| Thu 10 Nov 2011, 9:00 | | SAP - Sappi Limited - 4th Quarter results for the period ended September 2011 |
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SAP
SAVVI
SAP - Sappi Limited - 4th Quarter results for the period ended September 2011
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
4th Quarter results for the period ended September 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$80 million, up 33% on Q3 2011
(Q4 2010 US$129 million)
* Cash generation: US$279 million (Q4 2010 US$238 million)
* Strategic initiatives result in asset impairments and restructuring charges of
US$165 million
* North American business and Southern African chemical cellulose business
continued to perform strongly
* High input costs continued to squeeze margins
* Loss per share of 24 US cents (Q4 2010 EPS of 16 US cents)
* Earnings per share excluding special items and once-off debt refinancing
costs 2 US cents (Q4 2010 9 US cents)
Quarter ended
Sept 2011 Sept 2010 Jun 2011
Key figures: (US$ million)
Sales 1,787 1,774 1,802
Operating (loss) profit (88) 158 54
Special items - losses (gains) (1) 168 (29) 6
Operating profit excluding special items (2) 80 129 60
EBITDA excluding special items (3) 183 227 164
Basic (loss) earnings per share (US cents) (24) 16 (13)
Net debt (4) 2,100 2,221 2,475
Key ratios: (%)
Operating (loss) profit to sales (4.9) 8.9 3.0
Operating profit excluding special items
to sales 4.5 7.3 3.3
Operating profit excluding special items
to capital employed (ROCE) 8.1 12.6 5.5
EBITDA excluding special items to sales 10.2 12.8 9.1
Return on average equity (ROE) (5) (30.2) 18.6 (14.2)
Net debt to total capitalisation (5) 58.7 53.9 56.8
Year ended
Sept 2011 Sept 2010
Key figures: (US$ million)
Sales 7,286 6,572
Operating (loss) profit 86 341
Special items - losses (gains) (1) 318 (2)
Operating profit excluding special items (2) 404 339
EBITDA excluding special items (3) 821 752
Basic (loss) earnings per share (US cents) (45) 13
Net debt (4) 2,100 2,221
Key ratios: (%)
Operating (loss) profit to sales 1.2 5.2
Operating profit excluding special items to sales 5.5 5.2
Operating profit excluding special items
to capital employed (ROCE) 10.5 8.0
EBITDA excluding special items to sales 11.3 11.4
Return on average equity (ROE) (5) (13.8) 3.6
Net debt to total capitalisation (5) 58.7 53.9
(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 segment operating (loss) 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
The North American business and Southern African chemical cellulose business
continued to perform well during the quarter. The European business generated
positive operating profit excluding special items. In addition to the actions
taken to improve the European business, we have announced actions to fix the
Southern African paper business.
Conditions in many of our markets remained uncertain throughout the quarter.
Although sales volumes were approximately 6% lower than the equivalent quarter
last year, sales value increased slightly to US$1.8 billion, largely as a result
of currency movements. Input costs including wood, pulp, chemicals and energy
were high for the quarter but did start declining during the quarter as economic
growth slowed. The prices of these inputs were US$50 million higher than the
equivalent quarter last year.
Following a strategic review of our operations, investments and the
implementation of a number of initiatives, we incurred impairment and
restructuring charges in the quarter, details of which were announced during
October 2011. These charges amounted to US$165 million of the US$168 million
special items. Of this amount, US$98 million related to non-cash items.
Operating profit excluding special items was US$80 million for the quarter
compared to US$129 million in the equivalent quarter last year and US$60 million
in the quarter ended June 2011.
As a result of the impairment and restructuring charges in the quarter, the
group incurred a net loss for the quarter. The loss per share for the quarter
was 24 US cents (including a charge of 26 US cents in respect of special items)
compared to earnings per share of 16 US cents (including a gain of 7 US cents in
respect of special items) in the equivalent quarter last year.
Year ended September 2011 compared to year ended September 2010
Sappi continued its improving trend in operating performance for 2011. Sales for
the year increased 11%, almost entirely as a result of higher prices in US
Dollar terms. The prices of our major inputs of wood, pulp, energy and chemicals
were approximately US$290 million higher than in 2010, which maintained pressure
on margins in all of our businesses.
Operating profit excluding special items was US$404 million for the year, up 19%
compared to 2010. Special items were largely a result of the strategic actions
we have undertaken and planned. Impairment and restructuring charges amounted to
US$302 million for the year, of which US$167 million are non-cash charges.
Special items included a further US$16 million of unfavourable plantation fair
value adjustments.
Finance costs for the year were US$307 million, of which US$51 million relates
to the cost of refinancing during the year.
After impairment and restructuring costs and once-off refinancing costs the net
loss for the group was US$232 million for the year. The loss per share was 45 US
cents (including a charge of 65 US cents in respect of special items including
financing items), compared to earnings per share of 13 US cents (including a
gain of 4 US cents of special items including financing items) in 2010.
Cash flow and debt
Quarter
Net cash generation for the quarter was US$279 million, compared to US$238
million for the equivalent quarter last year. During the quarter, US$266 million
was generated from working capital. Capital expenditure increased to US$103
million from US$81 million in the equivalent quarter last year as a result of
the commencement of the chemical cellulose investment at Ngodwana Mill.
Year
Net cash generation for the full year was US$163 million. This fell short of the
cash generated last year as a result of higher working capital (largely as a
result of the cut-off effect of including an additional accounting week),
increased capital expenditure and once-off refinancing costs.
Net debt was further reduced from US$2.2 billion to US$2.1 billion, which is
US$700 million below the peak level in mid-2009.
During the year we successfully refinanced US$1.1 billion of our debt in order
to extend the maturities and reduce our finance costs. We also increased our
revolving credit facility to EUR350 million (US$468 million) and extended its
maturity to 2016. During August, we implemented a three year EUR360 million
trade receivables securitisation programme which replaced the previous short-
term programme that was due to mature in December 2011.
At September 2011, we had liquidity comprising US$639 million of cash on hand
and the undrawn balance of EUR250 million (US$335 million) of the committed
revolving credit facility. We utilised US$125 million of our cash shortly after
the year end to repay debt.
Operating Review for the Quarter
Sappi Fine Paper
Quarter Quarter Quarter
ended ended ended
Sept 2011 Sept 2010 % Jun 2011
US$ million US$ million change US$ million
Sales 1,337 1,327 1 1,350
Operating profit 22 87 (75) 28
Operating profit to sales (%) 1.6 6.6 - 2.1
Special items - losses (gains) 17 (11) - 2
Operating profit
excluding special items 39 76 (49) 30
Operating profit
excluding special items
to sales (%) 2.9 5.7 - 2.2
EBITDA excluding
special items 115 151 (24) 107
EBITDA excluding special
items to sales (%) 8.6 11.4 - 7.9
RONOA pa (%) 5.3 10.0 - 3.9
Operating profit excluding special items for the global fine paper business
improved compared to the quarter ended June 2011, but was well below the
equivalent quarter last year. Prices of our major inputs of wood, pulp, energy
and chemicals increased by approximately US$24 million compared to the
equivalent quarter last year, resulting in a significant margin squeeze.
Europe
Quarter Quarter
ended ended %
Sept 2011 Sept 2010 change
US$ million US$ million (US$)
Sales 942 963 (2)
Operating (loss) profit (18) 40 -
Operating (loss) profit to sales (%) (1.9) 4.2 -
Special items - losses (gains) 23 (6) -
Operating profit (loss) excluding special items 5 34 (85)
Operating profit (loss) excluding
special items to sales (%) 0.5 3.5 -
EBITDA excluding special items 62 90 (31)
EBITDA excluding special items to sales (%) 6.6 9.3 -
RONOA pa (%) 1.0 6.5 -
Quarter
% ended
change Jun 2011
(Euro) US$ million
Sales (11) 979
Operating (loss) profit - (4)
Operating (loss) profit to sales (%) - (0.4)
Special items - losses (gains) - 2
Operating profit (loss) excluding special items (85) (2)
Operating profit (loss) excluding
special items to sales (%) - (0.2)
EBITDA excluding special items (37) 57
EBITDA excluding special items to sales (%) - 5.8
RONOA pa (%) - (0.4)
Demand was sluggish partly as a result of market uncertainty.
Sales volumes for the quarter were approximately 5% below the equivalent quarter
last year, reflecting the weaker market experienced in the second half of our
financial year. Sales volumes for the full year were at the same level as the
previous year.
Average prices realised for the quarter were similar to the equivalent quarter
last year and to the quarter ended June 2011.
Prices in our export markets were impacted by the supply/demand imbalance
created by major start-ups of coated paper capacity in China in recent months.
Raw material prices, particularly for chemicals, energy and pulp, remained high
during the quarter. The benefits of our variable cost reduction programme
started to impact costs towards the end of the quarter.
The closure of the Biberist Mill in Switzerland was completed in August 2011. As
a result of strong support from our customers, the transfer of the order book to
our other mills was successful. Going forward, we expect savings of US$100
million per annum as a result of the closure of the Biberist Mill as well as
other fixed and variable cost savings initiatives in Europe.
North America
Quarter Quarter Quarter
ended ended ended
Sept 2011 Sept 2010 % Jun 2011
US$ million US$ million change US$ million
Sales 395 364 9 371
Operating profit 40 47 (15) 32
Operating profit to sales (%) 10.1 12.9 - 8.6
Special items - gains (6) (5) 20 -
Operating profit
excluding special items 34 42 (19) 32
Operating profit excluding
special items to sales (%) 8.6 11.5 - 8.6
EBITDA excluding special items 53 61 (13) 50
EBITDA excluding special
items to sales (%) 13.4 16.8 - 13.5
RONOA pa (%) 14.9 17.8 - 13.7
The business continued to perform strongly. Despite weaker industry conditions,
our sales volumes improved 8% compared to the equivalent quarter last year,
driven by coated paper and pulp.
Average prices realised for coated paper were approximately 6% higher than a
year ago and similar to the quarter ended June 2011. Hardwood pulp prices,
however, were approximately 12% below a year ago.
Raw material prices, including wood, energy and chemicals, remained at high
levels for the quarter.
Sappi Southern Africa
Quarter Quarter
ended ended %
Sept 2011 Sept 2010 change
US$ million US$ million (US$)
Sales 450 447 1
Operating (loss) profit (64) 84 -
Operating (loss) profit to sales (%) (14.2) 18.8 -
Special items - losses (gains) 105 (26) -
Operating profit excluding special items 41 58 (29)
Operating profit excluding special
items to sales (%) 9.1 13.0 -
EBITDA excluding special items 67 82 (18)
EBITDA excluding special items to sales (%) 14.9 18.3 -
RONOA pa (%) 9.0 12.6 -
Quarter
% ended
change Jun 2011
(Rand) US$ million
Sales (2) 452
Operating (loss) profit - 22
Operating (loss) profit to sales (%) - 4.9
Special items - losses (gains) - 4
Operating profit excluding special items (31) 26
Operating profit excluding special items to sales (%) - 5.8
EBITDA excluding special items (21) 53
EBITDA excluding special items to sales (%) - 11.7
RONOA pa (%) - 5.0
The business` performance for the quarter was significantly impacted by the
industry-wide wage-related strike of about three weeks in July.
The chemical cellulose business continued to perform well. Global demand showed
some signs of softening largely as a result of lower growth in China. We,
however, sold a record 190,000 tons of chemical cellulose during the quarter.
In the domestic market, sales volumes were significantly below the equivalent
quarter last year, but started improving during September partly as a result of
reduced competition from imports caused by the weakening of the Rand relative to
the US Dollar.
All of the region`s operating profit excluding special items for the quarter was
contributed by the chemical cellulose business, with the paper business
recording a loss.
We took substantial impairment and restructuring charges during the quarter in
respect of initiatives which are underway to reposition the paper business to
better meet market requirements, to improve efficiencies and to reduce costs.
These amounted to US$99 million, of which US$56 million are non-cash costs.
Good progress has been made on the Ngodwana Mill chemical cellulose conversion
project, which is on track to start up in early calendar 2013.
Outlook
Market conditions remain uncertain, making it difficult to forecast demand
globally. Industry demand levels have softened in all our major markets. We are
experiencing reasonable demand for graphic paper in North America and somewhat
slower demand in Europe; however, the supply/demand balance in many of our
export markets has been affected by the significant new paper capacity
commissioned in China during the past six months.
Pulp prices have declined, partly as a result of weaker demand from China, but
remain above historical average levels. The group as a whole sells slightly more
pulp than it purchases and is therefore generally neutral to pulp prices. Our
European business is a net purchaser and North America and South Africa are net
sellers of pulp.
We expect the chemical cellulose business to continue to perform well, albeit
with slightly lower prices in US Dollar terms.
The board has approved an additional investment in chemical cellulose. We will
invest approximately US$170 million to convert the Cloquet Mill pulp mill (North
America) to produce 330,000 tons of low cost, high quality chemical cellulose.
We expect the conversion to be commissioned during 2013. This investment,
together with the Ngodwana Mill conversion will increase total group chemical
cellulose capacity to over 1.3 million metric tons, further entrenching Sappi`s
leading position in this business.
The volatility of currencies adds to the difficulty of forecasting. Sappi is
very sensitive to the value of the Rand/US Dollar exchange rate. Other things
being equal, a 10% weakening of the Rand adds approximately US$60 million to the
group`s operating profit. The recent weakening of the Rand to the US Dollar is
therefore favourable to Sappi.
There has been some relief from high input costs but they remain at historically
high levels.
We will start benefiting from our European initiatives from the beginning of the
new financial year. These include the closure of Biberist Mill which was
completed in August 2011, and further fixed cost and variable cost saving
actions, which together are expected to result in benefits of US$100 million per
annum.
We do not expect any significant benefits from the Southern African
restructuring until the second half of the 2012 financial year.
We expect net cash generation to remain positive for the year ahead, after
increasing our capital expenditure on strategic investments. We expect our
finance costs to be lower following our refinancing during 2011 and intend to
continue to reduce our financing costs including through refinancing our
existing higher cost debt, such as our 2014 bonds.
Provided there is no further major deterioration in global market conditions, we
expect to continue the past two years` trend in improving operating performance
and to achieve a net profit for the full year of 2012.
We are confident that the actions we have taken and those planned will position
the group well for the future, resulting in growth and improved returns for the
group.
On behalf of the board
R J Boettger M R Thompson
Director Director 10 November 2011
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 restructurings, investments, acquisitions and dispositions
(including related financing), any delays, unexpected costs 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
Sept 2011 Sept 2010
Note US$ million US$ million
Sales 1,787 1,774
Cost of sales 1,582 1,498
Gross profit 205 276
Selling, general and administrative expenses 126 119
Other operating expenses 167 1
Share of profit from associates and
joint ventures - (2)
Operating (loss) profit 2 (88) 158
Net finance costs 56 63
Net interest 60 67
Net foreign exchange gains (3) (1)
Net fair value gains on financial instruments (1) (3)
(Loss) profit before taxation (144) 95
Taxation (17) 11
Current 2 (7)
Deferred (19) 18
(Loss) profit for the period (127) 84
Basic (loss) earnings per share (US cents) (24) 16
Weighted average number of shares
in issue (millions) 520.4 519.5
Diluted basic (loss) earnings per share (US cents) (24) 16
Weighted average number of shares on fully
diluted basis (millions) 520.4 524.0
Reviewed Reviewed
Year Year
ended ended
Sept 2011 Sept 2010
US$ million US$ million
Sales 7,286 6,572
Cost of sales 6,454 5,786
Gross profit 832 786
Selling, general and administrative expenses 454 448
Other operating expenses 298 10
Share of profit from associates and joint ventures (6) (13)
Operating (loss) profit 86 341
Net finance costs 307 255
Net interest 336 293
Net foreign exchange gains (13) (17)
Net fair value gains on financial instruments (16) (21)
(Loss) profit before taxation (221) 86
Taxation 11 20
Current 14 (6)
Deferred (3) 26
(Loss) profit for the period (232) 66
Basic (loss) earnings per share (US cents) (45) 13
Weighted average number of shares
in issue (millions) 519.9 516.7
Diluted basic (loss) earnings per share (US cents) (45) 13
Weighted average number of shares on fully
diluted basis (millions) 519.9 520.8
Condensed group statement of comprehensive income
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2011 Sept 2010 Sept 2011 Sept 2010
US$ million US$ million US$ million US$ million
(Loss) profit for
the period (127) 84 (232) 66
Other comprehensive
(loss) income, net
of tax (285) 86 (205) 8
Exchange differences
on translation of
foreign operations (214) 121 (151) 52
Actuarial losses
in post-employment
benefits (59) (71) (59) (71)
Movements in
hedging reserves (12) 23 6 14
Movement on available
for sale financial assets 2 2 2 2
Deferred tax effects
on above (2) 11 (3) 11
Total comprehensive
(loss) income
for the period (412) 170 (437) 74
Condensed group balance sheet
Reviewed Reviewed
Sept 2011 Sept 2010
US$ million US$ million
ASSETS
Non-current assets 4,085 4,653
Property, plant and equipment 3,235 3,660
Plantations 580 687
Deferred taxation 45 53
Other non-current assets 225 253
Current assets 2,223 2,531
Inventories 750 836
Trade and other receivables 834 903
Cash and cash equivalents 639 792
Total assets 6,308 7,184
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` interest 1,478 1,896
Non-current liabilities 3,178 3,249
Interest-bearing borrowings 2,289 2,317
Deferred taxation 336 386
Other non-current liabilities 553 546
Current liabilities 1,652 2,039
Interest-bearing borrowings 449 691
Bank overdraft 1 5
Other current liabilities 1,182 1,307
Taxation payable 20 36
Total equity and liabilities 6,308 7,184
Number of shares in issue at balance sheet date
(millions) 520.5 519.5
Condensed group statement of cash flows
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2011 Sept 2010 Sept 2011 Sept 2010
US$ million US$ million US$ million US$ million
(Loss) profit for
the period (127) 84 (232) 66
Adjustment for:
Depreciation,
fellings and
amortisation 121 119 499 484
Taxation (17) 11 11 20
Net finance costs 56 63 307 255
Defined post-employment
benefits (20) (25) (70) (73)
Plantation fair
value adjustment (21) (48) (65) (98)
Impairments
(reversals) of assets
and investments 98 (8) 167 (20)
Restructuring provisions 67 - 135 46
Black Economic
Empowerment charge 2 - 5 23
Other non-cash items 24 (14) 41 34
Cash generated
from operations 183 182 798 737
Movement in
working capital 266 181 (98) (5)
Net finance costs paid (62) (66) (256) (194)
Taxation paid (7) (1) (38) (9)
Cash retained from
operating activities 380 296 406 529
Cash utilised in
investing activities (101) (58) (243) (188)
Net cash generated 279 238 163 341
Cash effects of financing
activities 68 (12) (296) (256)
Net movement in cash
and cash equivalents 347 226 (133) 85
Condensed group statement of changes in equity
Reviewed Reviewed
Year Year
ended ended
Sept 2011 Sept 2010
US$ million US$ million
Balance - beginning of year 1,896 1,794
Total comprehensive (loss) income for the year (437) 74
Issue of new shares - 17
Transfers from (to) the share purchase trust 6 (6)
Transfers of vested share options (7) -
Share-based payment reserve 20 17
Balance - end of year 1,478 1,896
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 fiscal year ended September 2011 consists of 53 weeks compared to the prior
fiscal year which consisted of 52 weeks.
The preparation of this condensed consolidated financial information was
supervised by the Chief Financial Officer, M R Thompson CA(SA) (1).
The preliminary results for the year ended September 2011 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.
(1) This disclosure is in terms of the Companies Act No. 71 of 2008.
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2011 Sept 2010 Sept 2011 Sept 2010
US$ million US$ million US$ million US$ million
2. Operating
(loss) profit
Included in
operating
(loss) profit
are the following
non-cash items:
Depreciation
and amortisation 103 98 417 413
Fair value
adjustment on
plantations
(included in
cost of sales)
Changes in volume
Fellings 18 21 82 71
Growth (21) (19) (81) (67)
(3) 2 1 4
Plantation
price fair value
adjustment - (29) 16 (31)
(3) (27) 17 (27)
Included in
other operating
expenses are the
following:
Impairments
(reversals) of
assets
and investments 98 2 167 (10)
Profit on
disposal of
property,
plant and
equipment (1) (6) (1) (5)
Loss on disposal
of investment - 1 - -
Restructuring
provisions 67 - 135 46
Black Economic
Empowerment charge 2 - 5 23
Fuel tax credit - - - (51)
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2011 Sept 2010 Sept 2011 Sept 2010
US$ million US$ million US$ million US$ million
3. Headline
(loss) earnings
per share (1)
Headline (loss)
earnings per share
(US cents) (8) 16 (16) 10
Weighted average
number of shares
in issue (millions) 520.4 519.5 519.9 516.7
Diluted headline
(loss) earnings
per share (US cents) (8) 16 (16) 10
Weighted average
number of shares
on fully diluted
basis (millions) 520.4 524.0 519.9 520.8
Calculation of
headline (loss)
earnings(1)
(Loss) profit for
the period (127) 84 (232) 66
Impairments (reversals)
of assets and investments 98 2 167 (10)
Profit on disposal
of property,
plant and equipment (1) (5) (1) (4)
Loss on disposal
of investment - 1 - -
Tax effect of above items (14) - (17) -
Headline (loss) earnings (44) 82 (83) 52
(1) Headline earnings disclosure is required by the JSE Limited.
4. Capital expenditure
Property, plant and
equipment 107 81 268 201
Reviewed Reviewed
Sept 2011 Sept 2010
US$ million US$ million
5. Capital commitments
Contracted 61 62
Approved but not contracted(1) 416 109
477 171
(1) Includes approximately US$302 million related
to our recently announced
chemical cellulose expansion.
6. Contingent liabilities
Guarantees and suretyships 33 48
Other contingent liabilities 15 8
48 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.
During the quarter, the group entered into a new EUR360 million three year trade
receivables securitisation programme for its non-Southern African businesses.
The proceeds of this new long-term programme were used to refinance the group`s
existing short-term securitisation programme, which was due to mature in
December 2011.
In addition, there were transfers of approximately US$198 million from non-
current interest-bearing borrowings to current interest-bearing borrowings of
loans falling due in the next twelve months.
Restructuring provisions and asset impairments
In line with our strategy review, the group implemented a number of
interventions during the year which resulted in major asset impairment and
restructuring charges being incurred by our European and Southern African
businesses. These included the closure of the Biberist Mill in Switzerland and
the Adamas Mill in South Africa. In addition, we incurred an impairment charge
related to an equity accounted investment.
8. Post balance sheet events
In October 2011, Sappi Southern Africa utilised some of its cash resources to
repay its 10.64% fixed rate public bond of ZAR1,000 million.
In November 2011, the board approved an investment of approximately US$170
million to convert the Cloquet Mill pulp mill in North America to produce
chemical cellulose.
9. Segment information
Quarter Quarter
ended ended
Sept 2011 Sept 2010
Metric tons Metric tons
(000`s) (000`s)
Sales volume
Fine Paper - North America 379 352
Europe 942 994
Total 1,321 1,346
Southern Africa - Pulp and paper 428 460
Forestry 229 289
Total 1,978 2,095
Year Year
ended ended
Sept 2011 Sept 2010
Metric tons Metric tons
(000`s) (000`s)
Sales volume
Fine Paper - North America 1,436 1,354
Europe 3,845 3,796
Total 5,281 5,150
Southern Africa - Pulp and paper 1,700 1,751
Forestry 917 993
Total 7,898 7,894
Quarter Quarter
ended ended
Sept 2011 Sept 2010
US$ million US$ million
Sales
Fine Paper - North America 395 364
Europe 942 963
Total 1,337 1,327
Southern Africa - Pulp and paper 430 426
Forestry 20 21
Total 1,787 1,774
Operating profit excluding
special items
Fine Paper - North America 34 42
Europe 5 34
Total 39 76
Southern Africa 41 58
Unallocated and eliminations(1) - (5)
Total 80 129
Special items - losses (gains)
Fine Paper - North America (6) (5)
Europe 23 (6)
Total 17 (11)
Southern Africa 105 (26)
Unallocated and eliminations(1) 46 8
Total 168 (29)
Segment operating (loss) profit
Fine Paper - North America 40 47
Europe (18) 40
Total 22 87
Southern Africa (64) 84
Unallocated and eliminations(1) (46) (13)
Total (88) 158
EBITDA excluding special items
Fine Paper - North America 53 61
Europe 62 90
Total 115 151
Southern Africa 67 82
Unallocated and eliminations(1) 1 (6)
Total 183 227
Segment assets
Fine Paper - North America 908 935
Europe 1,889 2,109
Total 2,797 3,044
Southern Africa 1,574 1,887
Unallocated and eliminations(1) 51 65
Total 4,422 4,996
Reviewed Reviewed
Year Year
ended ended
Sept 2011 Sept 2010
US$ million US$ million
Sales
Fine Paper - North America 1,520 1,373
Europe 3,965 3,638
Total 5,485 5,011
Southern Africa - Pulp and paper 1,721 1,488
Forestry 80 73
Total 7,286 6,572
Operating profit
excluding
special items
Fine Paper - North America 129 124
Europe 68 76
Total 197 200
Southern Africa 199 134
Unallocated and
eliminations(1) 8 5
Total 404 339
Special items - losses
(gains)
Fine Paper - North America (7) (56)
Europe 139 4
Total 132 (52)
Southern Africa 136 22
Unallocated and
eliminations(1) 50 28
Total 318 (2)
Segment operating
(loss) profit
Fine Paper - North America 136 180
Europe (71) 72
Total 65 252
Southern Africa 63 112
Unallocated and
eliminations(1) (42) (23)
Total 86 341
EBITDA excluding
special items
Fine Paper - North America 203 201
Europe 300 310
Total 503 511
Southern Africa 309 236
Unallocated and
eliminations(1) 9 5
Total 821 752
Segment assets
Fine Paper - North America 908 935
Europe 1,889 2,109
Total 2,797 3,044
Southern Africa 1,574 1,887
Unallocated and
eliminations(1) 51 65
Total 4,422 4,996
(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
(loss) 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.
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2011 Sept 2010 Sept 2011 Sept 2010
US$ million US$ million US$ million US$ million
Operating profit
excluding special items 80 129 404 339
Special Items (168) 29 (318) 2
Plantation price
fair value adjustment - 29 (16) 31
Restructuring
provisions (67) - (135) (46)
Profit on disposal
of property,
plant and equipment 1 6 1 5
Loss on disposal
of investment - (1) - -
Impairments
(reversals) of assets
and investments (98) (2) (167) 10
Fuel tax credit - - - 51
Black Economic
Empowerment charge (2) - (5) (23)
Insurance recoveries - - 10 1
Fire, flood, storm
and related events (2) (3) (6) (27)
Segment operating
(loss) profit (88) 158 86 341
Reconciliation of
EBITDA excluding
special items and
operating profit
excluding special
items to (loss)
profit before taxation
EBITDA excluding
special items 183 227 821 752
Depreciation and
amortisation (103) (98) (417) (413)
Operating profit
excluding special items 80 129 404 339
Special items -
(losses) gains (168) 29 (318) 2
Net finance costs (56) (63) (307) (255)
(Loss) profit
before taxation (144) 95 (221) 86
Reconciliation of
segment assets to
total assets
Segment assets 4,422 4,996 4,422 4,996
Deferred taxation 45 53 45 53
Cash and cash equivalents 639 792 639 792
Other current
liabilities 1,182 1,307 1,182 1,307
Taxation payable 20 36 20 36
Total assets 6,308 7,184 6,308 7,184
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 IFRS 2 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 (ie 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 Year Year
ended ended ended ended
Sept 2011 Sept 2010 Sept 2011 Sept 2010
Key figures: (ZAR million)
Sales 12,777 13,042 50,695 49,235
Operating (loss) profit (629) 1,162 598 2,555
Special items - losses
(gains) (1) 1,201 (213) 2,213 (15)
Operating profit excluding
special items (1) 572 948 2,811 2,540
EBITDA excluding special
items (1) 1,308 1,669 5,712 5,634
Basic (loss) earnings per
share (SA cents) (172) 118 (313) 97
Net debt(1) 17,002 15,589 17,002 15,589
Key ratios: (%)
Operating (loss) profit to
sales (4.9) 8.9 1.2 5.2
Operating profit excluding
special items to sales 4.5 7.3 5.5 5.2
Operating profit excluding
special items to capital
employed (ROCE) (1) 7.8 12.7 9.7 8.3
EBITDA excluding special
items to sales 10.2 12.8 11.3 11.4
Return on average equity
(ROE) (29.5) 19.3 (12.8) 3.7
Net debt to total
capitalisation (1) 58.7 53.9 58.7 53.9
(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
Sept 2011 Sept 2010
US$ million US$ million
Interest-bearing borrowings 2,739 3,013
Non-current interest-bearing borrowings 2,289 2,317
Current interest-bearing borrowings 449 691
Bank overdraft 1 5
Cash and cash equivalents (639) (792)
Net debt 2,100 2,221
Exchange rates
Sept Jun Mar
2011 2011 2011
Exchange rates:
Period end rate: US$1 = ZAR 8.0963 6.7300 6.6978
Average rate for the Quarter: US$1 = ZAR 7.1501 6.7890 6.9963
Average rate for the YTD: US$1 = ZAR 6.9578 6.8941 6.9476
Period end rate: EUR1 = US$ 1.3386 1.4525 1.4231
Average rate for the Quarter: EUR1 = US$ 1.4126 1.4398 1.3702
Average rate for the YTD: EUR1 = US$ 1.3947 1.3890 1.3645
Dec Sept
2010 2010
Exchange rates:
Period end rate: US$1 = ZAR 6.6190 7.0190
Average rate for the Quarter: US$1 = ZAR 6.9464 7.3517
Average rate for the YTD: US$1 = ZAR 6.9464 7.4917
Period end rate: EUR1 = US$ 1.3380 1.3491
Average rate for the Quarter: EUR1 = US$ 1.3516 1.2871
Average rate for the YTD: EUR1 = US$ 1.3516 1.3658
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: 10/11/2011 09:00:01 Produced by the JSE SENS Department.
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