| Thu 10 Nov 2005, 9:00 | | Results for the year ended September 2005 |
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Sappi Limited - Results for the quarter and year ended September 2005
Sappi Limited
(Registration number 1936/008963/06
Issuer Code: SAVVI
JSE Code: SAP
ISIN Code: ZAE000006284
Results for the quarter and year ended September 2005
Headline loss 7 US cents per share for the quarter; net loss 14 US cents
per share
Headline EPS for the year 7 US cents; net loss 94 US cents
Prices flat despite input cost escalation
Significant production downtime; inventories reduced by 120,000 tons
Improved cash generation; debt reduced
Market share recovery in Europe and North America
Dividend of 30 US cents
Summary
Quarter ended
Sept June Sept
2005 2005 2004
Sales (US$ million) 1,388 1,144 1,235
Operating profit (loss) (US$ million)** 5 (193) 72
EBITDA *(US$ million) ** 128 (76) 191
Operating profit (loss) to sales (%) 0.4 (16.9) 5.8
EBITDA to sales (%) * 9.2 (6.6) 15.5
Operating profit (loss) to
average net assets (%) * 0.5 (17.7) 6.3
Headline EPS (US cents) * (7) (4) 26
EPS (US cents) (14) (77) 25
Return on average equity (ROE) (%) * (7.0) (34.6) 10.5
Net debt (US$ million) * 1,662 1,823 1,584
Net debt to total capitalisation (%) * 35.7 39.7 31.7
Year ended
Sept Sept
2005 2004
Sales (US$ million) 5,108 4,728
Operating profit (loss) (US$ million)** (137) 188
EBITDA *(US$ million) ** 353 653
Operating profit (loss) to sales (%) (2.7) 4.0
EBITDA to sales (%) * 7.0 13.8
Operating profit (loss) to
average net assets (%) * (3.1) 4.1
Headline EPS (US cents) * 7 43
EPS (US cents) (94) 42
Return on average equity (ROE) (%) * (10.5) 4.6
Net debt (US$ million) * 1,662 1,584
Net debt to total capitalisation (%) * 35.7 31.7
* Refer to Supplemental Information for the definition of the term.
** Includes pre-tax charge of US$183 million (September 2005 quarter: US$3
million) in respect of Muskegon mill impairment and US$50 million(September
2005 quarter: US$7 million) for Usutu mill.
Note: 2005 fiscal year included 53 weeks (2004 fiscal year: 52 weeks),
September 2005 quarter included 14 weeks (June 2005 and September 2004
quarters: 13 weeks).
Comment
Operating conditions continued to present major challenges this quarter. Input
costs, especially energy and chemicals, escalated still further due in part to
the hurricanes in the US. There were no paper price increases to offset these
higher costs but there were some encouraging signs in terms of demand
improvement. As highlighted in last quarter"s outlook, our results were
negatively impacted by a charge related to the restructuring of the Muskegon
mill and the fact that we took a considerable amount of commercial downtime in
order to reduce our inventories.Notwithstanding these issues, our businesses
generally performed better in terms of cost containment and market share.
After several below-trend quarters, European apparent consumption (purchases)
of coated fine paper grew 7.2% in comparison to the same quarter last year.
Prices were, however, flat.
Indicators of actual end-use in North America suggest that underlying demand of
coated fine paper remained firm in comparison to the same quarter last year.
Industry apparent consumption (purchases), however, fell 5.1%. The discrepancy
is likely to be due to customers reducing their inventory levels. Prices were
stable.
Pulp price developments were mixed. Hardwood pulp prices in US$ terms were
flat, while softwood pulp prices fell 5.5%. After the end of the quarter, pulp
prices started to recover due to increased demand.
Group sales were US$1.388 billion, an improvement of US$244 million on the
prior quarter and US$153 million on the same quarter last year. This increase
in sales does reflect a recovery of our market shares after the sharp losses in
the prior quarter; however, another significant reason for the increase is the
fact that this quarter included an additional accounting week. The additional
week had a minimal impact at the earnings level, however, based on average
weekly sales, it resulted in a sales volume increase of 153,000 tons and US$99
million increase in sales value.
Raw material costs continued to escalate this quarter. The price impact of
higher wood, energy and chemical costs reduced our operating earnings by US$9
million compared to last quarter and US$38 million compared to the same quarter
last year. For the full year, this impact was US$136 million. We have been
extremely vigilant in controlling costs and offsetting increases where possible.
On a constant currency basis, group fixed costs for the year increased only 1%
in comparison to the prior year. The many initiatives that we put in place to
offset cost increases delivered US$96 million in savings for the fiscal year.
SG&A costs increased US$19 million in comparison to the same quarter last year.
US$8 million of the increase relates to the additional accounting week and a
further US$6 million is due to currency and pension and IT costs. For the full
year, SG&A costs including the impact of the additional accounting week and an
increase of US$11 million due to currency were US$11 million higher than the
prior year.
The overall operating profit of US$5 million was negatively impacted by other
expenses including the Muskegon restructuring charge of US$21 million, US$10
million of impairment charges related to the Usutu and Muskegon mills, and a
gain of US$6 million from the release of a European restructuring provision.
Also included in the operating result was a gain of US$27 million from the fair
value adjustment on plantations net after fellings. We estimate that overhead
under-recovery from US commercial downtime was approximately US$30 million.
Finance costs for the quarter were US$27 million, US$1 million higher than a
year ago.
Despite the loss this quarter, a tax charge of US$11 million was recorded
mainly as a result of losses in North America not receiving tax relief.
The headline loss for the quarter was 7 US cents per share and the net loss was
14 US cents per share. Headline earnings for the full year were 7 US cents per
share compared to headline earnings of 43 US cents per share last year. The net
loss for the full year was 94 US cents per share compared to a net profit of 42
US cents per share last year.
Cash flow and net debt
Our focus on reducing inventories and lowering working capital this quarter
resulted in a significant improvement in cash flow. Cash generated by
operations for the quarter was US$159 million, US$69 million higher than the
prior quarter and slightly higher than the same quarter last year.
Working capital decreased by US$140 million during the quarter mainly due to
inventory reduction from commercial downtime.
Capital expenditure of US$124 million included US$31 million of non-cash
transfers from stores inventory to property, plant and equipment. The ratio of
capital expenditure to depreciation for the full year, at 82%, is in line with
our stated target.
Net debt decreased by US$161 million during the quarter to US$1.662 billion.
Our net debt to total capitalization level, currently 35.7%, remained
comfortably within our target range of 25%-50% throughout the fiscal year.
Operating Review for the Quarter
Sappi Fine Paper
Quarter ended Quarter ended Quarter ended
Sept 2005 Sept 2004 % June 2005
US$ million US$ million change US$ million
Sales 1,119 982 14.0 905
Operating (loss)
profit (27) 26 - (213)
Operating (loss)
profit to sales (%) (2.4) 2.6 (23.5)
EBITDA 60 112 (46.4) (128)
EBITDA to sales (%) 5.4 11.4 (14.1)
RONOA pa (%) (3.6) 3.2 (26.3)
Industry shipments in our major markets were better than the levels seen in the
last two quarters, and order inflow picked up in line or ahead of normal
seasonal movements.However, the operating result for Sappi Fine Paper was
heavily impacted by downtime related to inventory reduction in North America as
well as the Muskegon mill restructuring charge. The performance of our South
African fine paper business also deteriorated as a result of a lower than
expected proportion of domestic sales and commercial downtime to reduce
inventories.
Europe
Quarter ended Quarter ended
Sept 2005 Sept 2004 % change % change
US$ million US$ million (US$) (Euro)
Sales 596 541 10.2 11.0
Operating profit (loss) 40 23 73.9 75.3
Operating profit (loss)
to sales (%) 6.7 4.3
EBITDA 91 70 30.0 31.0
EBITDA to sales (%) 15.3 12.9
RONOA pa (%) 9.8 5.4
Quarter ended
June 2005
US$ million
Sales 498
Operating profit (loss) (13)
Operating profit (loss)
to sales (%) (2.6)
EBITDA 36
EBITDA to sales (%) 7.2
RONOA pa (%) (3.0)
The market share of our European business recovered this quarter after
suffering a severe decline in volumes in the prior quarter in relation to our
attempt to increase prices.Sales volumes rose 135,000 tons on the prior quarter
and 64,000 tons on the same quarter last year. Based on average weekly sales,
the additional accounting week in the quarter accounted for 48,000 tons of the
increase.
Demand trends were positive this quarter, with Europe"s apparent consumption
growing 7.2% in comparison to last year. Exports, however, fell sharply and
overall shipments therefore increased only 1.8% on last year. Producer
inventories declined substantially to 24 days at the end of September versus
the peak of 31 days in July.
Average prices realised by our European business were unchanged in local
currency terms in comparison to the prior quarter although prices slipped
towards the end of the quarter.
Overall costs per ton were much improved over the prior quarter due to improved
sales volumes. Raw material input costs, however, continued to increase; the
price impact of chemicals and energy increases was US$14 million in comparison
to the same quarter last year.
North America
Quarter ended Quarter ended Quarter ended
Sept 2005 Sept 2004 % June 2005
US$ million US$ million change US$ million
Sales 424 355 19.4 338
Operating loss (53) (1) - (200)
Operating loss
to sales (%) (12.5) (0.3) (59.2)
EBITDA (20) 35 - (168)
EBITDA to sales (%) (4.7) 9.9 (49.7)
RONOA pa (%) (18.1) (0.3) (60.7)
Although much better than the prior quarter, US industry apparent consumption
was still weak, declining 5.1% in comparison to the same quarter last year. The
year on year change in advertising pages, however, was only marginally negative
for the quarter and printer consumption of coated fine paper increased 3.4%,
suggesting that the poor apparent consumption data does not reflect underlying
demand. A rapid decline in imports meant that shipments by domestic
manufacturers actually increased 1.5% in comparison to the same quarter last
year, which is a sharp turnaround from the 9.5% decline seen in the prior
quarter.
Sappi Fine Paper North America"s sales volumes increased 104,000 tons in
comparison to the prior quarter and 64,000 tons in comparison to the same
quarter last year. 31,000 tons of this increase was due to the additional
accounting week (based on average weekly sales).
Price realisations per ton fell 5.0% in comparison to the prior quarter due to
a significant mix effect. Volumes of lower-priced web grades typically increase
sharply in the fourth fiscal quarter in response to the US catalogue season.
The price impact of raw material cost escalation was US$6 million in comparison
to the prior quarter and US$19 million in comparison to the same quarter last
year. In addition to continued cost increases and overhead under-recovery from
the large amount of commercial downtime taken in the quarter, the operating
loss of US$53 million included a restructuring charge of US$21 million.
The process of turning around the earnings of our North American business is
gaining traction. Inventories were successfully reduced through the combination
of increased sales and commercial downtime this quarter by 97,000 tons in
comparison to the prior quarter. Despite the increase in fuel prices, domestic
delivery costs were almost 30% lower by the end of the fiscal year than the
peak seen in the first quarter. On-time delivery performance has increased
sharply and complaint levels have reduced significantly.
These improvements have resulted in a recovery of our market share.
The restructuring plan at the Muskegon mill and the Boston head office is
progressing well. Paper Machine #4 and the pulp mill were both closed in
August. Approximately 60% of the targeted headcount reduction has already been
completed, with further significant reductions to come in the first fiscal
quarter of 2006. The headcount reduction target remains the same as that
announced last quarter; however, the restructuring charge taken this quarter
was lower than anticipated due to reduced severance costs from attrition and a
shorter than expected service profile of departing employees.
South Africa
Quarter ended Quarter ended
Sept 2005 Sept 2004 % change % change
US$ million US$ million (US$) (Rands)
Sales 99 86 15.1 17.7
Operating (loss)
profit (14) 4 - -
Operating (loss)
profit to sales (%) (14.1) 4.7
EBITDA (11) 7 - -
EBITDA to sales (%) (11.1) 8.1
RONOA pa (%) (34.6) 9.7
Quarter ended
June 2005
US$ million
Sales 69
Operating (loss)
profit 0
Operating (loss)
profit to sales (%) 0
EBITDA 4
EBITDA to sales (%) 5.8
RONOA pa (%) 0
In relation to the prior quarter, the performance of the South African fine
paper business deteriorated as a result of lower than expected proportion of
domestic sales. Earnings were further depressed by the taking of commercial
downtime to manage inventories. Adjusting for the additional accounting week,
sales volumes increased 8.9% in comparison to the same quarter last year.
Despite a slight weakening of the Rand against the US Dollar, continued import
pressure affected domestic prices. Overall price levels fell 2% in local
currency terms in comparison to the prior quarter.
Margins were further squeezed by raw material and energy cost increases, higher
usage of purchased pulp and a charge for spares obsolescence.
Sappi Forest Products
Quarter ended Quarter ended
Sept 2005 Sept 2004 % change % change
US$ million US$ million (US$) (Rands)
Sales 269 253 6.3 8.8
Operating profit 33 46 (28.3) (26.6)
Operating profit
to sales (%) 12.3 18.2
EBITDA 69 80 (13.8) (11.8)
EBITDA to sales (%) 25.7 31.6
RONOA pa (%) 10.5 14.1
Quarter ended
June 2005
US$ million
Sales 239
Operating profit 21
Operating profit
to sales (%) 8.8
EBITDA 52
EBITDA to sales (%) 21.8
RONOA pa (%) 6.5
Consensus estimates suggest that South African GDP growth was buoyant this
quarter at approximately 4.5%. This had a positive effect on domestic demand
for packaging grades which was further bolstered by strong fruit exports.
Newsprint demand is currently strong, driven by higher publishing and
advertising activity. The structural timber market is also very strong, with
sawn timber prices increasing sharply.
Demand for chemical cellulose was again strong and is likely to be supported by
the announcement of the closure in 2006 of 125,000 tons of capacity by a
competitor. The environmental impact assessment study being conducted as a
precursor to a decision on a major expansion of chemical cellulose capacity at
the Saiccor mill has progressed well but is not yet complete.
Although the Rand weakened somewhat this quarter, it remains at a high level
in relation to the US Dollar and this continues to negatively affect
our margins on exports and in the domestic market as a result of increased
import competition.
International Financial Reporting Standards (IFRS)
Sappi is required by the JSE Limited to report under IFRS from fiscal 2006.
Our preparation for the adoption of IFRS is advanced. The major differences
are the treatment of employee benefit liabilities and expenses, share based
payments, and securitised receivables. No significant reporting adjustments
for property, plant and equipment are currently foreseen.
Previously unrecognised actuarial employee benefit gains and losses will be
recognised, resulting in an increase in pension and other post retirement
benefit liabilities and a corresponding reduction in equity. This adjustment
will lead to a reduction in employee benefit expenses in 2006 and future
financial years because the amortisation of past losses is no longer
required. The cost of share options and grants, as calculated using the
binomial method will be reflected in the income statement over the vesting
period. A significant portion of our securitised receivables will be brought
onto the balance sheet, increasing both trade receivables and short-term
debt. The related expense will no-longer be reflected in SG&A, but will be
included in finance costs. There will be other changes which are not expected
to have a significant impact on earnings or balance sheet ratios.
The net impact of these changes is currently not expected to have a material
impact on earnings per share in fiscal 2006.
Further information on the adoption of IFRS will be included in the 2005
annual report.
Dividend
The board has declared a dividend of 30 US cents for the year ended September
2005. A dividend of 30 US cents was paid in the previous year.
Outlook
The paper industry continues to face persistent increases in input costs
without commensurate price increases and, until recently, an apparent
unwillingness to close inefficient excess capacity.
This volatile environment provides poor earnings visibility. However, it is
clear that some of the prerequisites for earnings improvement including sharply
reduced inventories and improving order and shipment levels are now in
place.The drivers of coated paper demand, namely advertising spend and GDP
growth, continue to support demand growth in excess of that seen in fiscal
2005, although customer inventory movements make it difficult to discern actual
trends in the end-use of our products. The capacity closures announced thus far
in the grades in which we participate, while not sufficient on their own to
effect a major change, will still go some way to improving the supply-demand
balance. We have targeted similar cost savings in fiscal 2006
to those achieved this year in order to help offset continued input cost
escalation.
In light of these factors, we remain positive about the outlook for our
business. We expect an improvement in earnings in the first quarter of 2006
compared to the fourth quarter of 2005 but this is likely to be limited by
further input cost increases and it will be a challenge to achieve
earnings for the quarter much above breakeven.
On behalf of the Board
J C A Leslie
Director
D G Wilson
Director
10 November 2005
Dividend announcement
The directors have declared a dividend (number 82) of 30 US cents per share
for the year ended September 2005.
In compliance with the requirements of STRATE, the JSE electronic settlement
system which is applicable to Sappi, the salient dates in respect of the
dividend will be as follows:
Last day to trade to qualify for dividend Thursday 29 December 2005
Date on which shares commence
trading ex-dividend Friday 30 December 2005
Record date Friday 6 January 2006
Payment date Monday 9 January 2006
Dividends payable from the Johannesburg transfer office will be paid in South
African Rands except that dividends payable to nominee shareholders in respect
of shares which they hold on behalf of non-residents of the Republic of South
Africa will without exception be paid in United States Dollars. There will not
be any election.
Dividends payable from the London transfer office will be paid in British
Pounds Sterling or in the case of shareholders with registered addresses in the
USA, in United States Dollars.
Dividends payable other than in United States Dollars will be calculated at the
respective rates of exchange ruling on the London Reuters Exchange at midnight
on Monday 19 December 2005, and announced on Tuesday 20 December 2005.
There will not be any de-materialisation nor re-materialisation of Sappi
Limited share certificates from Friday 30 December 2005 to Friday 6 January
2006, both days inclusive.
Sappi Management Services (Pty) Limited
Secretaries
Per D J O"Connor
10 November 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, input costs including raw material, energy and
employee costs, 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 QUARTER AND YEAR ENDED SEPTEMBER 2005
GROUP INCOME STATEMENT
Reviewed Reviewed
Quarter Quarter
ended ended
Sept Sept
2005 2004
US$ million US$ million % change
Sales 1,388 1,235 12.4
Cost of sales 1,246 1,071
Gross profit 142 164 (13.4)
Selling, general and
administrative expenses 107 88
35 76
Other expenses 30 4
Operating profit (loss) 5 72 (93.1)
Net finance costs 27 26
Net paid 27 28
Capitalised - -
Net foreign exchange loss (gains) 1 -
Change in fair value of financial
instruments (1) (2)
(Loss) profit before tax (22) 46 -
Taxation - current 22 15
- deferred (11) (25)
Net (loss) profit (33) 56 -
(Loss) earnings per share
(US cents) (14) 25
Headline (loss) earnings per
share (US cents) * (7) 26
Weighted average number of
shares in issue (millions) 225.8 226.5
Diluted (loss) earnings per share
(US cents) (14) 25
Diluted headline (loss) earnings
per share (US cents) * (7) 26
Weighted average number of
shares on fully diluted basis
(millions) 226.6 228.3
Calculation of Headline
(loss) earnings *
Net (loss) profit (33) 56
Profit on disposal of business
and property, plant & equipment 1 -
Write-off of assets 2 3
Impairment of property,
plant & equipment 12 -
Debt restructuring costs 2 -
Headline (loss) earnings (16) 59
Reviewed Reviewed
Year Year
ended ended
Sept Sept
2005 2004
US$ million US$ million % change
Sales 5,018 4,728 6.1
Cost of sales 4,514 4,133
Gross profit 504 595 (15.3)
Selling, general and
administrative expenses 382 371
122 224
Other expenses 259 36
Operating profit (loss) (137) 188 -
Net finance costs 87 110
Net paid 110 106
Capitalised (1) (2)
Net foreign exchange loss (gains) (5) (5)
Change in fair value of financial
instruments (17) 11
(Loss) profit before tax (224) 78 -
Taxation - current 45 48
- deferred (56) (65)
Net (loss) profit (213) 95 -
(Loss) earnings per share
(US cents) (94) 42
Headline (loss) earnings per
share (US cents) * 7 43
Weighted average number of
shares in issue (millions) 225.8 226.3
Diluted (loss) earnings per share
(US cents) (94) 42
Diluted headline (loss) earnings
per share (US cents) * 7 43
Weighted average number of
shares on fully diluted basis
(millions) 226.7 228.2
Calculation of Headline
(loss) earnings *
Net (loss) profit (213) 95
Profit on disposal of business
and property, plant & equipment 2 -
Write-off of assets 6 3
Impairment of property,
plant & equipment 219 -
Debt restructuring costs 2 -
Headline (loss) earnings 16 98
Note: 2005 fiscal year included 53 weeks (2004 fiscal year: 52 weeks),
September 2005 quarter included 14 weeks (June 2005 and September 2004
quarters: 13 weeks).
* Headline (loss) earnings disclosure is required by the JSE Limited.
GROUP BALANCE SHEET
Reviewed Reviewed
Sept Sept
2005 2004
US$ million US$ million
ASSETS
Non-current assets 4,332 4,564
Property, plant and equipment 3,333 3,670
Plantations 604 548
Deferred taxation 72 84
Other non-current assets 323 262
Current assets 1,376 1,580
Inventories 711 765
Trade and other receivables 298 331
Cash and cash equivalents 367 484
Total assets 5,708 6,144
EQUITY AND LIABILITIES
Shareholders" equity
Ordinary shareholders" interest 1,881 2,157
Non-current liabilities 2,342 2,463
Interest-bearing borrowings 1,600 1,693
Deferred taxation 411 453
Other non-current liabilities 331 317
Current liabilities 1,485 1,524
Interest-bearing borrowings 270 364
Bank overdraft 159 11
Other current liabilities 936 1,012
Taxation payable 120 137
Total equity and liabilities 5,708 6,144
Number of shares in issue at balance sheet date
(millions) 225.9 226.5
GROUP CASH FLOW STATEMENT
Reviewed Reviewed Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept Sept Sept Sept
2005 2004 2005 2004
US$ million US$ million US$ million US$ million
Operating
profit (loss) 5 72 (137) 188
Depreciation,
fellings and
other
amortisation 123 119 490 465
Other non-cash
items
(including
impairment
charges) 31 (34) 201 (52)
Cash generated
by operations 159 157 554 601
Movement in
working capital 140 79 (60) (50)
Net finance
costs (24) (28) (112) (109)
Taxation paid (3) (1) (43) (31)
Dividends paid - - (68) (66)
Cash retained
from operating
activities 272 207 271 345
Cash effects of
investing
activities (109) (109) (379) (356)
163 98 (108) (11)
Cash effects of
financing
activities 32 (9) (7) (121)
Net movement in
cash and cash
equivalents 195 89 (115) (132)
Note: 2005 fiscal year included 53 weeks (2004 fiscal year: 52 weeks),
September 2005 quarter included 14 weeks (June 2005 and September 2004
quarters: 13 weeks).
GROUP STATEMENT OF CHANGES IN SHAREHOLDERS" EQUITY
Reviewed Reviewed
Year Year
ended ended
Sept Sept
2005 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 (213) 95
Foreign currency translation reserve 3 153
Revaluation of derivative instruments 16 1
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 (14) (9)
Balance - end of year 1,881 2,157
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 quarter is nil
(September 2004 quarter: nil) and a decrease of US$8 million for the year
ended September 2005 (September 2004: a decrease of US$3 million). Where
appropriate, comparative figures have been restated.
The preliminary results for the quarter have been reviewed in terms of
International Standards on Review Engagements by the group"s auditors,
Deloitte & Touche. Their unqualified review report is available for
inspection at the company"s registered offices.
2. Comparative figures
Restructuring costs of US$32 milion incurred in the year ended September 2004
(September 2004 quarter: nil) have been reclassified from selling, general and
administrative expenses to other expenses in the income statement.
Reviewed Reviewed Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept Sept Sept Sept
2005 2004 2005 2004
US$ million US$ million US$ million US$ million
3. Operating
profit
Included in
operating
profit are the
following
non-cash items:
Depreciation
and
amortisation
Depreciation of
property, plant
and
equipment 105 103 422 408
Other
amortisation 1 - 2 2
106 103 424 410
Impairment of
property,
plant &
equipment * 10 - 233 -
Impairment of
other assets * - - 3 -
Impairment
reversal of
property,
plant &
equipment - - (4) -
116 103 656 410
Fair value
adjustment
(gains) on
plantations
(included in
cost of sales)
Changes in
volume
Fellings 17 16 66 55
Growth (9) (10) (58) (54)
8 6 8 1
Changes in fair
value (35) (18) (60) (71)
(27) (12) (52) (70)
The above fair
value
adjustment
gains
have been
offset by
silviculture
costs 11 11 45 39
4. Capital
expenditure
Property, plant
and equipment** 124 110 345 334
* Includes pre-tax charge of US$183 million (September 2005 quarter: US$3
million ) in respect of Muskegon Mill impairment and US$50 million (September
2005 quarter: US$7 million) for Usutu Mill.
** Includes transfers from inventory to propery, plant and equipment during the
quarter ended September 2005 of US$31 million.
Reviewed Reviewed
Sept Sept
2005 2004
US$ million US$ million
5. Capital commitments
Contracted but not provided 115 76
Approved but not contracted 198 198
313 274
6. Contingent liabilities
Guarantees and suretyships 86 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 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)
* SG&A - selling, general and administrative expenses
* 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
Quarter Quarter Year Year
ended ended ended ended
Sept Sept Sept Sept
2005 2004 2005 2004
US$ million US$ million US$ million US$ million
Net (loss)
profit to
EBITDA (1)
reconciliation
Net (loss)
profit (33) 56 (213) 95
Net finance
costs 27 26 87 110
Taxation - current 22 15 45 48
- deferred (11) (25) (56) (65)
Depreciation 105 103 422 408
Amortisation
(including
fellings) 18 16 68 57
EBITDA (1) (3) 128 191 353 653
Reviewed Reviewed
Sept Sept
2005 2004
Net debt (US$ million) (2) 1,662 1,584
Net debt to total capitalisation (%) (2) 35.7 31.7
Net asset value per share (US$) (2) 9.83 11.15
Note: 2005 fiscal year included 53 weeks (2004 fiscal year: 52 weeks),
September 2005 quarter included 14 weeks (June 2005 and September 2004
quarters: 13 weeks).
(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 year ended ended September 2005 reduced by US$232 million
(September 2005 quarter: US$10 million) in respect of asset impairments and
asset impairment reversals.
SUPPLEMENTAL INFORMATION
Regional Information
Quarter Quarter
ended ended
Sept Sept
2005 2004
Metric tons Metric tons
(000"s) (000"s) % change
Sales
Fine Paper - North America 428 364 17.6
Europe 673 609 10.5
Southern Africa 102 87 17.2
Total 1,203 1,060 13.5
Forest Products - Pulp and paper
operations 411 390 5.4
Forestry operations 532 453 17.4
Total 2,146 1,903 12.8
