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SAP
SAVVI
Sappi Limited - Results for the quarter and half-year ended March 2006
SAPPI LIMITED
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN Code: ZAE000006284
Results for the quarter and half-year ended March 2006
* Strong demand growth
* Headline EPS 5 US cents; EPS 4 US cents
* Limited price increase realisation
* Continued input cost pressure
* Strong Rand depresses earnings
* 19 US cents plantation fair value gain
summary Quarter
ended
March Dec March
2006 2005 2005**
Sales (US$ million) 1,256 1,175 1,230
Operating profit (US$ million) 59 49 55
Operating profit to sales (%) 4.7 4.2 4.5
EBITDA (US$ million) * 176 163 180
EBITDA to sales (%) * 14.0 13.9 14.6
Operating profit to average
net assets (%) 5.9 4.8 4.8
Headline EPS (US cents) * 5 1 20
EPS (US cents) 4 - 18
Return on average equity (ROE) (%) * 2.4 - 8.1
Net debt (US$ million) * 2,172 2,072 2,382
Net debt to total capitalisation (%) * 44.3 42.3 43.4
Half-year
ended
March March
2006 2005**
Sales (US$ million) 2,431 2,486
Operating profit (US$ million) 108 67
Operating profit to sales (%) 4.4 2.7
EBITDA (US$ million) * 339 317
EBITDA to sales (%) * 13.9 12.8
Operating profit to average
net assets (%) 5.3 3.0
Headline EPS (US cents) * 6 30
EPS (US cents) 4 10
Return on average equity (ROE) (%) * 1.1 2.3
Net debt (US$ million) * 2,172 2,382
Net debt to total capitalisation (%) * 44.3 43.4
* Refer to Supplemental Information for the definition of the term.
** Comparative amounts have been restated to take into account the effect of
the adoption of International Financial Reporting Standards (Refer to note 2).
comment
Our performance continued to be disappointing in the quarter with the non-cash
fair value plantation credit lifting an otherwise negative result to a net
profit of US$9 million compared to US$40 million a year earlier.
In general, demand levels for our products have been strong and the primary
reasons for our weak performance were rising input costs and unplanned
maintenance at our Somerset and Ngodwana mills as well as poor output at
several mills.
By the end of the quarter we had realised slightly higher prices in Europe and
in North America.
Group sales were US$1.3 billion for the quarter, an increase of US$26 million
compared to the year earlier mainly as a result of a 3% increase in volume.
Escalating energy prices together with high wood and chemicals prices impacted
our pre-tax results by US$7 million compared to the prior quarter and US$38
million compared to a year earlier. Rising pulp prices, which affect the
European business are usually compensated by pulp sales from the South African
business, but this was offset this quarter by the strengthening of the Rand.
The fair value adjustment on plantations, net after fellings, was US$60 million
before tax for the quarter. This is significantly higher than the US$7 million
gain reported in the prior quarter and the US$3 million gain a year ago, as a
result of higher hardwood pulpwood prices in the quarter. These adjustments
cannot continue indefinitely and we may expect a reversal at some time in the
future.
We recorded a pre-tax charge for the closure of Nash mill (UK) of US$10
million. No revaluation was made for the potential development value of the
land. The mill"s customers will in future be supplied from other Sappi
operations and the closure is not expected to have a significant impact on
operating profit.
Our operating profit for the quarter was US$59 million compared to US$55
million a year ago and US$49 million in the prior quarter.
The tax of US$19 million for the quarter represents an effective rate of 68%.
The high effective tax rate is a result of unrelieved tax losses in certain
countries. This will only change when profitability improves in those
countries. It was, however, lower than the prior quarter which included tax on
the dividend (secondary tax on companies). The equivalent quarter last year was
impacted by a tax credit resulting from the reduction of the South African tax
rate from 30% to 29%.
Headline earnings for the quarter were 5 US cents and earnings per share were 4
US cents. In the equivalent quarter last year, headline earnings were 20 US
cents and earnings per share were 18 US cents.
cash flow and debt
Cash generated by operations was US$117 million compared to US$172 million a
year ago, a reduction of US$55 million mainly as a result of lower profits
excluding fair value adjustments. Working capital increased by US$33 million in
the quarter (second quarter 2005: US$104 million).
The annual dividend of US$68 million which was declared in November 2005 was
paid in the quarter.
Capital expenditure for the quarter was US$67 million, representing 68% of the
depreciation charge for the period. We expect a similar level for the full
year.
Net debt at quarter end was US$2.172 billion, an increase of US$100 million
compared to the prior quarter end including a currency effect of US$10 million.
The ratio of net debt to total capitalisation was 44.3% compared to 42.3% at
December 2005. During the quarter, Moody"s Investor Services downgraded the
debt of subsidiary Sappi Papier Holding GmbH to Ba1 with a stable outlook. Our
debt remains well structured with an average maturity of 7.8 years and we have
adequate undrawn committed debt facilities.
operating review for the quarter
Sappi Fine Paper
Quarter ended
March 2006 March 2005 % December 2005
US$ million US$ million change US$ million
Sales 1,018 982 3.7 943
Operating (loss)
profit (6) 24 - 15
Operating (loss)
profit to sales (%) (0.6) 2.4 - 1.6
EBITDA 75 115 (34.8) 95
EBITDA to sales
(%) 7.4 11.7 - 10.1
RONOA pa (%) (0.8) 2.6 - 1.9
Despite strong sales volumes, which were up approximately 9% compared to a year
ago, the business recorded an operating loss of US$6 million in the quarter.
Against a background of increasing raw material and energy input costs,
achieving higher prices and managing the realisation of better margins remains
a key issue in each of the regions.
Europe
Quarter ended
March 2006 March 2005 % change % change
US$ million US$ million (US$) (Euro)
Sales 569 571 (0.4) 9.0
Operating profit 6 23 (73.9) (71.5)
Operating profit to
sales (%) 1.1 4.0 - -
EBITDA 53 73 (27.4) (20.6)
EBITDA to sales (%) 9.3 12.8 - -
RONOA pa (%) 1.4 4.6 - -
Quarter ended
December 2005
US$ million
Sales 520
Operating profit 14
Operating profit to
sales (%) 2.7
EBITDA 61
EBITDA to sales (%) 11.7
RONOA pa (%) 3.2
Demand for our products remains strong, particularly in Germany and eastern
Europe, and our sales volume was up 7.5% compared to a year earlier.
Realisation of our price increase has not been sufficient to offset the rise in
our input costs (led by energy and wood costs), resulting in unacceptable
margins.
North America
Quarter ended
March 2006 March 2005 % December 2005
US$ million US$ million change US$ million
Sales 367 339 8.3 345
Operating (loss)
profit (10) 1 - 1
Operating (loss)
profit to
sales (%) (2.7) 0.3 - 0.3
EBITDA 19 37 (48.6) 31
EBITDA to sales (%) 5.2 10.9 - 9.0
RONOA pa (%) (3.4) 0.3 - 0.3
Our sales volume increased strongly relative to a year earlier and the prior
quarter but high input costs and product mix diminished the impact of higher
prices and put further pressure on our margins. The slower than planned
achievement of the Muskegon restructuring benefits resulted mainly from a
slower ramp up of output and changes to the product range. These savings will
take until the end of the year to achieve. Significant production cost
variances arising from unplanned production issues have also impacted our
margins.
Fine Paper South Africa
Quarter ended
March 2006 March 2005 % change % change
US$ million US$ million (US$) (Rand)
Sales 82 72 13.9 18.2
Operating loss (2) - - -
Operating loss to
Sales (%) (2.4) - - -
EBITDA 3 5 (40.0) (37.7)
EBITDA to sales (%) 3.7 6.9 - -
RONOA pa (%) (4.6) - - -
Quarter ended
December 2005
US$ million
Sales 78
Operating loss -
Operating loss to sales (%) -
EBITDA 3
EBITDA to sales (%) 3.8
RONOA pa (%) -
Sales volumes in the domestic market remained strong in the quarter and export
volumes increased. The strong Rand contributed to competitive pricing in the
domestic market and put pressure on margins.
Forest Products
Quarter ended
March 2006 March 2005 % change % change
US$ million US$ million (US$) (Rand)
Sales 238 248 (4.0) (0.4)
Operating profit 69 32 115.6 123.9
Operating profit to
sales(%) 29.0 12.9 - -
EBITDA 105 66 59.1 65.2
EBITDA to sales (%) 44.1 26.6 - -
RONOA pa (%) 19.2 8.4 - -
Quarter ended
December 2005
US$ million
Sales 232
Operating profit 37
Operating profit to sales(%) 15.9
EBITDA 70
EBITDA to sales (%) 30.2
RONOA pa (%) 10.9
Demand for chemical cellulose continues to be strong and in the domestic market
demand for our other products was generally buoyant. The underlying performance
of this business was unfavourably affected by unplanned production stoppages at
several mills resulting in reduced output and higher operating costs. The strong
Rand more than offset the effect of rising pulp prices and the exchange rate
continues to affect margins in the containerboard business. Pulp prices (NBSK)
increased by US$30 per ton by the end of the quarter relative to the prior
quarter end. There has been another NBSK pulp price increase announced
subsequent to the quarter end.
The operating profit includes US$60 million of plantation fair value adjustment
net of fellings.
Subsequent to the quarter we announced our intention to sell a 25% interest in
our plantation land (without the trees) to a black economic empowerment
consortium for approximately US$36 million, which will be vendor financed. We
expect benefits to accrue from the consortium"s identification and development
of opportunities on the unplantable land, which makes up 36% of the total.
outlook
Demand for our products continues to be positive and the global coated fine
paper industry operating rate is at one of the highest levels seen in at least
the last 15 years.
We have already identified significant cost improvements and operating
efficiencies which without any benefit of price increases could substantially
improve earnings. These improvements are being addressed vigorously and are
likely to start having an impact towards the end of the financial year.
In the current cost environment, our pricing model in many markets has led to
a significant proportion of business being conducted at unprofitable levels.
We are in the process of changing this. Furthermore, we are limiting the time
horizon on which we will commit prices. We are evaluating the effectiveness
and the costs of our distribution model and will be working with our
distribution partners to streamline the supply chain. During this process,
average selling prices should continue to rise.
To reverse the trend of continuing consumption of cash, we have cut back
capital expenditure and we will rigorously manage our working capital - in
particular our finished goods inventories, and will curtail manufacturing
operations whenever necessary to ensure that we operate to our customers"
requirements at a normalised inventory holding.
We do not expect to see much impact from our turnaround actions next quarter
and are likely to see a similar underlying result to the current quarter.
changes of directors
As previously announced, Jonathan Leslie resigned as Chief Executive of the
group on 5 March 2006.
Sir Nigel Rudd was appointed a non-executive director of Sappi Limited with
effect from 3 April 2006.
On behalf of the Board
E van As DG Wilson 8 May 2006
Director Director
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.
group income statement
Restated
Reviewed Reviewed Reviewed
Quarter Quarter Half-year
ended ended ended
March 2006 March 2005 % March 2006
US$ million US$ million change US$ million
Sales 1,256 1,230 2.1 2,431
Cost of sales 1,098 1,079 2,140
Gross profit 158 151 4.6 291
Selling, general and
administrative
expenses 87 91 170
71 60 121
Other expenses 12 5 13
Operating profit
(loss) 59 55 7.3 108
Net finance costs 31 24 58
Net paid 33 31 65
Capitalised - (1) (1)
Net foreign exchange
gains (3) (1) (4)
Change in fair value
of financial
instruments 1 (5) (2)
Profit (loss) before
tax 28 31 (9.7) 50
Taxation - current 7 12 15
- deferred 12 (21) 26
Net profit (loss) 9 40 (77.5) 9
Earnings (loss)
per share (US cents) 4 18 4
Weighted average
number of shares
in issue (millions) 226.0 225.6 225.9
Diluted earnings
(loss) per share
(US cents) 4 18 4
Weighted average
number of shares
on fully diluted
basis (millions) 227.0 226.8 226.7
Restated Restated
Reviewed Reviewed
Half-year Year
ended ended
March 2005 % Sept 2005
US$ million change US$ million
Sales 2,486 (2.2) 5,018
Cost of sales 2,193 4,507
Gross profit 293 (0.7) 511
Selling, general and
administrative expenses 178 361
115 150
Other expenses 48 259
Operating profit (loss) 67 61.2 (109)
Net finance costs 45 80
Net paid 64 125
Capitalised (1) (1)
Net foreign exchange
gains (3) (5)
Change in fair value
of financial instruments (15) (39)
Profit (loss) before tax 22 127.3 (189)
Taxation - current 20 45
- deferred (20) (50)
Net profit (loss) 22 (59.1) (184)
Earnings (loss)
per share (US cents) 10 (81)
Weighted average
number of shares
in issue (millions) 225.8 225.8
Diluted earnings
(loss) per share
(US cents) 10 (81)
Weighted average
number of shares
on fully diluted
basis (millions) 227.1 226.7
Note: Refer to notes to the group results for Headline earnings and calculation
Thereof.
group balance sheet
Restated
Reviewed Reviewed
March 2006 Sept 2005
US$ million US$ million
ASSETS
Non-current assets 4,305 4,244
Property, plant and equipment 3,307 3,333
Plantations 690 604
Deferred taxation 71 70
Other non-current assets 237 237
Current assets 1,517 1,645
Inventories 765 711
Trade and other receivables 556 567
Cash and cash equivalents 196 367
Total assets 5,822 5,889
EQUITY AND LIABILITIES
Shareholders" equity
Ordinary shareholders" interest 1,550 1,589
Non-current liabilities 2,492 2,547
Interest-bearing borrowings 1,503 1,600
Deferred taxation 402 367
Other non-current liabilities 587 580
Current liabilities 1,780 1,753
Interest-bearing borrowings 845 616
Bank overdraft 20 159
Other current liabilities 790 858
Taxation payable 125 120
Total equity and liabilities 5,822 5,889
Number of shares in issue at balance sheet date
(millions) 226.3 225.9
group cash flow statement
Restated
Reviewed Reviewed Reviewed
Quarter Quarter Half-year
ended ended ended
March 2006 March 2005 March 2006
US$ million US$ million US$ million
Operating profit (loss) 59 55 108
Depreciation, fellings and
other amortisation 117 125 231
Other non-cash items
(including impairment
charges) (59) (8) (100)
Cash generated by
operations 117 172 239
Movement in working
capital (33) (104) (113)
Net finance costs (23) (28) (68)
Taxation paid (5) (12) (12)
Dividends paid (68) (68) (68)
Cash (utilised in) retained
from operating
activities (12) (40) (22)
Cash effects of investing
activities (78) (79) (152)
(90) (119) (174)
Cash effects of financing
activities (91) (3) 3
Net movement in cash and
cash equivalents (181) (122) (171)
Restated Restated
Reviewed Reviewed
Half-year Year
ended ended
March 2005 Sept 2005
US$ million US$ million
Operating profit (loss) 67 (109)
Depreciation, fellings and
other amortisation 250 490
Other non-cash items
(including impairment
charges) (3) 188
Cash generated by
operations 314 569
Movement in working
capital (207) (30)
Net finance costs (67) (127)
Taxation paid (39) (43)
Dividends paid (68) (68)
Cash (utilised in) retained
from operating
activities (67) 301
Cash effects of investing
activities (206) (379)
(273) (78)
Cash effects of financing
activities 21 (37)
Net movement in cash and
cash equivalents (252) (115)
group statement of recognised income and expense
Restated
Reviewed Reviewed Reviewed
Quarter Quarter Half-year
ended ended ended
March 2006 March 2005 March 2006
US$ million US$ million US$ million
Pension fund asset not
recognised (2) - (4)
Actuarial losses on
pension and other post
employment benefit
liabilities - - -
Deferred taxation on
above items - - 1
Valuation allowance
against deferred
tax asset on actuarial
losses - (62) -
Exchange differences on
translation of foreign
operations 31 (115) 20
Net income (expense)
recorded
directly in equity 29 (177) 17
Net income (loss) for the
period 9 40 9
Total recognised income
(expense)
for the period 38 (137) 26
Restated Restated
Reviewed Reviewed
Half-year Year
ended ended
March 2005 Sept 2005
US$ million US$ million
Pension fund asset not -
recognised -
Actuarial losses on
pension and other post
employment benefit
liabilities - (62)
Deferred taxation on
above items - 11
Valuation allowance
against deferred
tax asset on actuarial
losses (62) (62)
Exchange differences on
translation of foreign
operations 64 7
Net income (expense)
recorded
directly in equity 2 (106)
Net income (loss) for the
period 22 (184)
Total recognised income
(expense)
for the period 24 (290)
notes to the group results
1. Basis of preparation
The condensed quarterly financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS). Sappi is reporting
under IFRS for the first time for the year ending September 2006. The date of
first transition to IFRS is October 2004 and comparative results have been
restated accordingly. The condensed consolidated interim financial statements
do not include all of the information required for full annual financial
statements.
These quarterly results have been prepared in accordance with IAS 34 (Interim
financial reporting). The accounting policies used in the preparation of the
quarterly results are compliant with IFRS and consistent with those used in the
annual financial statements for September 2005, except as disclosed below.
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 includes an emphasis of matter that
amendments to the interpretive guidance issued between the date of this
announcement and the finalisation of the financial statements for the year
ending September 2006, may result in changes to the restatements published.
This report is available for inspection at the company"s registered offices.
2. Effect of the first time adoption of IFRS
As discussed in Note 1, the group has adopted International Financial Reporting
Standards (IFRS) in preparing their consolidated financial statements for the
year ending September 2006. For purposes of these interim financial
statements, the group has developed accounting policies based on IFRS issued to
date that will be effective at our reporting date of September 2006. IFRS 1,
First-time Adoption of International Financial Reporting Standards, requires
that an entity develop accounting policies based on the standards and related
interpretations effective at the reporting date of its first IFRS financial
statements. IFRS 1 also requires that those policies be applied as of the date
of transition to IFRS and throughout all periods presented in the first IFRS
financial statements. The accounting policies used in these financial
statements are subject to change up to the reporting date of our first IFRS
financial statements. Management does not believe the final accounting policies
will change materially from those utilised in the preparation of the
accompanying interim financial statements.
The following exemptions in accordance with IFRS 1 were considered:
- Business Combinations - IFRS 3
The group has elected not to retrospectively apply the requirements of IFRS
3 for Business Combinations that occurred prior to October 2004.
- Share based payments - IFRS 2
The group has applied the share based payment exemption therefore IFRS 2 is
only applicable to equity instruments granted after 7 November 2002 that were
not vested by 1 January 2005. Liabilities arising from cash- settled
share-based payments settled after 1 January 2005 are subject to IFRS 2. For
instruments vesting on or after 1 January 2005, Sappi has recognised a charge
in the income statement and set up a separate category in shareholders" equity
for all share options and awards, based on the fair value of the awards as
calculated at the grant date.
- The effects of changes in foreign exchange rates - IAS 21
Sappi has elected to apply the exemption in IFRS 1 which allows the cumulative
translation differences of all foreign operations to be reduced to zero at the
date of transition to IFRS which is October 2004.
Adjustments on adoption of IFRS
The adoption of IFRS led to changes in the Group"s financial position,
financial performance and cash flows.
The significant differences between previously reported SA GAAP financial
statements and IFRS are as follows:
- Employee benefits - IAS 19
Previously unrecognised actuarial employee benefit losses were recognised at
October 2004, resulting in an increase in pension and other post employment
benefits liabilities and a corresponding reduction in equity and deferred tax
liability. These adjustments also led to a reduction in employee benefit
expense in profit for the period. Sappi has elected to adopt the policy of
recognising actuarial gains and losses in the period in which they occur. The
gains and losses are recognised outside of profit for the period in the
statement of recognised income and expense (SORIE). Items processed through
SORIE are tax effected through SORIE. Part of the first time adoption of this
method of accounting included a historic analysis of all pension fund movements
to determine the portion of our deferred tax balances that relate to SORIE.
- Share based payments - IFRS 2
Sappi has recognised a charge in the income statement and set up a separate
category in shareholders" equity for all share options and awards, based on the
fair value of the awards as calculated at the grant date. The cost of the share
options and grants are reflected in the income statement over the vesting
period. This IFRS change had no impact on the comparative total shareholders"
equity as a Share Based Payment Reserve is created with the equal and opposite
amount included in retained earnings.
- Financial instruments - IAS 39
A significant portion of our securitised receivables was brought back on
balance sheet, increasing trade and other receivables by US$268 million and
short term debt by US$346 million and decreasing other payables by US$78
million at September 2005. The related expense is no longer reflected in S,G&A
but is included under finance costs. This caused an increase in finance costs
and decrease in S,G&A of US$15 million for the year ended September 2005 (March
2005: US$9 million).
Cash flow hedges on inter-company loans, accounted for in equity, no longer
qualify for hedge accounting under IAS 39. As a result these instruments are
now recognised at fair value through profit and loss.
- The effects of changes in foreign exchange rates - IAS 21
Sappi has elected to apply the exemption in IFRS 1 which allows the cumulative
translation differences of all foreign operations to be reduced to zero at the
date of transition to IFRS which is October 2004. The Foreign Currency
Translation Reserve (Non-Distributable Reserve) was transferred to retained
earnings. This IFRS change has no impact on total shareholders" equity.
There are no other accounting policy changes relevant to the first time
adoption of IFRS.
Reconciliation of previous SA GAAP to IFRS for shareholders" equity
Reviewed Reviewed Reviewed
Year Half-year IFRS
ended ended transition
Sept 2005 March 2005 Oct 2004
US$ million US$ million US$
million
Total equity presented under SA
GAAP 1,881 2,151 2,157
Impact on retained earnings:
Recognition of previously
unrecognised actuarial
losses - IAS 19 (340) (289) (300)
Deferred taxation impact of IAS
19 change 43 42 93
Share based payments - IFRS 2 (20) (15) (9)
Release of cash flow hedge
reserve - IAS 39 14 9 (2)
Foreign Currency Translation
Reserve cleared
at October 2004 244 244 244
Share based payment reserve -
IFRS 2 20 16 9
Hedging Reserves - IAS 39 (13) (9) 2
Foreign Currency Translation
Reserve (240) (250) (244)
Total equity and reserves
presented under IFRS 1,589 1,899 1,950
Reconciliation of previous SA GAAP to IFRS for net (loss) profit
Reviewed Reviewed
Year Half-year
ended ended
Sept 2005 March 2005
US$ million US$ million
Net loss under SA GAAP (213) (6)
Reduction in expense due to recognition of
actuarial gains
and losses - IAS 19 23 12
Deferred taxation impact of IAS 19 1 10
Share based payment expense - IFRS 2 (10) (5)
Gains from cash flow hedges that do not qualify
for hedge
accounting - IAS 39 22 16
Deferred taxation impact of IAS 39 (7) (5)
Net (loss) profit under IFRS (184) 22
IFRS cash flow statement impact
The reduction in employee benefit expense attributed to an increase in
operating profit (loss) and a corresponding decrease in non-cash items. Share
based payment costs led to a decrease in operating profit and an increase in
non- cash items. The recognition of securitised debtors caused the relating
costs to be reflected under finance costs instead of included in operating
profit.
IFRS impact on net debt
In accordance with IAS 39 a significant portion of our securitised receivables
was brought back on balance sheet, increasing trade and other receivables by
US$268 million and short term debt by US$346 million and decreasing other
payables by US$78 million at September 2005. This resulted in an increase in
net debt of US$346 million from US$1,662 million to US$2,008 million at
September 2005.
Restated Restated
Reviewed Reviewed Reviewed
Half-year Half-year Year
ended ended ended
March 2006 March 2005 Sept 2005
US$ million US$ million US$ million
3. Reconciliation of movement
in shareholders" equity
Balance - beginning of year as
reported 1,881 2,157 2,157
IFRS adoption (refer note 2) (292) (207) (207)
Recognition of previously
unrecognised actuarial
losses - IAS 19 (340) (300) (300)
Deferred taxation impact of IAS
19 change 43 93 93
Translation differences 5 - -
Balance - beginning of year
restated 1,589 1,950 1,950
Total recognised income
(expense) for the period 26 24 (290)
Dividends paid (68) (68) (68)
Share buybacks net of transfers
to participants
of the share purchase trust (1) (14) (14)
Share based payment reserve 4 7 11
Balance - end of period 1,550 1,899 1,589
Restated
Reviewed Reviewed Reviewed
Quarter Quarter Half-year
ended ended ended
March 2006 March 2005 March 2006
US$ million US$ million US$ million
4. Operating profit
Included in operating profit are
the following non-cash items:
Depreciation and amortisation
Depreciation of property,
plant and equipment 98 108 195
Other amortisation 1 - 1
99 108 196
Impairment of property,
plant and equipment 4 1 5
Impairment of other assets - - -
Impairment reversal of property,
plant and equipment - - -
103 109 201
Fair value adjustment gains
on plantations (included in
cost of sales)
Changes in volume
Fellings 18 17 35
Growth (21) (19) (35)
(3) (2) -
Changes in fair value (57) (1) (67)
(60) (3) (67)
The above fair value adjustment
gains have been offset
by silviculture costs 12 11 22
Restated Restated
Reviewed Reviewed
Half-year Year
ended ended
March 2005 Sept 2005
US$ million US$ million
4. Operating profit
Included in operating profit are
the following non-cash items:
Depreciation and amortisation
Depreciation of property,
plant and equipment 216 422
Other amortisation 1 2
217 424
Impairment of property,
plant and equipment 42 233
Impairment of other assets - 3
Impairment reversal of property,
plant and equipment - (4)
259 656
Fair value adjustment gains
on plantations (included in
cost of sales)
Changes in volume
Fellings 33 66
Growth (33) (58)
- 8
Changes in fair value (17) (60)
(17) (52)
The above fair value adjustment
gains have been offset
by silviculture costs 22 45
Restated
Reviewed Reviewed Reviewed
Quarter Quarter Half-year
ended ended ended
March 2006 March 2005 March 2006
US$ million US$ million US$ million
5. Headline earnings per share
Headline earnings per share
(US cents) * 5 20 6
Weighted average number
of shares in issue (millions) 226.0 225.6 225.9
Diluted headline earnings
per share (US cents) * 5 19 6
Weighted average number
of shares on fully diluted basis
(millions) 227.0 226.8 226.7
Calculation of Headline
earnings *
Net profit (loss) 9 40 9
(Profit) loss on disposal of business
and property, plant and
equipment (2) - (2)
Write-off of assets 1 3 2
Impairment of property, plant
and equipment 4 1 5
Debt restructuring costs - - -
Headline earnings 12 44 14
* Headline earnings disclosure
is required by the JSE Limited.
6. Capital expenditure
Property, plant and equipment 67 60 139
Restated Restated
Reviewed Reviewed
Half-year Year
ended ended
March 2005 Sept 2005
US$ million US$ million
5. Headline earnings per share
Headline earnings per share
(US cents) * 30 20
Weighted average number
of shares in issue (millions) 225.8 225.8
Diluted headline earnings
per share (US cents) * 30 20
Weighted average number
of shares on fully diluted basis
(millions) 227.1 226.7
Calculation of Headline earnings *
Net profit (loss) 22 (184)
(Profit) loss on disposal of business
and property, plant and
equipment - 2
Write-off of assets 4 6
Impairment of property, plant
and equipment 42 219
Debt restructuring costs - 2
Headline earnings 68 45
* Headline earnings disclosure is
required by the JSE Limited.
6. Capital expenditure
Property, plant and equipment 138 345
Reviewed Reviewed
March 2006 Sept 2005
US$ million US$ million
7. Capital commitments
Contracted but not provided 130 115
Approved but not contracted 171 198
301 313
8. Contingent liabilities
Guarantees and suretyships 54 86
Other contingent liabilities 11 11
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
* Silviculture costs - growing and tending costs of trees in forestry operations
* 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
Restated
Reviewed Reviewed Reviewed
Quarter Quarter Half-year
ended ended ended
March 2006 March 2005 March 2006
US$ million US$ million US$ million
Net profit (loss) to EBITDA (1)
reconciliation
Net profit (loss) 9 40 9
Net finance costs 31 24 58
Taxation - current 7 12 15
- deferred 12 (21) 26
Depreciation 98 108 195
Amortisation (including
fellings) 19 17 36
EBITDA (1) 176 180 339
Restated Restated
Reviewed Reviewed
Half-year Year
ended ended
March 2005 Sept 2005
US$ million US$ million
Net profit (loss) to EBITDA (1)
reconciliation
Net profit (loss) 22 (184)
Net finance costs 45 80
Taxation - current 20 45
- deferred (20) (50)
Depreciation 216 422
Amortisation (including fellings) 34 68
EBITDA (1) 317 381
Restated
Reviewed Reviewed
March 2006 Sept 2005
US$ million US$ million
Net debt (US$ million) (2) 2,172 2,008
Net debt to total capitalisation (%)(2) 44.3 40.9
Net asset value per share (US$) (2) 8.31 8.35
(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 IFRS. EBITDA is not a measure of
performance under IFRS. EBITDA should not be construed as an alternative to
operating profit as an indicator of the company"s operations in accordance with
IFRS. 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.
supplemental information
regional information
Quarter Quarter Half-year
ended ended ended
March March March
2006 2005 2006
Metric tons Metric tons % Metric tons
(000"s) (000"s) change (000"s)
Sales
Fine Paper -
North America 365 331 10.3 709
Europe 646 601 7.5 1,248
Southern Africa 79 69 14.5 158
Total 1,090 1,001 8.9 2,115
Forest Products -
Pulp and paper operations 347 389 (10.8) 702
Forestry operations 372 369 0.8 748
Total 1,809 1,759 2.8 3,565
Half-year Year
ended ended
March Sept
2005 2005
Metric tons % Metric
tons
(000"s) change (000"s)
Sales
Fine Paper - North America 681 4.1 1,433
Europe 1,216 2.6 2,427
Southern Africa 147 7.5 317
Total 2,044 3.5 4,177
Forest Products -
Pulp and paper operations 780 (10.0) 1,565
Forestry operations 750 (0.3) 1,737
Total 3,574 (0.3) 7,479
Restated
Reviewed Reviewed Reviewed
Quarter Quarter Half-year
ended ended ended
March 2006 March 2005 % March 2006
US$ million US$ million change US$ million
Sales
Fine Paper -
North America 367 339 8.3 712
Europe 569 571 (0.4) 1,089
Southern Africa 82 72 13.9 160
Total 1,018 982 3.7 1,961
Forest
Products -
Pulp and paper
operations 215 230 (6.5) 427
Forestry operations 23 18 27.8 43
Total 1,256 1,230 2.1 2,431
Restated Restated
Reviewed Reviewed
Half-year Year
ended ended
March 2005 % Sept 2005
US$ million change US$ million
Sales
Fine Paper - North America 696 2.3 1,458
Europe 1,145 (4.9) 2,239
Southern Africa 155 3.2 323
Total 1,996 (1.8) 4,020
Forest Products -
Pulp and paper operations 452 (5.5) 908
Forestry operations 38 13.2 90
Total 2,486 (2.2) 5,018
Restated
Reviewed Reviewed Reviewed
Quarter Quarter Half-year
ended ended ended
March 2006 March 2005 % March 2006
US$ million US$ million change US$ million
Operating profit
Fine Paper - North America (10) 1 - (9)
Europe 6 23 (73.9) 20
Southern Africa (2) - - (2)
Total (6) 24 - 9
Forest Products 69 32 115.6 106
Corporate (4) (1) (300.0) (7)
Total 59 55 7.3 108
Earnings before
interest, tax,
depreciation
and amortisation
charges
Fine Paper - North America 19 37 (48.6) 50
Europe 53 73 (27.4) 114
Southern Africa 3 5 (40.0) 6
Total 75 115 (34.8) 170
Forest Products 105 66 59.1 175
Corporate (4) (1) (300.0) (6)
Total 176 180 (2.2) 339
Net operating
assets
Fine Paper - North America 1,163 1,504 (22.7) 1,163
Europe 1,781 1,945 (8.4) 1,781
Southern Africa 177 229 (22.7) 177
Total 3,121 3,678 (15.1) 3,121
Forest Products 1,490 1,460 2.1 1,490
Corporate and other 29 38 (23.7) 29
Total 4,640 5,176 (10.4) 4,640
Restated Restated
Reviewed Reviewed
Half-year Year
ended ended
March 2005 % Sept 2005
US$ million change US$ million
Operating profit
Fine Paper - North America (12) 25.0 (259)
Europe 54 (63.0) 84
Southern 3 - (11)
Africa
Total 45 (80.0) (186)
Forest Products 25 324.0 83
Corporate (3) (133.3) (6)
Total 67 61.2 (109)
Earnings before
interest, tax,
depreciation
and amortisation
charges
Fine Paper - North America 60 (16.7) (122)
Europe 153 (25.5) 284
Southern 12 (50.0) 4
Africa
Total 225 (24.4) 166
Forest Products 95 84.2 220
Corporate (3) (100.0) (5)
Total 317 6.9 381
Net operating
assets
Fine Paper - North America 1,504 (22.7) 1,199
Europe 1,945 (8.4) 1,735
Southern 229 (22.7) 160
Africa
Total 3,678 (15.1) 3,094
Forest Products 1,460 2.1 1,325
Corporate and
other 38 (23.7) 55
Total 5,176 (10.4) 4,474
supplemental information
summary rand convenience translation
Restated
Quarter Quarter Half-year
ended ended ended
March March % March
2006 2005 change 2006
Sales (ZAR million) 7,769 7,328 6.0 15,396
Operating profit (loss) (ZAR
million) 365 328 11.3 684
Net profit (loss) (ZAR
million) 56 238 (76.5) 57
EBITDA * (ZAR million) 1,089 1,072 1.6 2,147
Operating profit (loss) to
sales (%) 4.7 4.5 4.4
EBITDA * to sales (%) 14.0 14.6 13.9
Operating profit (loss) to
average
net assets (%) 6.1 5.1 5.3
EPS (SA cents) 25 107 (76.6) 25
Headline EPS (SA cents) * 31 119 (73.9) 38
Net debt (ZAR million) * 13,391
Net debt to total
capitalisation (%) * 44.3
Cash generated by operations
(ZAR million) 724 1,025 (29.4) 1,514
Cash (utilised in) retained
from operating activities (ZAR
million) (74) (238) 68.9 (139)
Net movement in cash and cash
equivalents (ZAR million) (1,120) (727) (54.1) (1,083)
Restated Restated
Half-year Year
ended ended
March % Sept
2005 change 2005
Sales (ZAR million) 15,073 2.1 31,321
Operating profit (loss) (ZAR million) 406 68.5 (680)
Net profit (loss) (ZAR million) 133 (57.1) (1,148)
EBITDA * (ZAR million) 1,922 11.7 2,378
Operating profit (loss) to sales (%) 2.7 (2.2)
EBITDA * to sales (%) 12.8 7.6
Operating profit (loss) to average
net assets (%) 3.1 (2.4)
EPS (SA cents) 61 (59.0) (506)
Headline EPS (SA cents) * 182 (79.1) 125
Net debt (ZAR million) * 14,782 (9.4) 12,782
Net debt to total capitalisation (%) * 43.4 40.9
Cash generated by operations
(ZAR million) 1,904 (20.5) 3,552
Cash (utilised in) retained
from operating activities (ZAR
million) (406) 65.8 1,879
Net movement in cash and cash
equivalents (ZAR million) (1,528) 29.1 (718)
* Refer to Supplemental Information for the definition of the term.
exchange rates
March Dec Sept
2006 2005 2005
Exchange rates:
Period end rate: US$1 = ZAR 6.1655 6.3275 6.3656
Average rate for the Quarter: US$1 = ZAR 6.1858 6.4795 6.5289
Average rate for the YTD: US$1 = ZAR 6.3334 6.4795 6.2418
Period end rate: EUR1 = US$ 1.2119 1.1843 1.2030
Average rate for the Quarter: EUR1 = US$ 1.1983 1.1915 1.2139
Average rate for the YTD: EUR1 = US$ 1.1964 1.1915 1.2659
June March
2005 2005
Exchange rates:
Period end rate: US$1 = ZAR 6.7041 6.2059
Average rate for the Quarter: US$1 = ZAR 6.3738 5.9577
Average rate for the YTD: US$1 = ZAR 6.1732 6.0632
Period end rate: EUR1 = US$ 1.2097 1.2982
Average rate for the Quarter: EUR1 = US$ 1.2678 1.3110
Average rate for the YTD: EUR1 = US$ 1.2811 1.2911
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:
Computershare Investor ADR Depository: 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: 08/05/2006 08:55:34 AM Produced by the JSE SENS Department
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