Wrap Text
INTERIM REPORT FOR THE QUARTER AND THE HALF YEAR ENDED MARCH 1999
HIGHLIGHTS
- SECOND QUARTER EPS SHOWS IMPROVED TREND
- DEFERRED EQUITY ELIMINATED
- COMPREHENSIVE DEFERRED TAX ADOPTED
- INDUSTRY ORDER POSITION STRENGTHENING
SUMMARY STATISTICS
QUARTER ENDED HALF YEAR TO
31 MARCH 31 DEC 31 MARCH 31 MARCH 31 MARCH
1999 1998 1998 1999 1998
SALES
- (R BILLION) 6.6 5.7 5.7 12.3 9.5
- (US$ BILLION) 1.1 1.0 1.2 2.1 1.9
OPERATING INCOME
- (R MILLION) 604 449 658 1,053 1,047
- (US$ MILLION) 99 78 133 177 215
OPERATING INCOME
TO SALES (%) 9.2 7.9 11.5 8.6 11.0
OPERATING INCOME
TO AVERAGE
NET ASSETS (%) 9.1 6.3 12.0 7.9 9.3
EPS BEFORE
EXCEPTIONAL ITEMS
(HEADLINE)
- (SACENTS) 100 75 137 175 196
- (US CENTS) 17 13 28 30 40
EARNINGS BEFORE
EXCEPTIONAL
ITEMS PER ADR
- (US CENTS) 170 130 280 300 400
COMMENT
MARKETS
DEMAND FOR PAPER PRODUCTS REMAINED STRONG. IN EUROPE, INDUSTRY ORDER INTAKE FOR
COATED WOODFREE PAPER WAS EXCEPTIONAL THROUGHOUT THE QUARTER TO MARCH 1999
EXCEEDING PRODUCTION CAPACITY, BUT PRICES CONTINUED TO BE UNDER PRESSURE AND
DECLINED IN SOME COUNTRIES. SAPPI ANNOUNCED GENERAL COATED WOODFREE PAPER PRICE
INCREASES IN EUROPE IN MAY, AVERAGING 6% AND AN INCREASE ON COATED WOODFREE
SHEETS OF APPROXIMATELY 3% IN THE UNITED STATES. DEMAND IN THE UNITED STATES
HAS BEEN QUITE STRONG, BUT PRICING WAS MORE COMPETITIVE DUE TO INCREASING
IMPORTS. PRICES FOR KRAFT LINERBOARD AND UNBLEACHED KRAFT PULP RECOVERED IN
EXPORT MARKETS.
PAPER PULP PRICES APPEAR TO HAVE BOTTOMED DURING THE MARCH QUARTER WITH
INCREASES OF US$20 - US$40 PER TON IMPLEMENTED IN MOST MARKETS. NORSCAN*
PRODUCER PULP INVENTORIES FOR APRIL DECLINED TO 1.48 MILLION TONS AND FURTHER
PRICE INCREASES ARE ANTICIPATED.
DISSOLVING PULP PRICES CONTINUE TO REFLECT THE WEAK POSITION OF THE FIBRES AND
TEXTILE INDUSTRY BUT ARE LIKELY TO RISE SOON.
OPERATING REVIEW FOR THE THREE MONTHS TO 31 MARCH 1999
AS PREVIOUSLY FORECAST, SECOND QUARTER EARNINGS OF THE GROUP REFLECT AN
IMPROVEMENT OVER THOSE OF THE FIRST QUARTER BUT ARE LOWER THAN THE COMPARATIVE
QUARTER LAST YEAR. A BRIEF REVIEW OF SAPPI'S BUSINESSES AND REGIONAL
PERFORMANCE FOLLOWS:
FINE PAPER BUSINESS
EUROPE
QUARTER ENDED
31 MARCH 31 MARCH
1999 1998 %
$ MILLION $ MILLION CHANGE
SALES 442 413 7
OPERATING INCOME 32 52 (39)
OPERATING MARGIN (%) 7.2 12.6 -
EBITDA 77 101 (24)
EBITDA MARGIN (%) 17.4 24.5 -
NET OPERATING ASSETS 1,796 2,213 (19)
RONA P.A. (%) 7.1 9.4 -
THE ORDER INTAKE FOR THE WOODFREE COATED PAPER INDUSTRY IMPROVED DURING THE
SECOND FINANCIAL QUARTER DUE TO THE HEALTHY GROWTH OF REAL CONSUMPTION AND THE
CONSIDERABLE INCREASE OF SHIPMENTS TO OVERSEAS MARKETS INCLUDING ASIA. THE
MARKET FOR MECHANICAL COATED PAPERS WAS NOT AS STRONG AS IN THE PREVIOUS
QUARTER.
DESPITE THE STRONG DEMAND PRODUCTION WAS CURTAILED BY 28 000 TONS TO MATCH
PRODUCTION TO DEMAND IN THE EARLY PART OF THE PERIOD.
SALES VOLUMES INCREASED BY 12% COMPARED TO THE FIRST QUARTER. HOWEVER NET
PRICES DECLINED BY 3% IN DOLLAR TERMS AS A RESULT OF CONTINUING COMPETITIVE
PRESSURE. NET SALES INCREASED BY 7% COMPARED TO THE SAME QUARTER LAST YEAR.
ACHIEVEMENT OF THE SYNERGIES AND COST RATIONALISATION DESCRIBED AT THE TIME OF
THE ACQUISITION OF KNP LEYKAM ARE ON TRACK AND WE EXPECT TO ACHIEVE THE FULL
BENEFIT DURING THE NEXT FINANCIAL YEAR. APPROXIMATELY 60% (ON AN ANNUALISED
BASIS) OF THESE SAVINGS WERE ACHIEVED BY THE END OF THE FIRST HALF YEAR.
NORTH AMERICA
QUARTER ENDED
31 MARCH 31 MARCH
1999 1998 %
$ MILLION $ MILLION CHANGE
SALES 376 423 (11)
OPERATING INCOME 32 51 (37)
OPERATING MARGIN (%) 8.5 12.1 -
EBITDA 66 78 (15)
EBITDA MARGIN (%) 17.4 18.4 -
NET OPERATING ASSETS 1,251 1,352 (7)
RONA P.A. (%) 10.2 15.1 -
DEMAND FOR MOST PRODUCTS WAS QUITE STRONG DURING THE QUARTER, BUT PRICES WERE
VERY COMPETITIVE DUE TO INCREASING PRESSURE FROM IMPORTS OF COATED PAPER.
SALES VOLUMES INCREASED BY 13% COMPARED TO THE PREVIOUS QUARTER AND 7% COMPARED
TO THE SAME QUARTER LAST YEAR. THE ANNUAL MAINTENANCE SHUT AT NORTH AMERICA'S
MAJOR MILL (SOMERSET), TYPICALLY TAKEN IN THE THIRD QUARTER, WAS BROUGHT
FORWARD TO THE SECOND QUARTER SO THAT FULL ADVANTAGE CAN BE TAKEN OF THE
SEASONALLY STRONGER DEMAND IN THE THIRD QUARTER.
AVERAGE PRICES ACHIEVED WERE AT A SIMILAR LEVEL TO THE FIRST QUARTER BUT DOWN
FROM THE COMPARABLE QUARTER LAST YEAR RESULTING IN A DECLINE IN OPERATING
MARGIN.
COST OF GOODS SOLD WAS APPROXIMATELY 2% LOWER THAN IN THE COMPARABLE QUARTER
LAST YEAR AS A RESULT OF LOWER PULP PRICES, HIGHER PRODUCTIVITY AND COST
REDUCTION INITIATIVES.
FOLLOWING THE SALE OF THE TIMBERLANDS IN THE FIRST QUARTER NET DEBT HAS BEEN
REDUCED BY APPROXIMATELY US$120 MILLION.
SOUTH AFRICA
QUARTER ENDED
31 MARCH 31 MARCH
1999 1998 %
$ MILLION $ MILLION CHANGE
SALES 51 65 (22)
OPERATING INCOME 9 13 (31)
OPERATING MARGIN (%) 17.6 20.0 -
EBITDA 11 15 (27)
EBITDA MARGIN (%) 21.6 23.1 -
NET OPERATING ASSETS 154 255 (40)
RONA P.A. (%) 23.4 20.4 -
PREVAILING HIGH INTEREST RATES HAVE SLOWED ECONOMIC ACTIVITY AND DEMAND FOR
PAPER IN THE DOMESTIC MARKET WAS FLAT. INTEREST RATES HAVE DECLINED STRONGLY
RECENTLY AND SALES VOLUMES WERE SIMILAR TO THE PREVIOUS QUARTER BUT 2% HIGHER
THAN THE SAME QUARTER LAST YEAR. DEMAND IMPROVED TOWARDS THE END OF THE PERIOD
AND SALES VOLUMES ARE EXPECTED TO IMPROVE AS INTEREST RATES CONTINUE TO DECLINE
THE WEAKER EXCHANGE RATE ALLOWED SOME PRICE INCREASES BUT AVERAGE PRICES
ACHIEVED WERE WELL DOWN ON THE SAME QUARTER LAST YEAR IN DOLLAR TERMS.
FOREST PRODUCTS BUSINESS
QUARTER ENDED
31 MARCH 31 MARCH
1999 1998 %
$ MILLION $ MILLION CHANGE
SALES 223 264 (16)
OPERATING INCOME 19 9 111
OPERATING MARGIN (%) 8.5 3.4 -
EBITDA 38 38 0
EBITDA MARGIN (%) 17.0 14.4 -
NET OPERATING ASSETS 1,236 1,372 (10)
RONA P.A. (%) 6.1 2.6 -
SALES VOLUMES INCREASED BY 9%, COMPARED TO THE PREVIOUS QUARTER, BUT WERE DOWN
15% ON THE SAME QUARTER LAST YEAR REFLECTING THE IMPACT OF HIGH INTEREST RATES
IN SOUTH AFRICA AND THE DISSOLVING PULP MARKET WHICH IS STILL WEAK. PACKAGING
PAPER HAD STRONGER DEMAND THAN THE FIRST FINANCIAL QUARTER AFTER A PARTICULARLY
WEAK START TO THE YEAR. THE NEWSPRINT BUSINESS, WHERE DEMAND IS STABLE, SHOWED
AN IMPROVEMENT DUE TO A SUBSTANTIAL INCREASE IN SAPPI'S MARKET SHARE AFTER
RECENT CHANGES IN OWNERSHIP OF SOME MAJOR TITLES. IN DOLLAR TERMS PRICES WERE
SIMILAR TO THE SAME QUARTER LAST YEAR.
MANUFACTURING COSTS WERE WELL CONTAINED IN THE FIRST HALF AND COST REDUCTION
HELPED ENHANCE MARGINS.
RESULTS FOR THE HALF YEAR TO 31 MARCH 1999
THE FINANCIAL RESULTS FOR THE HALF YEAR IN AGGREGATE HAVE BEEN REVIEWED BY THE
GROUP'S AUDITORS, DELOITTE & TOUCHE. THEIR REPORT IS AVAILABLE FOR INSPECTION
AT THE COMPANY'S REGISTERED OFFICES.
CONSOLIDATED SALES FOR THE HALF YEAR WERE R12.3 BILLION ( US$2.1 BILLION)
(1998: R9.5 BILLION, US$1.9 BILLION). R1.8 BILLION OF THIS INCREASE RELATES TO
THE INCLUSION OF KNP LEYKAM FOR THE FULL PERIOD WHEREAS IN THE FINANCIAL YEAR
1998 KNP LEYKAM WAS NOT INCLUDED IN THE FIRST QUARTER. COSTS CONTINUE TO BE
GENERALLY WELL CONTAINED.
DESPITE THE INCLUSION OF KNP LEYKAM FOR THE FULL PERIOD NET FINANCE COSTS PAID
WERE R22 MILLION (US$4 MILLION) BELOW THE PREVIOUS YEAR DUE TO REDUCED
BORROWINGS AND INTEREST RATES. NET FINANCE COSTS AFTER CAPITALISED INTEREST
HOWEVER INCREASED BY APPROXIMATELY R24 MILLION, (US$4 MILLION) AS A RESULT OF A
REDUCTION IN INTEREST CAPITALISED.
THE GROUP'S CASH GENERATED BY OPERATIONS FOR THE HALF YEAR REMAINED STRONG AT
R1.9 BILLION (US$320 MILLION). HOWEVER THIS WAS OFFSET BY AN INCREASE IN
WORKING CAPITAL MAINLY DUE TO THE REDUCTION IN CAPITAL CREDITORS AND TO AN
INCREASE IN FINISHED GOODS INVENTORIES FROM SEPTEMBER 1998'S LOW LEVEL.
EARNINGS BEFORE EXCEPTIONAL ITEMS AMOUNTED TO R392 MILLION (US$66 MILLION)
REFLECTING AN INCREASE OF R38 MILLION COMPARED TO 1998, AND EARNINGS BEFORE
EXCEPTIONAL ITEMS PER SHARE WERE 175 SA CENTS (30 US CENTS). EARNINGS PER SHARE
WERE 133 SA CENTS (22 US CENTS). THE ADJUSTMENTS TO NET INCOME TO ARRIVE AT
EARNINGS BEFORE EXCEPTIONAL ITEMS RELATE TO THE ADJUSTMENT OF GOODWILL
FOLLOWING THE SALE OF THE US TIMBERLANDS AND A PROVISION FOR RESTRUCTURING.
CAPITAL STRUCTURE
IN THE EARLY PART OF THE DECADE SAPPI ENTERED INTO THREE TRANSACTIONS (ONE OF
WHICH WAS SETTLED IN MAY 1998) IN TERMS OF WHICH IT HAD THE RIGHT TO SETTLE THE
PURCHASE PRICE AT SAPPI'S OPTION IN SHARES OR IN CASH. IT WAS THEN THE
INTENTION TO SETTLE THE OBLIGATION IN SAPPI LIMITED SHARES AND THEREFORE THE
LIABILITY WAS IN THE PAST ACCOUNTED FOR AS DEFERRED EQUITY. ALTHOUGH THERE HAS
BEEN NO CHANGE TO THE UNDERLYING OBLIGATIONS, THE GROUP NOW INTENDS TO REDEEM
BOTH REMAINING AMOUNTS IN CASH WHEN THEY FALL DUE. THESE AMOUNTS HAVE THEREFORE
BEEN DISCLOSED AS DEBT AND AS MINORITY INTERESTS ACCORDING TO THE TERMS OF THE
RESPECTIVE TRANSACTIONS. THIS LARGELY ELIMINATES THE POTENTIAL DILUTION OF
EARNINGS PER SHARE.
THE PREFERRED STOCK IN THE NORTH AMERICAN SUBSIDIARY, ON WHICH THE DIVIDEND IS
NOT TAX DEDUCTIBLE, WILL BE CONVERTED TO DEBENTURES ON 15 JUNE 1999 AS SAPPI
FINE PAPER NORTH AMERICA HAS EXHAUSTED ITS TAX SHIELD. THE CONVERSION TO
DEBENTURES WILL IMPROVE NET INCOME BY APPROXIMATELY US$7 MILLION (R42 MILLION)
PER ANNUM AND THE LIABILITY WILL IN FUTURE BE REFLECTED AS DEBT.
THE GROUP'S DEBT TO TOTAL CAPITALISATION AFTER INCORPORATING THE ABOVE CHANGES
WAS 50% COMPARED TO THE SEPTEMBER 1998 RESTATED LEVEL OF 48%.
THE GROUP HAS EVALUATED VARIOUS FINANCING OPTIONS AND EXPECTS, IN THE NEAR
FUTURE, TO RE-FINANCE THE CURRENT PORTION OF INTEREST BEARING LIABILITIES.
TAXATION
THE INCREASED CURRENT TAXATION CHARGE RELATES MAINLY TO AN ACCRUAL OF
ALTERNATIVE MINIMUM TAX IN THE UNITED STATES AND THE INCLUSION OF KNP LEYKAM
FOR THE FULL PERIOD.
SAPPI HAS FOR MANY YEARS APPLIED THE PARTIAL METHOD OF CALCULATING DEFERRED TAX
WHICH COMPLIED WITH EXISTING SA GAAP. HOWEVER A REVISED STANDARD WAS ANNOUNCED
IN MARCH THIS YEAR WHICH WILL REQUIRE THE GROUP TO APPLY THE COMPREHENSIVE
METHOD OF CALCULATING DEFERRED TAX FROM THE FINANCIAL YEAR 2000. THE GROUP HAS
DECIDED TO ANTICIPATE THE REVISED STANDARD AND TO APPLY IT IMMEDIATELY.
ACCORDINGLY THE RESULTS NOW BEING REPORTED INCORPORATE THIS CHANGE IN
ACCOUNTING POLICY. IN CALCULATING THE CHARGE AGAINST PROFITS ONLY HALF THE
EFFECT OF THE RECENTLY ANNOUNCED REDUCTION IN THE SOUTH AFRICAN TAX RATE (FROM
35% TO 30%) HAS BEEN TAKEN INTO ACCOUNT. THE BALANCE OF THIS CREDIT WILL BE
PHASED IN OVER THE REMAINDER OF THE FINANCIAL YEAR 1999.
THE MAKE UP OF THE DEFERRED TAX CHARGE (INCOME) FOR THE HALF YEAR TO 31 MARCH
1999 IS AS FOLLOWS:
R MILLION
DEFERRED TAX ON INCOME 49
DEFERRED TAX RELEASED ON SALE OF TIMBERLANDS (55)
50% OF SOUTH AFRICAN CORPORATE TAX RATE ADJUSTMENT (80)
(86)
AT THE SAME TIME THE GROUP HAS TAKEN A CHARGE OF R75 MILLION FOR RESTRUCTURING.
THE ADOPTION OF THIS INTERNATIONALLY APPLIED STANDARD ALONG WITH THE CHANGE IN
THE ACCOUNTING TREATMENT OF DEFERRED EQUITY WILL REMOVE TWO OF THE MAJOR
ADJUSTMENTS IN RECONCILING THE GROUP'S RESULTS TO US GAAP.
YEAR 2000
GOOD PROGRESS HAS BEEN MADE IN ADDRESSING POTENTIAL YEAR 2000 PROBLEMS RELATED
TO THE GROUP'S OPERATIONS. MOST OF THE GROUP'S MAJOR INFORMATION SYSTEMS HAVE
BEEN REPLACED OVER THE LAST 2 YEARS, AT A COST OF APPROXIMATELY R500 MILLION,
BY SAP R3 WHICH IS YEAR 2000 COMPLIANT AND WHICH ESTABLISHES AN INTEGRATED
PLATFORM FOR FUTURE IT DEVELOPMENT. THE REMAINING IMBEDDED AND OTHER PERIPHERAL
SYSTEMS ARE EXPECTED TO BE FULLY TESTED AND COMPLIANT DURING THE THIRD CALENDAR
QUARTER.
IN ADDITION TO THE SAP R3 IMPLEMENTATION THE ANTICIPATED COST OF MEETING YEAR
2000 COMPLIANCE IS APPROXIMATELY R170 MILLION (US$28 MILLION) OF WHICH SOME 65%
WAS EXPENSED BY MARCH 1999.
APPOINTMENT
DONALD WILSON JOINED THE GROUP IN APRIL AS EXECUTIVE DIRECTOR-FINANCE DESIGNATE
TO REPLACE BILL HEWITT WHEN HE RETIRES AFTER 11 YEARS IN THAT POSITION. DONALD
WILSON IS A CHARTERED ACCOUNTANT AND HAS HAD INTERNATIONAL AND SOUTH AFRICAN
EXPERIENCE AS A DIVISIONAL FINANCE DIRECTOR IN THE BARLOW GROUP. BILL HEWITT
HAS AGREED TO REMAIN ON THE BOARD AS A NON-EXECUTIVE DIRECTOR.
DIVIDENDS
AS INDICATED AT THIS TIME LAST YEAR, DIVIDENDS WILL BE CONSIDERED ONLY ON AN
ANNUAL BASIS AND CONSEQUENTLY NO INTERIM DIVIDEND WILL BE PAYABLE.
OUTLOOK
SAPPI'S MAJOR MARKETS IN EUROPE AND NORTH AMERICA CONTINUE TO GROW AND IN SOUTH
AFRICA THE OUTLOOK FOR RENEWED GROWTH HAS IMPROVED FOLLOWING THE STEADY
REDUCTION OF INTEREST RATES. ASIAN MARKETS TOO ARE SHOWING GREATER STABILITY
AND A RETURN TO GROWTH IS EXPECTED.
ANALYSTS ARE PREDICTING AN UPTURN IN COMMODITY PRICES IN THE NEXT EIGHTEEN
MONTHS. PULP MARKETS ARE ALREADY SHOWING SIGNS OF TURNING UP AND IT SEEMS CLEAR
THAT THE BOTTOM OF THE CYCLE HAS PASSED.
IN THE UNITED STATES PULP MILLS WILL HAVE UNTIL 2001 TO COMPLY WITH THE NEW
ENVIRONMENTAL REGULATIONS PROMULGATED IN APRIL 1998 BY THE ENVIRONMENTAL
PROTECTION AGENCY. THESE REGULATIONS IMPOSE NEW WATER AND AIR QUALITY STANDARDS
WHICH ARE SIMILAR TO THOSE REQUIRED IN EUROPE AND AS APPLIED BY MOST OF SAPPI'S
SOUTH AFRICAN MILLS. THESE NEW STANDARDS HAVE, AS EXPECTED, RESULTED IN THE
CLOSURE OF MANY UNCOMPETITIVE MILLS. CLOSURES OF APPROXIMATELY 2.5 MILLION TONS
HAVE ALREADY BEEN ANNOUNCED BY THE NORTH AMERICAN INDUSTRY AND MORE ARE
EXPECTED. THESE CLOSURES INCLUDE SAPPI'S WESTBROOK PULP MILL (ANNOUNCED IN
APRIL). SAPPI'S MAJOR MILL IN THE US (SOMERSET) ALREADY COMPLIES WITH THESE
RULES AND HAS SCOPE FOR FUTURE PRODUCTION INCREASES. MILL CLOSURES ARE EXPECTED
TO RESTORE SUPPLY DEMAND BALANCE AND TO LEAD TO FURTHER IMPROVEMENT OF PULP
PRICES.
THE OUTLOOK FOR COATED WOODFREE PAPER IS SIMILARLY GOOD AS THE CAPACITY/DEMAND
BALANCE IMPROVES AND AS THE INDUSTRY HAS BECOME MORE RESPONSIVE TO THE NEED TO
MANAGE OUTPUT TO MARKET DEMAND LEVELS. UNDERLYING DEMAND IS EXPECTED TO
CONTINUE GROWING AND WITH CUSTOMER INVENTORIES AT RELATIVELY LOW LEVELS DEMAND
ON PAPER MILLS IS EXPECTED TO IMPROVE. PRICE INCREASES HAVE BEEN ANNOUNCED IN
NORTH AMERICA FOR COATED WOODFREE SHEETS AND IN EUROPE FOR COATED WOODFREE
SHEETS AND REELS. FURTHER INCREASES ARE EXPECTED IN NORTH AMERICA IN JUNE OR
JULY. HOWEVER, WE STILL BELIEVE IT WILL BE NECESSARY TO CURTAIL PRODUCTION IN
EUROPE IN THE QUIET SUMMER MONTHS TO AVOID EXCESSIVE SEASONAL INVENTORY
BUILD-UP.
SAPPI SHOULD CONTINUE TO BENEFIT FROM ITS TIGHT MANAGEMENT OF COSTS AND ITS
FOCUS ON INTRODUCING NEW PRODUCTS AND MATCHING OUTPUT TO MARKET DEMANDS. BY THE
END OF THIS FINANCIAL YEAR THE GROUP EXPECTS TO HAVE IMPLEMENTED MOST OF THE
SYNERGIES FROM MERGING THE EUROPEAN BUSINESSES WHICH WERE IDENTIFIED AT THE
TIME OF ACQUIRING KNP LEYKAM.
THE GROUP WILL, IN THE NEXT QUARTER, TAKE AN APPROXIMATE R153 MILLION (US$26
MILLION) POST TAXATION CHARGE IN RESPECT OF RESTRUCTURING COSTS RESULTING FROM
THE ANNOUNCED CLOSURE OF THE PULP MILL AND ONE OF THE MILL'S PAPER MACHINES AT
WESTBROOK IN THE UNITED STATES. THE POST TAXATION CASH ELEMENT OF THIS CHARGE
IS EXPECTED TO BE LIMITED TO R31 MILLION (US$5 MILLION). THE CLOSURE OF THE
PULP MILL WILL AVOID APPROXIMATELY R300 MILLION (US$50 MILLION) OF NO-RETURN
ENVIRONMENTAL EXPENDITURE AND THE FUTURE PROFITABILITY OF THE MILL IS EXPECTED
TO INCREASE.
ALTHOUGH THE CURRENT FINANCIAL YEAR STARTED WEAKLY, WE EXPECT THIRD QUARTER
EARNINGS BEFORE EXCEPTIONAL ITEMS PER SHARE TO IMPROVE OVER THE SECOND QUARTER
AND THE COMPARABLE QUARTER LAST YEAR. FULL YEAR EARNINGS PER SHARE (BEFORE
EXCEPTIONAL ITEMS) ARE STILL EXPECTED TO BE SIMILAR TO THOSE OF LAST YEAR.
ON BEHALF OF THE BOARD
E VAN AS W E HEWITT
DIRECTOR DIRECTOR
24 MAY 1999
REGIONAL INFORMATION
UNAUDITED
QUARTER ENDED HALF YEAR ENDED
31 MARCH 31 MARCH 31 MARCH 31 MARCH
1999 1998 1999 1998
R MILLION R MILLION % CHANGE R MILLION R MILLION % CHANGE
SALES
FINE
PAPER
- NORTH
AMERICA 2,286.5 2,089.2 9.4 4,184.4 3,648.4 14.7
EUROPE 2,689.0 2,037.0 32.0 5,065.4 2,781.5 82.1
SOUTH AFRICA 308.8 321.5 (4.0) 592.0 594.1 (0.4)
TOTAL 5,284.3 4,447.7 18.8 9,841.8 7,024.0 40.1
FOREST
PRODUCTS 1,354.2 1,303.1 3.9 2,455.5 2,430.4 1.0
TOTAL 6,638.5 5,750.8 15.4 12,297.3 9,454.4 30.1
OPERATING INCOME
FINE PAPER
- NORTH
AMERICA 194.7 250.7 (22.3) 393.4 465.2 (15.4)
EUROPE 192.3 259.6 (25.9) 336.5 295.2 14.0
SOUTH AFRICA 51.4 61.7 (16.6) 87.4 110.2 (20.7)
TOTAL 438.4 572.0 (23.3) 817.3 870.6 (6.1)
FOREST
PRODUCTS 114.0 42.3 169.5 165.5 124.4 33.0
SAPPI
TRADING AND
CORPORATE 51.0 44.1 17.0 70.5 52.4 34.6
TOTAL 603.9 658.4 (8.3) 1,053.3 1,047.4 0.6
EBITDA
FINE PAPER
- NORTH
AMERICA 398.4 382.8 4.0 697.1 698.8 (0.2)
EUROPE 470.1 497.4 (5.5) 889.8 570.3 56.0
SOUTH AFRICA 64.8 75.8 (14.5) 113.5 138.3 (17.9)
TOTAL 933.3 956.0 (2.4) 1,700.4 1,407.4 20.8
FOREST
PRODUCTS 230.0 185.5 24.0 438.5 419.7 4.5
SAPPI
TRADING AND
CORPORATE 31.8 23.9 33.1 71.8 53.4 34.5
TOTAL 1,195.0 1,165.4 2.5 2,210.7 1,880.5 17.6
NET OPERATING ASSETS
FINE PAPER -
NORTH
AMERICA 7,785.4 6,803.4 14.4 7,785.4 6,803.4 14.4
EUROPE 11,174.4 11,136.4 0.3 11,174.4 11,136.4 0.3
SOUTH AFRICA 959.2 1,282.8 (25.2) 959.2 1,282.8 (25.2)
TOTAL 19,919.0 19,222.6 3.6 19,919.0 19,222.6 3.6
FOREST
PRODUCTS 7,690.0 6,904.6 11.4 7,690.0 6,904.6 11.4
SAPPI
TRADING AND
CORPORATE 1,685.2 1,117.3 50.8 1,685.2 1,117.3 50.8
TOTAL 29,294.2 27,244.5 7.5 29,294.2 27,244.5 7.5
REGIONAL INFORMATION (US DOLLAR CONVENIENCE TRANSLATION*)
UNAUDITED
QUARTER ENDED HALF YEAR ENDED
31 MARCH 31 MARCH 31 MARCH 31 MARCH
1999 1998 1999 1998
US$ MILLION US$ MILLION % CHANGE US$ MILLION US$ MILLION % CHANGE
SALES
FINE PAPER
- NORTH
AMERICA 376.2 423.4 (11.1) 704.7 749.1 (5.9)
EUROPE 442.4 412.8 7.2 853.1 571.1 49.4
SOUTH AFRICA 50.8 65.2 (22.1) 99.7 122.0 (18.3)
TOTAL 869.4 901.4 (3.6) 1,657.5 1,442.2 14.9
FOREST
PRODUCTS 222.8 264.2 (15.7) 413.5 498.9 (17.1)
TOTAL 1,092.2 1,165.6 (6.3) 2,071.0 1,941.1 6.7
OPERATING INCOME
FINE PAPER
- NORTH
AMERICA 32.0 50.8 (37.0) 66.3 95.5 (30.6)
EUROPE 31.6 52.6 (39.9) 56.6 60.8 (6.9)
SOUTH AFRICA 8.5 12.5 (32.0) 14.7 22.6 (35.0)
TOTAL 72.1 115.9 (37.8) 137.6 178.9 (23.1)
FOREST
PRODUCTS 18.8 8.6 118.6 27.9 25.5 9.4
SAPPI
TRADING AND
CORPORATE 8.5 8.9 (4.5) 11.9 10.7 11.2
TOTAL 99.4 133.4 (25.5) 177.4 215.1 (17.5)
EBITDA
FINE PAPER
- NORTH
AMERICA 65.5 77.5 (15.5) 117.5 143.4 (18.1)
EUROPE 77.3 100.9 (23.4) 149.8 117.1 27.9
SOUTH AFRICA 10.7 15.4 (30.5) 19.1 28.4 (32.7)
TOTAL 153.5 193.8 (20.8) 286.4 288.9 (0.9)
FOREST
PRODUCTS 37.8 37.6 0.5 73.8 86.2 (14.4)
SAPPI
TRADING AND
CORPORATE 5.3 4.8 10.4 12.1 11.0 10.0
TOTAL 196.6 236.2 (16.8) 372.3 386.1 (3.6)
NET OPERATING ASSETS
FINE PAPER
- NORTH
AMERICA 1,251.3 1,352.0 (7.4) 1,251.3 1,352.0 (7.4)
EUROPE 1,795.9 2,213.1 (18.9) 1,795.9 2,213.1 (18.9)
SOUTH AFRICA 154.2 254.9 (39.5) 154.2 254.9 (39.5)
TOTAL 3,201.4 3,820.0 (16.2) 3,201.4 3,820.0 (16.2)
FOREST
PRODUCTS 1,235.9 1,372.1 (9.9) 1,235.9 1,372.1 (9.9)
SAPPI
TRADING AND
CORPORATE 270.8 222.0 22.0 270.8 222.0 22.0
TOTAL 4,708.1 5,414.1 (13.0) 4,708.1 5,414.1 (13.0)
* CONVENIENCE EXCHANGE RATE
(INCOME STATEMENT)
$ 1,00 = R 6.0780 4.9338 5.9378 4.8707
* CONVENIENCE EXCHANGE RATE
(BALANCE SHEET)
$ 1,00 = R 6.2220 5.0320 6.2220 5.0320
CONSOLIDATED INCOME STATEMENT
UNAUDITED
QUARTER ENDED HALF-YEAR ENDED
31 MARCH 99 31 MARCH 98 31 MARCH 99 31 MARCH 98
R MILLION R MILLION % CHANGE R MILLION R MILLION % CHANGE
SALES 6,638.5 5,750.8 15.4 12,297.3 9,454.4 30.1
COST OF
GOODS
SOLD 5,037.7 4,219.3 19.4 9,216.4 6,976.6 32.1
GROSS
PROFIT 1,600.8 1,531.5 4.5 3,080.9 2,477.8 24.3
DEPRECIATI 519.9 493.9 5.3 1,008.4 701.5 43.7
SELLING,
GENERAL AND
ADMINIS-
TRATIVE
EXPENSES 477.0 379.2 25.8 1,019.2 728.9 39.8
OPERATING
INCOME 603.9 658.4 (8.3) 1,053.3 1,047.4 0.6
NON-TRADING
INCOME/
(LOSS) (84.5) (45.3) 86.5 (128.9) (36.5) 253.2
NET FINANCE
COSTS 260.5 249.7 4.3 500.2 475.9 5.1
PAID 321.4 346.9 (7.4) 651.2 673.4 (3.3)
CAPITA-
LISED (60.9) (97.2) (37.3) (151.0) (197.5) (23.5)
INCOME
BEFORE
TAXATION 258.9 363.4 (28.7) 424.2 535.0 (20.7)
TAXATION
- CURRENT 97.2 103.5 (6.1) 183.0 135.6 35.0
- DEFERRED (7.6) 50.9 (86.1) 72.6
INCOME AFTER
TAXATION 169.3 209.0 (19.0) 327.3 326.8 0.2
INCOME
ATTRIBUTABLE
TO MINORITY
INTERESTS 14.8 38.8 (61.9) 28.8 78.0 (63.1)
NET INCOME 154.5 170.2 (9.2) 298.5 248.8 20.0
EBITDA 1,195.0 1,165.4 2.5 2,210.7 1,880.5 17.6
EARNINGS
PER SHARE
* (CENTS) 69 84 133 137
EARNINGS
BEFORE
EXCEPTIONAL
ITEMS
(HEADLINE
EARNINGS)
PER SHARE*
(CENTS) 100 137 175 196
WEIGHTED
AVERAGE
NUMBER OF
SHARES
IN ISSUE
ILLIONS) 223.8 203.8 223.8 181.1
CALCULATION
OF EARNINGS
BEFORE
EXCEPTIONAL
ITEMS
(HEADLINE)
NET OF TAX
NET INCOME 154.5 170.2 298.5 248.8
(PROFIT)/LOSS
ON DISPOSAL
OF BUSINESS
AND
FIXED ASSETS - (75.4) 18.3 (75.4)
MILL CLOSURE
COSTS - 121.3 - 121.3
RESTRUCTURING
COST
PROVISIONS 75.0 30.5 75.0 30.5
INCREASE
IN OTHER
PROVISIONS (5.3) 32.3 0.5 28.9
EARNINGS
BEFORE
EXCEPTIONAL
ITEMS
(HEADLINE) 224.2 278.9 392.3 354.1
*DILUTED EPS HAS NOT BEEN PRESENTED AS THE DILUTIVE EFFECT OF THE REMAINING
POTENTIAL ORDINARY SHARES IS NEGLIGIBLE ON THE BASIS THAT THE COMPANY NOW
INTENDS TO SETTLE IN CASH THE OBLIGATIONS PREVIOUSLY TREATED AS DEFERRED EQUITY
COMPARATIVE FIGURES HAVE BEEN RESTATED FOR ACCOUNTING POLICY CHANGES TO ENSURE
CONSISTENCY.
THE INCOME STATEMENT FORMAT AND DISCLOSURE HAVE BEEN REVISED AND EXPANDED TO
IMPROVE DISCLOSURE.
CONSOLIDATED INCOME STATEMENT (US DOLLAR CONVENIENCE TRANSLATION**)
UNAUDITED
QUARTER ENDED HALF-YEAR ENDED
31 MARCH 99 31 MARCH 98 31 MARCH 99 31 MARCH 98
US$ MILLION US$ MILLION % CHANGE US$ MILLION US$ MILLION % CHANGE
SALES 1,092.2 1,165.6 (6.3) 2,071.0 1,941.1 6.7
COST OF
GOODS SOLD 828.8 855.2 (3.1) 1,552.2 1,432.4 8.4
GROSS
PROFIT 263.4 310.4 (15.1) 518.8 508.7 2.0
DEPRECIATION 85.5 100.1 (14.6) 169.8 144.0 17.9
SELLING,
GENERAL AND
ADMINISTRATIVE
EXPENSES 78.5 76.9 2.1 171.6 149.6 14.7
OPERATING
INCOME 99.4 133.4 (25.5) 177.4 215.1 (17.5)
NON-TRADING
INCOME
(LOSS) (13.9) (9.2) 51.1 (21.7) (7.5) 189.3
NET FINANCE
COSTS 42.9 50.6 (15.2) 84.3 97.8 (13.8)
PAID 52.9 70.3 (24.8) 109.7 138.3 (20.7)
CAPITALISED (10.0) (19.7) (49.2) (25.4) (40.5) (37.3)
INCOME BEFORE
TAXATION 42.6 73.6 (42.1) 71.4 109.8 (35.0)
TAXATION
- CURRENT 16.0 21.0 (23.8) 30.8 27.8 10.8
- DEFERRED (1.3) 10.3 (14.5) 14.9
INCOME
AFTER
TAXATION 27.9 42.3 (34.0) 55.1 67.1 (17.9)
INCOME
ATTRIBUTABLE
TO MINORITY
INTERESTS 2.4 7.9 (69.6) 4.9 16.0 (69.4)
NET INCOME 25.5 34.4 (25.9) 50.2 51.1 (1.8)
EBITDA 196.6 236.2 (16.8) 372.3 386.1 (3.6)
EARNINGS
PER SHARE *
(CENTS) 11 17 22 28
EARNINGS
BEFORE EXCEPTIONAL
ITEMS
(HEADLINE EARNINGS)
PER SHARE *
(CENTS) 16.5 27.7 29.5 40.1
WEIGHTED
AVERAGE NUMBER OF
SHARES IN ISSUE
(MILLIONS) 223.8 203.8 223.8 181.1
CALCULATION
OF EARNINGS
BEFORE
EXCEPTIONAL ITEMS
(HEADLINE)
NET OF TAX
NET INCOME 25.5 34.4 50.2 51.1
PROFIT ON
DISPOSAL OF BUSINESS
AND FIXED
ASSETS - (15.3) 3.1 (15.5)
MILL CLOSURE
COSTS - 24.6 - 24.9
RESTRUCTURING
COST
PROVISIONS 12.3 6.2 12.6 6.3
INCREASE IN
OTHER
PROVISIONS (0.9) 6.5 0.1 5.9
EARNINGS
BEFORE EXCEPTIONAL
ITEMS
(HEADLINE) 36.9 56.4 66.0 72.7
** CONVENIENCE EXCHANGE
RATE
$ 1.00 = R 6.0780 4.9338 5.9378 4.8707
* DILUTED EPS HAS NOT BEEN PRESENTED AS THE DILUTIVE EFFECT OF THE
REMAINING POTENTIAL ORDINARY SHARES IS NEGLIGIBLE ON THE BASIS THAT THE COMPANY
NOW INTENDS TO SETTLE IN CASH THE OBLIGATIONS PREVIOUSLY TREATED AS DEFERRED
EQUITY.
COMPARATIVE FIGURES HAVE BEEN RESTATED FOR ACCOUNTING POLICY CHANGES TO ENSURE
CONSISTENCY.
THE INCOME STATEMENT FORMAT AND DISCLOSURE HAVE BEEN REVISED AND EXPANDED TO
IMPROVE DISCLOSURE.
CONSOLIDATED BALANCE SHEET
UNAUDITED AT AUDITED AT
31 MARCH 30 SEPTEMBER
1999 1998
R MILLION R MILLION
FUNDS EMPLOYED
ORDINARY SHAREHOLDERS' INTEREST 9,212.3 9,171.9
MINORITY INTERESTS 878.9 878.3
LONG-TERM BORROWINGS 10,572.6 14,698.1
OTHER LONG-TERM LIABILITIES 1,765.0 1,521.3
DEFERRED TAXATION 2,250.9 2,320.7
24,679.7 28,590.3
EMPLOYMENT OF FUNDS
FIXED ASSETS 23,372.3 23,485.8
PLANTATIONS AND TIMBERLANDS 2,349.3 3,289.7
OTHER NON-CURRENT ASSETS 1,718.0 1,652.1
CURRENT ASSETS 7,676.1 9,115.5
BANK BALANCES AND DEPOSITS 1,165.7 2,965.6
OTHER CURRENT ASSETS 6,510.4 6,149.9
TOTAL ASSETS 35,115.7 37,543.1
CURRENT LIABILITIES 10,436.0 8,952.8
INTEREST-BEARING LIABILITIES 4,420.1 825.7
BANK OVERDRAFT 1,285.0 2,753.9
OTHER CURRENT LIABILITIES 4,730.9 5,373.2
24,679.7 28,590.3
NUMBER OF SHARES IN ISSUE
(MILLIONS) 223.8 223.8
DEBT TO TOTAL CAPITALISATION (%) 50.0 48.0
CURRENT ASSET RATIO 0.74 1.02
CONSOLIDATED BALANCE SHEET (US DOLLAR CONVENIENCE TRANSLATION*)
UNAUDITED AT AUDITED AT
31 MARCH 30 SEPTEMBER
1999 1998
US$ MILLION US$ MILLION
FUNDS EMPLOYED
ORDINARY SHAREHOLDERS' INTEREST 1,480.5 1,577.3
MINORITY INTERESTS 141.3 151.0
LONG-TERM BORROWINGS 1,699.2 2,527.6
OTHER LONG-TERM LIABILITIES 283.7 261.6
DEFERRED TAXATION 361.8 399.1
3,966.5 4,916.6
EMPLOYMENT OF FUNDS
FIXED ASSETS 3,756.4 4,038.8
PLANTATIONS AND TIMBERLANDS 377.6 565.7
OTHER NON-CURRENT ASSETS 276.1 284.1
CURRENT ASSETS 1,233.8 1,567.6
BANK BALANCES AND DEPOSITS 187.4 510.0
OTHER CURRENT ASSETS 1,046.4 1,057.6
TOTAL ASSETS 5,643.9 6,456.2
CURRENT LIABILITIES 1,677.3 1,539.6
INTEREST-BEARING LIABILITIES 710.4 142.0
BANK OVERDRAFT 206.5 473.6
OTHER CURRENT LIABILITIES 760.4 924.0
3,966.6 4,916.6
NUMBER OF SHARES IN ISSUE (MILLIONS) 223.8 223.8
DEBT TO TOTAL CAPITALISATION (%) 50.0 48.0
CURRENT ASSET RATIO 0.74 1.02
*CONVENIENCE EXCHANGE RATE $1,00 = R 6.222 5.8150
CONSOLIDATED SUMMARISED CASH FLOW STATEMENT
UNAUDITED UNAUDITED
HALF-YEAR HALF-YEAR
ENDED ENDED
31 MARCH 31 MARCH
1999 1998
R MILLION R MILLION % CHANGE
CASH GENERATED BY
OPERATIONS 1,901.5 1,848.8 2.9
MOVEMENT IN WORKING CAPITAL (846.8) (136.9) 518.6
NET FINANCE COST (651.0) (673.5) (3.3)
TAXATION (163.5) (86.7) 88.6
DIVIDENDS PAID (223.8) -
CASH RETAINED FROM
OPERATING ACTIVITIES 16.4 951.7 (98.3)
CASH EFFECTS OF INVESTING
ACTIVITIES 367.1 (4,602.6) (108.0)
CASH EFFECTS OF FINANCING
ACTIVITIES (2,205.1) 4,107.3 (153.7)
NET MOVEMENT IN CASH
AND CASH EQUIVALENTS (1,821.6) 456.4 (499.1)
CONSOLIDATED SUMMARISED CASH FLOW STATEMENT
(US DOLLAR CONVENIENCE TRANSLATION*)
UNAUDITED UNAUDITED
HALF-YEAR HALF-YEAR
ENDED ENDED
31 MARCH 31 MARCH
1999 1998
US$ MILLION US$ MILLION % CHANGE
CASH GENERATED BY
OPERATIONS 320.2 379.6 (15.6)
MOVEMENT IN WORKING CAPITAL (142.6) (28.1) 407.5
NET FINANCE COST (109.6) (138.3) (20.8)
TAXATION (27.5) (17.8) 54.5
DIVIDENDS PAID (37.7) -
CASH RETAINED FROM
OPERATING ACTIVITIES 2.8 195.4 (98.6)
CASH EFFECTS OF INVESTING
ACTIVITIES 61.8 (945.0) (106.5)
CASH EFFECTS OF
FINANCING ACTIVITIES (371.4) 843.3 (144.0)
NET MOVEMENT IN CASH AND
CASH EQUIVALENTS (306.8) 93.7 (427.4)
*CONVENIENCE EXCHANGE RATE
$1,00 = R 5.9378 4.8707
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), CURRENCY FLUCTUATIONS AND THE
CONSEQUENCES OF YEAR 2000 NON-COMPLIANCE AND INTRODUCTION OF THE EURO. 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.
A REPORT INCLUDING SEGMENTAL AND GEOGRAPHIC INFORMATION AND
US DOLLAR CONVENIENCE TRANSLATIONS HAS BEEN POSTED TO SHAREHOLDERS AND IS
AVAILABLE ON THE SAPPI WEBSITE.
HTTP://WWW.SAPPI.COM
OTHER INTERESTED PARTIES CAN OBTAIN COPIES 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: INDEPENDENT REGISTRARS GROUP, BOURNE HOUSE, 34 BECKENHAM ROAD,
BECKENHAM KENT, BR3 4TU, DX 91750, BECKENHAM WEST. TEL: +44 (0) 181 639-2000
UNITED STATES ADR DEPOSITARY: BANK OF NEW YORK, ADR DEPARTMENT, 101 BARCLAY
STREET NEW YORK, NY 10286. TEL: +1 212 815-5800
SAPPI LIMITED (REG. NO. 05/08963/06)
Sharenet Sites 
