| Thu 4 Aug 2011, 9:00 | | SAP - Sappi Limited - 3rd Quarter results for the period ended June 2011 |
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SAP
SAVVI
SAP - Sappi Limited - 3rd Quarter results for the period ended June 2011
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
3rd Quarter results for the period ended June 2011
Sappi works closely with customers, both direct and indirect, in over 100
countries to provide them with relevant and sustainable paper, paper-pulp and
chemical cellulose products and related services and innovations.
Our market-leading range of paper products includes: coated fine papers used by
printers, publishers and corporate end-users in the production of books,
brochures, magazines, catalogues, direct mail and many other print applications;
casting release papers used by suppliers to the fashion, textiles, automobile
and household industries; and in our Southern African region, newsprint,
uncoated graphic and business papers, premium-quality packaging papers, paper-
grade pulp and chemical cellulose.
Our chemical cellulose products are used worldwide by converters to create
viscose fibre, acetate tow, pharmaceutical products as well as a wide range of
consumer products.
The pulp needed for our products is either produced within Sappi or bought from
accredited suppliers. Across the group, Sappi is close to `pulp neutral`,
meaning that we sell almost as much pulp as we buy.
Financial summary for the quarter
- Operating profit excluding special items US$60 million; Q3 2010 US$75 million
- General economic uncertainty, particularly in Europe
- North American and chemical cellulose businesses continue to perform strongly
- Planned annual maintenance shuts at major pulp mills
- High input costs only partly offset by higher prices
- Loss per share excluding special items and once-off debt restructuring costs 4
US cents; Q3 2010 EPS excluding special items 2 US cents
Quarter ended
Jun 2011 Jun 2010 Mar 2011
Key figures: (US$ million)
Sales 1,802 1,602 1,824
Operating profit (loss) 54 154 (1)
Special items - losses (gains) (1) 6 (79) 128
Operating profit excluding special items (2) 60 75 127
EBITDA excluding special items (3) 164 176 228
Basic (loss) earnings per share (US cents) (13) 12 (14)
Net debt (4) 2,475 2,337 2,370
Key ratios: (%)
Operating profit (loss) to sales 3.0 9.6 (0.1)
Operating profit excluding special items
to sales 3.3 4.7 7.0
Operating profit excluding special items
to capital employed (ROCE) 5.5 7.3 11.6
EBITDA excluding special items to sales 9.1 11.0 12.5
Return on average equity (ROE) (5) (14.2) 15.0 (14.9)
Net debt to total capitalisation (5) 56.8 57.6 54.8
Nine months ended
Jun 2011 Jun 2010
Key figures: (US$ million)
Sales 5,499 4,798
Operating profit (loss) 174 183
Special items - losses (gains) (1) 150 27
Operating profit excluding special items (2) 324 210
EBITDA excluding special items (3) 638 525
Basic (loss) earnings per share (US cents) (20) (3)
Net debt (4) 2,475 2,337
Key ratios: (%)
Operating profit (loss) to sales 3.2 3.8
Operating profit excluding special items to sales 5.9 4.4
Operating profit excluding special items
to capital employed (ROCE) 10.2 6.6
EBITDA excluding special items to sales 11.6 10.9
Return on average equity (ROE) (5) (7.4) (1.4)
Net debt to total capitalisation (5) 56.8 57.6
(1) Refer to note 9 for details on special items.
(2) Refer note 9 to the group results for the reconciliation of operating profit
excluding special items to segment operating profit.
(3) Refer to note 9 to the group results for the reconciliation of EBITDA
excluding special items and operating profit 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
Operating profit for the quarter was impacted as expected by the planned annual
maintenance shuts at a number of our major pulp mills and seasonal factors. In
addition, weaker than expected demand for coated woodfree paper in Europe
resulting from continuing uncertainty in economic conditions unfavourably
affected operating profit. For the nine months, operating profit excluding
special items was more than 50% higher than the equivalent period last year.
Sales for the quarter were US$1.8 billion, an increase of 12% in US dollar terms
compared to the third quarter last year and at a similar level to the quarter
ended March 2011. Average prices realised in US Dollar terms were 16% higher
than a year ago. Excluding the effect of translation from Euro and Rand to a
relatively weaker US Dollar, average prices in local currencies increased 5%.
High input costs remained a challenge in each of our businesses and are
reflected in an increase in variable costs per ton of 18%. In local currency
terms, variable costs per ton increased 6% compared to the equivalent quarter
last year. In order to reduce the impact of high raw material prices, we
continue to seek innovations with regard to the sourcing and the use of raw
materials.
Operating profit excluding special items for the quarter was US$60 million
compared to US$75 million in the equivalent quarter last year. Special items of
US$6 million for the quarter included a plantation fair value adjustment and
Black Economic Empowerment charges.
Net finance costs for the quarter include breakage costs and the accelerated
amortisation of fees of US$43 million in connection with the debt restructuring
completed during the quarter in order to extend debt maturities and reduce
future finance costs. We expect quarterly net finance costs of approximately
US$60 million after the refinancing.
The loss per share for the quarter was 13 US cents (including a loss of 9 US
cents in respect of special items and once-off debt restructuring costs)
compared to earnings of 12 US cents (including a gain of 10 US cents in respect
of special items).
Cash flow and debt
Cash generated from operations for the quarter was US$148 million, compared to
US$188 million in the equivalent quarter last year.
Working capital increased by US$46 million during the quarter, largely as a
result of reduced accounts payable, compared to an increase of US$84 million a
year ago.
Capital expenditure was US$69 million for the quarter and US$161 million
year-to-
date. We expect the full year capital expenditure to be less than US$250
million.
Net debt increased to US$2.47 billion as a result of net cash utilised in the
quarter of US$20 million, the cash effects of financing activities and a
currency movement and fair value impact of US$43 million, compared to March
2011. Liquidity remained strong with cash on hand of US$362 million and the
undrawn committed revolving credit facility of EUR350 million (US$508 million),
at quarter end.
Operating Review for the Quarter
Sappi Fine Paper
Quarter Quarter
ended ended
Jun 2011 Jun 2010
US$ million US$ million
Sales 1,350 1,220
Operating profit (loss) 28 36
Operating profit (loss) to sales (%) 2.1 3.0
Special items - losses 2 1
Operating profit excluding special items 30 37
Operating profit excluding special items to sales (%) 2.2 3.0
EBITDA excluding special items 107 110
EBITDA excluding special items to sales (%) 7.9 9.0
RONOA pa (%) 3.9 4.8
Quarter
ended
% Mar 2011
change US$ million
Sales 11 1,389
Operating profit (loss) (22) (42)
Operating profit (loss) to sales (%) - (3.0)
Special items - losses 100 113
Operating profit excluding special items (19) 71
Operating profit excluding special items to sales (%) - 5.1
EBITDA excluding special items (3) 144
EBITDA excluding special items to sales (%) - 10.4
RONOA pa (%) - 9.1
The North American business` performance improved during the quarter; however,
the margins in our European business declined resulting in a reduction in the
operating profit excluding special items of the fine paper business.
Europe
Quarter Quarter
ended ended %
Jun 2011 Jun 2010 change
US$ million US$ million (US$)
Sales 979 873 12
Operating (loss) profit (4) 11 -
Operating (loss) profit to sales (%) (0.4) 1.3 -
Special items - losses 2 2 -
Operating (loss) profit excluding special items (2) 13 -
Operating (loss) profit excluding
special items to sales (%) (0.2) 1.5 -
EBITDA excluding special items 57 68 (16)
EBITDA excluding special items to sales (%) 5.8 7.8 -
RONOA pa (%) (0.4) 2.5 -
Quarter
% ended
change Mar 2011
(Euro) US$ million
Sales 1 1,017
Operating (loss) profit - (83)
Operating (loss) profit to sales (%) - (8.2)
Special items - losses - 114
Operating (loss) profit excluding special items - 31
Operating (loss) profit excluding
special items to sales (%) - 3.0
EBITDA excluding special items (25) 86
EBITDA excluding special items to sales (%) - 8.5
RONOA pa (%) - 5.7
Although volumes sold for the nine months ended June 2011 are 4% above the
equivalent period last year, volumes sold for the quarter were 3% lower than a
year ago. Coated woodfree sales volumes declined in the quarter compared to a
year ago, but coated mechanical volumes increased.
Average prices realised for the quarter were 4% higher than the equivalent
quarter last year and similar to the quarter ended March 2011.
High pulp and other raw material prices continued to impact margins. Margins on
our exports were further impacted by the 11% stronger Euro to US Dollar exchange
rate, compared to the equivalent quarter last year.
North America
Quarter Quarter
ended ended
Jun 2011 Jun 2010
US$ million US$ million
Sales 371 347
Operating profit 32 25
Operating profit to sales (%) 8.6 7.2
Special items - gains - (1)
Operating profit excluding special items 32 24
Operating profit excluding special items to sales (%) 8.6 6.9
EBITDA excluding special items 50 42
EBITDA excluding special items to sales (%) 13.5 12.1
RONOA pa (%) 13.7 10.0
Quarter
ended
% Mar 2011
change US$ million
Sales 7 372
Operating profit 28 41
Operating profit to sales (%) - 11.0
Special items - gains - (1)
Operating profit excluding special items 33 40
Operating profit excluding special items to sales (%) - 10.8
EBITDA excluding special items 19 58
EBITDA excluding special items to sales (%) - 15.6
RONOA pa (%) - 17.0
The business continued to perform strongly. Volumes sold for the quarter
increased by 3% compared to the equivalent quarter last year. Demand for coated
web was soft in the first two months of the quarter but experienced a
significant seasonal rebound in June and into the fourth financial quarter.
Average prices realised were 5% higher than a year ago and slightly higher than
the quarter ended March 2011, reflecting higher prices realised for coated paper
and speciality casting release paper.
Raw material prices, including wood, energy and chemicals, increased sharply
during the quarter.
Sappi Southern Africa
Quarter Quarter
ended ended %
Jun 2011 Jun 2010 change
US$ million US$ million (US$)
Sales 452 382 18
Operating profit 22 118 (81)
Operating profit to sales (%) 4.9 30.9 -
Special items - losses (gains) 4 (83) -
Operating profit excluding special items 26 35 (26)
Operating profit excluding
special items to sales (%) 5.8 9.2 -
EBITDA excluding special items 53 62 (15)
EBITDA excluding special items to sales (%) 11.7 16.2 -
RONOA pa (%) 5.0 7.9 -
Quarter
% ended
change Mar 2011
(Rand) US$ million
Sales 6 435
Operating profit (83) 39
Operating profit to sales (%) - 9.0
Special items - losses (gains) - 14
Operating profit excluding special items (33) 53
Operating profit excluding
special items to sales (%) - 12.2
EBITDA excluding special items (23) 81
EBITDA excluding special items to sales (%) - 18.6
RONOA pa (%) - 10.1
The business` performance was unfavourably impacted by extended planned annual
maintenance shuts at Ngodwana and Saiccor mills during the quarter.
Demand and pricing for chemical cellulose was strong in the quarter, resulting
in a good performance for the chemical cellulose business.
In the domestic market, sales volumes of paper and packaging paper was lower
than a year ago, largely as a result of increased competition from imports,
partly due to the relatively strong Rand to the US Dollar.
Plans to restructure the paper and packaging business in order to improve the
profitability in conjunction with the approximately US$340 million conversion of
the Ngodwana pulp mill to chemical cellulose production are progressing. We
expect to announce details of these restructuring plans before the end of the
calendar year.
Outlook
Market conditions remain challenging and uncertain, particularly in Europe.
Nevertheless we are entering the typically busiest period for coated paper.
Order inflows in North America remain firm and in Europe we are expecting some
improvement from the levels of the previous quarter.
We expect that the realisation of the benefits of our cost and capacity
management activities in Europe will commence in the fourth financial quarter.
Coated paper production at Biberist Mill in Switzerland ceased during July.
Going forward, we expect savings of US$50 million per annum as a result of the
closure. In addition, as previously announced, we will start to benefit from a
further US$50 million per annum in fixed and variable cost saving measures
towards the end of the fourth quarter.
Raw material input costs have continued to rise, in line with other commodity
prices. Pulp prices remain high but there have been reductions in some regions
from the peaks reached during the previous quarter. High pulp prices are
favourable for our North American and Southern African businesses, which are
net sellers of pulp, but unfavourable for our European business, which is a
net buyer of pulp.
Our Southern African business has a strong order book for chemical cellulose and
expects an improvement in demand for packaging paper in the domestic market. The
domestic market, particularly for printing and writing paper, remains highly
competitive as a result of the strong Rand relative to the US Dollar, which has
led to increased competition from imports. The business` performance for the
quarter will be significantly impacted by the industry-wide strike of about
three weeks in July over wage negotiations.
We expect considerable improvement in operating profit (excluding special items)
during our fourth financial quarter compared to the third financial quarter;
however, it is likely to be well short of the level achieved in the equivalent
quarter last year. Nevertheless, we expect a much-improved operating profit
(excluding special items) for the full year, compared to the 2010 financial
year. We anticipate strong net cash generation in our fourth quarter and
positive cash generation for the full year.
Directorate
During the quarter we announced that following the retirement in December 2010
of Mr H C (Helmut) Mamsch and in line with the Sappi Board`s succession
planning, two independent non-executive directors will join the board later this
year. Mr M A (Mike) Fallon will join the board with effect from 01 September
2011 and Mr G P F (Frits) Beurskens with effect from 01 October 2011.
On behalf of the board
R J Boettger M R Thompson
Director Director 04 August 2011
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. You should not rely on forward-looking statements because they
involve known and unknown risks, uncertainties and other factors which are in
some cases beyond our control and may cause our actual results, performance or
achievements to differ materially from anticipated future results, performance
or achievements expressed or implied by such forward-looking statements (and
from past results, performance or achievements).
Certain factors that may cause such differences include but are not limited to:
- the highly cyclical nature of the pulp and paper industry (and the factors
that contribute to such cyclicality, such as levels of demand, production
capacity, production, input costs including raw material, energy and employee
costs, and pricing);
- the impact on our business of the global economic downturn;
- unanticipated production disruptions (including as a result of planned or
unexpected power outages);
- changes in environmental, tax and other laws and regulations;
- adverse changes in the markets for our products;
- consequences of our leverage, including as a result of adverse changes in
credit markets that affect our ability to raise capital when needed;
- adverse changes in the political situation and economy in the countries in
which we operate or the effect of governmental efforts to address present or
future economic or social problems;
- the impact of investments, acquisitions and dispositions (including related
financing), any delays, unexpected cost or other problems experienced in
connection with dispositions or 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.
Condensed group income statement
Quarter Quarter
ended ended
Jun 2011 Jun 2010
Note US$ million US$ million
Sales 1,802 1,602
Cost of sales 1,639 1,314
Gross profit 163 288
Selling, general and administrative expenses 107 108
Other operating expenses 4 29
Share of profit from associates and
joint ventures (2) (3)
Operating profit 2 54 154
Net finance costs 112 57
Net interest 121 68
Net foreign exchange gains (3) (7)
Net fair value gains on financial instruments (6) (4)
(Loss) profit before taxation (58) 97
Taxation 10 33
Current 8 (2)
Deferred 2 35
(Loss) profit for the period (68) 64
Basic (loss) earnings per share (US cents) (13) 12
Weighted average number of shares
in issue (millions) 519.9 516.0
Diluted basic (loss) earnings per share (US cents) (13) 12
Weighted average number of shares on fully
diluted basis (millions) 519.9 517.6
Nine months Nine months
ended ended
Jun 2011 Jun 2010
US$ million US$ million
Sales 5,499 4,798
Cost of sales 4,872 4,288
Gross profit 627 510
Selling, general and administrative expenses 328 329
Other operating expenses 131 9
Share of profit from associates and joint ventures (6) (11)
Operating profit 174 183
Net finance costs 251 192
Net interest 276 226
Net foreign exchange gains (10) (16)
Net fair value gains on financial instruments (15) (18)
(Loss) profit before taxation (77) (9)
Taxation 28 9
Current 12 1
Deferred 16 8
(Loss) profit for the period (105) (18)
Basic (loss) earnings per share (US cents) (20) (3)
Weighted average number of shares in issue (millions) 519.7 515.7
Diluted basic (loss) earnings per share (US cents) (20) (3)
Weighted average number of shares on fully
diluted basis (millions) 519.7 515.7
Condensed group statement of comprehensive income
Quarter Quarter
ended ended
Jun 2011 Jun 2010
US$ million US$ million
(Loss) profit for the period (68) 64
Other comprehensive (loss) income, net of tax (3) (54)
Exchange differences on translation of foreign operations (6) (43)
Movements in hedging reserves 3 (11)
Deferred tax effects on above - -
Total comprehensive (loss) income for the period (71) 10
Nine months Nine months
ended ended
Jun 2011 Jun 2010
US$ million US$ million
(Loss) profit for the period (105) (18)
Other comprehensive (loss) income, net of tax 80 (78)
Exchange differences on translation of foreign operations 63 (69)
Movements in hedging reserves 18 (9)
Deferred tax effects on above (1) -
Total comprehensive (loss) income for the period (25) (96)
Condensed group balance sheet
Reviewed
Jun 2011 Sept 2010
US$ million US$ million
ASSETS
Non-current assets 4,608 4,653
Property, plant and equipment 3,607 3,660
Plantations 695 687
Deferred taxation 57 53
Other non-current assets 249 253
Current assets 2,280 2,531
Inventories 949 836
Trade and other receivables 969 903
Cash and cash equivalents 362 792
Total assets 6,888 7,184
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` interest 1,884 1,896
Non-current liabilities 3,007 3,249
Interest-bearing borrowings 2,033 2,317
Deferred taxation 421 386
Other non-current liabilities 553 546
Current liabilities 1,997 2,039
Interest-bearing borrowings 801 691
Bank overdraft 3 5
Other current liabilities 1,167 1,307
Taxation payable 26 36
Total equity and liabilities 6,888 7,184
Number of shares in issue at balance sheet date
(millions) 520.4 519.5
Condensed group statement of cash flows
Quarter Quarter
ended ended
Jun 2011 Jun 2010
US$ million US$ million
(Loss) profit for the period (68) 64
Adjustment for:
Depreciation, fellings and amortisation 125 116
Taxation 10 33
Net finance costs 112 57
Defined post-employment benefits (17) (15)
Plantation fair value adjustment (21) (123)
Asset impairments (impairment reversals) - 1
Restructuring provisions 2 5
Black Economic Empowerment charge 1 23
Other non-cash items 4 27
Cash generated from operations 148 188
Movement in working capital (46) (84)
Net finance costs (40) (35)
Taxation paid (17) (4)
Cash retained from operating activities 45 65
Cash utilised in investing activities (65) (41)
Net cash (utilised) generated (20) 24
Cash effects of financing activities (190) (179)
Net movement in cash and cash equivalents (210) (155)
Nine months Nine months
ended ended
Jun 2011 Jun 2010
US$ million US$ million
(Loss) profit for the period (105) (18)
Adjustment for:
Depreciation, fellings and amortisation 378 365
Taxation 28 9
Net finance costs 251 192
Defined post-employment benefits (50) (48)
Plantation fair value adjustment (44) (50)
Asset impairments (impairment reversals) 69 (12)
Restructuring provisions 68 46
Black Economic Empowerment charge 3 23
Other non-cash items 17 48
Cash generated from operations 615 555
Movement in working capital (364) (186)
Net finance costs (194) (128)
Taxation paid (31) (8)
Cash retained from operating activities 26 233
Cash utilised in investing activities (142) (130)
Net cash (utilised)generated (116) 103
Cash effects of financing activities (364) (244)
Net movement in cash and cash equivalents (480) (141)
Condensed group statement of changes in equity
Nine months Nine months
ended ended
Jun 2011 Jun 2010
US$ million US$ million
Balance - beginning of period 1,896 1,794
Total comprehensive loss for the period (25) (96)
Costs directly attributable to the rights offer - (5)
Issue of new shares - 19
Transfers from (to) the share purchase trust 6 (6)
Transfers of vested share options (7) -
Share-based payment reserve 14 13
Balance - end of period 1,884 1,719
Notes to the condensed group results
1. Basis of preparation
The condensed financial information has been prepared in accordance with the
framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board, the AC 500 standards issued by the Accounting
Practices Board and the information required by IAS 34 "Interim Financial
Reporting". They are based on appropriate accounting policies which have been
consistently applied with those applied in the financial statements for the year
ended September 2010 and which are supported by reasonable and prudent
judgements, including those involving estimations.
The nine months ended June 2011 consists of 40 weeks compared to the prior
year`s nine months which consisted of 39 weeks.
The results are unaudited.
Quarter Quarter Nine months Nine months
ended ended ended ended
Jun 2011 Jun 2010 Jun 2011 Jun 2010
US$ million US$ million US$ million US$ million
2. Operating profit
Included in
operating profit
are the following
non-cash items:
Depreciation and
amortisation 104 101 314 315
Fair value adjustment
on plantations
(included in cost
of sales)
Changes in volume
Fellings 21 15 64 50
Growth (23) (15) (60) (48)
(2) - 4 2
Plantation price
fair value adjustment 2 (108) 16 (2)
- (108) 20 -
Included in other
operating expenses
(income) are the following:
Asset impairments
(impairment reversals) - 1 69 (12)
Loss on disposal
of property, plant and
equipment - - - 1
Profit on disposal
of investment - - - (1)
Restructuring provisions 2 5 68 46
Black Economic
Empowerment charge 1 23 3 23
Fuel tax credit - - - (51)
3. Headline (loss) earnings
per share (1)
Headline (loss)
earnings per share
(US cents) (13) 13 (8) (6)
Weighted average
number of shares
in issue (millions) 519.9 516.0 519.7 515.7
Diluted headline
(loss) earnings
per share (US cents) (13) 12 (8) (6)
Weighted average
number of shares
on fully diluted
basis (millions) 519.9 517.6 519.7 515.7
Calculation of
headline (loss)
earnings (1)
(Loss) profit for
the period (68) 64 (105) (18)
Asset impairments
(impairment reversals) - 1 69 (12)
Loss on disposal of
property, plant and
equipment - - - 1
Profit on disposalof
investment - - - (1)
Tax effect of above items 2 - (3) -
Headline (loss) earnings (66) 65 (39) (30)
(1) Headline earnings disclosure is required by the JSE Limited.
Quarter Quarter
ended ended
Jun 2011 Jun 2010
US$ million US$ million
4. Capital expenditure
Property, plant and equipment 69 42
Nine months Nine months
ended ended
Jun 2011 Jun 2010
US$ million US$ million
Property, plant and equipment 161 120
Reviewed
Jun 2011 Sept 2010
US$ million US$ million
5. Capital commitments
Contracted 89 62
Approved but not contracted (1) 515 109
604 171
(1) Includes approximately US$342 million related
to our recently announced
chemical cellulose expansion.
6. Contingent liabilities
Guarantees and suretyships 49 48
Other contingent liabilities 22 8
71 56
7. Material balance sheet movements compared to September 2010
Cash and cash equivalents and other current liabilities
The decrease in cash and cash equivalents and in other current liabilities is
largely due to the timing of creditor payments as a result of the calendar
month-
end falling before the fiscal month-end when creditor payments fell due.
Cash and cash equivalents and interest-bearing borrowings
In March 2011, we utilised some of our cash resources to repay US$150 million
principal amount of the outstanding US$500 million 6.75% Guaranteed Notes due
June 2012.
In April 2011, we issued approximately US$705 million Senior Secured Notes split
into a 10-year US$350 million tranche and a 7-year EUR250 million tranche that
were issued at par and both Notes bear interest at a rate of 6.625% per annum.
The net proceeds of the Notes were used to redeem the remaining US$350 million
of our 6.75% Guaranteed Notes due June 2012 and to repay EUR200 million of our
OeKB Term Loan Facility. At the same time, our existing undrawn revolving credit
facility maturing 2012 was increased from a EUR209 million to a EUR350 million
facility and extended to 2016. We repaid the remaining EUR120 million of our
OeKB Term Loan balance from cash resources in June 2011.
Sappi Southern Africa (Pty) Ltd issued a ZAR500 million (US Dollar fixed rate
bond `SSA01` on 28 June 2011 at a 150 basis points spread over the government
reference rate and an all in coupon rate of 9.63%. The bond is repayable on 28
June 2016, with coupons payable semi-annually on 28 June and 28 December of each
year. The proceeds of the bond will be used to partially refinance the ZAR1
billion maturing SMF2 bond on 14 October 2011 - the balance will be paid from
own cash generated.
In addition, there were transfers of US$191 million from non-current interest-
bearing borrowings to current interest-bearing borrowings of loans falling due
in the next 12 months.
8. Post balance sheet event
On 03 August 2011, we announced the closure of Adamas Mill in South Africa. The
estimated cost of closure is US$5 million.
9. Segment information
Quarter Quarter
ended ended
Jun 2011 Jun 2010
Metric tons Metric tons
(000`s) (000`s)
Sales volume
Fine Paper - North America 344 335
Europe 909 939
Total 1,253 1,274
Southern Africa - Pulp and paper 406 416
Forestry 252 292
Total 1,911 1,982
Nine months Nine months
ended ended
Jun 2011 Jun 2010
Metric tons Metric tons
(000`s) (000`s)
Sales volume
Fine Paper - North America 1,057 1,002
Europe 2,903 2,802
Total 3,960 3,804
Southern Africa - Pulp and paper 1,272 1,291
Forestry 688 704
Total 5,920 5,799
Quarter Quarter
ended ended
Jun 2011 Jun 2010
US$ million US$ million
Sales
Fine Paper - North America 371 347
Europe 979 873
Total 1,350 1,220
Southern Africa - Pulp and paper 430 361
Forestry 22 21
Total 1,802 1,602
Operating profit (loss)
excluding special items
Fine Paper - North America 32 24
Europe (2) 13
Total 30 37
Southern Africa 26 35
Unallocated and
eliminations (1) 4 3
Total 60 75
Special items - losses (gains)
Fine Paper - North America - (1)
Europe 2 2
Total 2 1
Southern Africa 4 (83)
Unallocated and
eliminations (1) - 3
Total 6 (79)
Segment operating profit
(loss)
Fine Paper - North America 32 25
Europe (4) 11
Total 28 36
Southern Africa 22 118
Unallocated and
eliminations (1) 4 -
Total 54 154
EBITDA excluding special items
Fine Paper - North America 50 42
Europe 57 68
Total 107 110
Southern Africa 53 62
Unallocated and
eliminations (1) 4 4
Total 164 176
Segment assets
Fine Paper - North America 916 949
Europe 2,216 2,070
Total 3,132 3,019
Southern Africa 2,072 1,785
Unallocated and
eliminations (1) 72 49
Total 5,276 4,853
Nine months Nine months
ended ended
Jun 2011 Jun 2010
US$ million US$ million
Sales
Fine Paper - North America 1,125 1,009
Europe 3,023 2,675
Total 4,148 3,684
Southern Africa - Pulp and paper 1,291 1,062
Forestry 60 52
Total 5,499 4,798
Operating profit (loss)
excluding special items
Fine Paper - North America 95 82
Europe 63 42
Total 158 124
Southern Africa 158 76
Unallocated and
eliminations (1) 8 10
Total 324 210
Special items - losses (gains)
Fine Paper - North America (1) (51)
Europe 116 10
Total 115 (41)
Southern Africa 31 48
Unallocated and
eliminations (1) 4 20
Total 150 27
Segment operating profit
(loss)
Fine Paper - North America 96 133
Europe (53) 32
Total 43 165
Southern Africa 127 28
Unallocated and
eliminations (1) 4 (10)
Total 174 183
EBITDA excluding special items
Fine Paper - North America 150 140
Europe 238 220
Total 388 360
Southern Africa 242 154
Unallocated and
eliminations (1) 8 11
Total 638 525
Segment assets
Fine Paper - North America 916 949
Europe 2,216 2,070
Total 3,132 3,019
Southern Africa 2,072 1,785
Unallocated and
eliminations (1) 72 49
Total 5,276 4,853
(1) Includes the group`s treasury operations, the self-insurance captive and the
investment in the Jiangxi Chenming joint venture.
Reconciliation of operating profit excluding special items to segment 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.
Quarter Quarter
ended ended
Jun 2011 Jun 2010
Operating profit excluding special items 60 75
Special Items (6) 79
Plantation price fair value adjustment (2) 108
Restructuring provisions (2) (5)
Loss on disposal of property,
plant and equipment - -
Profit on disposal of investment - -
Asset (impairments) impairment reversals - (1)
Fuel tax credit - -
Black Economic Empowerment charge (1) (23)
Insurance recoveries (1) 1
Fire, flood, storm and related events - (1)
Segment operating profit 54 154
Reconciliation of EBITDA excluding special
items and operating profit excluding special
items to (loss) profit before taxation
EBITDA excluding special items 164 176
Depreciation and amortisation (104) (101)
Operating profit excluding special items 60 75
Special items - (losses) gains (6) 79
Net finance costs (112) (57)
(Loss) profit before taxation (58) 97
Reconciliation of segment assets to total assets
Segment assets 5,276 4,853
Deferred taxation 57 49
Cash and cash equivalents 362 534
Other current liabilities 1,167 1,062
Taxation payable 26 43
Liabilities associated with assets held for sale - 19
Total assets 6,888 6,560
Nine months Nine months
ended ended
Jun 2011 Jun 2010
Operating profit excluding special items 324 210
Special Items (150) (27)
Plantation price fair value adjustment (16) 2
Restructuring provisions (68) (46)
Loss on disposal of property,
plant and equipment - (1)
Profit on disposal of investment - 1
Asset (impairments) impairment reversals (69) 12
Fuel tax credit - 51
Black Economic Empowerment charge (3) (23)
Insurance recoveries 10 1
Fire, flood, storm and related events (4) (24)
Segment operating profit 174 183
Reconciliation of EBITDA excluding special
items and operating profit excluding special items to
(loss) profit before taxation
EBITDA excluding special items 638 525
Depreciation and amortisation (314) (315)
Operating profit excluding special items 324 210
Special items - (losses) gains (150) (27)
Net finance costs (251) (192)
(Loss) profit before taxation (77) (9)
Reconciliation of segment assets to total assets
Segment assets 5,276 4,853
Deferred taxation 57 49
Cash and cash equivalents 362 534
Other current liabilities 1,167 1,062
Taxation payable 26 43
Liabilities associated with assets held for sale - 19
Total assets 6,888 6,560
Supplemental information (this information has not been audited or reviewed)
General definitions
Average - averages are calculated as the sum of the opening and closing balances
for the relevant period divided by two
Black Economic Empowerment - as envisaged in the Black Economic Empowerment
(BEE) legislation in South Africa
Black Economic Empowerment charge - represents the IFRS2 non-cash charge
associated with the BEE transaction implemented in fiscal 2010
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 Listings 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) less
current liabilities (excluding interest-bearing borrowings and overdraft). Net
operating assets equate to segment assets
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 segment 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 audited or reviewed)
Summary Rand convenience translation
Quarter Quarter
ended ended
Jun 2011 Jun 2010
Key figures: (ZAR million)
Sales 12,234 12,147
Operating profit 367 1,168
Special items - losses (gains) (1) 41 (599)
Operating profit excluding special items (1) 408 569
EBITDA excluding special items (1) 1,113 1,334
Basic (loss) earnings per share (SA cents) (88) 91
Net debt (1) 16,657 17,820
Key ratios: (%)
Operating profit to sales 3.0 9.6
Operating profit excluding special items to sales 3.3 4.7
Operating profit excluding special items
to Capital Employed (ROCE) (1) 5.6 7.4
EBITDA excluding special items to sales 9.1 11.0
Return on average equity (ROE) (14.4) 15.1
Net debt to total capitalisation (1) 56.8 57.6
Nine months Nine months
ended ended
Jun 2011 Jun 2010
Key figures: (ZAR million)
Sales 37,911 36,278
Operating profit 1,200 1,384
Special items - losses (gains) (1) 1,034 204
Operating profit excluding special items (1) 2,234 1,588
EBITDA excluding special items (1) 4,398 3,970
Basic (loss) earnings per share (SA cents) (138) (23)
Net debt (1) 16,657 17,820
Key ratios: (%)
Operating profit to sales 3.2 3.8
Operating profit excluding special items to sales 5.9 4.4
Operating profit excluding special items
to Capital Employed (ROCE) (1) 10.2 6.7
EBITDA excluding special items to sales 11.6 10.9
Return on average equity (ROE) (7.4) (1.4)
Net debt to total capitalisation (1) 56.8 57.6
(1) Refer to Supplemental information for the definition of the term.
The above financial results have been translated into Rands 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 2011 Sept 2010
US$ million US$ million
Interest-bearing borrowings 2,837 3,013
Non-current interest-bearing borrowings 2,033 2,317
Current interest-bearing borrowings 801 691
Bank overdraft 3 5
Cash and cash equivalents (362) (792)
Net debt 2,475 2,221
Exchange rates
Jun Mar Dec
2011 2011 2010
Exchange rates:
Period end rate: US$1 = ZAR 6.7300 6.6978 6.6190
Average rate for the Quarter: US$1 = ZAR 6.7890 6.9963 6.9464
Average rate for the YTD: US$1 = ZAR 6.8941 6.9476 6.9464
Period end rate: EUR1 = US$ 1.4525 1.4231 1.3380
Average rate for the Quarter: EUR1 = US$ 1.4398 1.3702 1.3516
Average rate for the YTD: EUR1 = US$ 1.3890 1.3645 1.3516
Sept Jun
2010 2010
Exchange rates:
Period end rate: US$1 = ZAR 7.0190 7.6250
Average rate for the Quarter: US$1 = ZAR 7.3517 7.5821
Average rate for the YTD: US$1 = ZAR 7.4917 7.5610
Period end rate: EUR1 = US$ 1.3491 1.2377
Average rate for the Quarter: EUR1 = US$ 1.2871 1.2937
Average rate for the YTD: EUR1 = US$ 1.3658 1.3845
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
Date: 04/08/2011 09:00:13 Produced by the JSE SENS Department.
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