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Sappi Limited - Results for the quarter ended December 2005
SAPPI LIMITED
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN Code: ZAE000006284
Results for the quarter ended December 2005
Headline EPS 1 US cent; EPS - breakeven
Prices stable; higher input costs
Improved supply/demand balance
Pension restructuring gains
IFRS reporting adopted
Summary
Quarter Ended Year Ended
Dec Sept Dec Sept
2005 2005** 2004** 2005**
Sales (US$ million) 1,175 1,388 1,256 5,018
Operating profit (loss)
(US$ million) 49 12 12 (109)
Operating profit (loss) to
sales (%) 4.2 0.9 1.0 (2.2)
EBITDA (US$ million) * 163 135 137 381
EBITDA to sales (%) * 13.9 9.7 10.9 7.6
Operating profit (loss) to
average net assets (%) 4.8 1.2 1.0 (2.5)
Headline EPS (US cents) * 1 (4) 11 18
EPS (US cents) - (12) (8) (84)
Return on average equity
(ROE) (%) * - (6.7) (3.6) (10.7)
Net debt (US$ million) * 2,072 2,008 2,378 2,008
Net debt to total
capitalisation (%) * 42.3 40.9 41.1 40.9
* 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).
Note: the quarter ended September 2005 included an additional week.
Comment
Operating conditions remained very difficult this quarter in our Fine Paper
business. Raw material and energy cost escalation was not matched with price
increases despite a modest improvement in industry shipments on the prior year
and the closure of coated fine paper capacity by a number of manufacturers.
The supply/demand balance of the coated fine paper market, as measured by
industry shipments to capacity, continued to improve and business drivers such
as GDP growth and advertising spend growth remain positive.
Group sales were US$1.175 billion, a reduction of US$81 million on the
equivalent quarter last year. Currency movements were the primary reason for
this shortfall.
Average prices realised for coated fine paper in local currency terms were
similar to the prior quarter, with a small increase registered in North America
and a small decrease in Europe. Market prices for softwood pulp (NBSK) in US$
increased 1.7% in comparison to the prior quarter; hardwood pulp prices were
flat.
The price impact of higher wood, energy and chemical costs this quarter reduced
our operating earnings by US$11 million in comparison to the prior quarter and
US$29 million in comparison to the same quarter last year. Our cost savings
programmes yielded US$17 million of savings, calculated from the base of the
fourth quarter of 2005. These savings are not yet at the rate required to reach
our overall cost savings target for 2006.
Mill maintenance shut costs, which typically peak in our first and third
quarters were US$11 million.
The gain at the operating profit level from the fair value adjustment on
plantations, net after fellings was US$7 million for the quarter which was
largely due to cost reductions in our forestry operations. This gain was lower
than the US$27 million gain recorded in the prior quarter and US$14 million in
the equivalent quarter last year.
We restructured employee pension plans in the US and the Netherlands this
quarter which will reduce our annual pension charge by approximately US$5
million. This restructuring resulted in non-recurring pre-tax benefits this
quarter of US$28 million.
Our operating profit was US$49 million compared to US$12 million recorded in
both the prior quarter and the equivalent quarter last year. This disguises a
weaker underlying performance when taking into account the significant pension
restructuring credit this quarter and impairment and restructuring charges
reflected in the comparative quarters.
Net finance costs of US$27 million were US$6 million higher than the prior year
due to lower fair value gains from financial instruments.
A tax charge of US$22 million was recorded this quarter. US$9 million of this
stemmed from tax on the dividend (secondary tax on companies). The tax rate was
also high this quarter due to unrelieved tax losses at certain operations.
Headline earnings per share for the quarter was 1 US cent and earnings per
share were breakeven. Headline EPS in the equivalent quarter last year was
11 US cents while the net loss per share was 8 US cents.
Cash flow and debt
Cash generated by operations was US$122 million, US$20 million lower than a
year ago due primarily to reduced volumes and higher input costs. Cash utilised
improved from US$154 million in the first quarter of 2005 to US$84 million this
quarter. The main reasons for the improvement were a smaller increase in
working capital and the fact that the comparative quarter included the payment
of our equity contribution for our Chinese joint venture.
Working capital increased US$80 million during the quarter (first quarter 2005:
US$103 million), mainly as a result of decreased payables in line with a lower
level of activity in December.
Capital expenditure this quarter was US$72 million, which represents 74% of the
depreciation charge for the period.
Net debt at the end of the quarter was US$2.072 billion, an increase of US$64
million on the position at the end of the prior quarter (both amounts are
stated as per IFRS) but a significant reduction compared to a year earlier.
This increase was due to cash utilised in the quarter. The ratio of net debt to
total capitalisation was 42.3%, compared to 40.9% at September 2005. This is
well within our target range (revised for IFRS adoption) of 30% to 55%.
International Financial Reporting Standards
We commenced reporting under International Financial Reporting Standards (IFRS)
this quarter and have restated the prior periods shown in this earnings
release. This restatement resulted in an improvement of headline EPS for 2005
of 11 US cents per share for the 2005 financial year. This was primarily due to
pension fund amortisation costs which are no longer required of US$19 million
and gains on a financial instrument that no longer qualified for hedge
accounting of US$15 million, offset by an additional charge of US$10 million
for share-based payments.
The change to reporting under IFRS had a number of effects on our balance
sheet. Previously disclosed but unrecognised actuarial employee benefit losses
were recognised, resulting in an increase of US$249 million in pension and
other post retirement benefit liabilities and a US$86 million reduction in
other non-current assets. In addition to this, a significant portion of our
securitised receivables amounting to US$268 million were brought onto the
balance sheet, increasing both trade receivables and short-term debt.
Operating Review for the Quarter
Sappi Fine Paper
Quarter ended
December 2005 December 2004 % September 2005
US$ million US$ million change US$ million
Sales 943 1,014 (7.0) 1,119
Operating
profit (loss) 15 21 (28.6) (21)
Operating
profit (loss)
to sales (%) 1.6 2.1 - (1.9)
EBITDA 95 110 (13.6) 66
EBITDA to
sales (%) 10.1 10.8 - 5.9
RONOA p.a. (%) 1.9 2.3 - (2.7)
Sales volumes from our fine paper businesses fell 1.7% on the equivalent
quarter last year which is disappointing in light of the modest increase in
shipments achieved by the industry in both Europe and North America.
The key concern for management is the slower than anticipated rate of
improvement in the earnings of our North American business.
Our South African fine paper business broke even at the operating level which
was a marked improvement on the US$15 million loss in the prior quarter.
Europe
Quarter ended
December 2005 December 2004 % change
US$ million US$ million (US$)
Sales 520 574 (9.4)
Operating profit 14 31 (54.8)
Operating profit to sales (%) 2.7 5.4
EBITDA 61 80 (23.8)
EBITDA to sales (%) 11.7 13.9
RONOA p.a. (%) 3.2 6.3
% change September 2005
(Euro) US$ million
Sales (2.3) 596
Operating profit (51.3) 42
Operating profit to sales (%) 7.0
EBITDA (17.8) 94
EBITDA to sales (%) 15.8
RONOA p.a. (%) 9.6
European industry shipments of coated fine paper grew 1.6% this quarter in
comparison to the prior year resulting in capacity utilisation levels above
90%. Several domestic markets such as Germany demonstrated strong growth, which
more than offset lower export sales. Sappi Fine Paper Europe"s coated fine
paper market share was unchanged from the prior year level.
The sharp fall in sales from the equivalent quarter last year was largely due
to currency translation. Average prices in Euro terms were virtually flat on
last year, and total volumes declined 2.1%. The remainder of the 9.4% fall in
sales was due to the translation of Euro sales into our reporting currency of
US Dollars at a weaker Euro/US Dollar rate.
In comparison to the prior quarter, our average realised sales price in Euro
terms was down 0.6%; in US Dollar terms the price reduction was greater due to
the weakening of the Euro.
Higher energy prices accounted for the majority of the US$14 million negative
price impact from wood, energy and chemical costs in comparison to the
equivalent quarter last year.
Our shipments to capacity ratio was 91%. We expect this to improve in the
second quarter due to a seasonal demand pickup. This seasonal pickup, in
conjunction with announced capacity closures should help further improve market
conditions.
We are exploring options for our speciality paper Nash Mill which could involve
the relocation of production or disposal.
North America
Quarter ended
December 2005 December 2004 % September 2005
US$ million US$ million change US$ million
Sales 345 357 (3.4) 424
Operating
profit (loss) 1 (13) (48)
Operating
profit (loss)
to sales (%) 0.3 (3.6) (11.3)
EBITDA 31 23 34.8 (16)
EBITDA to
sales (%) 9.0 6.4 (3.8)
RONOA p.a. (%) 0.3 (3.6) (15.4)
In the US, domestic apparent consumption (purchases) fell slightly, but
shipments from manufacturers increased 3.0% to fill the gap left by a sharp
fall in imports. This increase in shipments in conjunction with capacity
closures led to an improvement in industry operating rates in comparison to the
prior year.
The ramp-up of our reconfigured North American mill system following the
closure of PM 4 at Muskegon was slower than anticipated, which reduced
production volumes and delayed the realisation of cost savings from the
restructuring. Sales volumes were also constrained by lower than expected
production at Somerset, resulting in coated fine paper market share losses in
October and November.
Total sales volumes fell 1.7% in comparison to last year due to both lower pulp
sales and a 1% decline in paper sales. Average realised prices also fell 1.7%
in comparison to the prior year.
In comparison to the prior quarter, our average realised sales price increased
1.2% due to both mix and the partial implementation of an announced US$20 per
ton price increase. At the end of January 2006, we announced a price increase
of US$50 per ton effective on web and selected sheet products.
The price impact of wood, chemical and energy cost escalation in comparison to
the equivalent quarter last year was US$11 million. Higher energy costs were
the primary driver of the increase.
It was announced during the quarter that the majority of our US salaried
employees will stop accruing future benefits in the company"s defined benefit
pension plans and that the 401(k) savings plan would be redesigned for those
affected. A one-time pre-tax gain related to these changes in the pension plan
of approximately US$17 million was recorded in the quarter.
Fine Paper South Africa
Quarter ended
December 2005 December 2004 % change
US$ million US$ million (US$)
Sales 78 83 (6.0)
Operating profit - 3 -
Operating profit to sales (%) - 3.6 -
EBITDA 3 7 (57.1)
EBITDA to sales (%) 3.8 8.4 -
RONOA p.a. (%) - 5.3 -
% change September 2005
(Rands) US$ million
Sales 0.4 99
Operating profit - (15)
Operating profit to sales (%) - (15.2)
EBITDA (54.2) (12)
EBITDA to sales (%) - (12.1)
RONOA p.a. (%) - 36.1
Sales volumes from our South African fine paper business returned to a similar
level as the same quarter last year after a big boost in the prior quarter from
an extra accounting week and increased export sales to reduce inventories.
Despite the small increase in sales volumes in comparison to the prior year,
total sales fell sharply due primarily to the translation effect of the weaker
Rand. Sales prices in Rand terms fell 0.9% in comparison to last year, but in
US Dollar terms this fall was 7.2%.
Operating profit showed a marked improvement in comparison to the prior quarter.
This was due to a higher proportion of domestic sales and the benefits of
higher pulp integration from the startup of a new bleach plant at Stanger.
Forest Products
Quarter ended
December 2005 December 2004 % change
US$ million US$ million (US$)
Sales 232 242 (4.1)
Operating profit (loss) 37 (7) -
Operating profit (loss) to
sales (%) 15.9 (2.9) -
EBITDA 70 29 141.4
EBITDA to sales (%) 30.2 12.0 -
RONOA p.a. (%) 10.9 (1.9) -
% change September 2005
(Rands) US$ million
Sales 2.4 269
Operating profit (loss) - 35
Operating profit (loss) to sales (%) - 13.0
EBITDA 157.9 70
EBITDA to sales (%) - 26.0
RONOA p.a. (%) - 10.8
Pulp and paper sales volumes from our Forest Products business fell 9.2% on the
prior year. The key reasons for this were reduced waste paper sales, the
curtailment of low-priced export sales, and the fact that the prior quarter
included significant sales from inventory at our Usutu mill.
Demand for chemical cellulose remained strong, and this business benefited from
the weakening of the Rand in comparison to the US Dollar. NBSK pulp price
increases have been announced for February 2006 - if accepted, this will have a
positive impact on Saiccor"s profitability, although the current strength of
the Rand will be an offsetting factor.
Local sales of containerboard, white top liner, and newsprint exceeded
expectations this quarter. Local newsprint sales were limited only by capacity
constraints at Ngodwana; some exports of newsprint have been discontinued in
favour of domestic sales. Strong sack kraft demand was consistent with the
booming construction industry in South Africa, and product development efforts
to offer a wider range of sack products continues.
Demand for Usutu"s unbleached pulp has been hampered by market preference for
higher brightness pulp. The installation of an oxygen delignification plant in
the third quarter will help to address this issue.
Sawn timber demand is very buoyant, driven by the local construction market.
Tight timber supplies are likely to translate into price increases in the
second quarter.
Outlook
The short term outlook for our business is difficult and will be dependent, in
the coming quarters, on the outcome of the price increases that we are
currently implementing. In addition to these price increase initiatives, we
will continue to focus on cost control in all of our businesses, but we are
unlikely to recover enough costs to fully offset recent input price increases,
particularly higher energy prices. In this environment, we could experience
some deterioration in underlying earnings per share in the second quarter
relative to the first quarter before any plantation revaluation adjustments.
The longer term outlook for supply and demand in our coated fine paper business
has, however, improved. Paper machine closures that total approximately 10% of
North American coated fine paper capacity have been announced. We believe that
further rationalisation of high cost capacity, particularly in Europe, is
necessary, but the closures already announced should have a positive impact. In
addition to improvements on the supply side of our business, positive GDP
indicators in key consuming countries such as Germany and Japan and related
improvements in advertising spend forecasts suggest that the demand side of our
business is also likely to improve. The likelihood of higher pulp prices is
also a positive indicator for our business.
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
Quarter ended Quarter ended
Dec 2005 Dec 2004
US$ million US$ million % change
Sales 1,175 1,256 (6.4)
Cost of sales 1,042 1,114
Gross profit 133 142 (6.3)
Selling, general &
administrative expenses 83 87
50 55
Other expenses 1 43
Operating profit (loss) 49 12 308.3
Net finance costs 27 21
Net paid 32 33
Capitalised (1) -
Net foreign exchange gains (1) (2)
Change in fair value of
financial instruments (3) (10)
Profit (loss) before tax 22 (9) -
Taxation - current 8 8
- deferred 14 1
Net loss - (18) -
Loss per share (US cents) - (8)
Headline earnings per share
(US cents) * 1 11
Weighted average number of
shares in issue (millions) 225.9 226.0
Diluted loss per share (US
cents) - (8)
Diluted headline earnings per
share (US cents) * 1 11
Weighted average number of
shares on fully
diluted basis (millions) 226.7 227.3
Calculation of Headline
earnings *
Net loss - (18)
Loss on disposal of property,
plant & equipment - -
Write-off of assets 1 1
Impairment of property, plant
& equipment 1 41
Debt restructuring costs - -
Headline earnings 2 24
Restated
Reviewed
Year ended
Sept 2005
US$ million
Sales 5,018
Cost of sales 4,507
Gross profit 511
Selling, general & administrative expenses 361
150
Other expenses 259
Operating profit (loss) (109)
Net finance costs 80
Net paid 125
Capitalised (1)
Net foreign exchange gains (5)
Change in fair value of financial instruments (39)
Profit (loss) before tax (189)
Taxation - current 45
- deferred (45)
Net loss (189)
Loss per share (US cents) (84)
Headline earnings per share (US cents) * 18
Weighted average number of shares in issue (millions) 225.8
Diluted loss per share (US cents) (84)
Diluted headline earnings per share (US cents) * 18
Weighted average number of shares on fully
diluted basis (millions) 226.7
Calculation of Headline earnings *
Net loss (189)
Loss on disposal of property, plant & equipment 2
Write-off of assets 6
Impairment of property, plant & equipment 219
Debt restructuring costs 2
Headline earnings 40
* Headline earnings disclosure is required by the JSE Limited.
Group balance sheet
Restated
Reviewed Reviewed
Dec 2005 Sept 2005
US$ million US$ million
ASSETS
Non-current assets 4,203 4,244
Property, plant and equipment 3,289 3,333
Plantations 614 604
Deferred taxation 67 70
Other non-current assets 233 237
Current assets 1,668 1,645
Inventories 751 711
Trade and other receivables 543 567
Cash and cash equivalents 374 367
Total assets 5,871 5,889
EQUITY AND LIABILITIES
Shareholders" equity
Ordinary shareholders" interest 1,512 1,589
Non-current liabilities 2,474 2,547
Interest-bearing borrowings 1,533 1,600
Deferred taxation 378 367
Other non-current liabilities 563 580
Current liabilities 1,885 1,753
Interest-bearing borrowings 700 616
Bank overdraft 213 159
Other current liabilities 784 858
Taxation payable 120 120
Shareholders for dividend 68 -
Total equity and liabilities 5,871 5,889
Number of shares in issue at
balance sheet date (millions) 225.9 225.9
Group cash flow statement
Restated Restated
Reviewed Reviewed Reviewed
Quarter ended Quarter ended Year ended
Dec 2005 Dec 2004 Sept 2005
US$ million US$ million US$ million
Operating profit (loss) 49 12 (109)
Depreciation, fellings and
other amortisation 114 125 490
Other non-cash items
(including impairment
charges) (41) 5 188
Cash generated by operations 122 142 569
Movement in working capital (80) (103) (30)
Net finance costs (45) (39) (127)
Taxation paid (7) (27) (43)
Dividends paid - - (68)
Cash (utilised in) retained
from operating activities (10) (27) 301
Cash effects of investing
activities (74) (127) (379)
(84) (154) (78)
Cash effects of financing
activities 94 24 (37)
Net movement in cash and
cash equivalents 10 (130) (115)
Group statement of recognised income and expense
Reviewed Reviewed
Quarter ended Quarter ended
Dec 2005 Dec 2004
US$ million US$ million
Pension fund assets not recognised (1) -
Exchange differences on translation of
foreign operations (11) 179
Net (expense) income recorded directly in
equity (12) 179
Net loss for the period - (18)
Total recognised (expense) income for the
period (12) 161
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 by 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 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 expenses.
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
option 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 distributable reserve.
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 in 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 (December 2004: US$5 million).
Cash flow hedges on inter-company loans, accounted for in equity, no longer
qualify for hedge accounting under IAS 39. As a result these instruments are
now recognised at fair value through profit and loss.
The effects of changes in foreign exchange rates - IAS 21
Sappi has elected to apply the exemption in IFRS 1 which allows the cumulative
translation differences of all foreign operations to be reduced to zero at the
date of transition to IFRS which is October 2004. The Foreign Currency
Translation Reserve (Non Distributable Reserve) was transferred to
distributable reserves. This IFRS change has no impact on total shareholders"
equity.
There are no other accounting policy changes relevant to the first time
adoption of IFRS
Reconciliation of previous SA GAAP to IFRS for Shareholders" Equity
Reviewed Reviewed Reviewed
Year Quarter IFRS
ended ended transition
Sept 2005 Dec 2004 Oct 2004
US$ million US$ million US$ million
Total equity presented under
SA GAAP 1,881 2,248 2,157
Impact on retained earnings:
Recognition of previously
unrecognised actuarial
losses - IAS 19 (345) (291) (300)
Deferred taxation impact of
IAS 19 change 48 88 93
Share based payments - IFRS 2 (20) (13) (9)
Release of cash flow hedge
reserve - IAS 39 14 7 (2)
Foreign Currency Translation
Reserve cleared at
October 2004 244 244 244
Share based payment reserve
- IFRS 2 20 14 9
Hedging Reserves - IAS 39 (13) (7) 2
Foreign Currency Translation
Reserve (240) (256) (244)
Total equity and reserves
presented under IFRS 1,589 2,034 1,950
Reconciliation of previous SA GAAP to IFRS for net loss
Reviewed Reviewed
Year Quarter
ended ended
Sept 2005 Dec 2004
US$ million US$ million
Net loss under SA GAAP (213) (29)
Reduction in expense due to recognition of
actuarial gains and losses - IAS 19 23 6
Deferred taxation impact of IAS 19 (4) (1)
Share based payment expense - IFRS 2 (10) (3)
Gains and losses from cash flow hedges that do
not qualify for hedge accounting - IAS 39 22 13
Deferred taxation impact of IAS 39 (7) (4)
Net loss under IFRS (189) (18)
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$1662 million to US$2008 million at
September 2005.
3. Reconciliation of movement in shareholders" equity
Reviewed Reviewed
Quarter ended Quarter ended
Dec 2005 Dec 2004
US$ million US$ million
Balance - beginning of year as reported 1,881 2,157
IFRS adoption (refer note 2) (292) (207)
Recognition of previously unrecognised
actuarial losses - IAS 19 (345) (300)
Deferred taxation impact of IAS 19 change 48 93
Translation differences 5 -
Balance - beginning of year restated 1,589 1,950
Total recognised (expense) income
for the period (12) 161
Dividends paid (68) (68)
Share buybacks net of transfers to
participants of the share
purchase trust 1 (14)
Share based payment reserve 2 5
Balance - end of period 1,512 2,034
Reviewed Reviewed
Quarter ended Quarter ended
Dec 2005 Dec 2004
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 97 108
Other amortisation - 1
97 109
Fair value adjustment (gains) on plantations
(included in cost of sales)
Changes in volume
Fellings 17 16
Growth (14) (14)
3 2
Changes in fair value (10) (16)
(7) (14)
The above fair value adjustment gains have
been offset by silviculture costs 10 11
5. Capital expenditure
Property, plant and equipment 72 78
Reviewed Reviewed
Dec 2005 Sept 2005
US$ million US$ million
6. Capital commitments
Contracted but not provided 112 115
Approved but not contracted 216 198
328 313
7. Contingent liabilities
Guarantees and suretyships 87 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 Restated
Reviewed Reviewed Reviewed
Quarter ended Quarter ended Year ended
Dec 2005 Dec 2004 Sept 2005
US$ million US$ million US$ million
Net loss to EBITDA(1)
reconciliation
Net loss - (18) (189)
Net finance costs 27 21 80
Taxation - current 8 8 45
- deferred 14 1 (45)
Depreciation 97 108 422
Amortisation (including
fellings) 17 17 68
EBITDA(1) 163 137 381
Restated
Reviewed Reviewed
Dec 2005 Sept 2005
US$ million US$ million
Net debt (US$ million)(2) 2,072 2,008
Net debt to total capitalisation (%)(2) 42.3 40.9
Net asset value per share (US$)(2) 8.07 8.35
(1) In connection with the U.S. Securities Exchange Commission ("SEC") rules
relating to "Conditions for Use of Non-GAAP Financial Measures", we have
reconciled EBITDA to net profit rather than operating profit.
As a result our definition retains other income / expenses as part of EBITDA.
We use EBITDA as an internal measure of performance and believe it is a useful
and commonly used measure of financial performance in addition to operating
profit and other profitability measures under IFRS. EBITDA is not a measure of
performance under IFRS. EBITDA should not be construed as an alternative to
operating profit as an indicator of the company"s operations in accordance with
IFRS. EBITDA is also presented to assist our shareholders and the investment
community in interpreting our financial results. This financial measure is
regularly used as a means of comparison of companies in our industry by
removing certain differences between companies such as depreciation methods,
financing structures and taxation regimes. Different companies and analysts may
calculate EBITDA differently, so making comparisons among companies on this
basis should be done very carefully.
(2) Refer to Supplemental Information for the definition of the term.
Supplemental Information
Regional information
Quarter ended Quarter ended
Dec 2005 Dec 2004
Metric tons Metric tons
(000"s) (000"s) % change
Sales
Fine Paper - North America 344 350 (1.7)
Europe 602 615 (2.1)
Southern Africa 79 78 1.3
Total 1,025 1,043 (1.7)
Forest Products - Pulp and
paper operations 355 391 (9.2)
Forestry operations 376 381 (1.3)
Total 1,756 1,815 (3.3)
Reviewed Reviewed
Quarter ended Quarter ended
Dec 2005 Dec 2004
US$ million US$ million % change
Sales
Fine Paper - North America 345 357 (3.4)
Europe 520 574 (9.4)
Southern Africa 78 83 (6.0)
Total 943 1,014 (7.0)
Forest Products - Pulp and
paper operations 212 222 (4.5)
Forestry operations 20 20 -
Total 1,175 1,256 (6.4)
Operating profit (loss)
Fine Paper - North America 1 (13) -
Europe 14 31 (54.8)
Southern Africa - 3 -
Total 15 21 (28.6)
Forest Products 37 (7) -
Corporate (3) (2) 50.0
Total 49 12 308.3
Earnings before interest,
tax, depreciation
and amortisation charges
Fine Paper - North America 31 23 34.8
Europe 61 80 (23.8)
Southern Africa 3 7 (57.1)
Total 95 110 (13.6)
Forest Products 70 29 141.4
Corporate (2) (2) -
Total 163 137 19.0
Net operating assets
Fine Paper - North America 1,173 1,424 (17.6)
Europe 1,748 2,095 (16.6)
Southern Africa 171 246 (30.5)
Total 3,092 3,765 (17.9)
Forest Products 1,389 1,591 (12.7)
Corporate and other * (23) (79) (70.9)
Total 4,458 5,277 (15.5)
Year ended
Sept 2005
Metric tons
(000"s)
Sales
Fine Paper - North America 1,433
Europe 2,427
Southern Africa 317
Total 4,177
Forest Products - Pulp and paper operations 1,565
Forestry operations 1,737
Total 7,479
Restated
Reviewed
Year ended
Sept 2005
US$ million
Sales
Fine Paper - North America 1,458
Europe 2,239
Southern Africa 323
Total 4,020
Forest Products - Pulp and paper operations 908
Forestry operations 90
Total 5,018
Operating profit (loss)
Fine Paper - North America (259)
Europe 84
Southern Africa (11)
Total (186)
Forest Products 83
Corporate (6)
Total (109)
Earnings before interest, tax, depreciation
and amortisation charges
Fine Paper - North America (122)
Europe 284
Southern Africa 4
Total 166
Forest Products 220
Corporate (5)
Total 381
Net operating assets
Fine Paper - North America 1,199
Europe 1,735
Southern Africa 160
Total 3,094
Forest Products 1,325
Corporate and other * 55
Total 4,474
* Includes investment in joint venture in China. The investment was included
in the net operating assets of Sappi Fine Paper Europe at December 2004.
Supplemental Information
Summary rand convenience translation
Restated
Reviewed Reviewed
Quarter ended Quarter ended
Dec Dec %
2005 2004 change
Sales (ZAR million) 7,613 7,618 (0.1)
Operating profit (loss)
(ZAR million) 317 73 334.2
Net loss (ZAR million) - (109) -
EBITDA (ZAR million) * 1,056 831 27.1
Operating profit (loss) to
sales (%) 4.2 1.0
EBITDA to sales (%) * 13.9 10.9
Operating profit (loss) to
average net assets (%) 4.9 1.0
EPS (SA cents) - (49) -
Headline EPS (SA cents) * 6 67 (91.0)
Net debt (ZAR million) * 13,111 13,431 (2.4)
Net debt to total
capitalisation (%) * 42.3 41.1
Cash generated by operations
(ZAR million) 790 861 (8.2)
Cash from operating activities
(ZAR million) (65) (164) (60.4)
Net movement in cash and cash
equivalents (ZAR million) 65 (788) -
Restated
Reviewed
Year ended
Sept
2005
Sales (ZAR million) 31,321
Operating profit (loss) (ZAR million) (680)
Net loss (ZAR million) (1,180)
EBITDA (ZAR million) * 2,378
Operating profit (loss) to sales (%) (2.2)
EBITDA to sales (%) * 7.6
Operating profit (loss) to average net assets (%) (2.5)
EPS (SA cents) (524)
Headline EPS (SA cents) * 112
Net debt (ZAR million) * 12,782
Net debt to total capitalisation (%) * 40.9
Cash generated by operations (ZAR million) 3,552
Cash from operating activities (ZAR million) 1,879
Net movement in cash and cash equivalents (ZAR million) (718)
* Refer to Supplemental Information for the definition of the term.
Supplemental Information
Exchange rates
Dec Sept June
2005 2005 2005
Exchange rates :
Period end rate: US $1 = ZAR 6.3275 6.3656 6.7041
Average rate for the Quarter: US $1 = ZAR 6.4795 6.5289 6.3738
Average rate for the YTD: US $1 = ZAR 6.4795 6.2418 6.1732
Period end rate: EUR 1 = US$ 1.1843 1.2030 1.2097
Average rate for the Quarter: EUR 1 = US$ 1.1915 1.2139 1.2678
Average rate for the YTD: EUR 1 = US$ 1.1915 1.2659 1.2811
March Dec
2005 2004
Exchange rates :
Period end rate: US $1 = ZAR 6.2059 5.6480
Average rate for the Quarter: US $1 = ZAR 5.9577 6.0649
Average rate for the YTD: US $1 = ZAR 6.0632 6.0649
Period end rate: EUR 1 = US$ 1.2982 1.3456
Average rate for the Quarter: EUR 1 = US$ 1.3110 1.2848
Average rate for the YTD: EUR 1 = US$ 1.2911 1.2848
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.
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: 03/02/2006 09:00:28 AM Supplied by www.sharenet.co.za
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