprietary) Limited The Bank of New York Mellon
70 Marshall Street Investor Relations
Johannesburg 2001 PO Box 11258
PO Box 61051 Church Street Station
Marshalltown 2107 New York, NY 10286-1258
Tel +27 (0)11 370 5000 Tel +1 610 382 7836
Sappi has a primary listing on the JSE Limited and a secondary listing on
the New York Stock Exchange
this report is available on the Sappi website www.sappi.com
Date: 07/05/2010 08:59:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
