| Thu 28 Jul 2005, 9:10 | | Sappi Limited - Results For The Third Quarter |
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Sappi Limited - Results For The Third Quarter Ended June 2005
sappi limited
(Registration number 1936/008963/06
Issuer Code: SAVVI
JSE Code: SAP
ISIN Code: ZAE000006284
3rd quarter results and nine months ended June 2005
financial highlights
Headline loss 4 US cents per share; Net loss 77 US cents per share
Restructuring charge of US$180 million in USA
Price increases disappointing
Weak demand in USA
Major maintenance shut costs US$19 million in quarter
summary
Quarter ended Nine months ended
June March June June June
2005 2005 2004 2005 2004
Sales (US$ million) 1,144 1,230 1,188 3,630 3,493
Operating (loss) profit
(US$ million) ** (193) 47 60 (142) 116
EBITDA * (US$ million) ** (76) 172 175 225 462
Operating (loss) profit to
sales (%) (16.9) 3.8 5.1 (3.9) 3.3
EBITDA to sales (%) * (6.6) 14.0 14.7 6.2 13.2
Operating (loss) profit to
average net assets (%) * (17.7) 4.0 5.3 (4.3) 3.4
Headline EPS (US cents) * (4) 12 18 14 17
EPS (US cents) (77) 10 18 (80) 17
Return on average equity
(ROE) (%) * (34.6) 4.2 7.7 (11.9) 2.5
Net debt (US$ million) * 1,823 1,934 1,649 1,823 1,649
Net debt to total
capitalisation (%) * 39.7 37.8 33.1 39.7 33.1
* Refer to Supplemental Information for the definition of the term.
** Includes pre-tax charge of US$180 million in respect of Muskegon Mill
impairment.
comment
Demand for most of our products is driven at the macro level by GDP growth,
corporate profitability and advertising spend; indicators for all these factors
continue to be positive.Our margins, however,remain unsatisfactory and worsened
this quarter due to the combination of raw material cost pressure,difficulty in
achieving price increases in Europe and associated production downtime, and a
sharp drop in US apparent consumption which we think is linked to customer
inventory reduction.
In North America apparent consumption of coated fine paper for the quarter
dropped 11% compared to the unusual surge a year earlier. For our fiscal year
to date North American apparent consumption was at the same level as last year.
We believe that underlying demand in the market remains firm supported by
continuing growth in advertising pages. In Europe apparent consumption was up
2% on a year earlier. Competition remained strong and we achieved only part of
the price increases announced in Europe and North America.
We lost sales in Europe in the early part of the quarter as a result of our
price increases but order books filled later in the quarter. We curtailed
production from normal levels and operated at around 75% of paper capacity in
both Europe and North America during the quarter to match production to
customer requirements but this was insufficient to adjust our US inventories.
Our Southern African businesses had some relief from a slightly weaker Rand/US
Dollar exchange rate in the quarter but currencies remain volatile. The
businesses continued to drive costs down and achieved reasonable results in the
circumstances.
As part of our ongoing plan to achieve acceptable returns in our North American
business we have decided to restructure our Muskegon mill to eliminate high
cost capacity and position the mill as a high quality, low cost mill. We will
close PM4, which has a capacity of 105,000 tons of coated fine paper and close
and mothball the pulp mill. We will also restructure our North American regional
overhead to help offset increasing Sales, General and Administration (SG&A)
costs.The combined effect will be a reduction of approximately 14% of our North
American headcount.
Our 3rd quarter results reflect an asset impairment charge of US$180 million in
respect of all of the Muskegon assets and our 4th quarter results are expected
to reflect a restructuring charge of approximately US$31 million mainly in
respect of the manpower reduction.
The closure and restructuring is expected to commence within 60 days. In a full
year the Muskegon restructuring and repositioning and SG&A restructuring are
expected to result in a pre-tax benefit of approximately US$50 million compared
to the current year.
Sales for the quarter were US$1.144 billion, 3.7% lower than a year earlier
mainly as a result of lower sales volumes. There was no relief from cost
pressure in the quarter.The price impact of higher wood, energy and chemical
costs reduced our operating results by US$32 million compared to last year and
compared to last quarter the impact was US$6 million.
Maintenance shuts at our mills cost US$19 million in the quarter compared to
US$2 million in the prior quarter and US$10 million a year earlier. There are
only minor maintenance shuts scheduled in the final quarter.
We recorded an operating loss of US$193 million after the pre-tax charge of
US$180 million in respect of asset write-off at Muskegon Mill.
For a period during the quarter we could not, for technical reasons, apply
hedge accounting in respect of our interest rate swaps. This accounting
mismatch resulted in a gain of US$12 million reflected in the fair value of
financial instruments.
The headline loss for the quarter was 4 US cents and the net loss per share was
77 US cents.The primary difference between headline and net loss was the
Muskegon impairment.
cash flow and debt
Cash generated by operations was significantly lower at US$90 million during
the quarter compared to US$154 million a year earlier as a result of lower
operating profit. The net reduction of working capital of US$66 million in the
quarter, mainly a result of lower debtors, resulted in cash retained from
operating activities of US$125 million, similar to a year earlier and
significantly better than the US$53 million utilization last quarter. We expect
substantial reductions in inventory next quarter.
Net debt was US$1.823 billion at quarter end, a reduction of US$111 million
compared to March, of which a net amount of approximately US$54 million was the
result of currency translation offset by fair value adjustments. Our debt to
total capitalization ratio increased from 37.8% to 39.7% and remains well
within our target range.
operating review for the quarter
Sappi Fine Paper
Quarter Quarter Quarter
ended ended ended
June 2005 June 2004 % March 2005
US$ million US$ million change US$ million
Sales 905 957 (5.4) 982
Operating (loss)
profit * (213) 4 - 18
Operating (loss)
profit to sales (%) (23.5) 0.4 - 1.8
EBITDA * (128) 90 - 109
EBITDA to sales (%) (14.1) 9.4 - 11.1
RONOA pa (%) (26.3) 0.5 - 2.1
* Includes pre-tax charge of US$180 million in respect of Muskegon Mill asset
impairment.
Our decision to increase prices cost us sales during the quarter and had
limited success in our major markets, which remained highly competitive despite
rising costs. However, order flow returned to normal in Europe and South Africa
in the latter part of the quarter but remained sluggish in the USA.
Input costs in our fine paper business continued to grow faster than our
ability to eliminate costs or improve price realisation.
Europe and North America reported operating losses in the quarter.
Despite the apparent consumption decline in North America we believe that
underlying demand was firm and that advertising continues to show healthy
growth.
Europe
Quarter Quarter Quarter
ended ended % % ended
June 2005 June 2004 change change March 2005
US$ million US$ million (US$) (Euro) US$ million
Sales 498 512 (2.7) (7.5) 571
Operating
(loss)
profit (13) 18 - - 21
Operating
(loss)
profit
to sales
(%) (2.6) 3.5 - - 3.7
EBITDA 36 67 (46.3) (48.9) 71
EBITDA to
sales (%) 7.2 13.1 - - 12.4
RONOA pa
(%) (3.0) 4.2 - - 4.5
Largely as a consequence of implementing a price increase from April 2005 our
sales volumes were 63,000 tons lower than the prior quarter. We only succeeded
in raising average prices approximately 1% and net sales in Euro terms declined
approximately 43 million Euros (9.9%) compared to the prior quarter. Neither
the lockout in the Finnish pulp and paper industry which lasted seven weeks nor
the further escalation in energy and chemical input costs slowed the drive for
market share by our European competitors. We held our price increases until
late in the quarter and suffered a severe loss of volume. We have acted to
regain our lost positions and will recover our market share.
More positively, industry order books are the highest since 2001, our web order
books have improved and we are heading towards a period of seasonally higher
demand.
Input costs were at a similar level to the prior quarter but increased US$11
million compared to a year earlier as a result of price increases for chemicals
and energy.
North America
Quarter Quarter Quarter
ended ended ended
June 2005 * June 2004 % March 2005
US$ million US$ million change US$ million
Sales 338 363 (6.9) 339
Operating loss (200) (17) - (2)
Operating loss to
sales (%) (59.2) (4.7) - (0.6)
EBITDA (168) 16 - 34
EBITDA to sales (%) (49.7) 4.4 - 10.0
RONOA pa (%) (60.7) (5.0) - (0.6)
* Includes pre-tax charge of US$180 million in respect of Muskegon Mill asset
impairment.
Apparent consumption was unexpectedly weak in the quarter, which is anyway
typically seasonally weak; however it appears that underlying demand remained
firm - a view supported by the approximately 2% increase in advertising pages.
This would imply that merchant and end-use inventories declined significantly
during the quarter.
Although our sales volume declined 15% in the quarter compared to a year
earlier, more than the decline in apparent consumption, we have started
rebuilding our market shares which improved compared to the prior quarter.
Average prices realised by the region increased approximately 2% compared to
the prior quarter as a result of increased prices and product and customer mix.
The impact on input costs of price increases for wood, energy and chemicals was
approximately US$17 million for the quarter compared to a year earlier and US$3
million compared to the prior quarter.
As a result of weak apparent consumption we did not achieve our inventory
reduction targets despite production curtailment and will therefore take
significant production curtailment in the next quarter.
Our repositioning of Muskegon mill will allow us to compete more effectively in
the areas of the sheet market that are showing higher growth.
Fine Paper South Africa
Quarter Quarter Quarter
ended ended % % ended
June 2005 June 2004 change change March 2005
US$ million US$ million (US$) (Rands) US$ million
Sales 69 82 (15.9) (18.7) 72
Operating profit 0 3 - - (1)
Operating profit
to sales (%) 0 3.7 - - (1.4)
EBITDA 4 7 (42.9) (44.8) 4
EBITDA
to sales
(%) 5.8 8.5 - - 5.6
RONOA pa
(%) 0 7.0 - - (2.0)
Demand in our local markets was firm.
Operations performed well and with the slight weakening of the Rand relative to
the US Dollar we expect to increase our exports in the next quarter.
Sales volumes were similar to the prior quarter but down significantly compared
to a year earlier largely as a result of importers taking advantage of the
strong Rand and lower exports. Average prices realised improved slightly in
local currency compared to a year earlier and the prior quarter, resulting in a
small improvement of operating profit to break even.
Forest Products
Quarter Quarter Quarter
ended ended % % ended
June 2005 June 2004 change change March 2005
US$ million US$ million (US$) (Rands) US$ million
Sales 239 231 3.5 0 248
Operating profit 21 62 (66.1) (67.3) 30
Operating profit
to sales (%) 8.8 26.8 - - 12.1
EBITDA 52 90 (42.2) (44.2) 64
EBITDA
to sales
(%) 21.8 39.0 - - 25.8
RONOA pa
(%) 6.5 19.4 - - 8.5
Demand for our chemical cellulose (dissolving pulp), and local demand for
newsprint and kraft linerboard was strong in the quarter. Softwood pulp prices
declined US$45 per ton from the start to the end of the quarter while hardwood
pulp prices increased, almost eliminating the price gap between the two
grades.
Management`s cost initiatives continued to deliver savings and to partly
offset high input costs.
The generally strong level of the Rand relative to the US Dollar continued to
depress pricing.Although currencies remain volatile the recent slightly weaker
levels of the Rand are likely to give some relief. At quarter end the exchange
rate of R6.70 was 5% weaker than the quarter average.
Forest Products` operating income was US$21 million in the quarter compared to
US$62 million last year. Approximately US$27 million of the difference is a
result of lower plantation fair value adjustments net of silvicultural costs
and fellings.
Outlook
We expect demand in the final quarter to be seasonally stronger than our third
quarter, particularly in North America, but do not expect significant market
price increases during the quarter as a result of continuing strong industry
competition for market share.
Our actions to close high cost capacity at Muskegon mill, reduce overhead costs
and return our inventory to target levels will help to improve our North
American business in the medium term but will contribute to disappointing
results in the next quarter.
We will take further curtailment next quarter to reduce inventory in North
America. This will impact the operating result but will help reduce working
capital and generate cash flow. The inventory reduction is expected to result
in an under-recovery of manufacturing overheads of approximately US$30 million
next quarter.
We continue to focus on the reduction of costs throughout our businesses.
The Rand/US Dollar exchange rate remains strong, which continues to depress
margins in our Southern African businesses but it is currently 5% weaker than
this quarter`s average which will boost margins on exports and over time will
help boost margins on local sales.
For the group as a whole, we expect trading conditions to improve in the final
quarter, which typically is our strongest quarter. Our inventory reduction
action together with high input costs will, however, make it difficult to
achieve positive earnings at the operating income level, before taking into
account the additional Muskegon restructuring charges.
On behalf of the Board
J C A Leslie D G Wilson
Director Director 28 July 2005
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.
financial results
for the third quarter and nine months ended June 2005
group income statement
Reviewed Reviewed
Reviewed Reviewed Nine Nine
Quarter Quarter months months
ended ended ended ended
June June June June
2005 2004 2005 2004
US$ US$ US$ US$
million million % change million million % change
Sales 1,144 1,188 (3.7) 3,630 3,493 3.9
Cost of sales 1,071 1,037 3,268 3,062
Gross profit 73 151 (51.7) 362 431 (16.0)
Selling, general
and
administrative
expenses 85 91 275 315
(12) 60 87 116
Other expenses 181 - 229 -
Operating (loss)
profit (193) 60 - (142) 116 -
Net finance costs 8 30 60 84
Net paid 28 26 83 78
Capitalised - (1) (1) (2)
Net foreign
exchange gains (3) 1 (6) (5)
Change in fair
value of
financial
instruments (17) 4 (16) 13
(Loss) profit
before tax (201) 30 - (202) 32 -
Taxation - current 3 9 23 33
- deferred(30) (19) (45) (40)
Net (loss) profit (174) 40 - (180) 39 -
(Loss) earnings
per share
(US cents) (77) 18 (80) 17
Headline (loss)
earnings per
share (US cents) * (4) 18 14 17
Weighted average
number of
shares in issue
(millions) 225.7 226.3 225.8 226.3
Diluted (loss)
earnings per
share
(US cents) (77) 17 (79) 17
Diluted headline
(loss) earnings
per share (US
cents) * (4) 17 14 17
Weighted average
number of
shares on fully
diluted basis
(millions) 226.6 228.3 226.8 228.3
Calculation of
Headline
(loss) earnings *
Net (loss) profit (174) 40 (180) 39
Profit on
disposal of
business
and property,
plant & equipment 1 - 1 -
Write-off of
assets - - 4 -
Net impairment of
property,
plant & equipment 165 - 207 -
Headline (loss)
earnings (8) 40 32 39
* Headline (loss) earnings disclosure is required by the JSE Limited
(formerly JSE Securities Exchange South Africa).
group balance sheet
Reviewed Reviewed
June 2005 Sept 2004
US$ million US$ million
ASSETS
Non-current assets 4,246 4,564
Property, plant and equipment 3,298 3,670
Plantations 547 548
Deferred taxation 76 84
Other non-current assets 325 262
Current assets 1,341 1,580
Cash and cash equivalents 185 484
Trade and other receivables 297 331
Inventories 859 765
Total assets 5,587 6,144
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` interest 1,867 2,157
Non-current liabilities 2,302 2,463
Interest-bearing borrowings 1,583 1,693
Deferred taxation 410 453
Other non-current liabilities 309 317
Current liabilities 1,418 1,524
Interest-bearing borrowings 401 364
Bank overdraft 24 11
Taxation payable 102 137
Other current liabilities 891 1,012
Total equity and liabilities 5,587 6,144
Number of shares in issue at
balance sheet date (millions) 225.8 226.5
group cash flow statement
Reviewed Reviewed
Reviewed Reviewed Nine Nine
Quarter Quarter months months
ended ended ended ended
June June June June
2005 2004 2005 2004
US$ US$ US$ US$
million million million million
Operating (loss) profit (193) 60 (142) 116
Depreciation, fellings and other
amortisation 117 115 367 346
Other non-cash items
(including impairment charges) 166 (21) 170 (18)
Cash generated by operations 90 154 395 444
Movement in working capital 66 15 (200) (129)
Net finance costs (30) (29) (88) (81)
Taxation paid (1) (11) (40) (30)
Dividends paid - - (68) (66)
Cash retained from (utilised in)
operating activities 125 129 (1) 138
Cash effects of investing activities (64) (62) (270) (247)
61 67 (271) (109)
Cash effects of financing activities (119) (13) (39) (112)
Net movement in cash and cash
equivalents (58) 54 (310) (221)
group statement of changes in shareholders` equity
Reviewed Reviewed
Nine months Nine months
ended ended
June 2005 June 2004
US$ million US$ million
Balance - beginning of year as reported 2,119 1,945
Change in accounting policy - refer to note 1 38 38
Balance - beginning of year restated 2,157 1,983
Net (loss) profit (180) 39
Foreign currency translation reserve (39) 173
Revaluation of derivative instruments 12 3
Dividends paid - US$ 0.30 (2004: US$ 0.29) per
share (68) (66)
Share buybacks net of transfers to participants
of the
share purchase trust (15) (10)
Balance - end of period 1,867 2,122
notes to the group results
1. Basis of preparation
The annual financial statements are prepared in conformity with South
African Statements of Generally Accepted Accounting Practice (SA GAAP).
These quarterly results have been prepared in compliance with AC 127
(Interim financial reporting) and are based on accounting policies which
are consistent with those used in the annual financial statements.
The same accounting policies have been followed as in the annual financial
statements for September 2004, except for the new accounting standard AC
501 - Accounting for `Secondary Tax on Companies (STC)` - which became
effective from the beginning of the current financial year. This has
resulted in the recognition of a deferred tax asset for unused tax credits
to the extent that they will be utilised in the future.
The adoption of the new accounting policy resulted in an increase in
shareholders` equity of US$38 million at September 2004 (September 2003:
increase of US$38 million). The effect on net profit for the year to date
is a decrease of US$8 million (June 2005 quarter: nil; March 2005 quarter:
nil; December 2004 quarter: decrease of US$8 million; March 2004 and June
2004 quarters: nil). Where appropriate, comparative figures have been
restated.
The preliminary results for the quarter have been reviewed in terms of
South African Auditing Standards by the group`s auditors, Deloitte &
Touche. Their unqualified review report is available for inspection at the
company`s registered offices.
2. Comparative figures
Certain comparative amounts have been reclassified between deferred tax and
current tax.This had no effect on reported net income or shareholders`
equity.
Reviewed Reviewed
Reviewed Reviewed Nine Nine
Quarter Quarter months months
ended ended ended ended
June June June June
2005 2004 2005 2004
US$ US$ US$ US$
million million million million
3. Operating profit
Included in operating profit are the
following non-cash items:
Depreciation and amortisation
Depreciation of property, plant and
equipment 101 102 317 305
Other amortisation - 1 1 2
101 103 318 307
Impairment of property,
plant & equipment * 181 - 223 -
Impairment of other assets * 3 - 3 -
Impairment reversal of property,
plant & equipment (4) - (4) -
281 103 540 307
Fair value adjustment (gains) on
plantations (included in cost of sales)
Changes in volume
Fellings 16 12 49 39
Growth (16) (16) (49) (44)
- (4) - (5)
Changes in fair value (8) (29) (25) (53)
(8) (33) (25) (58)
The above fair value adjustment gains
have been offset by silviculture
costs 12 10 34 28
4. Capital expenditure
Property, plant and equipment 83 57 221 224
* Impairment of assets for the nine months ended include US$180 million for
Muskegon Mill and US$43 million for Usutu Mill.
Reviewed Reviewed
June 2005 Sept 2004
US$ million US$ million
5. Capital commitments
Contracted but not provided 99 76
Approved but not contracted 173 198
272 274
6. Contingent liabilities
Guarantees and suretyships 80 68
Other contingent liabilities 11 15
supplemental information
definitions
Average - averages are calculated as the sum of the opening and closing
balances for the relevant period divided by two
* EBITDA - earnings before interest (net finance costs), tax, depreciation
and amortisation
* EBITDA to sales - EBITDA divided by sales
Fellings - the amount charged against the income statement representing the
standing value of the plantations harvested
Headline earnings - as defined in circular 7/2002 issued by the South African
Institute of Chartered Accountants, separates from earnings all items of a
capital nature. It is not necessarily a measure of sustainable earnings. It is
a listing requirement of the JSE Limited (formerly JSE Securities Exchange South
Africa) to disclose headline earnings per share
NBSK - Northern Bleached Softwood Kraft pulp. One of the main varieties of
market pulp, mainly produced from spruce trees in Scandinavia, Canada and north
eastern USA. The NBSK is a benchmark widely used in pulp and paper industry for
comparative purposes
* Net assets - total assets less current liabilities
* Net asset value - shareholders` equity plus net deferred tax
* Net asset value per share - net asset value divided by the number of shares
in issue at balance sheet date
* Net debt - current and non-current interest-bearing borrowings, and bank
overdrafts (net of cash, cash equivalents and short-term deposits)
* Net debt to total capitalisation - Net debt divided by shareholders` equity
plus minority interest, non-current liabilities, current interest-bearing
borrowings and overdraft
* ROE - return on average equity. Net profit divided by average shareholders`
equity
* RONA - operating profit divided by average net assets
* RONOA - operating profit divided by average net operating assets. Net
operating assets are total assets (excluding deferred taxation and cash) less
current liabilities (excluding interest- bearing borrowings and bank
overdraft)
* The above financial measures, other than headline earnings per share, 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
additional information
Reviewed Reviewed
Reviewed Reviewed Nine Nine
Quarter Quarter months months
ended ended ended ended
June June June June
2005 2004 2005 2004
US$ US$ US$ US$
million million million million
Net (loss) profit to EBITDA (1)
reconciliation
Net (loss) profit (174) 40 (180) 39
Net finance costs 8 30 60 84
Taxation - current 3 9 23 33
- deferred (30) (19) (45) (40)
Depreciation 101 102 317 305
Amortisation (including fellings) 16 13 50 41
EBITDA (1)(3) (76) 175 225 462
Reviewed Reviewed
June 2005 Sept 2004
US$ million US$ million
Net debt (US$ million) (2) 1,823 1,584
Net debt to total capitalisation (%) (2) 39.7 31.7
Net asset value per share (US$) (2) 9.75 11.15
(1) In connection with the U.S. Securities Exchange Commission (`SEC`) rules
relating to `Conditions for Use of Non-GAAP Financial Measures`, we have
reconciled EBITDA to net profit rather than operating profit. As a result
our definition retains other income/expenses as part of EBITDA.
We use EBITDA as an internal measure of performance and believe it is a
useful and commonly used measure of financial performance in addition to
operating profit and other profitability measures under SA GAAP. EBITDA
is not a measure of performance under SA GAAP. EBITDA should not be
construed as an alternative to operating profit as an indicator of the
company`s operations in accordance with SA GAAP. EBITDA is also presented
to assist our shareholders and the investment community in interpreting
our financial results. This financial measure is regularly used as a
means of comparison of companies in our industry by removing certain
differences between companies such as depreciation methods, financing
structures and taxation regimes. Different companies and analysts may
calculate EBITDA differently, so making comparisons among companies on
this basis should be done very carefully.
(2) Refer to Supplemental Information for the definition of the term.
(3) EBITDA for the nine months ended June 2005 reduced by US$222 million
(December 2004 quarter: US$41 million; March 2005 quarter: US$1 million)
in respect of asset impairments.
supplemental information
regional information
Nine Nine
Quarter Quarter months months
ended ended ended ended
June June #June June
2005 2004 2005 2004
Metric Metric Metric Metric
tons tons tons tons
(000`s) (000`s) % change (000`s) (000`s) % change
Sales
Fine Paper-
North America 324 381 (15.0) 1,005 1,080 (6.9)
Europe 538 580 (7.2) 1,754 1,779 (1.4)
Southern Africa 68 85 (20.0) 215 231 (6.9)
Total 930 1,046 (11.1) 2,974 3,090 (3.8)
Forest Products-
Pulp and paper
operations 374 369 1.4 1,154 1,126 2.5
Forestry
operations 455 416 9.4 1,205 1,074 12.2
Total 1,759 1,831 (3.9) 5,333 5,290 0.8
Reviewed Reviewed
Reviewed Reviewed Nine Nine
Quarter Quarter months months
ended ended ended ended
June June #June June
2005 2004 2005 2004
US$ US$ % change US$ US$ % change
million million million million
Sales
Fine Paper-
North America 338 363 (6.9) 1,034 1,018 1.6
Europe 498 512 (2.7) 1,643 1,586 3.6
Southern
Africa 69 82 (15.9) 224 225 (0.4)
Total 905 957 (5.4) 2,901 2,829 2.5
Forest
Products-
Pulp and
paper
operations 217 212 2.4 669 616 8.6
Forestry
operations 22 19 15.8 60 48 25.0
Total 1,144 1,188 (3.7) 3,630 3,493 3.9
Operating
(loss)profit
Fine Paper-
North America (200) (17) (1,076.5) (217) (91) (138.5)
Europe (13) 18 - 36 60 (40.0)
Southern
Africa - 3 (100.0) 2 11 (81.8)
Total (213) 4 - (179) (20) (795.0)
Forest
Products * 21 62 (66.1) 40 145 (72.4)
Corporate (1) (6) 83.3 (3) (9) 66.7
Total * (193) 60 - (142) 116 -
# Sales and cost of sales were adjusted by US$5 million and US$3 million for
the March 2005 and December 2004 quarters respectively in respect of a
misclassification.
regional information (continued)
Reviewed Reviewed
Reviewed Reviewed Nine Nine
Quarter Quarter months months
ended ended ended ended
June June June June
2005 2004 2005 2004
US$ US$ % change US$ US$ % change
million million million million
Earnings before
interest,tax,
depreciation
and
amortisation
charges
Fine Paper-
North America (168) 16 - (113) 11 -
Europe 36 67 (46.3) 185 207 (10.6)
Southern Africa 4 7 (42.9) 14 21 (33.3)
Total (128) 90 - 86 239 (64.0)
Forest Products * 52 90 (42.2) 141 231 (39.0)
Corporate - (5) 100.0 (2) (8) 75.0
Total * (76) 175 - 225 462 (51.3)
Net operating assets
Fine Paper-
North America 1,218 1,343 (9.3) 1,218 1,343 (9.3)
Europe 1,666 1,708 (2.5) 1,666 1,708 (2.5)
Southern Africa 168 178 (5.6) 168 178 (5.6)
Total 3,052 3,229 (5.5) 3,052 3,229 (5.5)
Forest Products 1,228 1,319 (6.9) 1,228 1,319 (6.9)
Corporate
and other ** 53 (21) - 53 (21) -
Total 4,333 4,527 (4.3) 4,333 4,527 (4.3)
* Operating profit and EBITDA for the nine months ended June 2005 reduced by
US$222 million(December 2004 quarter: US$41 million; March 2005 quarter: US$1
million) in respect of asset impairments and asset impairment reversals.
** Includes investment in joint venture in China. This investment was included
in the net operating assets of Sappi Fine Paper Europe at December 2004.
supplemental information
summary rand convenience translation
Reviewed Reviewed
Reviewed Reviewed Nine Nine
Quarter Quarter months months
ended ended ended ended
June June June June
2005 2004 % change 2005 2004 % change
Sales (ZAR million) 7,292 7,835 (6.9) 22,409 23,634 (5.2)
Operating (loss)
profit
(ZAR million) ** (1,230) 396 - (877) 785 -
Net (loss) profit
(ZAR million) (1,109) 264 - (1,111) 264 -
EBITDA *
(ZAR million) ** (484) 1,154 - 1,389 3.126 (55.6)
Operating (loss)
profit to sales (%) (16.9) 5.1 (3.9) 3.3
EBITDA * to
sales (%) (6.6) 14.7 6.2 13.2
Operating (loss)
profit to average
net assets (%) (17.5) 5.4 (4.1) 3.4
EPS (SA cents) (491) 119 - (494) 115 -
Headline EPS
(SA cents) * (25) 119 - 86 115 (25.2)
Net debt
(ZAR million) * 12,222 10,426 17.2
Net debt to total
capitalisation (%) * 39.7 33.1
Cash generated
by operations
(ZAR million) 574 1,016 (43.5) 2,438 3,004 (18.8)
Cash from
operating activities
(ZAR million) 797 851 (6.3) (6) 934 -
movement in
cash and cash
equivalents
(ZAR million) (370) 356 - (1,914) (1,495) (28.0)
* Refer to Supplemental Information for the definition of the term.
** Operating profit and EBITDA for the nine months ended June 2005 reduced by
ZAR1,370 million(Quarter ended December 2004: ZAR247 million; March 2005 ZAR10
million) in respect of asset impairments.
exchange rates
June March Dec Sept June
2005 2005 2004 2004 2004
Exchange rates:
Period end rate:
US $1 = ZAR 6.7041 6.2059 5.6480 6.4290 6.3224
Average rate for
the Quarter: US $1 = ZAR 6.3738 5.9577 6.0649 6.3830 6.5953
Average rate for
the YTD: US $1 = ZAR 6.1732 6.0632 6.0649 6.6824 6.7661
Period end rate:
EUR 1 = US$ 1.2097 1.2982 1.3456 1.2309 1.2138
Average rate for
the Quarter: EUR 1 = US$ 1.2678 1.3110 1.2848 1.2233 1.2051
Average rate for
the YTD: EUR 1 = US$ 1.2811 1.2911 1.2848 1.2152 1.2118
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.
this report is available on the Sappi website
www.sappi.com
Other interested parties can obtain printed copies of this report from:
South Africa: United States United Kingdom:
ADR Depository:
Computershare Investor Capita Registrars
Services 2004 Limited The Bank of New York The Registry
70 Marshall Street Investor Relations 34 Beckenham Road
Johannesburg 2001 PO Box 11258 Beckenham, Kent
PO Box 61051 Church Street Station BR3 4TU, DX 91750
Marshalltown 2107 New York, NY 10286-1258 Beckenham West
Tel +27 (0)11 370 5000 Tel +1 610 382 7836 Tel +44 (0)208 639 2157
Date: 28/07/2005 09:00:49 AM
Produced by the JSE SENS Department
