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SAP
SAVVI
SAP - Sappi Limited - 2nd Quarter results for the half-year ended March 2012
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
2nd Quarter results for the half-year ended March 2012
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
* Profit for the period US$58 million (Q2 2011 loss US$74 million)
* EPS 11 US cents (Q2 2011 loss per share 14 US cents)
* Net cash generated US$91 million (Q2 2011 US$100 million)
* Net debt US$2,133 million, down US$42 million from Q1 2012
* Cost savings led to improved performance in European business
* Southern African chemical cellulose business continues strong performance
Quarter ended
Mar 2012 Mar 2011 Dec 2011
Key figures: (US$ million)
Sales 1,633 1,824 1,585
Operating profit (loss) 120 (1) 107
Special items - losses (gains)(1) 5 128 (7)
Operating profit excluding special items(2) 125 127 100
EBITDA excluding special items(3) 217 228 194
Basic earnings (loss) per share
(US cents) 11 (14) 9
Net debt(4) 2,133 2,370 2,175
Key ratios: (%)
Operating profit (loss) to sales 7.4 (0.1) 6.8
Operating profit excluding special items
to sales 7.7 7.0 6.3
Operating profit excluding special items
to capital employed (ROCE) 13.4 11.6 11.0
EBITDA excluding special items to sales 13.3 12.5 12.2
Return on average equity (ROE)(5) 14.7 (14.9) 12.0
Net debt to total capitalisation(5) 56.5 54.8 58.9
Net asset value per share (US cents) 315 375 291
Half-year ended
Mar 2012 Mar 2011*
Key figures: (US$ million)
Sales 3,218 3,697
Operating profit (loss) 227 120
Special items - losses (gains)(1) (2) 144
Operating profit excluding special items(2) 225 264
EBITDA excluding special items(3) 411 474
Basic earnings (loss) per share
(US cents) 20 (7)
Net debt(4) 2,133 2,370
Key ratios: (%)
Operating profit (loss) to sales 7.1 3.3
Operating profit excluding special items
to sales 7.0 7.1
Operating profit excluding special items
to capital employed (ROCE) 12.2 12.5
EBITDA excluding special items to sales 12.8 12.8
Return on average equity (ROE)(5) 13.2 (3.8)
Net debt to total capitalisation(5) 56.5 54.8
Net asset value per share (US cents) 315 375
* The half-year ended Mar 2011 consisted of 27 weeks whereas the
half-year ended Mar 2012 consisted of 26 weeks.
(1) Refer to details on special items.
(2) Refer to note 10 to the group results for the reconciliation of operating
profit excluding special items to segment operating profit (loss) and
profit (loss) for the period.
(3) Refer to note 10 to the group results for the reconciliation of EBITDA
excluding special items and operating profit excluding special items to
segment operating profit (loss) and profit (loss) for the period.
(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 improving trend in operating performance continued in the quarter, with the
European and North American businesses in particular showing good improvement.
The group achieved a profit for the period of US$58 million (Q2 2011 US$ loss
US$74 million) and EPS of 11 US cents (Q2 2011 loss 14 US cents) in the second
quarter of the 2012 financial year.
Market conditions for coated paper have been weaker than in the equivalent
period last year. Despite this, our operating rates remained good in both Europe
and North America. Variable costs and fixed costs are generally lower,
particularly in Europe, enabling margins to be maintained or widened.
The Southern African chemical cellulose business continues to perform strongly,
driven by strong sales volumes. Despite prices being lower than in the prior
quarter and in the equivalent quarter last year, the business generated an
EBITDA margin of approximately 30%.
Pulp prices, which had been weakening since July 2011, stopped declining midway
through the quarter, and have since been gradually increasing. This increase in
pulp prices benefits our Southern African and North American businesses as they
are net sellers of pulp, but has a negative effect on the input costs of our
European business.
Operating profit excluding special items of US$125 million for the quarter was
similar to that of the equivalent quarter in the prior year, and a significant
improvement compared to the quarter ended December 2011. The sequential
improvement was driven mainly by the improved performance from the European and
North American businesses.
Special items for the quarter were a charge of US$5 million, largely comprising
a plantation price fair value loss.
Finance costs for the quarter of US$51 million were significantly lower than the
US$68 million incurred in the equivalent quarter last year. The equivalent
quarter included breakage fees incurred as a result of the refinancing that we
concluded during the 2011 financial year. In addition, the 2011 refinancing and
the repayment of debt with cash on hand led to a decrease in interest costs for
the quarter.
Cash flow and debt
Cash generated from operations was US$214 million for the quarter and net cash
generated was US$91 million.
Capital expenditure for the quarter was US$60 million and for the full year is
expected to be approximately US$450 million including the investments in the
announced chemical cellulose projects.
Net debt reduced to US$2,133 million as a result of cash generation during the
quarter offset by currency and fair value movements.
After the end of the quarter, a three year South African bond of R750 million
(US$98 million) was raised. The floating rate interest was swapped for a fixed
interest rate of approximately 7.8% for the life of the bond. The proceeds of
this bond will be used to redeem a 12.1% R500 million (US$65 million) South
African bond due at the end of June, and to reduce other debt.
Operating Review - Quarter ended March 2012 compared with quarter ended March
2011
NOTE: In order to provide greater context to the performance of our regional
businesses, the tables below summarise the regional results in local currency.
Note 10 discloses the results in US Dollars.
Sappi Fine Paper
Quarter Quarter Quarter
ended ended ended
Mar 2012 Dec 2011 Sept 2011
US$ million US$ million US$ million
Sales 1,232 1,198 1,337
Operating profit excluding
special items 73 39 39
Operating profit excluding
special items to sales (%) 5.9 3.3 2.9
EBITDA excluding special
items 139 110 115
EBITDA excluding special
items to sales (%) 11.3 9.2 8.6
RONOA pa (%) 10.3 5.6 5.3
Quarter Quarter
ended ended
Jun 2011 Mar 2011
US$ million US$ million
Sales 1,350 1,389
Operating profit excluding
special items 30 71
Operating profit excluding
special items to sales (%) 2.2 5.1
EBITDA excluding special
items 107 144
EBITDA excluding special
items to sales (%) 7.9 10.4
RONOA pa (%) 3.9 9.1
The coated paper business in both North America and Europe saw declines in
demand compared to the equivalent quarter in the prior year. The overall
performance improved compared to the prior quarter as a result of lower costs
and an improved operating performance in the North American business, as well as
the cost savings achieved in the European business.
Europe
Quarter Quarter Quarter
ended ended ended
Mar 2012 Dec 2011 Sept 2011
EUR million EUR million EUR million
Sales 672 628 666
Operating profit (loss)
excluding special items 37 22 3
Operating profit (loss)
excluding special items
to sales (%) 5.5 3.5 0.5
EBITDA excluding special
items 73 60 44
EBITDA excluding special
items to sales (%) 10.9 9.6 6.6
RONOA pa (%) 10.2 6.1 0.8
Quarter Quarter
ended ended
Jun 2011 Mar 2011
EUR million EUR million
Sales 679 738
Operating profit (loss)
excluding special items (2) 23
Operating profit (loss)
excluding special items
to sales (%) (0.3) 3.1
EBITDA excluding special
items 38 63
EBITDA excluding special
items to sales (%) 5.6 8.5
RONOA pa (%) (0.5) 5.8
Despite subdued market conditions, the European business experienced a further
improvement in operating performance during the quarter as a result of the fixed
and variable cost reduction actions and lower pulp prices compared to the
equivalent quarter in the prior year. We remain on track to meet our cost
reduction target of US$100 million on an annual basis for the year.
Operating rates improved in the quarter despite a slowdown in European demand,
helped by a recovery in export sales. Prices realised for coated woodfree paper
were 3.6% lower than the equivalent quarter last year and 1.6% higher for coated
mechanical paper. The coated specialities business continues to perform well,
with an increase in volumes and prices compared to the equivalent quarter in the
prior year.
The European business continues to generate strong cash flows, generating a
significant portion of the group`s net cash.
North America
Quarter Quarter Quarter
ended ended ended
Mar 2012 Dec 2011 Sept 2011
US$ million US$ million US$ million
Sales 349 352 395
Operating profit excluding
special items 24 10 34
Operating profit excluding
special items to sales (%) 6.9 2.8 8.6
EBITDA excluding special
items 43 29 53
EBITDA excluding special
items to sales (%) 12.3 8.2 13.4
RONOA pa (%) 10.4 4.4 14.9
Quarter Quarter
ended ended
Jun 2011 Mar 2011
US$ million US$ million
Sales 371 372
Operating profit excluding
special items 32 40
Operating profit excluding
special items to sales (%) 8.6 10.8
EBITDA excluding special
items 50 58
EBITDA excluding special
items to sales (%) 13.5 15.6
RONOA pa (%) 13.7 17.0
The performance of the North American business improved, following the scheduled
maintenance outages and unplanned pulp production issues at Somerset Mill in the
last quarter and which were resolved in the first half of this quarter.
The coated paper business achieved good EBITDA margins for the quarter. Sales
volumes however were lower than the equivalent quarter last year. Average prices
for coated paper were stable year-on-year, and price increases for coated
woodfree paper have been announced for implementation in June.
The casting release business saw a slight improvement in sales volumes and
prices compared to the prior quarter and the market continues to improve,
particularly in China. Volumes in this business remain below those of the
equivalent quarter in the prior year with prices at similar levels.
Sappi Southern Africa
Quarter Quarter Quarter
ended ended ended
Mar 2012 Dec 2011 Sept 2011
ZAR million ZAR million ZAR million
Sales 3,113 3,131 3,217
Operating profit excluding
special items 409 494 296
Operating profit excluding
special items to sales (%) 13.1 15.8 9.2
EBITDA excluding special
items 604 680 482
EBITDA excluding special
items to sales (%) 19.4 21.7 15.0
RONOA pa (%) 12.2 15.1 8.9
Quarter Quarter
ended ended
Jun 2011 Mar 2011
ZAR million ZAR million
Sales 3,068 3,023
Operating profit excluding
special items 172 368
Operating profit excluding
special items to sales (%) 5.6 12.2
EBITDA excluding special
items 355 563
EBITDA excluding special
items to sales (%) 11.6 18.6
RONOA pa (%) 4.9 10.5
The Southern African chemical cellulose business continued its strong
performance in the quarter generating R385 million in EBITDA and an EBITDA
margin of approximately 30%. Sales volumes increased over the prior quarter
while sales prices, which are generally linked to NBSK prices, declined in Rand
terms over the period as a result of a stronger Rand/US Dollar exchange rate and
a lower average NBSK US Dollar price. NBSK prices in dollar terms have been
increasing since March.
The Southern African paper business experienced a mixed quarter, with graphic
paper demand generally good, but with packaging demand constrained by
competition from imports. The restructuring announced last year proceeded as
planned during the quarter, including the closure of the pulp mill at Enstra
Mill, the kraft pulp mill at Tugela Mill and a 10,000-ton kraft paper machine
at Tugela Mill. The benefits of these actions should start to materialise from
the third quarter.
Directorate
We announced during the quarter that Mr Steve Binnie will join Sappi as Chief
Financial Officer Designate on 09 July 2012. Mr Binnie will become Chief
Financial Officer and an Executive Director of the company on 01 September
2012, following Mr Mark Thompson`s retirement at the end of August 2012 as
Chief Financial Officer and as an Executive Director.
Outlook
We expect demand for our coated paper to remain challenging compared to last
year, but for most major input costs to remain below the levels seen a year ago.
The European and South African businesses will benefit from the restructuring
actions taken in these regions.
The Southern African chemical cellulose business is expected to continue to
perform well. The conversion projects at Ngodwana and Cloquet mills are on track
for start-up in our third financial quarter of 2013. We have received good
support from a range of customers for the future increase in production volumes.
Our third financial quarter is historically and seasonally the weakest quarter,
and will be further impacted, as it was last year, by planned annual maintenance
shuts at a number of our major pulp mills. These shuts will result in an
increase in maintenance costs and lost contribution from reduced output and
sales. We expect our operating profit excluding special items for the third
financial quarter to be in line with the equivalent quarter last year.
For the full year we expect operating profit excluding special items to be in
line with the previous financial year, and for the group to generate positive
earnings per share.
We expect positive cash generation for the balance of the year, leading to a
further reduction in net debt. We will consider refinancing our higher cost
debt, including the bonds due in 2014, when market conditions are favourable
and it makes economic sense to do so.
On behalf of the board
R J Boettger M R Thompson
Director Director 10 May 2012
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, cost-reduction programmes, 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
Mar 2012 Mar 2011
Note US$ million US$ million
Sales 1,633 1,824
Cost of sales 1,408 1,596
Gross profit 225 228
Selling, general and administrative
expenses 107 109
Other operating (income) expenses (2) 122
Share of profit from associates and
joint ventures - (2)
Operating profit (loss) 2 120 (1)
Net finance costs 51 68
Net interest 55 77
Finance cost capitalised (2) -
Net foreign exchange gains (1) (3)
Net fair value gains on financial
instruments (1) (6)
Profit (loss) before taxation 69 (69)
Taxation 11 5
Current 6 2
Deferred 5 3
Profit (loss) for the period 58 (74)
Basic earnings (loss) per share
(US cents) 11 (14)
Weighted average number of shares in
issue (millions) 520.8 519.7
Diluted basic earnings (loss) per share
(US cents) 11 (14)
Weighted average number of shares on
fully diluted basis (millions) 525.0 519.7
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2012 Mar 2011
US$ million US$ million
Sales 3,218 3,697
Cost of sales 2,785 3,233
Gross profit 433 464
Selling, general and administrative expenses 212 221
Other operating (income) expenses (6) 127
Share of profit from associates and
joint ventures - (4)
Operating profit (loss) 227 120
Net finance costs 105 139
Net interest 111 155
Finance cost capitalised (2) -
Net foreign exchange gains (2) (7)
Net fair value gains on financial
instruments (2) (9)
Profit (loss) before taxation 122 (19)
Taxation 19 18
Current 5 4
Deferred 14 14
Profit (loss) for the period 103 (37)
Basic earnings (loss) per share
(US cents) 20 (7)
Weighted average number of shares in
issue (millions) 520.7 519.6
Diluted basic earnings (loss) per share
(US cents) 20 (7)
Weighted average number of shares on
fully diluted basis (millions) 524.7 519.6
Condensed group statement of comprehensive income
Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2012 Mar 2011 Mar 2012 Mar 2011
US$ million US$ million US$ million US$ million
Profit (loss) for
the period 58 (74) 103 (37)
Other
comprehensive
income (loss),
net of tax 64 5 53 83
Exchange
differences on
translation of
foreign operations 58 (13) 60 69
Movements in
hedging reserves 5 18 (9) 15
Deferred tax
effect of above
items 1 - 2 (1)
Total
comprehensive
income (loss) for
the period 122 (69) 156 46
Condensed group balance sheet
Reviewed Reviewed
Mar 2012 Sept 2011
US$ million US$ million
ASSETS
Non-current assets 4,103 4,085
Property, plant and equipment 3,224 3,235
Plantations 613 580
Deferred taxation 45 45
Other non-current assets 221 225
Current assets 2,044 2,223
Inventories 826 750
Trade and other receivables 753 834
Cash and cash equivalents 453 639
Assets held for sale 12 -
Total assets 6,147 6,308
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` interest 1,642 1,478
Non-current liabilities 3,140 3,178
Interest-bearing borrowings 2,220 2,289
Deferred taxation 363 336
Other non-current liabilities 557 553
Current liabilities 1,365 1,652
Interest-bearing borrowings 366 449
Bank overdraft - 1
Other current liabilities 984 1,182
Taxation payable 15 20
Total equity and liabilities 6,147 6,308
Number of shares in issue at balance sheet date
(millions) 520.8 520.5
Condensed group statement of cash flows
Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2012 Mar 2011 Mar 2012 Mar 2011
US$ million US$ million US$ million US$ million
Profit (loss)
for the period 58 (74) 103 (37)
Adjustment for:
Depreciation,
fellings and
amortisation 112 122 225 253
Taxation 11 5 19 18
Net finance
costs 51 68 105 139
Defined
post-employment
benefits (12) (19) (23) (33)
Plantation
fair value
adjustments (15) (13) (39) (23)
Asset
impairments - 69 - 69
Net
restructuring
provisions 1 63 1 66
Black economic
empowerment
charge 1 1 2 2
Other non-cash
items 7 - 16 13
Cash generated
from
operations 214 222 409 467
Movement in
working
capital (24) 17 (190) (318)
Net finance
costs paid (37) (91) (101) (154)
Taxation paid (5) (12) (10) (14)
Cash retained
from (utilised
in)
operating
activities 148 136 108 (19)
Cash utilised
in investing
activities (57) (36) (128) (77)
Net cash
generated
(utilised) 91 100 (20) (96)
Cash effects
of financing
activities (57) (159) (174) (174)
Net movement
in cash and
cash
equivalents 34 (59) (194) (270)
Condensed group statement of changes in equity
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2012 Mar 2011
US$ million US$ million
Balance - beginning of period 1,478 1,896
Total comprehensive income for the period 156 46
Transfers from the share purchase trust 2 1
Transfers of vested share options (2) -
Share-based payment reserve 8 8
Balance - end of period 1,642 1,951
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated interim financial results for the six months ended
March 2012 have been prepared in compliance with the Listings Requirements of
the JSE Limited and in accordance with the framework concepts and the
measurement and recognition requirements of International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board, AC
500 standards issued by the Accounting Practices Board, the requirements of the
Companies Act of South Africa and the information required by IAS 34 Interim
Financial Reporting. The accounting policies applied in the preparation of these
interim financial results are consistent with those applied for the year ended
September 2011.
The half-year ended March 2012 consisted of 26 weeks compared to the
fiscal half-year ended March 2011 which consisted of 27 weeks.
The preparation of this condensed consolidated financial information was
supervised by the Chief Financial Officer, M R Thompson CA (SA).
The interim results for the half-year ended March 2012 have been reviewed in
accordance with 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.
Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2012 Mar 2011 Mar 2012 Mar 2011
US$ million US$ million US$ million US$ million
2. Operating
profit (loss)
Included in
operating profit
(loss) are the
following non-cash
items:
Depreciation and
amortisation 92 101 186 210
Fair value
adjustment on
plantations
(included in cost
of sales)
Changes in volume
Fellings 20 21 39 43
Growth (22) (16) (43) (37)
(2) 5 (4) 6
Plantation price
fair value
adjustment 7 3 4 14
5 8 - 20
Included in other
operating (income)
expenses are the
following:
Asset impairments - 69 - 69
Profit on disposal
of property,
plant and equipment (4) - (9) -
Net restructuring
provisions 1 63 1 66
Black Economic
Empowerment
charge 1 1 2 2
Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2012 Mar 2011 Mar 2012 Mar 2011
US$ million US$ million US$ million US$ million
3. Headline
earnings
(loss) per share
Headline
earnings (loss)
per share
(US cents) 10 (2) 18 5
Weighted
average number
of shares
in issue
(millions) 520.8 519.7 520.7 519.6
Diluted
headline
earnings (loss)
per share
(US cents) 10 (2) 18 5
Weighted
average number
of shares on
fully diluted
basis
(millions) 525.0 519.7 524.7 519.6
Calculation of
headline
earnings (loss)
Profit (loss)
for the period 58 (74) 103 (37)
Asset
impairments - 69 - 69
Profit on
disposal of
property, plant
and equipment (4) - (9) -
Tax effect of
above items - (5) - (5)
Headline
earnings (loss) 54 (10) 94 27
4. Capital
expenditure
Property, plant
and equipment 60 47 136 92
Reviewed Reviewed
Mar 2012 Sept 2011
US$ million US$ million
5. Capital commitments
Contracted 213 61
Approved but not contracted 449 416
662 477
The increase is primarily due to the announced
conversion of the Cloquet Mill
in North America to produce chemical cellulose.
6. Contingent liabilities
Guarantees and suretyships 37 33
Other contingent liabilities 8 15
45 48
7. Material balance sheet movements
Cash and cash equivalents, interest-bearing borrowings and other current
liabilities
The group repaid US$174 million of debt from cash resources including the ZAR
10.64% fixed rate public bonds in Southern Africa of US$130 million (ZAR1,000
million) and US$20 million of the on-balance sheet securitisation debt.
In addition, other current liabilities were reduced by payments of restructuring
and accruals.
8. Assets held for sale
Sappi has initiated a plan to sell certain land and buildings within our Sappi
Fine Paper European operations.
9. Post balance sheet events
In April 2012, Sappi Southern Africa (Pty) Ltd issued a three-year ZAR750
million (US$98 million) floating rate bond (`SSA02`) at a 144 basis points
spread over the government reference rate. The floating rate of the new bond was
swapped into a fixed rate of 7.78%.
The proceeds of the bond will partly be used to refinance the ZAR500 million
(US$65 million) bond (`SMF3`) maturing on 29 June 2012.
10. Segment information
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2012 Mar 2011 Mar 2012 Mar 2011
Metric tons Metric tons Metric tons Metric tons
(000`s) (000`s) (000`s) (000`s)
Sales volume
Fine Paper -
North America 341 349 680 713
Europe 919 982 1,768 1,994
Total 1,260 1,331 2,448 2,707
Southern Africa -
Pulp and paper 418 414 818 866
Forestry 295 242 536 436
Total 1,973 1,987 3,802 4,009
Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2012 Mar 2011 Mar 2012 Mar 2011
US$ million US$ million US$ million US$ million
Sales
Fine Paper -
North America 349 372 701 754
Europe 883 1,017 1,729 2,044
Total 1,232 1,389 2,430 2,798
Southern Africa -
Pulp and paper 379 414 747 861
Forestry 22 21 41 38
Total 1,633 1,824 3,218 3,697
Operating profit
(loss) excluding
special items
Fine Paper -
North America 24 40 34 63
Europe 49 31 78 65
Total 73 71 112 128
Southern Africa 53 53 114 132
Unallocated and
eliminations(1) (1) 3 (1) 4
Total 125 127 225 264
Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2012 Mar 2011 Mar 2012 Mar 2011
US$ million US$ million US$ million US$ million
Special items -
losses (gains)
Fine Paper -
North America - (1) - (1)
Europe (4) 114 (9) 114
Total (4) 113 (9) 113
Southern Africa 9 14 7 27
Unallocated and
eliminations(1) - 1 - 4
Total 5 128 (2) 144
Segment operating
profit (loss)
Fine Paper -
North America 24 41 34 64
Europe 53 (83) 87 (49)
Total 77 (42) 121 15
Southern Africa 44 39 107 105
Unallocated and
eliminations(1) (1) 2 (1) -
Total 120 (1) 227 120
EBITDA excluding
special items
Fine Paper -
North America 43 58 72 100
Europe 96 86 177 181
Total 139 144 249 281
Southern Africa 78 81 162 189
Unallocated and
eliminations(1) - 3 - 4
Total 217 228 411 474
Segment assets
Fine Paper -
North America 946 956 946 956
Europe 1,901 2,120 1,901 2,120
Total 2,847 3,076 2,847 3,076
Southern Africa 1,751 2,092 1,751 2,092
Unallocated and
eliminations(1) 52 70 52 70
Total 4,650 5,238 4,650 5,238
(1) Includes the group`s treasury operations, the self-insurance captive and the
investment in the Jiangxi Chenming joint venture.
Reconciliation of EBITDA excluding special items and operating profit excluding
special items to segment operating profit (loss) and profit (loss) for the
period
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 Half-year Half-year
ended ended ended ended
Mar 2012 Mar 2011 Mar 2012 Mar 2011
US$ million US$ million US$ million US$ million
EBITDA excluding
special items 217 228 411 474
Depreciation and
amortisation (92) (101) (186) (210)
Operating profit
excluding special
items 125 127 225 264
Special items -
(losses) gains (5) (128) 2 (144)
Plantation price
fair value
adjustment (7) (3) (4) (14)
Net restructuring
provisions (1) (63) (1) (66)
Profit on disposal
of property, plant
and equipment 4 - 9 -
Asset impairments - (69) - (69)
Black Economic
Empowerment charge (1) (1) (2) (2)
Insurance
recoveries - 11 - 11
Fire, flood, storm
and related events - (3) - (4)
Segment operating
profit (loss) 120 (1) 227 120
Net finance costs (51) (68) (105) (139)
Profit (loss)
before taxation 69 (69) 122 (19)
Taxation (11) (5) (19) (18)
Profit (loss) for
the period 58 (74) 103 (37)
Reconciliation of
segment assets
to total assets
Segment assets 4,650 5,238 4,650 5,238
Deferred taxation 45 57 45 57
Cash and cash
equivalents 453 567 453 567
Other current
liabilities 984 1,166 984 1,166
Taxation payable 15 35 15 35
Total assets 6,147 7,063 6,147 7,063
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 Half-year Half-year
ended ended ended ended
Mar 2012 Mar 2011 Mar 2012 Mar 2011
Key figures: (ZAR million)
Sales 12,658 12,761 25,498 25,685
Operating profit (loss) 930 (7) 1,799 834
Special items - losses
(gains)(1) 39 896 (16) 1,000
Operating profit excluding
special items(1) 969 889 1,783 1,834
EBITDA excluding special
items(1) 1,682 1,595 3,257 3,293
Basic earnings (loss) per
share (SA cents) 85 (98) 158 (49)
Net debt(1) 16,365 15,874 16,365 15,874
Key ratios: (%)
Operating profit (loss) to
sales 7.3 (0.1) 7.1 3.2
Operating profit excluding
special items
to sales 7.7 7.0 7.0 7.1
Operating profit excluding
special items
to capital employed (ROCE)(1) 13.2 12.2 12.3 12.7
EBITDA excluding special
items to sales 13.3 12.5 12.8 12.8
Return on average equity
(ROE) 14.5 (15.7) 13.3 (3.9)
Net debt to total
capitalisation(1) 56.5 54.8 56.5 54.8
(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
Mar 2012 Sept 2011
US$ million US$ million
Interest-bearing borrowings 2,586 2,739
Non-current interest-bearing borrowings 2,220 2,289
Current interest-bearing borrowings 366 449
Bank overdraft - 1
Cash and cash equivalents (453) (639)
Net debt 2,133 2,100
Exchange rates
Mar Dec Sept
2012 2011 2011
Exchange rates:
Period end rate:US$1 = ZAR 7.6725 8.0862 8.0963
Average rate for the Quarter: US$1 = ZAR 7.7511 8.0915 7.1501
Average rate for the YTD: US$1 = ZAR 7.9237 8.0915 6.9578
Period end rate: EUR1 = US$ 1.3344 1.2948 1.3386
Average rate for the Quarter: EUR1 = US$ 1.3116 1.3482 1.4126
Average rate for the YTD: EUR1 = US$ 1.3299 1.3482 1.3947
Jun Mar
2011 2011
Exchange rates:
Period end rate: US$1 = ZAR 6.7300 6.6978
Average rate for the Quarter: US$1 = ZAR 6.7890 6.9963
Average rate for the YTD: US$1 = ZAR 6.8941 6.9476
Period end rate: EUR1 = US$ 1.4525 1.4231
Average rate for the Quarter: EUR1 = US$ 1.4398 1.3702
Average rate for the YTD: EUR1 = US$ 1.3890 1.3645
Other interested parties can obtain printed copies of this report from:
South Africa:
Computershare Investor Services
(Proprietary) Limited
70 Marshall Street
Johannesburg 2001
PO Box 61051
Marshalltown 2107
Tel +27 (0)11 370 5000
United States:
ADR Depositary:
The Bank of New York Mellon
Investor Relations
PO Box 11258
Church Street Station
New York, NY 10286-1258
Tel +1 610 382 7836
This report is available on the Sappi website www.sappi.com
Sappi has a primary listing on the JSE Limited and a secondary listing on the
New York Stock Exchange
Date: 10/05/2012 09:00:05 Produced by the JSE SENS Department.
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