Wrap Text
SAP - Sappi Limited - Results for the 4th quarter and year ended September 2010
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
Results for the 4th quarter and year ended September 2010
Financial summary for the quarter
* Operating profit US$129 million (excluding special items); Q4 2009
US$38 million (excluding special items)
* EPS 16 US cents; Q4 2009 loss per share of 20 US cents
* EPS 9 US cents (excluding special items); Q4 2009 loss per share 2
US cents (excluding special items)
* Net cash generated US$238 million; Q4 2009 US$225 million
* Coated paper prices increasing; pulp prices high
* Strong Demand
* Strong Liquidity
Quarter ended
Sept 2010 Jun 2010 Sept 2009
Key figures: (US$ million)
Sales 1,774 1,602 1,553
Operating profit (loss) 158 154 (129)
Special items - (gains) losses 1 (29) (79) 167
Operating profit excluding
special items 2 129 75 38
EBITDA excluding special items 3 227 176 150
Basic earnings (loss) per share
(US cents) 16 12 (20)
Net debt 4 2,221 2,337 2,576
Key ratios: (%)
Operating profit (loss) to sales 8.9 9.6 (8.3)
Operating profit excluding
special items to sales 7.3 4.7 2.4
Operating profit excluding
special items to
Capital Employed (ROCE) 12.6 7.3 3.3
EBITDA excluding special items to sales 12.8 11.0 9.7
Return on average equity (ROE) 5 18.6 15.0 (21.4)
Net debt to total capitalisation 5 53.9 57.6 58.9
Year ended
Sept 2010 Sept 2009
Key figures: (US$ million)
Sales 6,572 5,369
Operating profit (loss) 341 (73)
Special items - (gains) losses 1 (2) 106
Operating profit excluding
special items 2 339 33
EBITDA excluding special items 3 752 431
Basic earnings (loss) per share
(US cents) 13 (37)
Net debt 4 2,221 2,576
Key ratios: (%)
Operating profit (loss) to sales 5.2 (1.4)
Operating profit excluding
special items to sales 5.2 0.6
Operating profit excluding
special items to
Capital Employed (ROCE) 8.0 0.8
EBITDA excluding special items to sales 11.4 8.0
Return on average equity (ROE) 5 3.6 (10.4)
Net debt to total capitalisation 5 53.9 58.9
1 Refer to details on special items.
2 Refer to note 9 to the group results for the reconciliation of operating
profit excluding special items to operating profit (loss).
3 Refer to note 9 to the group results for the reconciliation of EBITDA
excluding special items to profit (loss) before taxation.
4 Refer to Supplemental Information for the reconciliation of net debt to
interest-bearing borrowings.
5 Refer to Supplemental Information for the definition of the term.
The table above has not been audited or reviewed.
Commentary on the quarter
The group had a much improved performance for the quarter, achieving the highest
quarterly operating profit excluding special items for a number of years and net
cash generated of US$238 million. The performance of each of the businesses
improved, particularly those of North America and Southern Africa which are net
sellers of pulp and therefore benefited from high pulp prices.
Demand conditions continued to improve gradually and almost all our mills ran at
full capacity for the quarter. In Europe, we implemented a price increase during
September (the third since March) which has started to offset the effect of the
substantial increase in pulp input costs experienced over the past year and to
restore reasonable margins.
Sales increased to US$1.8 billion, a 14% increase on sales in the equivalent
quarter last year as a result of increased sales volumes and prices.
Average prices realised by the group were 3% higher than a year ago in US Dollar
terms. In local currency, average prices increased by 11% in Europe, 8% in North
America and, largely as a result of high pulp prices, 25% in South Africa.
Raw material input costs were up approximately US$100 million compared to the
equivalent quarter last year, mainly as a result of higher pulp prices.
Special items for the quarter amounted to a gain of US$29 million primarily in
respect of the plantation price fair value adjustment.
Operating profit excluding special items was US$129 million for the quarter, a
substantial improvement compared to US$38 million in the equivalent quarter last
year and compared to US$75 million in the June 2010 quarter. Including special
items, operating profit was US$158 million compared to a loss of US$129 million
in the equivalent quarter last year.
Earnings per share for the quarter were 16 US cents (including a gain of
7 US cents in respect of special items including financing items), compared to a
loss of 20 US cents in the equivalent quarter last year (which included a loss
of 18 US cents in respect of special items including financing items).
Year ended September 2010 compared to year ended September 2009
2010 was a much improved year for Sappi. Sales for the year were 22% higher than
the prior year as a result of improving demand, favourable currency movements
and the inclusion of the coated paper businesses acquired from M-real for the
full year in 2010 compared to 9 months in 2009.
Operating profit excluding special items was US$339 million compared to US$33
million in the prior year. While special items had an impact on quarterly
results through the year the net effect for the full year was only US$2 million.
Accordingly, operating profit including special items for the year was therefore
similar at US$341 million compared to a loss of US$73 million last year.
The group generated a net profit of US$66 million for the year and earnings per
share of 13 US cents (favourably impacted by 4 US cents of special items
including financing items) compared to a net loss of US$177 million and a loss
per share of 37 US cents (including a loss of 13 US cents of special items
including financing items) last year.
Cash flow and debt
Quarter
Net cash generated was US$238 million for the quarter reflecting improved cash
generated by operations, and cash released from working capital of US$181
million.
Net debt decreased by US$116 million over the quarter to US$2,221 million as a
result of the net cash generated, partly offset by unfavourable currency
translation (due to the strengthening of the Euro and the Rand relative to the
US Dollar in the quarter).
Year
Over the financial year, we reduced our net debt by US$355 million largely as a
result of net cash generation of US$341 million. At year end we had cash on hand
of US$792 million and had additional liquidity in the form of a EUR209 million
(US$282 million) committed revolving credit facility. During the year, we used
approximately US$250 million of our cash to repay debt early. Capital
expenditure of US$188 million for the year was in line with our target of US$200
million.
Operating Review for the Quarter
Sappi Fine Paper
Quarter Quarter Quarter
ended ended ended
Sept 2010 Sept 2009 % June 2010
US$ million US$ million change US$ million
Sales 1,327 1,208 10 1,220
Operating profit 87 1 -* 36
Operating profit to sales (%) 6.6 0.1 - 3.0
Special items - (gains)
losses (11) 49 - 1
Operating profit (loss)
excluding special items 76 50 52 37
Operating profit (loss)
excluding special items
to sales (%) 5.7 4.1 - 3.0
EBITDA excluding
special items 151 138 9 110
EBITDA excluding special
items to sales (%) 11.4 11.4 - 9.0
RONOA pa (%) 10.0 53.9 - 4.8
* Comparative not meaningful.
The Fine Paper business achieved an operating profit excluding special items of
US$76 million for the quarter, a 52% improvement compared to the equivalent
quarter last year as a result of improved demand levels in our major markets and
improving prices.
Europe
Quarter Quarter
ended ended
Sept 2010 Sept 2009
US$ million US$ million
Sales 963 868
Operating profit (loss) 40 (59)
Operating profit (loss) to sales (%) 4.2 (6.8)
Special items - (gains) losses (6) 75
Operating profit excluding special items 34 16
Operating profit excluding
special items to sales (%) 3.5 1.8
EBITDA excluding special items 90 80
EBITDA excluding special items to sales (%) 9.3 9.2
RONOA pa (%) 6.5 2.7
Quarter
% % ended
change change June 2010
(US$) (Euro) US$ million
Sales 11 23 873
Operating profit (loss) -* -* 11
Operating profit (loss) to sales (%) - - 1.3
Special items - (gains) losses - - 2
Operating profit excluding special items 113 133 13
Operating profit excluding
special items to sales (%) - - 1.5
EBITDA excluding special items 13 25 68
EBITDA excluding special items to sales (%) - - 7.8
RONOA pa (%) - - 2.5
* Comparative not meaningful.
While the business performed significantly better during the quarter, it is not
yet achieving an acceptable return which remains the top priority for the Sappi
group.
The European business` coated paper shipments continued to grow in the quarter.
Industry coated woodfree paper shipments increased by 7%, compared to the
equivalent quarter last year including a significant increase in exports.
Shipments of coated mechanical paper increased 13%, almost returning to the
shipment volumes of the equivalent quarter in 2008 which was prior to the global
crash.
A third coated woodfree price increase was implemented in September which,
together with increases in April and June, is helping offset the effect of
rapidly increasing pulp prices. There was a modest price increase for coated
mechanical paper in July but the margins for our coated mechanical paper remain
well below acceptable levels.
Our average price realised in Europe for the quarter was 11% above the
equivalent quarter last year and 5% above those realised in the June 2010
quarter.
North America
Quarter Quarter Quarter
ended ended ended
Sept 2010 Sept 2009 % June 2010
US$ million US$ million change US$ million
Sales 364 340 7 347
Operating profit 47 60 (22) 25
Operating profit to sales (%) 12.9 17.6 - 7.2
Special items - gains (5) (26) - (1)
Operating profit excluding
special items 42 34 24 24
Operating profit excluding
special items to sales (%) 11.5 10.0 - 6.9
EBITDA excluding special items 61 58 5 42
EBITDA excluding special items
to sales (%) 16.8 17.1 - 12.1
RONOA pa (%) 17.8 13.5 - 10.0
The North American business performed well benefiting from its market
positioning, competitive cost base, good performance from the specialities
products and surplus pulp position with higher pulp pricing. Operating profit
was lower than the equivalent quarter last year due to alternative fuel tax
credits received in the quarter ended September 2009 which are included in
special items.
Demand levels improved further, with US industry shipments of coated woodfree
paper increasing 9% compared to the equivalent quarter last year.
While price increases were implemented on selected coated paper grades during
the quarter, the average price increase of 8% compared to the equivalent quarter
last year was largely a result of pulp price increases.
During the quarter, we built our pulp inventory at Somerset mill in preparation
for a pulp mill outage which commenced in October 2010. During the outage we
upgraded the chemical recovery complex at the mill which is expected to
significantly reduce energy costs and increase the proportion of renewable
energy used at the Somerset mill to 89%.
During October, the U.S. International Trade Commission ruled to impose anti-
dumping and countervailing duties on imported coated sheet paper from Indonesia
and China. The duties which range from 25.2% to 313.8% are expected to re-
establish a level playing field in the US.
Sappi Southern Africa
Quarter Quarter
ended ended
Sept 2010 Sept 2009
US$ million US$ million
Sales 447 345
Operating profit (loss) 84 (125)
Operating profit (loss) to sales (%) 18.8 (36.2)
Special items - (gains) losses (26) 115
Operating profit (loss) excluding special items 58 (10)
Operating profit (loss) excluding
special items to sales (%) 13.0 (2.9)
EBITDA excluding special items 82 15
EBITDA excluding special items to sales (%) 18.3 4.3
RONOA pa (%) 12.6 (2.1)
Quarter
% % ended
change change June 2010
(US$) (Rand) US$ million
Sales 30 23 382
Operating profit (loss) -* -* 118
Operating profit (loss) to sales (%) - - 30.9
Special items - (gains) losses - - (83)
Operating profit (loss) excluding special items - - 35
Operating profit (loss) excluding
special items to sales (%) - - 9.2
EBITDA excluding special items 447 420 62
EBITDA excluding special items to sales (%) - - 16.2
RONOA pa (%) - - 7.9
* Comparative not meaningful.
The performance of the Southern African business improved significantly during
the quarter. We reorganised the paper and packaging paper business during the
quarter to provide a more effective customer interface and to share best
operating practices among the mills.
The chemical cellulose business continued to achieve higher output from the
expanded Saiccor Mill. Demand was very strong and prices increased further. The
majority of our sales are linked to long-term contracts and we therefore did not
realise the full benefit of the record spot prices in certain markets for
chemical cellulose. These spot markets represent a small proportion of the total
chemical cellulose market.
Demand for packaging and fine paper products has improved in the domestic market
but competition from imports has continued as a result of the strength of the
Rand relative to the US dollar.
Directorate
During the quarter, it was announced that Mr H C Mamsch would be retiring from
the board of directors at the end of December 2010, having served for seven
years.
Outlook
We expect continued gradual improvement in global economic conditions during the
year ahead; however we remain cautious as a result of factors such as the
volatility of exchange rates which could dampen growth.
Against that background, we expect demand for coated paper in our major markets
to recover further during the year. We believe that input costs are likely to
rise. We intend to reduce our costs where possible and to grow revenue through
sales volume, mix and higher price levels to achieve acceptable margins across
the businesses.
We expect continued strong demand and good price levels for chemical cellulose
in the year ahead. The reorganisation of the paper business in Southern Africa
is expected to help improve margins; however, the Rand is currently strong
relative to the US dollar and remains volatile. A strengthening Rand would be
unfavourable for the performance of the Southern African business.
The extended outage at Somerset pulp mill in October 2010 will reduce the
potential profitability of our North American business for the quarter but we
expect the pulp mill to start ramping up production in early November and for
energy costs to be reduced once the rebuilt energy complex reaches optimum
efficiencies.
With the expected improvement in the performance of our businesses and reduced
uncertainty in financial markets we will gradually reduce our cash on hand with
further repayment of debt. This, together with our targeted continued reduction
in net debt, will help reduce finance costs in the year ahead.
In our first financial quarter, we expect the group`s operating profit
(excluding special items) to continue the improving trend relative to the
equivalent quarter last year.
On behalf of the board
R J Boettger M R Thompson
Director Director 08 November 2010
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. The words `believe`,
`anticipate`, `expect`, `intend`, `estimate`, `plan`, `assume`, `positioned`,
`will`, `may`, `should`, `risk` and other similar expressions, which are
predictions of or indicate future events and future trends, which do not relate
to historical matters, identify forward-looking statements. 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 impact of the global economic downturn, 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, including as a result of adverse changes in credit
markets that affect our ability to raise capital when needed, changing
regulatory requirements, possible early termination of alternative fuel tax
credits, unanticipated production disruptions (including as a result of planned
or unexpected power outages), 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. We undertake 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
Reviewed
Quarter Quarter
ended ended
Sept 2010 Sept 2009
Note US$ million US$ million
Sales 1,774 1,553
Cost of sales 1,498 1,519
Gross profit 276 34
Selling, general and administrative expenses 119 112
Other operating expenses 1 56
Share of profit from associates and
joint ventures (2) (5)
Operating profit (loss) 3 158 (129)
Net finance costs 63 14
Net interest 67 21
Net foreign exchange gains (1) (5)
Net fair value (gains) losses on financial instruments (3) (2)
Profit (loss) before taxation 95 (143)
Taxation 11 (40)
Current (7) (3)
Deferred 18 (37)
Profit (loss) for the period 84 (103)
Basic earnings (loss) per share (US cents) 16 (20)
Weighted average number of shares in issue (millions) 519.5 515.8
Diluted basic earnings (loss) per share (US cents) 16 (20)
Weighted average number of shares on
fully diluted basis (millions) 524.0 515.8
Reviewed Reviewed
Year Year
ended ended
Sept 2010 Sept 2009
US$ million US$ million
Sales 6,572 5,369
Cost of sales 5,786 5,029
Gross profit 786 340
Selling, general and administrative expenses 448 385
Other operating expenses 10 39
Share of profit from associates and joint ventures (13) (11)
Operating profit (loss) 341 (73)
Net finance costs 255 145
Net interest 293 137
Net foreign exchange gains (17) (17)
Net fair value (gains) losses on financial instruments (21) 25
Profit (loss) before taxation 86 (218)
Taxation 20 (41)
Current (6) 4
Deferred 26 (45)
Profit (loss) for the period 66 (177)
Basic earnings (loss) per share (US cents) 13 (37)
Weighted average number of shares in issue (millions) 516.7 482.6
Diluted basic earnings (loss) per share (US cents) 13 (37)
Weighted average number of shares on fully
diluted basis (millions) 520.8 482.6
Group statement of comprehensive income
Reviewed Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2010 Sept 2009 Sept 2010 Sept 2009
US$ million US$ million US$ million US$ million
Profit (loss) for
the period 84 (103) 66 (177)
Other comprehensive
income (loss), net of tax 86 (154) 8 (197)
Exchange differences
on translation
of foreign operations 121 57 52 14
Actuarial losses
in post-employment
benefits (71) (229) (71) (229)
Movements in
hedging reserves 23 (14) 14 (14)
Movement on available for
sale financial assets 2 - 2 -
Deferred tax
effects on above 11 32 11 32
Total comprehensive
income (loss)
for the period 170 (257) 74 (374)
Group balance sheet
Reviewed Reviewed
Sept 2010 Sept 2009
US$ million US$ million
ASSETS
Non-current assets 4,653 4,867
Property, plant and equipment 3,660 3,934
Plantations 687 611
Deferred taxation 53 56
Other non-current assets 253 266
Current assets 2,531 2,430
Inventories 836 792
Trade and other receivables 903 868
Cash and cash equivalents 792 770
Total assets 7,184 7,297
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` interest 1,896 1,794
Non-current liabilities 3,249 3,662
Interest-bearing borrowings 2,317 2,726
Deferred taxation 386 355
Other non-current liabilities 546 581
Current liabilities 2,039 1,841
Interest-bearing borrowings 691 601
Bank overdraft 5 19
Other current liabilities 1,307 1,165
Taxation payable 36 56
Total equity and liabilities 7,184 7,297
Number of shares in issue at balance sheet date
(millions) 519.5 515.7
Group cash flow statement
Reviewed Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2010 Sept 2009 Sept 2010 Sept 2009
US$ million US$ million US$ million US$ million
Profit (loss) for
the period 84 (103) 66 (177)
Adjustment for:
Depreciation, fellings
and amortisation 119 131 484 467
Taxation 11 (40) 20 (41)
Net finance costs 63 14 255 145
Post-employment benefits (25) (30) (73) (62)
Plantation price fair
value adjustment (29) 111 (31) 67
Other non-cash items (41) 78 16 33
Cash generated
from operations 182 161 737 432
Movement in
working capital 181 127 (5) 152
Net finance costs (66) (27) (194) (81)
Taxation paid (1) - (9) (5)
Dividends paid - - - (37)
Cash retained from
operating
activities 296 261 529 461
Cash utilised in
investing activities (58) (36) (188) (762)
Capital expenditure
and other non-current
assets (58) (34) (188) (172)
Acquisition - (2) - (590)
Net cash generated
(utilised) 238 225 341 (301)
Cash effects of
financing activities (12) (272) (256) 707
Net movement in cash
and cash equivalents 226 (47) 85 406
Group statement of changes in equity
Reviewed Reviewed
Year Year
ended ended
Sept 2010 Sept 2009
US$ million US$ million
Balance - beginning of period 1,794 1,605
Total comprehensive income (loss) for the period 74 (374)
Dividends paid - (37)
Rights offer - 575
Costs directly attributable to the rights offer - (31)
Issue of new shares 17 45
Transfers (to) from the share purchase trust (6) 2
Share-based payment reserve 17 9
Balance - end of period 1,896 1,794
Notes to the group results
1. Basis of preparation
The condensed financial information has been prepared in accordance with the
framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board, the AC 500 standards issued by the Accounting
Practices Board and the information required by IAS 34 "Interim Financial
Reporting". The report has been prepared using accounting policies that comply
with IFRS which are consistent with those applied in the financial statements
for the year ended September 2009, except for the adoption of IFRS 8 "Operating
Segments".
The preliminary results for the year ended September 2010 have been reviewed in
terms of the International Standard on Review Engagements 2410 by the group`s
auditors, Deloitte & Touche. Their unmodified review report is available for
inspection at the company`s registered office.
2. Adoption of IFRS 8 "Operating Segments"
The adoption of IFRS 8 "Operating Segments" did not have an impact on the
group`s reported results or financial position.
IFRS 8 requires an entity to report financial and descriptive information about
its reportable segments. Reportable segments are components of an entity for
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and
assessing performance. Prior year segment disclosure has been restated as
reflected in note 9.
Reviewed
Quarter Quarter
ended ended
Sept 2010 Sept 2009
US$ million US$ million
3. Operating profit (loss)
Included in operating profit (loss) are
the following non-cash items:
Depreciation and amortisation 98 112
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 21 19
Growth (19) (21)
2 (2)
Plantation price fair value
adjustment (1) (29) 111
(27) 109
Included in other operating expenses
are the following:
Asset impairments (impairment reversals) 2 73
Profit on disposal of property,
plant and equipment (6) -
Loss on disposal of investment 1 -
Restructuring provisions raised - 24
Integration costs - -
Black Economic Empowerment
transactions charge (2) - -
Fuel tax credit - (50)
Reviewed Reviewed
Year Year
ended ended
Sept 2010 Sept 2009
US$ million US$ million
3. Operating profit (loss)
Included in operating profit (loss) are
the following non-cash items:
Depreciation and amortisation 413 398
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 71 69
Growth (67) (73)
4 (4)
Plantation price fair value
adjustment (1) (31) 67
(27) 63
Included in other operating expenses
are the following:
Asset impairments (impairment reversals) (10) 79
Profit on disposal of property,
plant and equipment (5) (1)
Loss on disposal of investment - -
Restructuring provisions raised 46 34
Integration costs - 3
Black Economic Empowerment
transactions charge (2) 23 -
Fuel tax credit (51) (87)
(1) In the third quarter of fiscal 2010 the group changed the estimates used to
derive the prices of timber that are used to calculate the fair value of its
plantations. The change impacts the estimate of the expected future cash flows
that are used in calculating the present value of mature and immature timber
except for the timber that is expected to be felled in the next twelve months
from balance sheet date. Before the change, Sappi used period end spot prices to
estimate the fair value of the above timber; the group now uses a twelve quarter
rolling average price, as this reflects the fair value of the plantations more
accurately.
(2) IFRS 2 non-cash charges associated with Black Economic Empowerment
transactions, the majority of which relates to the unwinding of the 2006 Black
Economic Empowerment deal with the remaining charge relating to the issue of
shares to employees and local communities.
Reviewed Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2010 Sept 2009 Sept 2010 Sept 2009
US$ million US$ million US$ million US$ million
4. Headline
earnings (loss)
per share *
Headline earnings
(loss) per share
(US cents) 16 (6) 10 (21)
Weighted average
number of shares
in issue (millions) 519.5 515.8 516.7 482.6
Diluted headline
earnings (loss)
per share (US cents) 16 (6) 10 (21)
Weighted average
number of shares
on fully diluted
basis (millions) 524.0 515.8 520.8 482.6
Calculation of
headline earnings
(loss) *
Profit (loss) for
the period 84 (103) 66 (177)
Asset impairments
(impairment reversals) 2 73 (10) 79
Profit on disposal
of property,
plant and equipment (5) - (4) (1)
Loss on disposal
of investment 1 - - -
Tax effect of above items - - - -
Headline earnings (loss) 82 (30) 52 (99)
*Headline earnings
disclosure is
required by the
JSE Limited.
5. Capital expenditure
Property, plant
and equipment 81 37 201 184
Reviewed Reviewed
Sept 2010 Sept 2009
US$ million US$ million
6. Capital commitments
Contracted 62 62
Approved but not contracted 109 126
171 188
7. Contingent liabilities
Guarantees and suretyships 48 44
Other contingent liabilities 8 8
56 52
8. Material balance sheet movements
Early repayment of interest-bearing borrowings
The North American Municipal Bonds of US$106 million were repaid in March 2010
at par value.
An amount of US$29 million of our 7.5% Guaranteed Notes due 2032 was repurchased
in the open market early in the third quarter for US$24 million.
An early repayment of the first instalment on a syndicated loan with
Osterreichische Kontrollbank of EUR80 million (US$99 million), due in December
2010, was made in June 2010.
Transfers from assets held for sale and liabilities associated with assets held
for sale. The Usutu pulp mill was permanently closed at the end of January 2010.
The future of the site and plantations was discussed with potential investors
and the Government of Swaziland. The disposal group consisting mainly of
plantations had been classified as held for sale since December 2009. The Sappi
board subsequently took a decision to continue with its forestry operations in
Swaziland, and is investigating the establishment of various timber processing
operations at the Usutu mill site. As a result, the assets are no longer
classified as held for sale.
9. Segment Information
Restatement of prior year disclosures
Fine Paper Southern Africa is now reported as part of the Southern African
segment (previously referred to as "Forest Products") in accordance with the
geographical management of our business. The table below shows the effect of
this change for the quarter and year ended September 2009:
Restated
Reviewed
Quarter ended
Sept 2009
US$ million
As previously
reported Adjustment Restated
Fine Paper
Sales 1,300 (92) 1,208
Operating (loss) profit (1) 2 1
Net operating assets 3,526 (205) 3,321
Southern Africa
Sales 253 92 345
Operating loss (123) (2) (125)
Net operating assets 1,686 205 1,891
Restated
Reviewed
Year ended
Sept 2009
US$ million
As previously
reported Adjustment Restated
Fine Paper
Sales 4,508 (318) 4,190
Operating loss (17) 3 (14)
Net operating assets 3,526 (205) 3,321
Southern Africa
Sales 861 318 1,179
Operating loss (52) (3) (55)
Net operating assets 1,686 205 1,891
The information below is presented in the way that it is reviewed by the chief
operating decision maker as required by IFRS 8 "Operating Segments".
Restated
Quarter Quarter
ended ended
Sept 2010 Sept 2009
Metric tons Metric tons
(000`s) (000`s)
Sales volume
Fine Paper - North America 352 355
Europe 994 895
Total 1,346 1,250
Southern Africa - Pulp and paper 460 470
Forestry 289 168
Total 2,095 1,888
Reviewed
US$ million US$ million
Sales
Fine Paper - North America 364 340
Europe 963 868
Total 1,327 1,208
Southern Africa - Pulp and paper 426 331
Forestry 21 14
Total 1,774 1,553
Operating profit excluding special items
Fine Paper - North America 42 34
Europe 34 16
Total 76 50
Southern Africa 58 (10)
Corporate and other (5) (2)
Total 129 38
Special items - (gains) losses
Fine Paper - North America (5) (26)
Europe (6) 75
Total (11) 49
Southern Africa (26) 115
Corporate and other 8 3
Total (29) 167
Operating profit (loss)
Fine Paper - North America 47 60
Europe 40 (59)
Total 87 1
Southern Africa 84 (125)
Corporate and other (13) (5)
Total 158 (129)
EBITDA excluding special items
Fine Paper - North America 61 58
Europe 90 80
Total 151 138
Southern Africa 82 15
Corporate and other (6) (3)
Total 227 150
Restated
Year Year
ended ended
Sept 2010 Sept 2009
Metric tons Metric tons
(000`s) (000`s)
Sales volume
Fine Paper - North America 1,354 1,274
Europe 3,796 2,956
Total 5,150 4,230
Southern Africa - Pulp and paper 1,751 1,660
Forestry 993 817
Total 7,894 6,707
Reviewed Reviewed
US$ million US$ million
Sales
Fine Paper - North America 1,373 1,295
Europe 3,638 2,895
Total 5,011 4,190
Southern Africa - Pulp and paper 1,488 1,124
Forestry 73 55
Total 6,572 5,369
Operating profit excluding special items
Fine Paper - North America 124 (2)
Europe 76 12
Total 200 10
Southern Africa 134 17
Corporate and other 5 6
Total 339 33
Special items - (gains) losses
Fine Paper - North America (56) (55)
Europe 4 79
Total (52) 24
Southern Africa 22 72
Corporate and other 28 10
Total (2) 106
Operating profit (loss)
Fine Paper - North America 180 53
Europe 72 (67)
Total 252 (14)
Southern Africa 112 (55)
Corporate and other (23) (4)
Total 341 (73)
EBITDA excluding special items
Fine Paper - North America 201 98
Europe 310 226
Total 511 324
Southern Africa 236 101
Corporate and other 5 6
Total 752 431
Restated Restated
Reviewed Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2010 Sept 2009 Sept 2010 Sept 2009
US$ million US$ million US$ million US$ million
Net operating
assets
Fine Paper -
North America 935 981 935 981
Europe 2,109 2,340 2,109 2,340
Total 3,044 3,321 3,044 3,321
Southern Africa 1,887 1,891 1,887 1,891
Corporate and other 65 38 65 38
Total 4,996 5,250 4,996 5,250
Reconciliation of operating profit excluding special items to operating profit
(loss)
Special items cover those items which management believe are material by nature
or amount to the operating results and require separate disclosure. Such items
would generally include profit or loss on disposal of property, investments and
businesses, asset impairments, restructuring charges, non-recurring integration
costs related to acquisitions, financial impacts of natural disasters, non-cash
gains or losses on the price fair value adjustment of plantations and
alternative fuel tax credits receivable in cash.
Operating profit excluding
special items 129 38 339 33
Special items 29 (167) 2 (106)
Plantation price
fair value adjustment 29 (111) 31 (67)
Restructuring
provisions raised - (24) (46) (34)
Profit on disposal
of property, plant
and equipment 6 - 5 1
Loss on disposal
of investment (1) - - -
Asset
(impairments)
impairment
reversals (2) (73) 10 (79)
Fuel tax credit - 50 51 87
Integration costs - - - (3)
Black Economic
Empowerment
transactions charge - - (23) -
Fire, flood, storm
and related events (3) (9) (26) (11)
Operating profit (loss) 158 (129) 341 (73)
Reconciliation of EBITDA
excluding special items
and operating profit
excluding special items
to profit (loss) before
taxation
EBITDA excluding
special items 227 150 752 431
Depreciation and
amortisation (98) (112) (413) (398)
Operating profit
excluding special
items 129 38 339 33
Special items -
gains (losses) 29 (167) 2 (106)
Net finance costs (63) (14) (255) (145)
Profit (loss)
before taxation 95 (143) 86 (218)
Reconciliation of net
operating assets to
total assets
Net operating assets 4,996 5,250 4,996 5,250
Deferred tax 53 56 53 56
Cash and cash
equivalents 792 770 792 770
Other current
liabilities 1,307 1,165 1,307 1,165
Taxation payable 36 56 36 56
Total assets 7,184 7,297 7,184 7,297
Supplemental Information (this information has not been reviewed)
General definitions
Average - averages are calculated as the sum of the opening and closing balances
for the relevant period divided by two
Fellings - the amount charged against the income statement representing the
standing value of the plantations harvested
NBSK - Northern Bleached Softwood Kraft pulp. One of the main varieties of
market pulp, produced from coniferous trees (i.e. spruce, pine) in Scandinavia,
Canada and northern USA. The price of NBSK is a benchmark widely used in the
pulp and paper industry for comparative purposes
SG&A - selling, general and administrative expenses
Non-GAAP measures
The group believes that it is useful to report certain non-GAAP measures for the
following reasons:
- these measures are used by the group for internal performance analysis;
- the presentation by the group`s reported business segments of these measures
facilitates comparability with other companies in our industry, although the
group`s measures may not be comparable with similarly titled profit measurements
reported by other companies; and
- it is useful in connection with discussion with the investment analyst
community and debt rating agencies.
These non-GAAP measures should not be considered in isolation or construed as a
substitute for GAAP measures in accordance with IFRS
Capital employed - shareholders` equity plus net debt
EBITDA excluding special items - earnings before interest (net finance costs),
taxation, depreciation, amortisation and special items
Headline earnings - as defined in circular 3/2009 issued by the South African
Institute of Chartered Accountants, separates from earnings all separately
identifiable re-measurements. It is not necessarily a measure of sustainable
earnings. It is a listing requirement of the JSE Limited to disclose headline
earnings per share
Net assets - total assets less total liabilities
Net asset value per share - net assets divided by the number of shares in issue
at balance sheet date
Net debt - current and non-current interest-bearing borrowings, and bank
overdraft (net of cash, cash equivalents and short-term deposits)
Net debt to total capitalisation - net debt divided by capital employed
Net operating assets - total assets (excluding deferred taxation and cash and
cash equivalents) less current liabilities (excluding interest-bearing
borrowings and bank overdraft)
ROCE - return on average capital employed. Operating profit excluding special
items divided by average capital employed
ROE - return on average equity. Profit for the period divided by average
shareholders` equity
RONOA - return on average net operating assets. Operating profit excluding
special items divided by average net operating assets
Special items - special items cover those items which management believe are
material by nature or amount to the operating results and require separate
disclosure. Such items would generally include profit or loss on disposal of
property, investments and businesses, asset impairments, restructuring charges,
non-recurring integration costs related to acquisitions, financial impacts of
natural disasters, non-cash gains or losses on the price fair value adjustment
of plantations and alternative fuel tax credits receivable in cash
The above financial measures 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 (this information has not been reviewed)
Summary Rand convenience translation
Quarter Quarter Year Year
ended ended ended ended
Sept 2010 Sept 2009 Sept 2010 Sept 2009
Key figures: (ZAR million)
Sales 13,042 11,985 49,235 48,393
Operating profit (loss) 1,162 (996) 2,555 (658)
Special items - (gains)
losses * (213) 1,289 (15) 955
Operating profit excluding
special items * 948 293 2,540 297
EBITDA excluding special
items * 1,669 1,158 5,634 3,885
Basic earnings (loss) per
share (SA cents) 118 (154) 97 (333)
Net debt * 15,589 19,091 15,589 19,091
Key ratios: (%)
Operating profit (loss) to
sales 8.9 (8.3) 5.2 (1.4)
Operating profit excluding
special items to sales 7.3 2.4 5.2 0.6
Operating profit excluding
special items to
Capital Employed (ROCE) * 12.7 3.3 8.3 0.9
EBITDA excluding special
items to sales 12.8 9.7 11.4 8.0
Return on average equity
(ROE) 19.3 (21.6) 3.7 (12.1)
Net debt to total
capitalisation * 53.9 58.9 53.9 58.9
*Refer to Supplemental Information for the definition of the term.
The above financial results have been translated into Rands from 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.
Reconciliation of net debt to interest-bearing borrowings
Sept 2010 Sept 2009
US$ million US$ million
Interest-bearing borrowings 3,013 3,346
Non-current interest-bearing borrowings 2,317 2,726
Current interest-bearing borrowings 691 601
Bank overdraft 5 19
Cash and cash equivalents (792) (770)
Net debt 2,221 2,576
Exchange rates
Sept Jun Mar
2010 2010 2010
Exchange rates:
Period end rate: US$1 = ZAR 7.0190 7.6250 7.4298
Average rate for the Quarter: US$1 = ZAR 7.3517 7.5821 7.5597
Average rate for the YTD: US$1 = ZAR 7.4917 7.5610 7.5302
Period end rate: EUR 1 = US$ 1.3491 1.2377 1.3413
Average rate for the Quarter: EUR 1 = US$ 1.2871 1.2937 1.3891
Average rate for the YTD: EUR 1 = US$ 1.3658 1.3845 1.4302
Dec Sept
2009 2009
Exchange rates:
Period end rate: US$1 = ZAR 7.5315 7.4112
Average rate for the Quarter: US$1 = ZAR 7.5009 7.7174
Average rate for the YTD: US$1 = ZAR 7.5009 9.0135
Period end rate: EUR 1 = US$ 1.4397 1.4688
Average rate for the Quarter: EUR 1 = US$ 1.4737 1.4317
Average rate for the YTD: EUR 1 = US$ 1.4737 1.3657
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:
Computershare Investor
Services (Proprietary) Limited
70 Marshall Street
Johannesburg 2001
PO Box 61051
Marshalltown 2107
Tel +27 (0)11 370 5000
United States:
ADR Depositary:
The Bank of New York Mellon
Investor Relations
PO Box 11258
Church Street Station
New York, NY 10286-1258
Tel +1 610 382 7836
Sappi has a primary listing on the JSE Limited and a secondary listing on
the New York Stock Exchange
This report is available on the Sappi website www.sappi.com
Date: 08/11/2010 09:03:01 Supplied by www.sharenet.co.za
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