| Mon 28 Jan 2002, 0:00 | | Sappi Limited - Results For The Quarter Ended Dece |
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sappi limited
(Reg. No. 1936/008963/06)
JSE Code: SAP
ISIN Code: ZAE 000006284
Results for the quarter ended December 2001
first quarter 2002
Sappi is the world's leading producer of coated fine paper.
The geographic spread of our assets is a key component of Sappi's success -
it allows us to take advantage of strong markets and weak currencies and,
therefore, minimise the impact of the fluctuation of currencies and demand.
Strong balance sheet maintained
Geographic diversity cushions poor markets
Headline EPS - 14 US cents
US$400 million refinancing completed
summary
Quarter ended
December September December
2001 2001 2000
Sales (US$ million) 832 998 1,115
Operating profit (US$ million) 65 91 143
EBITDA (US$ million) 148 175 237
Operating profit to sales (%) 7.8 9.1 12.8
EBITDA to sales (%) 17.8 17.5 21.3
Operating profit to
average net assets RONA (%) 8.8 11.1 15.8
EPS before exceptional
items (Headline) (US cents) 14 23 34
EPS (US cents) 10 20 34
Return on equity (%) 6.3 9.9* 20.1
Net Debt (US$ million) 1,156 1,128 1,269
*Before Mobile closure costs
comment
In line with global economic conditions, market conditions remained weak
during the quarter. In North America, the additional slowdown attributable
to the events of 11 September accentuated already poor demand conditions.
Industry shipments of coated woodfree paper for the quarter were 13% lower
than a year earlier in the USA and 1% lower in Europe. Despite strong price
pressure, prices in Europe were fairly stable as industry production was
adjusted to demand. Prices continued to erode in North America.
In light of these conditions, we were pleased with the performance of our
European and South African businesses. The geographic spread of our assets
and markets helped to mitigate exceptional circumstances in one region - in
this case the unprecedented drop in demand that resulted in an operating
loss in the North American business.
Our results were further affected by two of our largest operations, Somerset
and Ngodwana, taking their once in 30-month maintenance shut in the quarter.
Under new International Accounting Standards the full impact of the shuts,
which would have previously been spread over 30 months, was reflected in the
period. The combined cost of the shuts was US$10 million, with an additional
US$5 million attributable to lost sales at Ngodwana.
Excluding Mobile (which was closed at the end of last year) from the
comparison, sales volumes were 10% below last year. Average prices in US$
were 14% lower than a year ago, reflecting in part the weakening of other
currencies vs the US$. In view of the weak market conditions, we curtailed
production by approximately 250,000 tons. Manufacturing costs continued to
be tightly controlled.
Earnings were in line with the outlook statement made in the previous
quarter. Net profit before exceptional items was US$31 million, 62% below
last year. Earnings per share before exceptional items were 14 US cents,
which was 59% below the same quarter last year and 9 US cents down on the
previous quarter. After one-time adjustments for refinancing the North
American 14% debentures and the closure of Transcript Mill, net profit was
US$22 million, 73% below last year. Basic earnings per share were 10 US
cents.
Net finance costs for the quarter were US$25 million, which included the
cost of marking foreign exchange contracts to market and other foreign
exchange losses of US$7 million.
The tax charge for the quarter was low at US$6 million, an effective rate of
23.6%, as a result of the geographic split of earnings and particularly the
disappointing results in the United States.
cash flow and debt
Despite the adverse market conditions, cash flow (EBITDA) generated for the
quarter was robust at US$148 million. Capital expenditure on fixed assets
and plantations was US$67 million, which was below depreciation,
amortisation and fellings. Capex will continue to be below depreciation for
the full year.
A dividend of 26 US cents per share (US$60 million) for the year ended
September 2001 was declared in the quarter and paid to shareholders on 14
January 2002.
The group continued to maintain a strong balance sheet. Net debt increased
slightly to US$1,156 million from US$1,128 million in September due to an
increase in prepayments and a reduction in accounts payable. Net debt to
total capitalisation rose to 35.2% from 30.4% in September due to the effect
of currency translation of Euro and Rand net assets into US$ at the lower
rates now prevailing. This ratio will fluctuate from time to time with
currency movements.
During the quarter, the company redeemed the North American 14% debentures
and incurred a one-off US$10 million refinancing cost. In early January
2002, US$243 million of 7.5% convertible notes were also redeemed. At
current short term interest rates, the refinancing of both of these
instruments will result in pre-tax annual savings of approximately US$29
million.
operating review
the fine paper business
Quarter ended
Dec. 2001 Dec. 2000 %
US$ million US$ million change
Sales 697 918 (24)
Operating profit 36 78 (54)
Operating margin (%) 5.2 8.5 -
EBITDA 101 147 (31)
EBITDA Margin (%) 14.5 16.0 -
RONOA p.a. (%) 5.9 11.5 -
Market conditions for Sappi Fine Paper were very difficult in the quarter.
In addition to the general global economic slowdown, the recession in the US
and the additional adverse impact of 11 September had a strong detrimental
effect on our business. These conditions resulted in a 24% fall in sales
compared to last year. Despite this huge fall in sales, the division's
operating margin fell only 3.3 percentage points. We continued to take
production curtailment in Europe and North America to balance supply with
demand.
The closure of the Transcript Mill is progressing in an orderly fashion,
with a complete exit from the carbonless business expected by March 2002.
The outlook for our European and South African businesses is stable. In
North America we believe the situation has bottomed. In both Europe and
North America, consumer inventories are extremely low and we are well
positioned to benefit from the upturn in demand when it comes.
Europe
Sappi Fine Paper Europe provided stable earnings in spite of reduced demand.
Sales volumes were 8% lower than last year and we continued to cut back
production by about one week per month. Average prices achieved in US$ terms
were approximately 4% lower than last year. Costs were tightly controlled
which is reflected in a respectable (for the circumstances) return on net
operating assets of 11.9%.
Quarter ended
Dec. 2001 Dec. 2000 % change % change
US$ million US$ million (US$) (Euros)
Sales 410 466 (12) (14)
Operating profit 39 54 (28) (30)
Operating margin (%) 9.5 11.6 - -
EBITDA 77 92 (16) (19)
EBITDA Margin (%) 18.8 19.7 - -
RONOA p.a. (%) 11.9 15.6 - -
North America
First quarter results were severely affected by the recession and post-11
September effects of a decrease in advertising spending which significantly
reduced the demand for graphic paper. Net sales of US$239 million were down
32% excluding the impact of the Mobile closure. Lower sales of publication
grades were the major contributor to the shortfall. Substantial favorable
variances in both fixed and variable costs (pulp, energy) could not offset
the weak demand and continued price erosion.
The division made an operating loss of US$10 million for the quarter versus
a profit of US$18 million in the prior year. If one takes account of the
sales of European product into North America, the region did actually
contribute a small profit. Two one-off factors impacted the results. First
was booking the full cost of a maintenance shut in the quarter, whereas in
prior years this was written off over a 30-month period. The second was that
we took an additional 42,000 tons of curtailment in the quarter, reflecting
the drop in demand and our resistance to market price erosion. Despite this,
price erosion continued with the coated web price down 11% from the prior
year and 3% down on the previous quarter.
Quarter ended
Dec. 2001 Dec. 2000 %
US$ million US$ million change
Sales 239 395 (39)
Operating profit (10) 18 -
Operating margin (%) (4.2) 4.6 -
EBITDA 15 46 (67)
EBITDA Margin (%) 6.3 11.6 -
RONOA p.a. (%) (3.8) 5.9 -
South Africa
The business experienced good demand in the domestic market in the quarter,
partly as a result of import substitution. Sales volumes were 3% higher than
a year ago. In local currency, average prices achieved increased by 8% but
in US$ they showed a decline of 18%.
Lower sales in US$ terms were offset by the beneficial effect of Rand
depreciation on costs in US$ terms. While sales declined, operating income
was at the same level as last year and this resulted in a healthy
improvement in margins.
Quarter ended
Dec. 2001 Dec. 2000 % change % change
US$ million US$ million (US$) (Rands)
Sales 48 57 (16) 12
Operating profit 7 6 17 56
Operating margin (%) 14.6 10.5 - -
EBITDA 9 9 - 32
EBITDA Margin (%) 18.8 15.8 - -
RONOA p.a. (%) 31.1 22.3 - -
the forest products business
South African demand for pulp and paper products has been reasonably strong
during the quarter; however, export markets continued to be depressed.
Dissolving pulp markets remained soft and were characterised by high
customer inventories and low prices. There has been some firming in
international unbleached kraft pulp markets recently but generally, prices
remained steady, albeit at low levels.
The Forest Products business performed well despite these adverse market
conditions. Sales volumes dropped 10% on last year, but the operating margin
at 16% and return on net operating assets at 11.9% were both good under the
circumstances.
The division has benefited from the depreciation of the Rand against the
US$, which has driven down local costs in US$ terms. Local selling prices
now lag those of imported competitors. Maintenance shuts were taken during
the quarter at 3 facilities, at a total cost of US$6.1 million, the most
significant shut occurring at Ngodwana totaling US$5 million with an
additional loss of contribution of US$5 million. These costs were taken in
the period where previously they were spread over a 30-month period.
An agreement has been reached with the labour union with respect to
restructuring at the Usutu pulp mill. Implementation will follow in the next
quarter and we are confident that completion of this restructuring will
secure Usutu's position as a competitive and profitable mill.
The outlook for the Forest Products business is also better for the balance
of the year. Any improvement in world economic conditions would have an
immediate impact. In the short term, the benefit of the weaker Rand will
improve margins and should enable the division to maintain its US$ earnings.
Quarter ended
Dec. 2001 Dec. 2000 % change % change
US$ million US$ million (US$) (Rands)
Sales 135 197 (32) (9)
Operating profit 22 62 (64) (53)
Operating margin (%) 16.3 31.5 - -
EBITDA 40 87 (54) (39)
EBITDA Margin (%) 29.6 44.2 - -
RONOA p.a. (%) 11.9 26.4 - -
share repurchase
We found it prudent to limit the extent of the share repurchase programme
during this quarter due to the expectation of reduced cash flow in the
quarter and the need to accrue for the dividend payment in early January.
Only 87,000 shares were bought back at an average price of R112.69. We plan
to continue the programme in the balance of the year.
outlook
There are two reasons leading us to expect that order levels will improve as
the year progresses. First, there are signs that the US economy has bottomed
and will rebound. Second, there is evidence that end user consumption of
coated woodfree paper has declined much less over the past year than
shipments and that much of the decline in apparent demand stemmed from a
reduction of inventory in the supply chain. We expect that shipments will
rise modestly to match consumption and that there is the potential for a
significant rebound in demand if merchants and end-users start to bring
their inventories back up to normal levels.
We continue to be cautiously optimistic. Barring further deterioration of
the global economy, we expect quarterly earnings per share for the rest of
the year to improve and to be similar to the level of those seen in our
fourth quarter of 2001.
definitions
Debt/total capitalisation - current and non-current interest bearing
borrowings, and bank overdrafts (net of cash, cash equivalents and short-
term deposits), divided by shareholders' equity plus minority interest, non-
current liabilities, current interest-bearing borrowings and overdraft
EBITDA - earnings before interest, tax, depreciation, amortisation and
fellings (before non-trading profit/loss)
EBITDA Margin - EBITDA divided by sales
Fellings - the amount charged against the income statement representing the
standing cost of the plantations harvested
Net asset value - shareholder's equity plus net deferred tax
Net assets - total assets less current liabilities
NOPAT - net operating profit after current tax
ROE - return on average equity. Net profit divided by average shareholder's
equity
RONA - operating profit divided by average net assets
RONOA - operating profit divided by net operating assets, which are total
assets (excluding deferred taxation and cash) less current liabilities
(excluding interest-bearing borrowings and bank overdraft)
On behalf of the Board
E van As D G Wilson
Director Director
28 January 2002
sappi limited
(Reg. No. 1936/008963/06)
JSE Code: SAP
ISIN Code: ZAE 000006284
forward-looking statements
Certain statements in this report 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 events, trends, plans or objectives. Undue reliance should not be
placed on such statements because, by their nature, they are subject to
known and unknown risks and uncertainties and can be affected by other
factors, that could cause actual results and company plans and objectives to
differ materially from those expressed or implied in the forward-looking
statements (or from past results). Such risks, uncertainties and factors
include, but are not limited to the 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 and pricing), adverse
changes in the markets for the group's products, consequences of substantial
leverage, changing regulatory requirements, unanticipated production
disruptions, economic and political conditions in international markets, the
impact of investments, acquisitions and dispositions (including related
financing) and currency fluctuations. The company undertakes 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.
group income statement
Unaudited Unaudited
Quarter ended Quarter ended
December 2001 December 2000
US$ million US$ million % change
Sales 832 1,115 (25.4)
Cost of sales 689 882
Gross profit 143 233 (38.6)
Selling, general
& administrative
expenses 78 90
Operating profit 65 143 (54.5)
Non-trading loss 12 1
Net finance costs 25 24
Net paid* 32 32
Capitalised (7) (8)
Profit before tax 28 118
Taxation - current (9) 23
- deferred 15 13
Net profit 22 82
EBITDA 148 237 (37.7)
Basic earnings per share
(US cents) 10 34
Earnings before exceptional
items (Headline earnings)
per share (US cents) 14 34
Weighted average number of
shares in
issue (millions) 229.7 238.9
Diluted earnings
per share (US cents) 9 34
Diluted earnings before
exceptional items
(Headline earnings)
per share (US cents) 13 34
Weighted average number of
shares on fully
diluted basis
(millions) 233.2 245.0
Calculation of Earnings
before exceptional
items (Headline)
net of tax
Net profit 22 82
Mill closure costs 4 -
Debt restructuring costs 6 -
Decrease in provisions (1) (1)
Earnings before exceptional
items (Headline) 31 81
* Include foreign exchange losses of US$7 million (December 2000: US$1
million).
group balance sheet
Unaudited Audited
December 2001 September 2001
US$ million US$ million
ASSETS
Non-current assets 3,076 3,346
Property, plant and equipment 2,693 2,890
Plantations 247 324
Deferred taxation - 4
Other non-current assets 136 128
Current assets 1,010 1,160
Cash and cash equivalents 245 445
Trade and other receivables 263 202
Inventories 502 513
Total assets 4,086 4,506
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest 1,287 1,503
Minority interest 2 3
Non-current liabilities 1,502 1,640
Interest bearing borrowings 912 1,014
Deferred taxation 355 385
Other non-current liabilities 235 241
Current liabilities 1,295 1,360
Interest bearing borrowings
and bank overdraft 489 559
Other current liabilities 806 801
Total equity and liabilities 4,086 4,506
Number of shares in issue (millions) 229.7 229.5
Net debt (US$ million) 1,156 1,128
Net debt to total capitalisation (%) 35.2 30.4
Net asset value per share (US cents) 715 821
group cash flow statement
Unaudited Unaudited
Quarter ended Quarter ended
December December
2001 2000
US$ million US$ million
Cash generated by operations 130 231
Movement in working capital (100) (80)
Net finance costs (32) (32)
Taxation paid (1) (1)
Cash retained from
operating activities (3) 118
Cash effects of investing activities (63) (94)
(66) 24
Cash effects of financing activities (115) (109)
Net movement in cash and
cash equivalents (181) (85)
group statement of changes in shareholders' equity
Unaudited Unaudited
Quarter ended Quarter ended
December December
2001 2000
US$ million US$ million
Balance - beginning of year 1,503 1,618
Net profit 22 82
Foreign currency translation reserve (193) 17
Revaluation of derivative instruments 14 -
Dividends declared
- US$0.26 (2001:US$0.25) per share (60) (60)
Net transfers to share purchase trust
(share buybacks) 1 (8)
Balance - end of period 1,287 1,649
notes to the group results
1. Basis of preparation
The group results have been prepared in conformity with South African
Statements of Generally Accepted Accounting Practice. The same accounting
policies have been followed as in the annual financial statements for
September 2001.
The financial results for the quarter have been reviewed by the group's
auditors, Deloitte & Touche. Their report is available for inspection at the
company's registered offices.
Unaudited Unaudited
Quarter ended Quarter ended
December 2001 December 2000
US$ million US$ million
2. Operating profit
Included in operating profit are:
Depreciation 72 80
Fellings 7 8
Amortisation 4 6
83 94
3. Capital expenditure
Fixed assets 62 86
Plantations 5 7
67 93
Unaudited Audited
December 2001 September 2001
US$ million US$ million
4. Capital commitments
Contracted but not provided 48 78
Approved but not contracted 97 109
145 187
5. Contingent liabilities
Guarantees and suretyships 73 79
Other contingent liabilities 20 27
regional information
Unaudited Unaudited
Quarter ended Quarter ended
December 2001 December 2000
US$ million US$ million % change
Sales - Metric tons (000's)
Fine Paper - North America 218 328 (33.5)
Europe 518 563 (8.0)
Southern Africa 73 71 2.8
Total 809 962 (15.9)
Forest Products 560 621 (9.8)
Total 1,369 1,583 (13.5)
Sales
Fine Paper - North America 239 395 (39.5)
Europe 410 466 (12.0)
Southern Africa 48 57 (15.8)
Total 697 918 (24.1)
Forest Products 135 197 (31.5)
Total 832 1,115 (25.4)
Operating profit
Fine Paper - North America (10) 18 -
Europe 39 54 (27.8)
Southern Africa 7 6 16.7
Total 36 78 (53.8)
Forest Products 22 62 (64.5)
Corporate 7 3 133.3
Total 65 143 (54.5)
Earnings before interest, tax,
depreciation and
amortisation charges *
Fine Paper - North America 15 46 (67.4)
Europe 77 92 (16.3)
Southern Africa 9 9 -
Total 101 147 (31.3)
Forest Products 40 87 (54.0)
Corporate 7 3 133.3
Total 148 237 (37.6)
Net operating assets
Fine Paper - North America 1,085 1,238 (12.4)
Europe 1,299 1,428 (9.0)
Southern Africa 80 102 (21.6)
Total 2,464 2,768 (11.0)
Forest Products 657 940 (30.1)
Corporate (86) (80) -
Total 3,035 3,628 (16.3)
*before non-trading loss
summary rand convenience translation
Unaudited Unaudited
Quarter ended Quarter ended
December 2001 December 2000 % change
Sales (ZAR million) 8,364 8,425 (0.7)
Operating profit
(ZAR million) 653 1,081 (39.5)
Profit after taxation
(ZAR million) 221 620
EBITDA (ZAR million) 1,488 1,791 (16.9)
Operating profit
to sales (%) 7.8 12.8
EBITDA to sales (%) 17.8 21.3
Operating profit to average
net assets (%) 8.5 16.1
EPS before exceptional items
(Headline) (SA cents) 141 257 (45.3)
Basic EPS (SA cents) 101 257
EBITDA per share (SA cents) 648 750 (13.6)
Net debt (ZAR million) 13,768 9,594 43.5
Net debt to total
capitalisation (%) 35.2 32.8
Cash generated by
operations (ZAR million) 1,307 1,745
Cash retained from
operating activities
(ZAR million) (30) 892
Net movement in cash
and cash equivalents
(ZAR million) (1,820) (642)
Exchange rates:
Period end rate:
US $1 = ZAR 11.9100 7.5600
Average rate:
US $1 = ZAR 10.0530 7.5560
Period end rate:
US $1 = EUR 1.1321 1.0730
Average rate:
US $1 = EUR 1.1192 1.1486
This report is available on the Sappi website -
www.sappi.com
Other interested parties can obtain printed
copies of this report from:
South Africa:
Mercantile Registrars Limited, 8th Floor, 11 Diagonal Street, Johannesburg,
2001
PO Box 1053, Johannesburg, 2000. Tel: +27 (0) 11 370-5000
United Kingdom:
Capita IRG plc, Bourne House, 34 Beckenham Road, Beckenham, Kent, BR3 4TU,
DX 91750, Beckenham West.
Tel: +44 (0) 208 639-2000.
United States ADR Depositary:
Bank of New York, ADR Department, 101 Barclay Street, New York,
NY 10286. Tel: +1 212 815-5800.
