Wrap Text
Third quarter results for the period ended June 2016
SAPPI LIMITED
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI
Third quarter results for the period ended June 2016
3rd quarter results
Sappi is a global diversified woodfibre company focused on providing graphic papers, packaging and speciality papers,
dissolving wood pulp as well as products in adjacent fields including nanocellulose and lignosulphonate to our direct
and indirect customer base across more than 150 countries.
Our market-leading range of graphic paper products are used by printers in the production of books, brochures,
magazines, catalogues, direct mail and many other print applications; quality packaging and speciality papers are
used in the manufacture of such products as soup sachets, luxury carry bags, cosmetic and confectionery packaging,
boxes for agricultural products for export, tissue wadding for household tissue products and casting release papers
used by suppliers to the fashion, textiles, automobile and household industries; our dissolving wood pulp
(specialised cellulose) products are used worldwide by converters to create viscose fibre for fashionable clothing
and textiles, pharmaceutical products as well as a wide range of consumer and household products.
The wood and pulp needed for our products is either produced within Sappi or bought from accredited suppliers.
Across the group, Sappi is close to ‘pulp neutral’, meaning that we sell almost as much pulp as we buy.
Sales by Source*
Europe 51%
North America 26%
Southern Africa 23%
Sales by product*
Coated paper 60%
Uncoated paper 5%
Speciality paper 11%
Commodity paper 5%
Dissolving wood pulp 17%
Paper pulp 1%
Other 1%
Sales by destination*
Europe 44%
North America 24%
Southern Africa 9%
Asia and other 23%
Net operating assets**
Europe 38%
North America 30%
Southern Africa 32%
* for the period ended June 2016
** as at June 2016
Highlights for the quarter
- EBITDA excluding special items US$160 million (Q3 2015 US$109 million)
- Profit for the period US$32 million (Q3 2015 US$4 million)
- EPS excluding special items 11 US cents (Q3 2015 2 US cents)
- Net debt US$1,583 million, down US$334 million year-on-year
Financial highlights
Quarter ended Nine months ended
Jun 2016 Jun 2015 Mar 2016 Jun 2016 Jun 2015
Key figures: (US$ million)
Sales 1,223 1,272 1,294 3,801 3,987
Operating profit excluding special items(1) 97 43 133 342 221
Special items - losses (gains)(2) 1 8 (22) (32) (55)
EBITDA excluding special items(1) 160 109 195 530 424
Profit for the period 32 4 100 207 84
Basic earnings per share (US cents) 6 1 19 39 16
EPS excluding special items (US cents)(3) 11 2 16 40 18
Net debt(3) 1,583 1,917 1,652 1,583 1,917
Key ratios:
Operating profit excluding special items to sales (%) 7.9 3.4 10.3 9.0 5.5
Operating profit excluding special items to
capital employed (ROCE) (%)(3) 14.0 5.7 19.3 16.4 9.8
EBITDA excluding special items to sales (%) 13.1 8.6 15.1 13.9 10.6
Net debt to EBITDA excluding special items (times) 2.2 3.1 2.4 2.2 3.1
Interest cover (times) (3) 7.0 3.9 6.5 7.0 3.9
Net asset value per share (US cents)(3) 223 213 210 223 213
(1) Refer to note 2 to the group results for the reconciliation of EBITDA excluding special items and
operating profit excluding special items to segment operating profit, and profit for the period.
(2) Refer to note 2 to the group results for details on special items.
(3) Refer to supplemental information for the definition of the term.
Commentary on the quarter
The third quarter is seasonally the weakest for Sappi and significant annual maintenance work is scheduled during the
period. Once again, operating performance in the quarter improved markedly over the equivalent quarter last year. The
group generated EBITDA excluding special items of US$160 million, an increase of 47% over the prior year. Operating
profit excluding special items for the quarter more than doubled to US$97 million, and profit for the period increased
from US$4 million to US$32 million. The improvement was attributable mainly to lower variable costs in our graphic paper
categories and improved sales prices and Rand weakness in our South African business.
The Specialised Cellulose business generated US$75 million of EBITDA, a 34% improvement over the equivalent quarter
last year as a result of improved US Dollar pricing for dissolving wood pulp (DWP) and a weaker Rand/Dollar exchange
rate. Average US Dollar prices in the quarter were higher than both those of the prior quarter and the equivalent
quarter last year. The improved pricing was due to increases in average Chinese market prices for dissolving wood
pulp driven by steady downstream demand for viscose staple fibre (VSF).
Coated graphic paper markets continued to be challenging during the quarter and demand was somewhat weaker than in
recent periods. Notwithstanding these challenges, the European business delivered a solid improvement on last year, with
good variable and fixed cost control initiatives more than offsetting the effect of declining sales volumes. In addition,
a reduction in variable costs and improved sales volumes negated the impact of lower average paper prices for the North
American business.
The paper business in South Africa improved its performance compared to the prior year as a result of higher sales
prices and the disposal of the lower margin recycled packaging paper mills which diminished the impact of exchange
rate-driven variable cost increases.
Net finance costs for the quarter were US$48 million, an increase from the US$23 million in the equivalent quarter
last year, mainly due to the inclusion in the finance costs for the quarter of the once-off charges of US$23 million
related to the refinancing of the 2021 bonds.
Earnings per share excluding special items for the quarter were 11 US cents, a strong improvement over the 2 US cents
generated in the equivalent quarter last year. Special items for the quarter were a loss of US$1 million.
Our strategy to reposition Sappi as a profitable and cash-generative diversified woodfibre group remains well on
track.
Cash flow and debt
Net cash generated for the quarter was US$82 million, compared to the US$25 million generated in the equivalent
quarter last year. This increase was the result of an improved operating performance and lower working capital,
offset somewhat by higher tax. Capital expenditure in the quarter of US$58 million mainly related to maintenance
and efficiency improvement projects.
Net debt of US$1,583 million is substantially lower than the US$1,917 million at the end of the equivalent quarter
last year as a result of the strong cash generation and the weakening of the Euro and Rand against the Dollar in
the past financial year.
During the quarter, we completed the refinancing of our 2021 bonds. This will result in a reduction in the interest
charge of approximately US$8 million per annum going forward. The once-off refinancing costs, including the call
premium, of US$23 million were expensed during the quarter.
Liquidity comprises cash on hand of US$542 million and US$583 million available from undrawn committed revolving
credit facilities.
Operating review for the quarter
Europe
Quarter ended
Jun 2016 Mar 2016 Dec 2015 Sept 2015 Jun 2015
€ million € million € million € million € million
Sales 540 604 601 609 567
Operating profit excluding
special items 25 33 29 23 5
Operating profit excluding special
items to sales (%) 4.6 5.5 4.8 3.8 0.9
EBITDA excluding special items 53 62 59 51 35
EBITDA excluding special items
to sales (%) 9.8 10.3 9.8 8.4 6.2
RONOA pa (%) 8.6 11.0 9.7 7.8 1.7
The performance of the European business in this seasonally slow quarter improved compared to the equivalent quarter
last year, which was negatively impacted by €10 million as a result of the upgrade of the recovery boiler at Gratkorn.
Graphic paper sales volumes were 6% below those of the equivalent quarter last year. Consistent with recent reporting
periods, the coated mechanical market was particularly weak; however, the decline in demand for coated woodfree also
accelerated during the quarter. Average net sales prices of graphic paper were flat compared to both the prior quarter
and the equivalent quarter last year.
Sales of our speciality packaging papers grew by 15% year-on-year, continuing to outpace average market growth rates
of 1% to 5% for the products we produce. Average selling prices continued to be stable.
Variable costs were lower for all major raw materials compared to both comparative periods as a result of improved
pricing and efficiency improvements.
North America
Quarter ended
Jun 2016 Mar 2016 Dec 2015 Sept 2015 Jun 2015
US$ million US$ million US$ million US$ million US$ million
Sales 325 339 343 369 313
Operating (loss) profit excluding
special items (2) 13 13 31 (7)
Operating (loss) profit excluding
special items to sales (%) (0.6) 3.8 3.8 8.4 (2.2)
EBITDA excluding special items 18 32 31 50 11
EBITDA excluding special items
to sales (%) 5.5 9.4 9.0 13.6 3.5
RONOA pa (%) (0.8) 5.2 5.2 12.2 (2.7)
The US coated paper market remained challenging, particularly for woodfree sheets and lightweight web. Our results
were negatively impacted by 5% lower coated paper prices; however, sales volumes were 3% higher than the equivalent
quarter last year, a particularly soft period when a surge in imports affected the market.
The DWP business benefited from increased sales volumes and higher average sales prices compared to the equivalent
quarter last year.
The casting release paper business experienced improved sales volumes compared to the prior year equivalent quarter,
with growth in decorative laminate and automotive end-use segments.
Variable costs were lower than the equivalent quarter last year with lower input prices as well as continued benefits
from our variable usage improvement and efficiency programmes.
The quarter was also impacted by a scheduled annual shut and an upgrade to the lime kiln at our Cloquet pulp mill.
Southern Africa
Quarter ended
Jun 2016 Mar 2016 Dec 2015 Sept 2015 Jun 2015
ZAR million ZAR million ZAR million ZAR million ZAR million
Sales 4,306 4,568 3,993 4,556 4,002
Operating profit excluding
special items 1,050 1,255 949 1,047 538
Operating profit excluding
special items to sales (%) 24.4 27.5 23.8 23.0 13.4
EBITDA excluding special items 1,215 1,430 1,119 1,228 707
EBITDA excluding special
items to sales (%) 28.2 31.3 28.0 27.0 17.7
RONOA pa (%) 26.2 32.2 25.2 28.1 14.3
The Southern African business improved margins year-on-year as a result of higher net selling prices for both DWP and
paper, which more than offset variable cost increases and lower sales volumes post the sale of the Enstra and Cape Kraft
Mills. The current period benefited by ZAR100 million due to lower shut costs in the quarter.
DWP sales volumes were lower than in the equivalent quarter last year mainly due to a shipment after month-end. Higher
average US Dollar prices in the quarter were offset by a stronger Rand/Dollar exchange rate. This led to stable Rand
pricing for DWP when compared to the prior quarter. Chinese market prices for DWP increased marginally during the quarter.
Generally, improved textile fibre prices, continued reasonable operating rates at Chinese VSF producers and solid
downstream VSF demand are supporting DWP prices at these levels.
With the onset of the citrus picking season, paper sales volumes improved compared to the prior quarter. Sales volumes
remained below those of the equivalent quarter last year post the sale of the Enstra and Cape Kraft Mills in our first
quarter of 2016.
Variable costs increased compared to the prior year due to higher wood and chemical costs due to the weaker Rand.
These were offset by lower energy costs and improved raw material usage. Fixed costs were flat year-on-year.
Outlook
Demand for DWP remains favourable and recent improvements in textile fibre prices and VSF operating rates should
support DWP prices at current levels for the coming months. Drought conditions persist in South Africa and the
possibility that we may have to curtail production at our Saiccor Mill remains should the summer rains arrive later
than usual. In order to mitigate this potential impact, we will produce more DWP at our Cloquet Mill, taking
advantage of our ability to swing capacity between paper pulp and DWP at that mill.
Graphic paper markets have weakened in Europe and the United States in the past quarter, with both volume and pricing
under pressure. Lower raw material costs have enabled us to offset these impacts so far. We will continue to look for
opportunities to lower costs and adapt to the market conditions. As is typical in the fourth quarter, orders are
expected to be more robust.
Based on current market conditions, and assuming current exchange rates, we expect our fourth quarter EBITDA excluding
special items to be approximately in line with that of the solid performance in the equivalent quarter last year.
However, a worsening of the drought in South Africa, effects of Brexit and further graphic paper market pressure could
negatively impact the expected result.
Capex expenditure in the last quarter of fiscal 2016 is expected to be approximately US$100 million (US$245 million
for the full year) and is focused largely on maintenance, energy and efficiency projects.
We expect to reduce net debt levels during the fourth quarter and improve our financial leverage closer to our target
ratio of less than two times net debt to EBITDA.
On behalf of the board
S R Binnie
Director
G T Pearce
Director
04 August 2016
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 and which do not relate to historical matters, identify
forward-looking statements. In addition, this document includes forward-looking statements relating to our potential
exposure to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity price
risk. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties
and other factors which are in some cases beyond our control and may cause our actual results, performance or
achievements to differ materially from anticipated future results, performance or achievements expressed or implied
by such forward-looking statements (and from past results, performance or achievements). Certain factors that may
cause such differences 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);
- the impact on our business of adverse changes in global economic conditions;
- unanticipated production disruptions (including as a result of planned or unexpected power outages);
- changes in environmental, tax and other laws and regulations;
- adverse changes in the markets for our products;
- the emergence of new technologies and changes in consumer trends including increased preferences for digital media;
- consequences of our leverage, including as a result of adverse changes in credit markets that affect our ability to
raise capital when needed;
- adverse changes in the political situation and economy in the countries in which we operate or the effect of
governmental efforts to address present or future economic or social problems;
- the impact of restructurings, investments, acquisitions, dispositions and other strategic initiatives (including
related financing), any delays, unexpected costs or other problems experienced in connection with dispositions or
with integrating acquisitions or implementing restructurings or other strategic initiatives, 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.
Condensed group income statement
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2016 Jun 2015 Jun 2016 Jun 2015
Note US$ million US$ million US$ million US$ million
Sales 1,223 1,272 3,801 3,987
Cost of sales 1,039 1,161 3,177 3,523
Gross profit 184 111 624 464
Selling, general and administrative expenses 82 79 257 247
Other operating expenses (income) 9 3 1 (48)
Share of profit from equity investments (3) (6) (8) (11)
Operating profit 3 96 35 374 276
Net finance costs 48 23 98 157
Net interest expense 45 27 99 153
Net foreign exchange loss (gain) 4 (3) - (9)
Net fair value (gain) loss on financial instruments (1) (1) (1) 13
Profit before taxation 48 12 276 119
Taxation 16 8 69 35
Profit for the period 32 4 207 84
Basic earnings per share (US cents) 6 1 39 16
Weighted average number of shares in issue (millions) 530.2 526.3 529.1 525.5
Diluted earnings per share (US cents) 6 1 38 16
Weighted average number of shares on fully
diluted basis (millions) 541.9 532.4 539.6 531.3
Condensed group statement of comprehensive income
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2016 Jun 2015 Jun 2016 Jun 2015
US$ million US$ million US$ million US$ million
Profit for the period 32 4 207 84
Other comprehensive income (loss), net of tax
Items that will not be reclassified
subsequently to profit or loss - - - (10)
Actuarial losses on post-employment benefit funds - - - (10)
Items that must be reclassified subsequently to
profit or loss 35 (22) (52) (8)
Exchange differences on translation of foreign operations 31 (30) (55) (10)
Movements in hedging reserves 4 9 4 2
Tax effect of above items - (1) (1) -
Total comprehensive income (loss) for the period 67 (18) 155 66
Condensed group balance sheet
Reviewed
Jun 2016 Sept 2015
US$ million US$ million
ASSETS
Non-current assets 3,057 3,174
Property, plant and equipment 2,391 2,508
Plantations 382 383
Deferred tax assets 161 162
Derivative financial instruments 44 41
Other non-current assets 79 80
Current assets 1,811 1,711
Inventories 632 595
Trade and other receivables 621 645
Derivative financial instruments 5 5
Taxation receivable 11 10
Cash and cash equivalents 542 456
Assets held for sale - 28
Total assets 4,868 4,913
EQUITY AND LIABILITIES
Shareholders’ equity
Ordinary shareholders’ interest 1,182 1,015
Non-current liabilities 2,675 2,806
Interest-bearing borrowings 1,915 2,031
Deferred tax liabilities 242 245
Other non-current liabilities 518 530
Current liabilities 1,011 1,091
Interest-bearing borrowings 210 196
Other current liabilities 770 860
Derivative financial instruments 2 5
Taxation payable 29 30
Liabilities associated with assets held for sale - 1
Total equity and liabilities 4,868 4,913
Number of shares in issue at balance sheet date (millions) 530.3 526.4
Condensed group statement of cash flows
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2016 Jun 2015 Jun 2016 Jun 2015
US$ million US$ million US$ million US$ million
Profit for the period 32 4 207 84
Adjustment for:
Depreciation, fellings and amortisation 79 82 229 247
Taxation 16 8 69 35
Net finance costs 48 23 98 157
Defined post-employment benefits paid (12) (15) (36) (46)
Plantation fair value adjustments (26) (17) (80) (69)
Net restructuring provisions - 1 4 4
Profit on disposal of assets held for sale and other assets - - (16) -
Non-cash employee benefit liability settlement - 1 - (69)
Other non-cash items 7 3 27 20
Cash generated from operations 144 90 502 363
Movement in working capital 56 16 (66) (97)
Net finance costs paid (29) (21) (87) (111)
Taxation paid (32) (12) (54) (16)
Cash generated from operating activities 139 73 295 139
Cash utilised in investing activities (57) (48) (104) (153)
Capital expenditure (59) (49) (144) (163)
Net proceeds on disposal of assets 1 - 39 -
Other movements 1 1 1 10
Net cash generated (utilised) 82 25 191 (14)
Cash effects of financing activities (7) (77) (101) (110)
Net movement in cash and cash equivalents 75 (52) 90 (124)
Cash and cash equivalents at beginning of period 457 399 456 528
Translation effects 10 4 (4) (53)
Cash and cash equivalents at end of period 542 351 542 351
Condensed group statement of changes in equity
Nine Nine
months months
ended ended
Jun 2016 Jun 2015
US$ million US$ million
Balance - beginning of period 1,015 1,044
Total comprehensive income for the period 155 66
Transfers from the share purchase trust 13 10
Transfers of vested share options (6) (5)
Share-based payment reserve 5 5
Balance - end of period 1,182 1,120
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated interim financial statements for the quarter and nine months ended June 2016 have been
prepared in accordance with the Listings Requirements of the JSE Limited, International Financial Reporting
Standard, IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council and the
requirements of the Companies Act of South Africa. The accounting policies applied in the preparation of these
interim financial statements are in terms of International Financial Reporting Standards and are consistent with
those applied in the previous annual financial statements.
The preparation of these interim condensed consolidated financial statements was supervised by the Chief Financial
Officer, G T Pearce, CA(SA).
The results are unaudited.
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2016 Jun 2015 Jun 2016 Jun 2015
Metric tons Metric tons Metric tons Metric tons
(000’s) (000’s) (000’s) (000’s)
2. Segment information
Sales volume
North America 305 294 966 948
Europe 760 792 2,430 2,395
Southern Africa - Pulp and paper 407 436 1,197 1,286
Forestry 272 283 772 744
Total 1,744 1,805 5,365 5,373
Which consists of:
Specialised cellulose 265 282 809 849
Paper 1,207 1,240 3,784 3,780
Forestry 272 283 772 744
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2016 Jun 2015 Jun 2016 Jun 2015
US$ million US$ million US$ million US$ million
Sales
North America 325 313 1,007 1,008
Europe 611 627 1,936 1,981
Southern Africa - Pulp and paper 273 315 818 952
Forestry 14 17 40 46
Total 1,223 1,272 3,801 3,987
Which consists of:
Specialised cellulose 220 216 667 664
Paper 989 1,039 3,094 3,277
Forestry 14 17 40 46
Operating profit (loss)excluding special items
North America (2) (7) 24 (4)
Europe 28 5 96 48
Southern Africa 70 44 217 173
Unallocated and eliminations(1) 1 1 5 4
Total 97 43 342 221
Which consists of:
Specialised cellulose 64 43 210 152
Paper 32 (1) 127 65
Unallocated and eliminations(1) 1 1 5 4
(1) Includes the group’s treasury operations and our insurance captive.
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2016 Jun 2015 Jun 2016 Jun 2015
US$ million US$ million US$ million US$ million
Special items - losses (gains)
North America 1 - 4 -
Europe 2 4 4 (51)
Southern Africa (3) - (43) (15)
Unallocated and eliminations(1) 1 4 3 11
Total 1 8 (32) (55)
Segment operating profit (loss)
North America (3) (7) 20 (4)
Europe 26 1 92 99
Southern Africa 73 44 260 188
Unallocated and eliminations(1) - (3) 2 (7)
Total 96 35 374 276
EBITDA excluding special items
North America 18 11 81 52
Europe 60 38 193 152
Southern Africa 81 58 251 216
Unallocated and eliminations(1) 1 2 5 4
Total 160 109 530 424
Which consists of:
Specialised cellulose 75 56 243 191
Paper 84 51 282 229
Unallocated and eliminations(1) 1 2 5 4
(1) Includes the group’s treasury operations and our insurance captive.
Reconciliation of EBITDA excluding special items and operating profit excluding special items to segment operating
profit and profit for the period
Special items cover those items which management believes are material by nature or amount to the operating results
and require separate disclosure.
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2016 Jun 2015 Jun 2016 Jun 2015
US$ million US$ million US$ million US$ million
EBITDA excluding special items 160 109 530 424
Depreciation and amortisation (63) (66) (188) (203)
Operating profit excluding special items 97 43 342 221
Special items - (losses) gains (1) (8) 32 55
Plantation price fair value adjustment 12 - 40 19
Net restructuring provisions - (1) (4) (4)
Profit on disposal of assets held for sale and other assets - - 16 -
Employee benefit liability settlement - (1) - 56
Black economic empowerment charge - - (1) (1)
Fire, flood, storm and other events (13) (6) (19) (15)
Segment operating profit 96 35 374 276
Net finance costs (48) (23) (98) (157)
Profit before taxation 48 12 276 119
Taxation (16) (8) (69) (35)
Profit for the period 32 4 207 84
Jun 2016 Jun 2015
US$ million US$ million
Segment assets
North America 991 1,029
Europe 1,271 1,334
Southern Africa 1,072 1,225
Unallocated and eliminations(1) 30 21
Total 3,364 3,609
Reconciliation of segment assets to total assets
Segment assets 3,364 3,609
Deferred taxation 161 141
Cash and cash equivalents 542 351
Other current liabilities 770 824
Derivative financial instruments 2 2
Taxation payable 29 26
Total assets 4,868 4,953
(1) Includes the group’s treasury operations and our insurance captive.
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2016 Jun 2015 Jun 2016 Jun 2015
US$ million US$ million US$ million US$ million
3. Operating profit
Included in operating profit are the following items:
Depreciation and amortisation 63 66 188 203
Fair value adjustment on plantations (included in cost of sales)
Changes in volume
Fellings 16 16 41 44
Growth (14) (17) (40) (50)
2 (1) 1 (6)
Plantation price fair value adjustment (12) - (40) (19)
(10) (1) (39) (25)
Net restructuring provisions - 1 4 4
Profit on disposal of assets held for sale and other assets - - (16) -
Employee benefit liability settlement - 1 - (69)
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2016 Jun 2015 Jun 2016 Jun 2015
US$ million US$ million US$ million US$ million
4. Earnings per share
Basic earnings per share (US cents) 6 1 39 16
Headline earnings per share (US cents) 6 1 37 16
EPS excluding special items (US cents) 11 2 40 18
Weighted average number of shares in issue (millions) 530.2 526.3 529.1 525.5
Diluted earnings per share (US cents) 6 1 38 16
Diluted headline earnings per share (US cents) 6 1 36 16
Weighted average number of shares on fully diluted basis (millions) 541.9 532.4 539.6 531.3
Calculation of headline earnings
Profit for the period 32 4 207 84
Profit on disposal of assets held for sale and other assets - - (16) -
Tax effect of above items 1 - 5 -
Headline earnings 33 4 196 84
Calculation of earnings excluding special items
Profit for the period 32 4 207 84
Special items after tax 1 8 (21) (51)
Special items 1 8 (32) (55)
Tax effect - - 11 4
Refinancing costs 23 - 23 63
Earnings excluding special items 56 12 209 96
5. Plantations
Plantations are stated at fair value less estimated cost to sell at the harvesting stage. In arriving at
plantation fair values, the key assumptions are estimated prices less cost of delivery, discount rates (pre-tax
weighted average cost of capital), and volume and growth estimations.
Expected future price trends and recent market transactions involving comparable plantations are also considered
in estimating fair value. Mature timber that is expected to be felled within 12 months from the end of the
reporting period are valued using unadjusted current market prices. Immature timber and mature timber that is to
be felled in more than 12 months from the reporting date are valued using a 12 quarter rolling historical average
price which, taking the length of the growth cycle of a plantation into account, is considered reasonable.
The fair value of plantations is a Level 3 measure in terms of the fair value measurement hierarchy as established
by IFRS 13 Fair Value Measurement.
Reviewed
Jun 2016 Sept 2015
US$ million US$ million
Fair value of plantations at beginning of year 383 430
Gains arising from growth 40 65
Fire, flood, storm and related events (10) (7)
In-field inventory (1) (1)
Gain arising from fair value price changes 40 41
Harvesting - agriculture produce (fellings) (41) (57)
Translation difference (29) (88)
Fair value of plantations at end of period 382 383
6. Financial instruments
The group’s financial instruments that are measured at fair value on a recurring basis consist of cash and cash
equivalents, derivative financial instruments and available for sale financial assets. These have been
categorised in terms of the fair value measurement hierarchy as established by IFRS 13 Fair Value Measurement
per the table below.
Fair value(1)
Reviewed
Fair value Jun 2016 Sept 2015
hierarchy US$ million US$ million
Available for sale assets(2) Level 1 8 8
Derivative financial assets Level 2 49 46
Derivative financial liabilities Level 2 2 5
(1) The fair value of the financial instruments are equal to their carrying value.
(2) Included in other non-current assets.
There have been no transfers of financial assets or financial liabilities between the categories of the fair
value hierarchy.
The fair value of all external over-the-counter derivatives is calculated based on the discount rate adjustment
technique. The discount rate used is derived from observable rates of return for comparable assets or liabilities
traded in the market. The credit risk of the external counterparty is incorporated into the calculation of fair
values of financial assets and own credit risk is incorporated in the measurement of financial liabilities. The
change in fair value is therefore impacted by the move of the interest rate curves, by the volatility of the
applied credit spreads, and by any changes to the credit profile of the involved parties.
There are no financial assets and liabilities that have been remeasured to fair value on a non-recurring basis.
The carrying amounts of other financial instruments which include accounts receivable, certain investments,
accounts payable and current interest-bearing borrowings approximate their fair values.
Reviewed
Jun 2016 Sept 2015
US$ million US$ million
7. Capital commitments
Contracted 50 60
Approved but not contracted 59 73
109 133
8. Contingent liabilities
Guarantees and suretyships 16 13
Other contingent liabilities 10 11
26 24
9. Material balance sheet movements
Since the 2015 financial year-end, the ZAR has weakened by approximately 8% against the US Dollar, the group’s
presentation currency. This has resulted in a similar decrease of the group’s South African assets and liabilities,
which are held in the aforementioned functional currency, on translation to the presentation currency.
Inventory and other current liabilities
The movements in inventory and other current liabilities are largely attributable to seasonal working capital
movements.
Assets held for sale
During the financial year, the conditions precedent related to the sale of the group’s Enstra and Cape Kraft mills
were fulfilled. Proceeds of US$37 million were received and a combined profit on disposal of US$14 million was
recorded.
Interest-bearing borrowings
During the year, the group issued an aggregate principal amount of €350 million (US$389 million) in senior secured
notes due 2023 at a coupon of 4.00% per annum. The proceeds from these notes were used to redeem the full amount of
the group’s US$350 million senior secured notes due 2021 at a price of 103.313% of the principal amount thereof. The
coupon on the notes redeemed was 6.625%.
As at the 2015 financial year-end, the group had drawn €50 million (US$55 million) from its €465 million (US$517 million)
revolving credit facility. This amount as well as amounts due under the OekB term loan of €18 million (US$20 million)
and the group’s ZAR255 million (US$17 million) public bond were repaid from existing cash resources.
10. Related parties
There has been no material change, by nature or amount, in transactions with a related party since the 2015 financial
year-end.
11. Events after balance sheet date
Subsequent to quarter-end, the group utilised existing cash resources to redeem its ZAR500 million (US$33 million) public
bond on maturity.
Supplemental information (this information has not been audited or reviewed)
General definitions
Average - averages are calculated as the sum of the opening and closing balances for the relevant period divided by
two
Broad-based Black Economic Empowerment (BBBEE) charge - represents the IFRS 2 non-cash charge associated with the
BBBEE transaction implemented in fiscal 2010 in terms of BBBEE legislation in South Africa
Capital employed - shareholders’ equity plus net debt
EBITDA excluding special items - earnings before interest (net finance costs), taxation, depreciation, amortisation
and special items
EPS excluding special items - earnings per share excluding special items and certain once-off finance and tax items
Fellings - the amount charged against the income statement representing the standing value of the plantations
harvested
Headline earnings - as defined in circular 2/2015, issued by the South African Institute of Chartered Accountants in
October 2015, which separates from earnings all separately identifiable remeasurements. It is not necessarily a measure of
sustainable earnings. It is a Listings Requirement of the JSE Limited to disclose headline earnings per share
Interest cover - last 12 months EBITDA excluding special items to net interest adjusted for refinancing costs
NBSK - Northern Bleached Softwood Kraft pulp. One of the main varieties of market pulp, produced from coniferous trees
(ie 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
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, bank overdrafts less cash and cash equivalents
Net debt to EBITDA excluding special items - net debt divided by the last 12 months EBITDA excluding special items
Net operating assets - total assets (excluding deferred tax assets and cash) less current liabilities (excluding
interest-bearing borrowings and overdraft). Net operating assets equate to segment assets
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
ROCE - annualised return on average capital employed. Operating profit excluding special items divided by average
capital employed
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 believes 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 audited or reviewed)
Summary Rand convenience translation
Quarter ended Nine months ended
Jun 2016 Jun 2015 Jun 2016 Jun 2015
Key figures: (ZAR million)
Sales 18,351 15,368 57,002 46,464
Operating profit excluding special items(1) 1,456 520 5,129 2,576
Special items - losses (gains)(1) 15 97 (480) (641)
EBITDA excluding special items(1) 2,401 1,317 7,948 4,941
Profit for the period 480 48 3,104 979
Basic earnings per share (SA cents) 91 9 587 186
Net debt(1) 23,848 23,392 23,848 23,392
Key ratios: (%)
Operating profit excluding special items to sales 7.9 3.4 9.0 5.5
Operating profit excluding special items to capital employed (ROCE)(1) 13.8 5.6 17.0 9.7
EBITDA excluding special items to sales 13.1 8.6 13.9 10.6
(1) Refer to supplemental information for the definition of the term.
The above financial results have been translated into Rand from US Dollar as follows:
- assets and liabilities at rates of exchange ruling at period-end; and
- income, expenditure and cash flow items at average exchange rates.
Supplemental information (this information has not been audited or reviewed)
Exchange rates
Jun Mar Dec Sept Jun
2016 2016 2015 2015 2015
Exchange rates:
Period-end rate: US$1 = ZAR 15.0650 15.4548 15.2865 13.9135 12.2025
Average rate for the quarter: US$1 = ZAR 15.0053 15.8226 14.1577 12.9364 12.0820
Average rate for the YTD: US$1 = ZAR 14.9966 14.9921 14.1577 11.9641 11.6540
Period-end rate: €1 = US$ 1.1117 1.1166 1.0977 1.1195 1.1166
Average rate for the quarter: €1 = US$ 1.1304 1.1020 1.0968 1.1125 1.1060
Average rate for the YTD: €1 = US$ 1.1097 1.0994 1.0968 1.1501 1.1627
Sappi has a primary listing on the JSE Limited and a Level 1 ADR programme that trades in the over-the-counter
market in the United States
South Africa
Computershare Investor Services (Pty) Ltd
70 Marshall Street
Johannesburg 2001
PO Box 61051, Marshalltown 2107
Telephone +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
This report is available on the
Sappi website: www.sappi.com
JSE Sponsor:
UBS South Africa (Pty) Ltd
Date: 04/08/2016 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
