Wrap Text
(Registration No. 1936/008963/06)
Quarterly Results For The Third Quarter Ended June 2001
highlights
Tough trading conditions
Production curtailment
Lower sales
Headline EPS 24 US cents
$120 million non-recurring charge for Mobile closure
Share buyback to continue
Summary June 2001
Quarter ended Nine months ended
June March June June June
2001 2001 2000 2001 2000
Sales (US$ million) 967 1,104 1,170 3,186 3,472
Operating profit (US$ million) 91 121 181 355 473
EBITDA (US$ million) 175 210 278 622 767
Operating profit to sales (%) 9.4 11.0 15.5 11.1 13.6
EBITDA to sales (%) 18.1 19.0 23.8 19.5 22.1
Operating profit to
average net assets (%) 10.5 13.6 18.0 13.4 16.2
Basic EPS before exceptional
items (Headline) (US cents) 24 32 39 90 97
Basic EPS (US cents) (27) 32 41 39 99
Return on equity (%) 14.1** 18.6 25.1 18.2** 20.7
Net Debt (US$ million) 1,250 1,277 1,562* 1,250 1,562*
* Restated for reclassification of minority interest to debt
** Before Mobile restructuring charge
Comments
Trading conditions remained difficult during the quarter with reduced
apparent demand and shipments of coated woodfree paper as well as downward
pressure on prices of pulp and coated paper in USA and export markets. As a
result we idled more capacity during the quarter and curtailed approximately
230,000 tons of production in order to match our output to demand.
group results
The group's net profit before exceptional items for the quarter was US$55
million, 41% below last year. The decision to close Mobile mill in Alabama,
USA, was confirmed during the quarter and a one-time charge of US$120
million after tax representing the full estimate of the closure costs was
taken. The closure will be cash flow positive as a result of the liquidation
of current assets and tax credits. Future income will be favourably impacted
by the elimination of the losses incurred at Mobile. After exceptional items
the net loss for the quarter was US$66 million.
Earnings per share before exceptional items were 24 US cents, compared to
32 US cents last quarter and 39 US cents a year ago. The loss per share
after the one-time restructuring charge was 27 US cents.
Sales volumes of continuing operations were 6% lower than last year. This
reduction was in the fine paper business reflecting slower economic activity
in Europe and North America and inventory reduction by merchants and
printers. Prices were 7% lower than a year earlier in dollar terms largely
reflecting the movement in exchange rates because of the strength of the US
dollar.
Operating margins were impacted by the lower shipments and price erosion.
Operating profit was down 50% to US$91 million, but finance costs after
currency adjustments and capitalised interest were US$16 million which was
US$15 million (48%) lower than the equivalent quarter last year.
As a result of the US$80 million tax credit relating to the Mobile
restructuring charge and tax rate reductions in Europe, taxation for the
quarter was a credit of US$60 million. The group tax charge for the 9 months
to June is 4.2%. The estimated effective tax rate for ongoing operations
(excluding Mobile) is now estimated to be approximately 25% for the current
financial year.
Cash Flow And Debt
The group generated cash flow of US$175 million for the quarter (EBITDA).
Capital expenditure, which was in line with the rate of spend of the first
half year at US$74 million for the quarter, represented 94% of depreciation
and fellings. For the next financial year this percentage will decline to
approximately 70% of depreciation and fellings.
Net debt was marginally lower at US$1,250 million and the debt to total
capitalisation ratio was 34.5%, slightly up on the prior quarter as a result
of the Mobile write down. We expect net debt to reduce further in the next
quarter.
We have recently completed a euro 900 million (US$770 million) finance
facility, which comprises two tranches. The first is a euro 562.5 million
five-year revolving credit facility for general corporate purposes. The
second tranche of euro 337.5 million will be used to refinance existing high
cost debt in the United States, including approximately US$140 million of
14% debentures that we intend to call in December 2001. Both tranches carry
interest rates at LIBOR plus a margin of 0.55% with a floating utilisation
fee of up to 0.15% on the first tranche, depending on usage. This rate
reflects the strong credit standing of the group. This new facility will
reduce Sappi's finance cost in the USA by approximately US$13 million pre-
tax in a full year. The cash cost of calling the debentures will be
approximately US$6 million as a once-off premium.
sappi fine paper
Quarter ended
June 2001 June 2000 %
US$ million US$ million change
Sales 799 948 (16)
Operating profit 43 117 (63)
Operating margin (%) 5.4 12.3 -
EBITDA 105 189 (44)
EBITDA Margin (%) 13.1 19.9 -
RONOA p.a. (%) 6.6 16.4 -
The Fine Paper business experienced difficult trading conditions throughout
the quarter with reduced demand and some decline in paper prices. This was
partly offset by lower pulp prices, which declined to US$510 per ton in June
from US$710 per ton in January, and our own control of costs.
Europe
Weak demand for coated woodfree paper has resulted in 15% lower sales
volume. Prices were 2% above a year earlier in local currency but in dollar
terms were 3% lower. We took approximately one week a month of production
curtailment across all of our coated woodfree paper machines to match our
output to market requirements.
The rapid decline in pulp prices had a favourable impact on variable costs
and fixed costs were tightly controlled. Operating income of US$26 million
was less than half of that of the previous year.
Quarter ended
June 2001 June 2000 % change % change
US$ million US$ million (US$) (Euros)
Sales 401 489 (18) (11)
Operating profit 26 66 (61) (57)
Operating margin (%) 6.5 13.5 - -
EBITDA 61 109 (44) (40)
EBITDA Margin (%) 15.2 22.3 - -
RONOA p.a. (%) 7.7 17.5 - -
North America
The North American business has continued to feel the negative impact of the
slowing US economy and the strong US dollar. Overall consumption of coated
woodfree paper is off considerably and imports from Asia and Europe have
continued to reduce the domestic producers' share of the market.
Weak capacity utilisation has translated into price erosion. To balance
supply and demand we are curtailing a further 70,000 tons of production
between June and September.
Sales volume was 9% and prices were 6% below a year ago. Costs continue to
be affected by higher energy costs, placing additional pressure on margins.
Variable costs have been favourably impacted by the lower pulp prices.
Operating income consequently declined to US$9 million for the quarter.
Quarter ended
June 2001 June 2000 %
US$ million US$ million change
Sales 340 400 (15)
Operating profit 9 46 (80)
Operating margin (%) 2.6 11.5 -
EBITDA 35 73 (52)
EBITDA Margin (%) 10.3 18.3 -
RONOA p.a. (%) 3.1 15.4 -
A final decision was taken to close the Sappi Fine Paper North America mill
at Mobile, Alabama during the quarter. The production of uncoated products
will be phased out by September. Production of the Lusterprint range of
speciality coated products is being moved to other Sappi facilities.
The full profit improvement which will result from the closure of Mobile
mill will be achieved from the beginning of the next calendar year.
Fine Paper SA
The South African fine paper business performed well. Sales volumes were
slightly above a year earlier. Prices in domestic currency were 13% higher
and in dollar terms prices were 4% lower. Costs were tightly controlled.
Operating income increased 60%, resulting in a 13% operating margin and 33%
return on net operating assets.
sappi forest products
Our international markets have been affected by weakening prices. We
curtailed dissolving pulp production during the quarter to match demand and
manage inventories. Demand for packaging paper and newsprint in the South
African market has remained stable.
Sales volume of continuing business was at the same level as a year earlier.
Average prices for paper increased strongly in local currencies but were
flat in dollar terms. Pulp prices, however, were approximately 5% lower in
dollar terms. Costs continue to be well controlled and were significantly
lower than a year earlier.
Quarter ended
June 2001 June 2000* % change % change
US$ million US$ million (US$) (Rands)
Sales 168 222 (24) (11)
Operating profit 41 65 (37) (26)
Operating margin (%) 24.4 29.3 - -
EBITDA 63 91 (31) (18)
EBITDA Margin (%) 37.5 41.0 - -
RONOA p.a. (%) 18.2 24.7 - -
*Includes discontinued businesses
Share Repurchase
During the quarter we continued to buy back shares and since December 2000
have repurchased 11.5 million shares. The average price paid in the quarter
was R74.97 per share with a high of R79.50 and a low of R68.20 per share.
We intend to continue the programme in the current quarter.
Outlook
There has not yet been any improvement in our markets but industry
inventories are generally at low levels and any improvement in economic
outlook should result in a turnaround in pulp and paper markets. Pulp prices
are now below the production cost levels of many manufacturers, particularly
in North America, which is not sustainable for an extended period. The
continued strength of the US Dollar exposes the USA coated paper market to
imports from Asia and Europe and puts pressure on the domestic currency
costs of our European business to the extent that they are dollar based.
Given current market and currency conditions we expect earnings before
exceptional items for the fourth quarter to be similar to the third
quarter's.
On behalf of the Board
E van As
Director
D G Wilson
Director
27 July 2001
Forward Looking Statements
Certain statements in this report 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 events, trends, plans or objectives. Undue reliance should not be
placed on such statements because, by their nature, they are subject to
known and unknown risks and uncertainties and can be affected by other
factors, that could cause actual results and company plans and objectives to
differ materially from those expressed or implied in the forward-looking
statements (or from past results). Such risks, uncertainties and factors
include, but are not limited to the highly cyclical nature of the pulp and
paper industry (and the factors that contribute to such cyclicality, such as
levels of demand, production capacity, production and pricing), adverse
changes in the markets for the group's products, consequences of substantial
leverage, changing regulatory requirements, unanticipated production
disruptions, economic and political conditions in international markets, the
impact of investments, acquisitions and dispositions (including related
financing) 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 Statements
Unaudited Unaudited
Quarter ended Nine months ended
June 2001 June 2000 June 2001 June 2000
US$ US$ % US$ US$ %
million million change million million change
Sales 967 1,170 (17.4) 3,186 3,472 (8.2)
Cost of sales 786 889 2,559 2,709
Gross profit 181 281 (35.6) 627 763 (17.8)
Selling, general &
administrative
expenses 90 100 272 290
Operating profit 91 181 (49.7) 355 473 (24.9)
Non-trading (loss)
profit (201) (2) (204) 2
Net finance costs 16 31 56 101
Net paid 25 39 83 128
Capitalised (9) (8) (27) (27)
Profit/(loss)
before tax (126) 148 95 374
Taxation - current (2) 10 41 46
- deferred (58) 39 (37) 86
Profit/(loss)
after tax (66) 99 91 242 (62.4)
Income attributable to
minority interests - 1 - 8
Net profit/(loss) (66) 98 91 234 (61.1)
EBITDA 175 278 (37.1) 622 767 (18.9)
Basic earnings/(loss)
per share
(US cents) (27) 41 39 99
Basic earnings before
exceptional items
(Headline earnings)
per share
(US cents) 24 39 90 97
Weighted average number
of shares in issue
(millions) 230.7 239.1 233.8 236.2
Diluted earnings/(loss)
per share
(US cents) (27) 40 39 97
Diluted earnings before
exceptional items
(Headline earnings) per
share (US cents) 24 38 89 96
Weighted average number
of shares on fully
diluted basis
(millions) 230.7 247.9 236.1 244.7
Calculation of Earnings
before exceptional items
(Headline) net of tax
Net profit/(loss) (66) 98 91 234
Profit/loss on disposal
of business and fixed
assets (1) 1 - (1)
Mill closure costs 120 - 120 -
Accelerated cost of early
buy back of loan
notes - - - 11
Increase/(decrease) in
other provisions 2 (5) (1) (14)
Earnings before exceptional
items (Headline) 55 94 210 230
Group Balance Sheet
Unaudited Audited
June 2001 September 2000
US$ million US$ million
ASSETS
Non-current assets 3,349 3,600
Property, plant and equipment 2,844 3,095
Plantations 355 372
Deferred taxation 33 37
Other non-current assets 117 96
Current assets 1,078 1,168
Cash and cash equivalents 219 294
Trade and other receivables 269 319
Inventories 590 555
Total assets 4,427 4,768
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders' interest 1,475 1,618
Minority interest 2 53
Non-current liabilities 1,927 1,996
Long-term borrowings 1,245 1,278
Deferred taxation 436 500
Other long-term liabilities 246 218
Current liabilities 1,023 1,101
Interest bearing liabilities 224 162
Bank overdraft - 76
Other current liabilities 799 863
Total equity and liabilities 4,427 4,768
Number of shares in issue (millions) 229.9 239.1
Net Debt (US$ million) 1,250 1,270*
Net Debt to Total Capitalisation (%) 34.5 32.5*
Net asset value per share (US cents) 817 870
* Restated for reclassification of minority interest to debt in June 2001,
as if processed in September 2000.
group cash flow statement
Unaudited Unaudited
Nine months Nine months
ended ended
June 2001 June 2000
US$ million US$ million
Cash generated by operations 607 784
Movement in working capital (126) (115)
Net finance costs (83) (128)
Taxation paid (53) (16)
Dividends paid (60) (45)
Cash retained from
operating activities 285 480
Cash effects of investing activities (222) (54)
63 426
Cash effects of financing activities (130) (168)
Net movement in cash and cash equivalents (67) 258
group statement of changes in shareholders' equity
Unaudited Unaudited
Nine months Nine months
ended ended
June 2001 June 2000
US$ million US$ million
Balance - beginning of year restated 1,618 1,436
Net profit 91 234
Foreign currency translation reserve (97) (152)
Dividends declared - US$ 0.25
(2000: US$ 0.19) per share (60) (45)
Goodwill written off to equity - (11)
(Share buy backs and issues to
Share Purchase Trust) / Issuance
of ordinary shares (77) 114
Balance - end of period 1,475 1,576
Notes To The Group Results
1. Basis of Preparation
The group results have been prepared in conformity with South African
Statements of Generally Accepted Accounting Practice. The same accounting
policies have been followed as in the annual financial statements for
September 2000, except for new or revised accounting standards adopted in
the first quarter of the current year.
The financial results for the quarter have been reviewed by the group's
auditors, Deloitte & Touche. Their report is available for inspection at the
company's registered offices.
Unaudited Unaudited
Quarter ended Nine months ended
June 2001 June 2000 June 2001 June 2000
US$ million US$ million US$ million US$
million
2. Operating profit
Included in
operating profit are:
Depreciation 71 83 227 250
Fellings 8 9 24 28
Amortisation 5 5 16 16
84 97 267 294
3. Capital expenditure
Fixed assets 203 122
Plantations 22 25
225 147
Unaudited Audited
Nine months Year
ended ended
June September
2001 2000
US$ million US$ million
4. Capital commitments
Contracted but not provided 112 73
Approved but not contracted 122 150
234 223
5. Contingent liabilities
Guarantees and suretyships 42 80
Other contingent liabilities 62 46
regional information
Unaudited Unaudited
Quarter ended Nine months ended
June 2001 June 2000 June 2001 June 2000
US$ US$ % US$ US$ %
million million change million million change
Sales - Metric
tons (000's)
Fine Paper
- North America 297 327 (9.2) 951 996 (4.5)
Europe 497 581 (14.5) 1,617 1,729 (6.5)
Southern Africa 72 71 1.4 210 203 3.4
Total 866 979 (11.5) 2,778 2,928 (5.1)
Forest Products 597 669 (10.8) 1,827 2,030 (10.0)
Total 1,463 1,648 (11.2) 4,605 4,958 (7.1)
Sales
Fine Paper
- North America 340 400 (15.0) 1,119 1,189 (5.9)
Europe 401 489 (18.0) 1,337 1,459 (8.4)
Southern Africa 58 59 (1.7) 170 174 (2.3)
Total 799 948 (15.7) 2,626 2,822 (6.9)
Forest Products 168 222 (24.3) 560 650 (13.8)
Total 967 1,170 (17.4) 3,186 3,472 (8.2)
Operating profit
Fine Paper
- North America 9 46 (80.4) 40 127 (68.5)
Europe 26 66 (60.6) 120 185 (35.1)
Southern Africa 8 5 60.0 23 15 53.3
Total 43 117 (63.2) 183 327 (44.0)
Forest Products 41 65 (36.9) 163 146 11.6
Corporate 7 (1) 9 -
Total 91 181 (49.7) 355 473 (24.9)
Earnings before
interest, tax,
depreciation and
amortisation
charges **
Fine Paper
- North America 35 73 (52.1) 124 207 (40.1)
Europe 61 109 (44.0) 231 311 (25.7)
Southern Africa 9 7 28.6 28 21 33.3
Total 105 189 (44.4) 383 539 (28.9)
Forest Products 63 91 (30.8) 230 228 0.9
Corporate 7 (2) 9 -
Total 175 278 (37.1) 622 767 (18.9)
Net
operating assets
Fine Paper
- North America 1,081 1,205 (10.3) 1,081 1,205 (10.3)
Europe 1,336 1,484 (10.0) 1,336 1,484 (10.0)
Southern Africa 98 139 (29.5) 98 139 (29.5)
Total 2,515 2,828 (11.1) 2,515 2,828 (11.1)
Forest Products 899 1,019 (11.8) 899 1,019 (11.8)
Corporate (38) (11) 245.5 (38) (11) 245.5
Total 3,376 3,836 (12.0) 3,376 3,836 (12.0)
** before non-trading profit (loss)
summary rand convenience translation
Unaudited Unaudited
Quarter ended Nine months ended
June 2001 June 2000 % June 2001 June 2000 %
change change
Sales
(ZAR million) 7,739 7,927 (2.4) 24,839 22,207 11.8
Operating
profit
(ZAR million) 728 1,226 (40.6) 2,768 3,025 (8.5)
Profit/(loss)
after taxation
(ZAR million) (528) 671 709 1,548 (54.2)
EBITDA
(ZAR million) 1,401 1,881 (25.5) 4,849 4,903 (1.1)
Operating profit
to sales (%) 9.4 15.5 11.1 13.6
EBITDA to sales (%) 18.1 23.7 19.5 22.1
Operating profit
to average net
assets (%) 10.8 18.8 13.7 16.1
Basic EPS before
exceptional items
(Headline)
(SA cents) 191 266 (28.4) 700 623 12.4
Basic EPS
(SA cents) (216) 278 303 634 (52.2)
EBITDA per
share (SA cents) 607 787 (22.9) 2,074 2,076 (0.1)
Net debt
(ZAR million) 10,081 10,676* (5.6) 10,081 10,676* (5.6)
Net debt to
total
capitalisation (%) 34.5 36.3* 34.5 36.3*
Cash generated
by operations
(ZAR million) 4,732 5,015 (5.6)
Cash retained from
operating activities
(ZAR million) 2,222 3,070
Net movement in cash
and cash equivalents
(ZAR million) (522) 1,650
Exchange rates:
Period end
rate: US $1 = R 8.0650 6.8350 8.0650 6.8350
Average rate:
US $1 = R 8.0033 6.7750 7.7963 6.3962
Period end rate:
US $1 = EURO 1.1788 1.0628 1.1788 1.0628
Average rate:
US $1 = EURO 1.1508 1.0646 1.1358 1.0080
* Restated for reclassification of minority interest to debt
This report is available on the Sappi website -
www.sappi.com
Other interested parties can obtain printed
copies of this report from:
South Africa:
Mercantile Registars Limited,
8th Floor, 11 Diagonal Street, Johannesburg, 2001
PO Box 1053, Johannesburg, 2000. Tel: +27 (0) 11 370-5000
United Kingdom:
Capita IRG plc, Bourne House, 34 Beckenham
Road, Beckenham, Kent, BR3 4TU, DX 91750, Beckenham West.
Tel: +44 (0) 208 639-2000.
United States ADR Depositary:
Bank of New York, ADR Department,
101 Barclay Street, New York, NY 10286. Tel: +1 212 815-5800.
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