| Tue 7 May 2002, 0:00 | | Sappi - Results For The Quarter And Half-year |
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Sappi Limited
The word for fine paper
(Registration number 1936/008963/06)
JSE Code: SAP
ISIN Code: ZAE 000006284
Results for the quarter and half-year ended March 2002
Sappi is the world's leading producer of coated fine paper.
Sappi's achievements are driven by:
- Concentrated focus on our core business
- A successful pulp integration strategy
- A culture of innovation in products and technology
- The development of strong, globally competitive brands
- World-class assets
- An unrelenting focus on efficiency and cost management
Highlights
- Headline EPS rise 86% from previous quarter
- European business improving
- Weak markets in North America
- Potlatch acquisition to be completed in May
Summary
Quarter ended Half-year ended
March December March March March
2002 2001 2001 2002 2001
Sales (US$ million) 871 832 1,104 1,703 2,219
Operating profit (US$ million) 105 65 121 170 264
EBITDA (US$ million) 186 148 210 334 447
Operating profit to sales (%) 12.1 7.8 11.0 10.0 11.9
EBITDA to sales (%) 21.4 17.8 19.0 19.6 20.1
Operating profit to average
net assets (%) 15.1 8.8 13.6 11.5 14.7
EPS before exceptional
items (Headline) (US cents) 26 14 32 40 66
EPS (US cents) 25 10 32 35 66
Return on equity (%) 17.8 6.3 18.6 11.3 19.6
Net debt (US$ million) 1,194 1,156 1,277 1,194 1,277
Comment
We had a good quarter in our European and Southern African businesses. Our
North American business, however, continued to be affected by low demand and
weaker paper prices.
Industry shipments of coated fine paper for the quarter improved by 5% in
Europe compared to a year earlier but declined by 6% in the USA. Shipments
in the USA were, however, slightly higher than in the December quarter. Our
sales volumes were 9% higher than the previous quarter and similar to a year
earlier after excluding the Mobile mill, which may indicate an improving
trend.
Average prices realised in Europe were stable compared to the prior quarter
but 4% down on last year in Euros (8% down in US Dollar terms). Average
prices in North America were down 2% from the previous quarter and were 9%
lower than a year earlier.
In view of improved market conditions, we curtailed production by 150,000
tons of pulp and paper worldwide compared to 250,000 tons in the first
quarter.
Operating profit to average net assets (RONA) improved to 15% as a result of
improved performance in Europe and South Africa, significantly exceeding our
cost of capital.
Net profit before exceptional items was US$60 million, 19% below last year
but importantly nearly double the previous quarter and ahead of our
expectations a quarter ago. Earnings per share before exceptional items were
26 US cents, 86% up on the previous quarter and 19% below a year ago. Basic
Earnings per share were 25 US cents.
Net finance costs for the quarter were down 48% from the prior quarter at
US$13 million.
The effective tax rate for the quarter was 30.5% largely as a result of a
one-off tax charge in Europe. The average rate for the full year is expected
to be around 28.5%.
Cash flow and debt
Cash flow (EBITDA) for the quarter continued to be strong at US$186 million
- a substantial improvement on the previous quarter.
Good cash management ensured that our balance sheet remained strong. Net
debt increased only slightly to US$1,194 million from US$1,156 million in
December, despite the dividend payment of US$60 million and tax payments of
US$58 million. Net debt to total capitalisation rose to 37% from 35% in
December.
Capital expenditure on fixed assets and plantations was US$42 million, which
as planned was below depreciation, amortisation and fellings.
Operating review for the quarter
sappi fine paper
Quarter ended
March 2002 March 2001 %
US$ million US$ million change
Sales 734 909 (19)
Operating profit 62 62 -
Operating margin (%) 8 7 -
EBITDA 126 131 (4)
EBITDA Margin (%) 17 14 -
RONOA p.a. (%) 10 9 -
The order inflow in Europe improved in the quarter but in the USA demand
remained weak. Combined sales were 5% higher than the previous quarter
indicating a turn in the sector's fortunes, however they were still 11%
lower than last year after adjusting for the Mobile mill closure. To match
supply to the weak demand we continued to curtail production.
The outlook is better than three months ago as most commentators expect
advertising spending in our major markets to improve from the third calendar
quarter, which will lead to improved demand for coated fine paper.
Europe
The industry's order levels for coated fine paper for the quarter were 10%
higher than a year earlier but well below industry capacity. We had a good
quarter both in Europe and export markets with sales volumes increasing 8%
from a low base last quarter. We continued to curtail production. On average
prices realised in US Dollar terms were about 8% lower than a year earlier
but stable relative to the previous quarter. Price increases of about 3% -
5% have been announced throughout Europe for coated fine paper sheets and
are starting to have effect.
Low pulp prices and efficient operations resulted in reasonable margins,
which translated into a healthy 20% return on net operating assets.
Quarter ended
March 2002 March 2001 % change % change
US$ million US$ million (US$) (Euro)
Sales 433 470 (8) (4)
Operating profit 65 40 63 68
Operating margin (%) 15 9 - -
EBITDA 101 78 30 35
EBITDA Margin (%) 23 17 - -
RONOA p.a. (%) 20 11 - -
North America
The business was impacted by continued weakness in the printing and
publishing markets. Excluding Mobile, sales were down 19% and the business
continued to take curtailment to match supply and demand. Prices remained
relatively stable in commercial sheets; however, the web market has seen
continued price erosion.
End-user and merchant inventories are reported to be at low levels but
industry-wide mill inventories of coated fine paper are high. Shipments from
all North American mills, including our own, continue to be affected by
imports from Europe and Asia.
Quarter ended
March 2002 March 2001 %
US$ million US$ million change
Sales 251 384 (35)
Operating profit (10) 13 -
Operating margin (%) - 3 -
EBITDA 15 43 (65)
EBITDA Margin (%) 6 11 -
RONOA p.a. (%) - 4 -
Fine Paper SA
The business performed well with strong demand for its products locally and
in the export markets. As a result of the weakness of the Rand, imported
products are increasingly being replaced by locally produced paper.
Merchants' inventories remain relatively low and our order books have
lengthened. Prices were 11% higher than last year in Rand terms; however, as
a result of the strong Dollar they were lower in Dollar terms.
Return on net operating assets was a strong 34%.
Quarter ended
March 2002 March 2001 %
US$ million US$ million change
Sales 50 55 (9)
Operating profit 7 9 (22)
Operating margin (%) 14 16 -
EBITDA 10 10 -
EBITDA Margin (%) 20 18 -
RONOA p.a. (%) 34 36 -
Forest products
Local demand for all pulp and paper products was strong during the quarter,
with packaging paper and newsprint machines fully booked. Price increases
have been implemented locally, but prices remain below import parity leading
to strong demand for local producers. Demand for dissolving pulp remained
soft, but sales volumes have improved on the last quarter and prices are
stable at very low levels. We continue to curtail pulp output to match
demand.
The restructuring of Usutu mill has been completed successfully, and the
business is now viable at bottom-of-cycle prices. The mill returned
satisfactory operating profits for the quarter.
Operating margins and return on net assets were at pleasing levels but
operating profits in Dollar terms still lag behind the previous year because
of low pulp sales volumes and prices.
World pulp inventories are relatively low and pulp prices appear to have
lifted off the bottom, which has improved the pricing outlook for the Forest
Products business. We expect modest increases in volumes but will continue
to control our inventories by matching production to customer demand.
Quarter ended
March 2002 March 2001 % change % change
US$ million US$ million (US$) (Rand)
Sales 137 195 (30) 3
Operating profit 42 60 (30) 3
Operating margin (%) 31 31 - -
EBITDA 59 80 (26) 8
EBITDA Margin (%) 43 41 - -
RONOA p.a. (%) 25 27 - -
Acquisition update
On 18 March 2002, we announced our intention to acquire Potlatch
Corporation's coated fine paper business for US$480 million in cash. The
transaction is expected to close during May 2002.
We continue to expect the transaction to be accretive this year and to add
at least US 20 cents to earnings in a full year from 2003 as a result of the
US$120 million of synergies identified.
Outlook
There is considerable scope for improvement in our global order levels,
particularly in the USA. Consumer inventories for pulp and paper are
generally low and economic activity in the major economies is expected to
start improving in the next quarter. There are an increasing number of
reports in the USA of increased advertising spend in the third calendar
quarter, which if correct, should translate into improved demand for coated
fine paper. As a result pressure on prices is easing. Coated fine paper
prices are already increasing modestly in Europe. The recent slight upturn
in pulp prices is another indication of improved conditions.
We continue to manage inventories to target levels and have the capacity to
respond rapidly to increases in demand as they occur.
For the balance of this year we expect to see a slowly improving trend in
quarterly earnings per share provided there are no major shocks in world
economies.
On behalf of the Board
E van As D G Wilson
Director Director
6 May 2002
Sappi Limited
(Registration number 1936/008963/06)
JSE Code: SAP
ISIN Code: ZAE 000006284
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.
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), any delays, unexpected costs
or other problems experienced with integrating acquisitions and achieving
expected savings and synergies 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.
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)
Financial results
for the second quarter and half-year
ended March 2002
Group income statement
Unaudited Unaudited Unaudited Unaudited
Quarter Quarter Half-year Half-year
Ended ended ended ended
March March 2001 March March
2002 2002 2001
US$ US$ % US$ US$ %
million million change million million chang
Sales 871 1,104 (21.1) 1,703 2,219 (23.
Cost of sales 690 891 1,379 1,773
Gross profit 181 213 (15.0) 324 446 (27.
Selling, general and
administrative expenses 76 92 154 182
Operating profit 105 121 (13.2) 170 264 (35.
Non-trading loss 7 2 19 3
Net finance costs 13 16 38 40
Net paid* 23 26 55 58
Capitalised (10) (10) (17) (18)
Profit before tax 85 103 113 221
Taxation - current 25 20 16 43
- deferred 1 8 16 21
Net profit 59 75 (21.3) 81 157 (48.
EBITDA 186 210 (11.4) 334 447 (25.
Basic earnings per share
(US cents) 25 32 35 66
Earnings before
exceptional items
(Headline earnings)
per share (US cents) 26 32 40 66
Weighted average number
of shares in
issue (millions) 230.6 231.7 230.2 235.4
Diluted earnings per share
(US cents) 25 32 35 66
Diluted earnings before
exceptional items
(Headline earnings)
per share (US cents) 26 31 39 65
Weighted average number
of shares on fully
diluted basis (millions) 234.3 237.0 233.6 240.6
Calculation of earnings
before exceptional
items (Headline)
net of tax
Net profit 59 75 81 157
Loss on disposal of
business and
fixed assets 1 1 1 1
Mill closure costs 1 - 5 -
Debt restructuring costs - - 6 -
Decrease in provisions (1) (2) (2) (3)
Earnings before exceptional
items (Headline) 60 74 91 155
* Includes foreign exchange losses of US$1 million (March 2001: US$5 million
gain) for the quarter and US$8 million (March 2001: US$4 million gain) for
the half-year end.
Group balance sheet
Unaudited Audited
March 2002 September 2001
US$ million US$ million
ASSETS
Non-current assets 3,064 3,346
Property, plant and equipment 2,661 2,890
Plantations 268 324
Deferred taxation - 4
Other non-current assets 135 128
Current assets 866 1,160
Cash and cash equivalents 126 445
Trade and other receivables 244 202
Inventories 496 513
Total assets 3,930 4,506
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest 1,364 1,503
Minority interest 2 3
Non-current liabilities 1,420 1,640
Interest bearing borrowings 845 1,014
Deferred taxation 360 385
Other non-current liabilities 215 241
Current liabilities 1,144 1,360
Interest bearing borrowings
and bank overdraft 475 559
Other current liabilities 669 801
Total equity and liabilities 3,930 4,506
Number of shares in issue (millions) 230.6 229.5
Net debt (US$ million) 1,194 1,128
Net debt to total capitalisation (%) 36.6 30.4
Net asset value per share (US cents) 748 821
Group cash flow statement
Unaudited Unaudited Unaudited Unaudited
Quarter ended Quarter ended Half-year Half-year
March March ended ended
2002 2001 March 2002 March 2001
US$ million US$ million US$ million US$ million
Cash generated by 183 202 313 433
operations
Movement in working (31) (43) (131) (123)
capital
Net finance costs (23) (26) (55) (58)
Taxation paid (58) (8) (59) (9)
Dividends paid (60) (60) (60) (60)
Cash retained from
operating activities 11 65 8 183
Cash effects of (43) (43) (106) (137)
investing activities
(32) 22 (98) 46
Cash effects of (90) (39) (205) (148)
financing activities
Net movement in cash (122) (17) (303) (102)
and
cash equivalents
Group statement of changes
in shareholders' equity
Unaudited Unaudited
Half-year ended Half-year ended
March March
2002 2001
US$ million US$ million
Balance - beginning of year 1,503 1,618
Net profit 81 157
Foreign currency translation reserve (174) (64)
Revaluation of derivative instruments 11 -
Dividends declared
- US$0.26 (2001: US$0.25) per share (60) (60)
Net transfers to share purchase trust
(share buybacks) 3 (67)
Balance - end of period 1,364 1,584
Notes to the group results
1. Basis of preparation
The group results have been prepared in conformity with South African
Statements of Generally Accepted Accounting Practice. The same accounting
policies have been followed as in the annual financial statements for
September 2001.
The financial results for the quarter have been reviewed by the group's
auditors,
Deloitte & Touche. Their report is available for inspection at the company's
registered offices.
Unaudited Unaudited Unaudited Unaudited
Quarter ended Quarter ended Half-year Half-year
March March ended ended
2002 2001 March 2002 March 2001
US$ million US$ million US$ million US$ million
2. Operating profit
Included in operating
profit are:
Depreciation 72 76 144 156
Fellings 5 8 12 16
Amortisation 4 5 8 11
81 89 164 183
3. Capital expenditure
Fixed assets 99 137
Plantations 10 14
109 151
Unaudited Audited
March September
2002 2001
US$ million US$ million
4. Capital commitments
Contracted but not 38 78
provided
Approved but not 100 109
contracted
138 187
5. Contingent
liabilities
Guarantees and 73 79
suretyships
Other contingent 19 27
liabilities
Regional information
Unaudited Unaudited Unaudited Unaudited
Quarter Quarter Half-year Half-year
Ended ended ended ended
March 2002 March % March March %
2001 2002 2001
US$ US$ change US$ US$ Ch
million million million million
Sales - Metric
tons (000's)
Fine Paper - North 234 326 (28.2) 452 654 (3
America
Europe 559 557 0.4 1,077 1,120 (3
Southern 80 67 19.4 153 138 10
Africa
Total 873 950 (8.1) 1,682 1,912 (1
Forest Products 621 609 2.0 1,181 1,230 (4
Total 1,494 1,559 (4.2) 2,863 3,142 (8
Sales
Fine Paper - North 251 384 (34.6) 490 779 (3
America
Europe 433 470 (7.9) 843 936 (9
Southern 50 55 (9.1) 98 112 (1
Africa
Total 734 909 (19.3) 1,431 1,827 (2
Forest Products 137 195 (29.7) 272 392 (3
Total 871 1,104 (21.1) 1,703 2,219 (2
Operating profit
Fine Paper - North (10) 13 - (20) 31 -
America
Europe 65 40 62.5 104 94 10
Southern 7 9 (22.2) 14 15 (6
Africa
Total 62 62 - 98 140 (3
Forest Products 42 60 (30.0) 64 122 (4
Corporate 1 (1) - 8 2 30
Total 105 121 (13.2) 170 264 (3
Earnings before
interest, tax,
depreciation and
amortisation
charges *
Fine Paper - North 15 43 (65.1) 30 89 (6
America
Europe 101 78 29.5 178 170 4.
Southern 10 10 - 19 19 -
Africa
Total 126 131 (3.8) 227 278 (1
Forest Products 59 80 (26.3) 99 167 (4
Corporate 1 (1) - 8 2 30
Total 186 210 (11.4) 334 447 (2
Net operating
assets
Fine Paper - North 1,042 1,252 (16.8) 1,042 1,252 (1
America
Europe 1,312 1,362 (3.7) 1,312 1,362 (3
Southern 85 97 (12.4) 85 97 (1
Africa
Total 2,439 2,711 (10.0) 2,439 2,711 (1
Forest Products 691 860 (19.7) 691 860 (1
Corporate 5 (13) - 5 (13) -
Total 3,135 3,558 (11.9) 3,135 3,558 (1
* before non-trading loss
Summary Rand convenience translation
Unaudited Unaudited Unaudited Unaudited
Quarter Quarter % Half-year Half-year %
Ended ended Change ended ended Change
March 2002 March 2001 March March
2002 2001
Sales (ZAR million) 9,977 8,636 15.5 18,033 17,103 5.4
Operating profit (ZAR 1,203 947 27.1 1,800 2,035 (11
million)
Profit after taxation
(ZAR million) 676 587 15.2 858 1,210 (29
EBITDA (ZAR million) 2,131 1,643 29.7 3,537 3,445 2.7
Operating profit to sales 12.1 11.0 10.0 11.9
(%)
EBITDA to sales (%) 21.4 19.0 19.6 20.1
Operating profit to
average
net assets (%) 14.9 13.7 12.1 14.9
EPS before exceptional
items
(Headline) (SA cents) 298 250 19.2 424 508 (16
Basic EPS (SA cents) 286 253 13.2 371 506 (26
EBITDA per share (SA 924 709 30.3 1,536 1,464 4.9
cents)
Net debt (ZAR million) 13,504 10,226 32.
Net debt to total
capitalisation (%) 36.6 33.8
Cash generated by
operations
(ZAR million) 2,096 1,580 32.7 3,314 3,337 (0.
Cash retained from
operating
activities (ZAR 126 508 85 1,410
million)
Net movement in cash and
cash equivalents
(ZAR million) (1,397) (133) (3,208) (786)
Exchange rates:
Period end rate: US$1 = 11.3100 8.0075 11.3100 8.0075
ZAR
Average rate: US$1 = ZAR 11.4547 7.8224 10.5887 7.7076
Period end rate: US$1 = 1.1463 1.1348 1.1463 1.1348
EUR
Average rate: US$1 = EUR 1.1429 1.0968 1.1307 1.1295
This report is available on the Sappi website -
www.sappi.com
Other interested parties can obtain printed
copies of this report from:
South Africa:
Computershare Services 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) 208 639-2157.
United States ADR Depositary:
Bank of New York, ADR Department,
101 Barclay Street, New York, NY 10286
Tel: +1 212 815-5800.
