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SAP
SAVVI
SAP - Sappi Limited - 3rd Quarter results for the period ended June 2010
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
3rd Quarter results for the period ended June 2010
3rd Quarter results
Financial summary for the quarter
EPS of 12 US cents (favourably impacted by 10 US cents special items); Q3
2009: loss of 12 US cents per share (unfavourably impacted by 2 US cents
special items)
Operating profit excluding special items US$75 million; Q3 2009:
US$13 million loss
Demand continued to improve
Prices for coated woodfree paper increased
Prices of raw material inputs increased
Liquidity strong
Quarter ended
Jun 2010 Mar 2010 Jun 2009
Key figures: (US$ million)
Sales 1,602 1,576 1,316
Operating profit (loss) 154 28 (7)
Special items - (gains) losses 1 (79) 26 (6)
Operating profit (loss) excluding
special items 2 75 54 (13)
EBITDA excluding special items 3 176 156 93
Basic earnings (loss) per share
(US cents) 12 (6) (12)
Net debt 4 2,337 2,429 2,770
Key ratios: (%)
Operating profit (loss) to sales 9.6 1.8 (0.5)
Operating profit (loss) excluding
special items to sales 4.7 3.4 (1.0)
Operating profit (loss) excluding
special items to
Capital Employed (ROCE) 7.3 5.1 (1.1)
EBITDA excluding special
items to sales 11.0 9.9 7.1
Return on average equity (ROE) 5 15.0 (7.3) (12.7)
Net debt to total capitalisation 5 57.6 59.1 57.5
Nine months ended
Jun 2010 Jun 2009
Key figures: (US$ million)
Sales 4,798 3,816
Operating profit (loss) 183 56
Special items - (gains) losses 1 27 (61)
Operating profit (loss) excluding
special items 2 210 (5)
EBITDA excluding special items 3 525 281
Basic earnings (loss) per share
(US cents) (3) (16)
Net debt 4 2,337 2,770
Key ratios: (%)
Operating profit (loss) to sales 3.8 1.5
Operating profit (loss) excluding
special items to sales 4.4 (0.1)
Operating profit (loss) excluding
special items to
Capital Employed (ROCE) 6.6 (0.2)
EBITDA excluding special
items to sales 10.9 7.4
Return on average equity (ROE) 5 (1.4) (5.4)
Net debt to total capitalisation 5 57.6 57.5
1 Refer to details on special items.
2 Refer to note 9 to the group results for the reconciliation of
operating profit excluding special items to operating profit (loss).
3 Refer to note 9 to the group results for the reconciliation of
EBITDA excluding special items to profit (loss) 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 grow during the quarter and the financial
performance of the group improved significantly compared to a year ago and also
improved compared to the previous quarter. The North American business
performed strongly during the quarter and there was a significant improvement
in the southern African results. Despite increasing prices for coated fine
paper, the performance of our European business has been constrained by an 18%
increase in variable costs compared to a year ago, largely due to pulp price
increases.
Sales increased to US$1.6 billion, up 22% compared to a year earlier and up 2%
compared to the March quarter.
Average prices realised by the group were 4% higher than a year ago in US
dollar terms. Coated woodfree paper prices increased in Europe during the
quarter. In addition, the southern African and North American businesses were
favourably impacted by higher pulp prices. As an example, the NBSK pulp price
increased to US$976 per ton at the end of June, an increase of US$87 per ton
since March.
Variable costs for the group increased as a result of higher input prices,
particularly pulp and wood costs in both Europe and North America. Fixed costs,
however, were 5% lower than the prior quarter.
The synergies achieved from the European Acquisition have reached our announced
level of EUR120 million of synergies per annum, ahead of the target date of
2011.
Special items for the quarter amounted to a gain of US$79 million, which mainly
comprised a plantation fair value gain of US$108 million and a charge of US$23
million in respect of the Black Economic Empowerment transaction approved by
shareholders in April. Although the plantation fair value adjustment is large
for the quarter, it is only US$2 million for the year to date. With effect from
this quarter we have applied a refined estimate of fair value which we expect to
more accurately reflect the long-term value of the plantations (see Note 3).
Operating profit excluding special items was US$75 million for the quarter, a
substantial improvement compared to the US$13 million loss a year ago and an
improvement on the March quarter. Including special items, operating profit was
US$154 million, compared to a loss of US$7 million in the equivalent quarter
last year.
Net finance costs of US$57 million were US$5 million lower than in the prior
quarter as a result of foreign currency exchange movements and the repayment of
US$235 million of long-term debt out of cash in the last two quarters.
Earnings per share for the quarter were 12 US cents (including a gain of 10 US
cents in respect of special items), compared to a loss of 12 US cents
(including a loss of 2 US cents in respect of special items) a year ago.
Cash flow and debt
Cash generated from operations was US$188 million for the quarter, which was
higher than the US$77 million a year ago largely due to improved profitability.
Net cash generated (after investing activities) for the quarter was US$24
million, which was lower than the US$106 million a year ago, primarily as a
result of the working capital movements reflecting sales growth and finance
costs paid, which had been much lower in the equivalent period last year.
Finance costs paid in the equivalent period last year were reduced by the US$55
million benefit of unwinding fixed-to-floating interest rate swaps. Capital
expenditure for the quarter was US$41 million and year to date was US$130
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$2.3 billion for the quarter as a result of cash
generated and currency movements. An early repayment of EUR80 million
(US$99 million), comprising the December 2010 instalment of the EUR400
million OekB loan was made during the quarter. Liquidity remains strong
and cash and cash equivalents were US$534 million at the end of the quarter.
The EUR209 million (US$259 million) revolving credit facility remains undrawn.
Operating Review for the Quarter
Sappi Fine Paper
Quarter Quarter Quarter
ended ended ended
June 2010 June 2009 % March 2010
US$ million US$ million change US$ million
Sales 1,220 1,020 20 1,208
Operating profit 36 24 50 50
Operating profit to
sales (%) 3.0 2.4 25 4.1
Special items -
losses (gains) 1 (33) - (7)
Operating profit
(loss) excluding
special items 37 (9) - 43
Operating profit
(loss) excluding
special items to sales (%) 3.0 (0.9) - 3.6
EBITDA excluding
special items 110 75 47 120
EBITDA excluding special
items to sales (%) 9.0 7.4 23 9.9
RONOA pa (%) 4.8 (1.0) - 5.3
The Fine Paper business achieved an operating profit excluding special items of
US$37 million for the quarter compared to a loss of US$9 million a year ago,
due to a continued good performance from North America and a gradual
improvement of the European business as a result of higher sales volumes and
prices, largely offset, however, by the increase in pulp and other input costs.
Europe
Quarter Quarter
ended ended %
June 2010 June 2009 change
US$ million US$ million (US$)
Sales 873 729 20
Operating profit 11 - -
Operating profit to sales (%) 1.3 - -
Special items - losses (gains) 2 4 -
Operating profit excluding special items 13 4 225
Operating profit excluding
special items to sales (%) 1.5 0.5 171
EBITDA excluding special items 68 62 10
EBITDA excluding special items to sales (%) 7.8 8.5 -
RONOA pa (%) 2.5 0.7 276
Quarter
% ended
change March 2010
(Euro) US$ million
Sales 26 866
Operating profit - 9
Operating profit to sales (%) - 1.0
Special items - losses (gains) - (5)
Operating profit excluding special items 241 4
Operating profit excluding
special items to sales (%) 170 0.5
EBITDA excluding special items 17 64
EBITDA excluding special items to sales (%) - 7.4
RONOA pa (%) 272 0.7
The European business` coated paper shipments continued to grow during the
quarter. European industry coated woodfree paper shipments increased by 18%,
comprising a 10% increase in shipments to Europe and a 55% increase in exports
from Europe compared to a year ago.
Our prices for coated woodfree paper were increased in April, and again in
June, but to date these increases have only partly offset the effect of the
increase in pulp prices and other input cost increases on our margins. Prices
for coated mechanical paper did not increase during the quarter. Further
selling price increases are required in order to achieve reasonable margins.
Average prices realised in Euro for the quarter were flat compared to the
equivalent quarter last year and 6% up compared to the prior quarter in Euro
terms.
North America
Quarter Quarter Quarter
ended ended ended
June 2010 June 2009 % March 2010
US$ million US$ million change US$ million
Sales 347 291 19 342
Operating profit 25 24 4 41
Operating profit to
sales (%) 7.2 8.2 - 12.0
Special items - (gains) (1) (37) - (2)
Operating profit
(loss) excluding
special items 24 (13) - 39
Operating profit
(loss) excluding
special items to sales (%) 6.9 (4.5) - 11.4
EBITDA excluding
special items 42 13 223 56
EBITDA excluding special
items to sales (%) 12.1 4.5 171 16.4
RONOA pa (%) 10.0 (4.9) - 16.0
The North American business continued to improve its performance as a result of
strengthening demand, good operating rates and improving pulp prices. Demand
levels continued to improve and US industry shipments of coated woodfree paper
for the quarter increased by 31% compared to a year ago.
After more than a year of declining coated paper prices in the North American
market, prices started to rise during the quarter. Prices realised for coated
paper were 7% below a year ago, and were flat compared to the prior quarter. We
announced price increases on coated woodfree paper reels and certain sheet
grades during the quarter. Pulp prices continued to increase during the
quarter.
Well controlled cost levels, a strong performance in the speciality business
and strong market pulp results continued in the quarter. The decline in
operating profit compared to the March quarter was driven by the timing of
major planned maintenance.
Southern Africa - Forest and Paper Products
Quarter Quarter
ended ended %
June 2010 June 2009 change
US$ million US$ million (US$)
Sales 382 296 29
Operating profit (loss) 118 (31) -
Operating profit (loss) to sales (%) 30.9 (10.5) -
Special items - (gains) losses (83) 20 -
Operating profit (loss) excluding
special items 35 (11) -
Operating profit (loss) excluding
special items to sales (%) 9.2 (3.7) -
EBITDA excluding special items 62 11 464
EBITDA excluding special items to sales (%) 16.2 3.7 337
RONOA pa (%) 7.9 (2.4) -
Quarter
% ended
change March 2010
(Rand) US$ million
Sales 14 368
Operating profit (loss) - (4)
Operating profit (loss) to sales (%) - (1.1)
Special items - (gains) losses - 16
Operating profit (loss) excluding special items - 12
Operating profit (loss) excluding
special items to sales (%) - 3.3
EBITDA excluding special items 396 37
EBITDA excluding special items to sales (%) 337 10.1
RONOA pa (%) - 2.7
The performance of the southern African business improved significantly in the
quarter compared to the equivalent quarter last year and the prior quarter
driven partly by improved pulp prices. Average NBSK pulp prices in the quarter
were 60% higher than the equivalent quarter last year and 12% higher than the
prior quarter. An eighteen day harbours and railways strike during the quarter
resulted in delayed shipments, unfavourably impacting sales volumes by 15,000
tons.
The chemical cellulose business achieved higher output from the Saiccor Mill
and benefited from increased product prices. In the domestic market demand for
packaging paper was strong, as it was in the international markets where prices
were also increasing. However, although demand for coated paper improved,
demand for other fine paper and newsprint was weak.
Directorate
Mr Valli Moosa, a Director of Sappi`s Broad Based Black Economic Empowerment
Partner, Lereko Limited, has been appointed a non-executive director of Sappi
Limited with effect from 1 August 2010.
Outlook
Although demand in most of our markets has continued growing, our outlook
remains cautious in light of ongoing uncertainty in global economies and demand
levels.
In Europe, prices for coated woodfree paper have risen twice since April 2010
and we have announced further increases of at least 7% from September 2010,
which we believe are necessary to start restoring margins. Prices for coated
mechanical paper started to rise in July 2010 but remain low. North American
prices for coated paper are also increasing gradually.
The rate of increase of pulp prices started flattening in the latter part of the
quarter and we expect a period of softer pulp prices over the next few months.
Demand for our products in Europe is expected to further accelerate in the
fourth financial quarter, and our European order books are firm. Order books in
our other businesses have lengthened.
The costs of our non-pulp raw material inputs have started increasing and we
are actively managing our processes to minimise the impact of such increases.
We expect that pulp input costs will continue to affect the performance of our
European business.
Under current market conditions, we expect operating profit (excluding special
items) as well as net cash generation to continue to improve in our fourth
financial quarter.
On behalf of the board
R J Boettger M R Thompson
Director Director 2 August 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
Jun 2010 Jun 2009
Note US$ million US$ million
Sales 1,602 1,316
Cost of sales 1,314 1,272
Gross profit 288 44
Selling, general and administrative expenses 108 90
Other operating expense (income) 29 (31)
Share of profit from
associates and joint ventures (3) (8)
Operating profit (loss) 3 154 (7)
Net finance costs 57 70
Net interest 68 44
Net foreign exchange gains (7) (1)
Net fair value (gain) loss on financial instruments (4) 27
Profit (loss) before taxation 97 (77)
Taxation 33 (15)
Current (2) 3
Deferred 35 (18)
Profit (loss) for the period 64 (62)
Basic earnings (loss) per share (US cents) 12 (12)
Weighted average number of
shares in issue (millions) 516.0 515.8
Diluted basic earnings (loss)
per share (US cents) 12 (12)
Weighted average number of shares on fully
diluted basis (millions) 529.4 515.8
Reviewed
Nine months Nine months
ended ended
Jun 2010 Jun 2009
US$ million US$ million
Sales 4,798 3,816
Cost of sales 4,288 3,510
Gross profit 510 306
Selling, general and administrative expenses 329 273
Other operating expense (income) 9 (17)
Share of profit from
associates and joint ventures (11) (6)
Operating profit (loss) 3 183 56
Net finance costs 192 131
Net interest 226 116
Net foreign exchange gains (16) (12)
Net fair value (gain) loss on
financial instruments (18) 27
Profit (loss) before taxation (9) (75)
Taxation 9 (1)
Current 1 7
Deferred 8 (8)
Profit (loss) for the period (18) (74)
Basic earnings (loss) per share (US cents) (3) (16)
Weighted average number of
shares in issue (millions) 515.7 471.5
Diluted basic earnings (loss)
per share (US cents) (3) (16)
Weighted average number of shares on fully
diluted basis (millions) 515.7 471.5
Group statement of comprehensive income
Reviewed Reviewed
Quarter Quarter Nine months Nine months
ended ended ended ended
Jun 2010 Jun 2009 Jun 2010 Jun 2009
US$ million US$ million US$ million US$ million
Profit (loss)
for the period 64 (62) (18) (74)
Other comprehensive
(loss) income,
net of tax (54) 244 (78) (43)
Exchange differences
on translation of
foreign operations (43) 243 (69) (44)
Movements in
hedging reserves (11) - (9) -
Movement on
available for
sale financial assets - 1 - 1
Deferred tax effects
on above - - - -
Total comprehensive
income (loss)
for the period 10 182 (96) (117)
Group balance sheet
Reviewed
Jun 2010 Sept 2009
US$ million US$ million
ASSETS
Non-current assets 4,310 4,867
Property, plant and equipment 3,424 3,934
Plantations 550 611
Deferred taxation 49 56
Other non-current assets 287 266
Current assets 2,250 2,430
Inventories 795 792
Trade and other receivables 846 868
Cash and cash equivalents 534 770
Assets held for sale 75 -
Total assets 6,560 7,297
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` interest 1,719 1,794
Non-current liabilities 3,099 3,662
Interest-bearing borrowings 2,253 2,726
Deferred taxation 348 355
Other non-current liabilities 498 581
Current liabilities 1,742 1,841
Interest-bearing borrowings 597 601
Bank overdraft 21 19
Other current liabilities 1,062 1,165
Taxation payable 43 56
Liabilities associated with assets held for sale 19 -
Total equity and liabilities 6,560 7,297
Number of shares in issue at balance sheet date
(millions) 519.5 515.7
Group cash flow statement
Reviewed
Quarter Quarter
ended ended
Jun 2010 Jun 2009
US$ million US$ million
Profit (loss) for the period 64 (62)
Adjustment for:
Depreciation, fellings and amortisation 116 125
Taxation 33 (15)
Net finance costs 57 70
Post-employment benefits (15) (13)
Plantation fair value adjustment (108) 25
Other non-cash items 41 (53)
Cash generated from operations 188 77
Movement in working capital (84) 93
Net finance costs (35) -
Taxation paid (4) (3)
Dividends paid - -
Cash retained from operating activities 65 167
Cash utilised in investing activities (41) (61)
Capital expenditure and other
non-current assets (41) (59)
Acquisition - (2)
Net cash generated (utilised) 24 106
Cash effects of financing activities (179) (57)
Net movement in cash and cash equivalents (155) 49
Reviewed
Nine months Nine months
ended ended
Jun 2010 Jun 2009
US$ million US$ million
Profit (loss) for the period (18) (74)
Adjustment for:
Depreciation, fellings and amortisation 365 336
Taxation 9 (1)
Net finance costs 192 131
Post-employment benefits (48) (32)
Plantation fair value adjustment (2) (44)
Other non-cash items 57 (45)
Cash generated from operations 555 271
Movement in working capital (186) 25
Net finance costs (128) (54)
Taxation paid (8) (5)
Dividends paid - (37)
Cash retained from operating activities 233 200
Cash utilised in investing activities (130) (726)
Capital expenditure and other
non-current assets (130) (138)
Acquisition - (588)
Net cash generated (utilised) 103 (526)
Cash effects of financing activities (244) 979
Net movement in cash and cash equivalents (141) 453
Group statement of changes in equity
Reviewed
Nine months Nine months
ended ended
Jun 2010 Jun 2009
US$ million US$ million
Balance - beginning of period 1,794 1,605
Total comprehensive loss for the period (96) (117)
Dividends paid - (37)
Rights offer - 575
Costs directly attributable to the rights offer (5) (31)
Issue of new shares 19 45
Transfers (to) from the share purchase trust (6) 2
Share-based payment reserve 13 7
Balance - end of period 1,719 2,049
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 and the AC
500 standards as issued by the Accounting Practices Board in South Africa.
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 results are unaudited.
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 9.
Reviewed
Quarter Quarter
ended ended
Jun 2010 Jun 2009
US$ million US$ million
3. Operating profit
Included in operating profit are
the following non-cash items:
Depreciation and amortisation 101 106
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 15 19
Growth (15) (20)
- (1)
Plantation price fair value
adjustment (1) (108) 25
(108) 24
Included in other operating expense (income)
are the following:
Asset impairments (impairment reversals) 1 1
Loss (profit) on disposal of property,
plant and equipment - -
Profit on disposal of investment - -
Restructuring provisions raised 5 2
Integration costs - 3
BEE charge 23 -
Fuel tax credit - (37)
Reviewed
Nine months Nine months
ended ended
Jun 2010 Jun 2009
US$ million US$ million
3. Operating profit
Included in operating profit are
the following non-cash items:
Depreciation and amortisation 315 286
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 50 50
Growth (48) (52)
2 (2)
Plantation price fair value
adjustment (1) (2) (44)
- (46)
Included in other operating expense (income)
are the following:
Asset impairments (impairment reversals) (12) 6
Loss (profit) on disposal of property,
plant and equipment 1 (1)
Profit on disposal of investment (1) -
Restructuring provisions raised 46 10
Integration costs - 3
BEE charge 23 -
Fuel tax credit (51) (37)
(1) In the third quarter of fiscal 2010 the group changed the estimates used to
derive the prices of timber that are used to calculate the fair value of its
plantations. The change impacts the estimate of the expected future cash flows
that are used in calculating the present value of mature and immature timber
except for the timber that is expected to be felled in the next 12 months from
balance sheet date. Before the change, Sappi used period end spot prices to
estimate the fair value of the above timber; the group now uses a 12 quarter
rolling average price, as this reflects the fair value of the plantations more
accurately. This change has increased the value of plantations by US$28
million.
Reviewed Reviewed
Quarter Quarter Nine months Nine months
ended ended ended ended
Jun 2010 Jun 2009 Jun 2010 Jun 2009
US$ million US$ million US$ million US$ million
4. Headline earnings
(loss) per share *
Headline earnings
(loss) per share
(US cents) 13 (12) (6) (15)
Weighted average
number of shares
in issue (millions) 516.0 515.8 515.7 471.5
Diluted headline
earnings (loss)
per share (US cents) 12 (12) (6) (15)
Weighted average
number of shares on
fully diluted basis
(millions) 529.4 515.8 515.7 471.5
Calculation of headline
earnings (loss)*
Profit (loss)
for the period 64 (62) (18) (74)
Asset impairments
(impairment reversals) 1 1 (12) 6
Loss (profit) on
disposal of property,
plant and equipment - - 1 (1)
Profit on disposal
of investment - - (1) -
Tax effect of
above items - - - -
Headline earnings (loss) 65 (61) (30) (69)
*Headline earnings
disclosure is required
by the JSE Limited.
5. Capital expenditure
Property, plant
and equipment 42 54 120 147
Jun 2010 Sept 2009
US$ million US$ million
6. Capital commitments
Contracted 62 62
Approved but not contracted 135 126
197 188
7. Contingent liabilities
Guarantees and suretyships 43 44
Other contingent liabilities 8 8
51 52
With 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
Transfers to assets held for sale and liabilities associated with assets held
for sale
With 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.
Early repayment of interest-bearing borrowings
An early repayment of the first instalment on a syndicated loan with
Osterreichische Kontrollbank of EUR80 million (US$99 million), due in December
2010, was made in June 2010.
An amount of US$29 million of our 7.5% Guaranteed Notes due 2032 was
repurchased in the open market during the quarter for US$24 million.
9. Segment information
Restatement of prior year disclosures
Sappi Fine Paper South Africa is now reported as part of the Forest and Paper
Products segment in accordance with the geographical management of our
business. The table below shows the effect of this change for the quarter and
nine months ended June 2009:
Restated
Quarter ended
Jun 2009
US$ million
As previously
reported Adjustment Restated
Fine Paper
Sales 1,098 (78) 1,020
Operating profit 19 5 24
Net operating assets 3,715 (205) 3,510
Forest and Paper Products - Pulp
and paper operations
Sales 204 78 282
Operating profit (26) (5) (31)
Net operating assets 1,790 205 1,995
Restated
Nine months ended
Jun 2009
US$ million
As previously
reported Adjustment Restated
Fine Paper
Sales 3,208 (226) 2,982
Operating profit (16) 1 (15)
Net operating assets 3,715 (205) 3,510
Forest and Paper Products - Pulp
and paper operations
Sales 567 226 793
Operating profit 71 (1) 70
Net operating assets 1,790 205 1,995
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
Quarter Quarter Nine months Nine months
ended ended ended ended
Jun 2010 Jun 2009 Jun 2010 Jun 2009
Metric tons Metric tons Metric tons Metric tons
(000`s) (000`s) (000`s) (000`s)
Sales volume
Fine Paper -
North America 335 300 1,002 919
Europe 939 746 2,802 2,061
Total 1,274 1,046 3,804 2,980
Forest and
Paper
Products -
Pulp and paper
operations 416 425 1,291 1,190
Forestry operations 292 218 704 649
Total 1,982 1,689 5,799 4,819
US$ million US$ million US$ million US$ million
Sales
Fine Paper -
North America 347 291 1,009 955
Europe 873 729 2,675 2,027
Total 1,220 1,020 3,684 2,982
Forest and Paper
Products -
Pulp and paper
operations 361 282 1,062 793
Forestry operations 21 14 52 41
Total 1,602 1,316 4,798 3,816
Operating profit
(loss) excluding
special items
Fine Paper -
North America 24 (13) 82 (36)
Europe 13 4 42 (4)
Total 37 (9) 124 (40)
Forest and Paper
Products 35 (11) 76 27
Corporate and other 3 7 10 8
Total 75 (13) 210 (5)
Special items
- (gains) losses
Fine Paper -
North America (1) (37) (51) (29)
Europe 2 4 10 4
Total 1 (33) (41) (25)
Forest and Paper
Products (83) 20 48 (43)
Corporate and other 3 7 20 7
Total (79) (6) 27 (61)
Operating profit
(loss)
Fine Paper -
North America 25 24 133 (7)
Europe 11 - 32 (8)
Total 36 24 165 (15)
Forest and Paper
Products 118 (31) 28 70
Corporate and other - - (10) 1
Total 154 (7) 183 56
EBITDA
excluding
special items
Fine Paper -
North America 42 13 140 40
Europe 68 62 220 146
Total 110 75 360 186
Forest and Paper
Products 62 11 154 86
Corporate and other 4 7 11 9
Total 176 93 525 281
Restated Restated
Reviewed Reviewed
Quarter Quarter Nine months Nine months
ended ended ended ended
Jun 2010 Jun 2009 Jun 2010 Jun 2009
US$ million US$ million US$ million US$ million
Net operating assets
Fine Paper -
North America 949 1,035 949 1,035
Europe 2,070 2,475 2,070 2,475
Total 3,019 3,510 3,019 3,510
Forest and
Paper Products 1,785 1,995 1,785 1,995
Corporate and other 49 72 49 72
Total 4,853 5,577 4,853 5,577
Reconciliation of operating profit (loss) excluding special items to operating
profit (loss)
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 75 (13) 210 (5)
Special items 79 6 (27) 61
Plantation price fair
value adjustment 108 (25) 2 44
Restructuring
provisions raised (5) (2) (46) (10)
(Loss) profit
on disposal of
property, plant and
equipment - - (1) 1
Profit on disposal
of investment - - 1 -
Asset (impairments)
impairment
reversals (1) (1) 12 (6)
Fuel tax credit - 37 51 37
Integration
costs - (3) - (3)
BEE charge (23) - (23) -
Insurance
proceeds 1 - 1 -
Fire, flood,
storm and
related events (1) - (24) (2)
Operating
profit (loss) 154 (7) 183 56
Reconciliation of EBITDA excluding special items and operating profit (loss)
excluding special items to profit (loss) before taxation
EBITDA excluding
special items 176 93 525 281
Depreciation and
amortisation (101) (106) (315) (286)
Operating profit
(loss) excluding
special items 75 (13) 210 (5)
Special items -
gains (losses) 79 6 (27) 61
Net finance costs (57) (70) (192) (131)
Profit (loss)
before taxation 97 (77) (9) (75)
Reconciliation
of net operating
assets to total assets
Net operating assets 4,853 5,577 4,853 5,577
Deferred tax 49 38 49 38
Cash and cash
equivalents 534 796 534 796
Other current
liabilities 1,062 1,017 1,062 1,017
Taxation payable 43 58 43 58
Liabilities
associated with
assets held for sale 19 - 19 -
Total assets 6,560 7,486 6,560 7,486
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
BEE charge - Represents the IFRS 2 non-cash charge associated with the Black
Economic Empowerment (BEE) transaction implemented as envisaged in the BEE
legislation in South Africa
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 Nine months Nine months
ended ended ended ended
Jun 2010 Jun 2009 Jun 2010 Jun 2009
Key figures:
(ZAR million)
Sales 12,147 11,344 36,278 35,949
Operating profit
(loss) 1,168 (60) 1,384 528
Special items -
(gains) losses * (599) (52) 204 (575)
Operating profit
(loss) excluding
special items * 569 (112) 1,588 (47)
EBITDA excluding
special items * 1,334 802 3,970 2,647
Basic earnings (loss)
per share (SA cents) 91 (103) (23) (151)
Net debt * 17,820 21,880 17,820 21,880
Key ratios: (%)
Operating profit
(loss) to sales 9.6 (0.5) 3.8 1.5
Operating profit
(loss) excluding
special items to sales 4.7 (1.0) 4.4 (0.1)
Operating profit
(loss) excluding
special items to
Capital Employed
(ROCE) * 7.4 (1.1) 6.7 (0.2)
EBITDA excluding
special items to sales 11.0 7.1 10.9 7.4
Return on average
equity (ROE) 15.1 (12.5) (1.4) (6.4)
Net debt to total
capitalisation * 57.6 57.5 57.6 57.5
* 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
Jun 2010 Sept 2009
US$ million US$ million
Interest-bearing borrowings 2,871 3,346
Non-current interest-bearing borrowings 2,253 2,726
Current interest-bearing borrowings 597 601
Bank overdraft 21 19
Cash and cash equivalents (534) (770)
Net debt 2,337 2,576
Exchange rates
Jun Mar Dec
2010 2010 2009
Exchange rates:
Period end rate: US$1 = ZAR 7.6250 7.4298 7.5315
Average rate for the Quarter: US$1 = ZAR 7.5821 7.5597 7.5009
Average rate for the YTD: US$1 = ZAR 7.5610 7.5302 7.5009
Period end rate: EUR 1 = US$ 1.2377 1.3413 1.4397
Average rate for the Quarter: EUR 1 = US$ 1.2937 1.3891 1.4737
Average rate for the YTD: EUR 1 = US$ 1.3845 1.4302 1.4737
Sept Jun
2009 2009
Exchange rates:
Period end rate: US$1 = ZAR 7.4112 7.8990
Average rate for the Quarter: US$1 = ZAR 7.7174 8.6197
Average rate for the YTD: US$1 = ZAR 9.0135 9.4205
Period end rate: EUR 1 = US$ 1.4688 1.4054
Average rate for the Quarter: EUR 1 = US$ 1.4317 1.3651
Average rate for the YTD: EUR 1 = US$ 1.3657 1.3432
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: United States:
ADR Depositary:
Computershare Investor
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
www.sappi.com
Date: 02/08/2010 09:15:02 Produced by the JSE SENS Department.
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