Wrap Text
Q3 results for the period ended June 2013
Sappi
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
NYSE Code: SPP
ISIN: ZAE000006284
2 August 2013
Third Quarter results for the period ended June 2013
3rd quarter results
Sappi works closely with customers, both direct and indirect, in over
100 countries to provide them with relevant and sustainable paper,
paper-pulp and dissolving wood pulp products and related services and
innovations.
Our market-leading range of paper products includes: coated fine
papers used by printers, publishers and corporate end-users in the
production of books, brochures, magazines, catalogues, direct mail
and many other print applications; casting release papers used by
suppliers to the fashion, textiles, automobile and household industries;
and in our Southern African region, newsprint, uncoated graphic and
business papers, premium-quality packaging papers, paper-grade pulp
and dissolving wood pulp.
Our dissolving wood pulp products are used worldwide by converters
to create viscose fibre, acetate tow, pharmaceutical products as well as
a wide range of consumer products.
The 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.
Financial summary for the quarter
- Successful start-up of both dissolving wood pulp projects
- Operating profit excluding special items US$8 million
(Q3 2012 US$60 million)
- Loss for the period US$42 million (Q3 2012 US$106 million loss)
- Loss per share 8 US cents (Q3 2012 loss of 20 US cents)
- Net finance costs of US$42 million (Q3 2012 US$141 million)
- Net debt US$2,297 million (Q3 2012 US$2,213 million)
Quarter ended Nine months ended
Jun 2013 Jun 2012 Mar 2013 Jun 2013 Jun 2012
Key figures: (US$ million)
Sales 1,417 1,544 1,503 4,395 4,762
Operating (loss) profit (11) 34 78 137 261
Special items – losses (gains)(1) 19 26 (38) (16) 24
Operating profit excluding
special items(2) 8 60 40 121 285
EBITDA excluding special items(2) 91 150 128 381 561
(Loss) profit for the period (42) (106) 7 (18) (3)
Basic (loss) earnings per share
(US cents) (8) (20) 1 (3) (1)
Net debt(3) 2,297 2,213 2,152 2,297 2,213
Key ratios: (%)
Operating (loss) profit to sales (0.8) 2.2 5.2 3.1 5.5
Operating profit excluding
special items to sales 0.6 3.9 2.7 2.8 6.0
Operating profit excluding special
items to capital employed (ROCE) 0.9 6.4 4.4 4.5 10.3
EBITDA excluding special items
to sales 6.4 9.7 8.5 8.7 11.8
Return on average equity (ROE)(4) (12.1) (26.5) 1.9 (1.7) (0.3)
Net debt to total capitalisation(4) 63.2 58.7 59.9 63.2 58.7
Net asset value per share
(US cents) 257 299 277 257 299
(1) Refer to note 8 to the group results for details on special items.
(2) Refer to note 8 to the group results for the reconciliation of EBITDA excluding special items and operating profit
excluding special items to segment operating (loss) profit, and loss for the period.
(3) Refer to supplemental information for the reconciliation of net debt to interest-bearing borrowings.
(4) Refer to supplemental information for the definition of the term.
Commentary on the quarter
Market conditions, particularly in our European paper business, deteriorated further during the quarter.
This, coupled with our conversion projects and planned annual maintenance shuts, impacted group
operating profit excluding special items for the period which consequently declined to US$8 million.
The third financial quarter is seasonally our weakest with typically lower demand in Europe and North
America and with planned annual maintenance shuts at most of our major pulp mills. In this transitional
year, the quarter was also impacted by the extended shuts at both the Cloquet and Ngodwana mills as
they completed the capital projects to convert existing paper pulp lines to produce dissolving wood pulp.
The third quarter results were also impacted by special items including a charge of US$11 million related
to a plantation price fair value adjustment and a charge of US$4 million due to plantation fire damage in
South Africa.
Net finance costs for the quarter of US$42 million were in line with those of the prior quarter. The
comparative Q3 2012 net finance costs of US$141 million included the once-off charges of US$89 million
related to the bond refinancing during that quarter.
Both the dissolving wood pulp projects at the Ngodwana and Cloquet pulp mills have now started
production. The Cloquet mill produced the first bales of dissolving wood pulp in early June, and the
ramp-up has progressed according to schedule with production and quality targets having been met.
The Ngodwana mill started up in late July, a few weeks later than scheduled, and we expect this mill
to ramp-up to full production over the coming months.
Cash flow and debt
Net cash utilised in the quarter was US$157 million, compared to net cash utilisation of US$56 million in
the equivalent quarter last year. This increase in cash utilisation was mainly as a result of capital
expenditure of US$174 million which related primarily to strategic investments in expanding our
dissolving wood pulp capacity and lower profits from operations. We expect that capital expenditure for
the full year will not exceed US$600 million.
The expected marginal increase in net debt to US$2,297 million compared to both the equivalent quarter
last year (US$2,213 million) and the prior quarter (US$2,152 million), was largely as a result of the capital
expenditure incurred during the quarter.
At quarter-end, liquidity remained strong with cash on hand of US$236 million and US$561 million
available from the undrawn committed revolving credit facilities in Europe and South Africa and we have
sufficient liquidity to complete the spending on the various capital projects. During the quarter, the
EUR330 million international securitisation programme was renewed and the facility maturity date extended
to 2016.
Operating Review for the Quarter
Europe
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Jun 2013 Mar 2013 Dec 2012 Sept 2012 Jun 2012
EUR million EUR million EUR million EUR million EUR million
Sales 574 624 616 659 620
Operating (loss) profit
excluding special items (13) (1) 16 35 8
Operating (loss) profit
excluding special items to
sales(%) (2.3) (0.2) 2.6 5.3 1.3
EBITDA excluding special
items 24 34 54 73 47
EBITDA excluding special
items to sales(%) 4.2 5.4 8.8 11.1 7.6
RONOA pa(%) (3.8) (0.3) 4.6 9.8 2.2
This seasonally slow quarter saw a significant decline in demand for our major paper grades, with total
European industry deliveries of coated woodfree and coated mechanical paper down 8% year-on-year
for the quarter. Our total sales volumes were 6% below that of the equivalent quarter last year despite
good growth in specialities volumes.
Average prices realised were slightly higher than in the previous quarter, as a result of marginal price
increases for coated woodfree paper, but remain on average below those of the equivalent quarter in the
prior year. We continue to focus on tightly managing our costs, both fixed and variable costs per ton were
lower than those of the equivalent quarter last year, although hardwood pulp prices continue to put
pressure on margins.
The coated woodfree paper machine conversion project at the Alfeld mill, which will increase our
speciality paper production, remains on track for start-up during the first financial quarter of 2014.
North America
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Jun 2013 Mar 2013 Dec 2012 Sept 2012 Jun 2012
US$ million US$ million US$ million US$ million US$ million
Sales 324 341 346 377 360
Operating profit excluding
special items 2 21 18 42 18
Operating profit excluding
special items to sales(%) 0.6 6.2 5.2 11.1 5.0
EBITDA excluding special
items 20 42 37 63 38
EBITDA excluding special
items to sales(%) 6.2 12.3 10.7 16.7 10.6
RONOA pa(%) 0.8 8.9 7.9 18.2 7.7
The North American business successfully completed the conversion of the Cloquet pulp mill to produce
dissolving wood pulp during the quarter and started production of dissolving wood pulp at the beginning
of June. The start-up has proceeded according to plan with the first deliveries of dissolving wood pulp
leaving the mill during the quarter with good quality levels being achieved. Operating profit for the current
quarter was negatively impacted by an estimated US$12 million due to 22 days of incremental downtime
taken for the Cloquet pulp mill conversion project and related ramp-up of operations.
Pulp sales volumes were heavily impacted by downtime related to the conversion and the building of
stock to service the dissolving wood pulp business in the quarter. Dissolving wood pulp sales will
increase over the next quarter as the business continues the ramp-up to full capacity.
Coated paper sales volumes were essentially flat year-on-year; however the average net sales price per
ton was 4% lower than in the prior year due to a competitive local market and increased import pressure.
Prices appeared to have stabilised during the quarter and we expect to realise some price increases on
economy sheets and web products over the coming months.
The release business continues to perform well and sales volumes were up 11% compared to last year
driven by improved demand and the success of our key new patterns.
Sappi Southern Africa
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Jun 2013 Mar 2013 Dec 2012 Sept 2012 Jun 2012
ZAR million ZAR million ZAR million ZAR million ZAR million
Sales 3,255 3,020 2,870 3,152 3,159
Operating profit excluding
special items 183 180 270 276 255
Operating profit excluding
special items to sales(%) 5.6 6.0 9.4 8.8 8.1
EBITDA excluding special
items 355 359 452 473 426
EBITDA excluding special
items to sales(%) 10.9 11.9 15.7 15.0 13.5
RONOA pa(%) 4.6 4.8 7.8 8.2 7.6
The Southern African Specialised Cellulose business had another good quarter, generating ZAR463 million
in EBITDA excluding special items at an EBITDA excluding special items margin of 30%. Sales volumes
for the quarter were 183,000 tons, similar to the prior quarter and 8% lower than the equivalent quarter
last year due to the timing of shipments. During the quarter, the planned annual maintenance shut of one
of the pulp lines at Saiccor took place.
The estimated adverse operating profit impact of the conversion to produce dissolving wood pulp at
the Ngodwana mill and the extended pulp mill downtime was approximately ZAR78 million during the
quarter.
NBSK dollar pulp prices to which our dissolving pulp prices are linked, were higher than both the
equivalent quarter last year as well as the prior quarter, with the weaker Rand/Dollar exchange rate also
contributing to higher price levels. However, the dissolving pulp spot market remains competitive, with
new dissolving wood pulp capacity and an oversupplied viscose staple fibre market increasing the
pressure on sales prices.
The domestic paper packaging and office paper markets were weak during the quarter; although,
towards the end of the quarter and to date, there have been encouraging indications in the containerboard
segment of a possible improvement in volumes.
Variable costs, particularly purchased timber and pulp, remain a challenge, with the imported
components especially problematic due to the weaker Rand exchange rate. Fixed costs were flat
compared to the prior quarter and the equivalent quarter last year and we are pleased that we were able
to reach an agreement with labour on wage increases for the forthcoming year.
Outlook
The past quarter saw a further deterioration in European paper industry conditions, exacerbating
an already weak market, and demand is expected to remain subdued. Input costs, particularly pulp,
remain high and we do not expect to see any price increases in our major paper grades in the
coming quarter. Plans are being finalised that will result in significant capacity closure, lower costs
and improved operating margins in Europe. We envisage these actions will occur over a three-year
period and that any cash costs will be self-funded. The benefits of these actions will begin to flow
in the 2014 financial year.
The South African paper business expects to see growth in containerboard volumes, although
demand continues to be weak in other grades. Cost pressures and weak demand have resulted in
further actions to improve the profitability being implemented.
The North American paper business is positioned to perform well in an increasingly competitive
market and we expect to realise some price increases on economy sheets and web products over
the coming months.
Our expanded global Specialised Cellulose business is focussed on selling the increasing dissolving
wood pulp volumes, as the mills continue on their start-up curves, and cementing our position as
the leading producer in this market. Dissolving wood pulp prices are under pressure in this
competitive market and could have an impact on margins going forward.
Debt remains within the levels previously indicated despite the weaker operating performance.
We expect debt levels to peak during the fourth quarter, as the final outlays for the dissolving wood
pulp projects occur, and to end the quarter slightly lower than that reported for the third quarter.
Our medium-term leverage target remains between 1.5 and 2 times net debt to EBITDA.
We expect our European business to make an operating loss in the fourth financial quarter which
will result in the group making a small net loss for the financial year. Our full year results may be
impacted by the aforementioned strategic initiatives and, any asset impairments and restructuring
costs that may arise.
On behalf of the board
R J Boëttger S R Binnie
Director Director 02 August 2013
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. 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 the global economic downturn;
- 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
restructuring or strategic initiatives (including our announced dissolving wood pulp conversion
projects), 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 2013 Jun 2012 Jun 2013 Jun 2012
Note US$ million US$ million US$ million US$ million
Sales 1,417 1,544 4,395 4,762
Cost of sales 1,327 1,404 3,900 4,189
Gross profit 90 140 495 573
Selling, general and administrative
expenses 95 103 290 315
Other operating expenses (income) 8 3 73 (3)
Share of profit from associates and
joint ventures (2) – (5) –
Operating (loss) profit 2 (11) 34 137 261
Net finance costs 42 141 124 246
Net interest expense 42 140 124 249
Net foreign exchange loss (gain) 1 1 1 (1)
Net fair value gain on financial
instruments (1) – (1) (2)
(Loss) profit before taxation (53) (107) 13 15
Taxation (11) (1) 31 18
Current (9) 7 (6) 12
Deferred (2) (8) 37 6
Loss for the period (42) (106) (18) (3)
Basic loss per share (US cents) (8) (20) (3) (1)
Weighted average number of
shares in issue (millions) 521.5 520.8 521.3 520.7
Diluted loss per share (US cents) (8) (20) (3) (1)
Weighted average number of
shares on fully diluted basis
(millions) 521.5 520.8 521.3 520.7
Condensed group statement of comprehensive income
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2013 Jun 2012 Jun 2013 Jun 2012
US$ million US$ million US$ million US$ million
Loss for the period (42) (106) (18) (3)
Other comprehensive (loss) income,
net of tax (64) 18 (176) 71
Exchange differences on translation
of foreign operations (76) (70) (184) (10)
Actuarial gains on post-employment
benefit funds 20 – 20 –
Movements in hedging reserves 1 (14) (4) (23)
Deferred tax effect of above items (9) 1 (8) 3
Recognition of previously unrecognised
deferred tax asset – 101 – 101
Total comprehensive (loss) income
for the period (106) (88) (194) 68
Condensed group balance sheet
Reviewed
Jun 2013 Sept 2012
US$ million US$ million
ASSETS
Non-current assets 3,839 3,990
Property, plant and equipment 3,110 3,157
Plantations 481 555
Deferred taxation 120 154
Other non-current assets 128 124
Current assets 1,746 2,178
Inventories 754 726
Trade and other receivables 756 807
Cash and cash equivalents 236 645
Assets held for sale 87 –
Total assets 5,672 6,168
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest 1,340 1,525
Non-current liabilities 3,332 3,328
Interest-bearing borrowings 2,434 2,358
Deferred taxation 285 319
Other non-current liabilities 613 651
Current liabilities 995 1,315
Interest-bearing borrowings 98 261
Bank overdraft 1 5
Other current liabilities 883 1,023
Taxation payable 13 26
Liabilities associated with assets held for sale 5 –
Total equity and liabilities 5,672 6,168
Number of shares in issue at balance sheet date (millions) 521.5 520.8
Condensed group statement of cash flows
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2013 Jun 2012 Jun 2013 Jun 2012
US$ million US$ million US$ million US$ million
Loss for the period (42) (106) (18) (3)
Adjustment for:
Depreciation, fellings and amortisation 100 108 310 333
Taxation (11) (1) 31 18
Net finance costs 42 141 124 246
Defined post-employment benefits paid (22) (16) (54) (39)
Plantation fair value adjustments (10) (1) (151) (40)
Asset (impairment reversals) impairments (1) (3) 46 (3)
Net restructuring provisions 2 – 16 1
Other non-cash items 3 15 22 33
Cash generated from operations 61 137 326 546
Movement in working capital 8 (27) (128) (217)
Net finance costs paid (57) (56) (144) (157)
Taxation paid (2) (2) (15) (12)
Cash generated from operating
activities 10 52 39 160
Cash utilised in investing activities (167) (108) (397) (236)
Capital expenditure (174) (112) (449) (246)
Proceeds on disposal of
non-current assets 7 4 50 11
Other movements – – 2 (1)
Net cash utilised (157) (56) (358) (76)
Cash effects of financing activities (7) 32 (42) (142)
Net movement in cash and
cash equivalents (164) (24) (400) (218)
Condensed group statement of changes in equity
Nine Nine
months months
ended ended
Jun 2013 Jun 2012
US$ million US$ million
Balance – beginning of period 1,525 1,478
Total comprehensive (loss) income for the period (194) 68
Transfers from the share purchase trust 3 2
Transfers of vested share options (3) (2)
Share-based payment reserve 9 11
Balance – end of period 1,340 1,557
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated interim financial statements are prepared in accordance with
International Accounting Standard 34 Interim Financial Reporting (IAS 34), the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and the requirements of the
Companies Act of South Africa. The accounting policies applied in the preparation of these interim
financial statements are consistent with those applied in the previous annual financial statements.
The preparation of this condensed consolidated interim financial information was supervised by the
Chief Financial Officer, S R Binnie CA(SA).
The results are unaudited.
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2013 Jun 2012 Jun 2013 Jun 2012
US$ million US$ million US$ million US$ million
2. Operating (loss) profit
Included in operating (loss) profit are the
following non-cash items:
Depreciation and amortisation 83 90 260 276
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 17 18 50 57
Growth (21) (21) (58) (64)
(4) (3) (8) (7)
Plantation price fair value adjustment 11 20 (93) 24
7 17 (101) 17
Included in other operating expenses
(income) are the following:
Asset (impairment reversals)
impairments (1) (3) 46 (3)
Loss (profit) on disposal of property,
plant and equipment – 2 (1) (7)
Net restructuring provisions 2 – 16 1
Black Economic Empowerment charge 1 1 3 3
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2013 Jun 2012 Jun 2013 Jun 2012
US$ million US$ million US$ million US$ million
3. Headline (loss) earnings per share
Headline (loss) earnings per share
(US cents) (8) (20) 2 (2)
Weighted average number of shares
in issue (millions) 521.5 520.8 521.3 520.7
Diluted headline (loss) earnings per share
(US cents) (8) (20) 2 (2)
Weighted average number of shares on
fully diluted basis (millions) 521.5 520.8 523.5 520.7
Calculation of headline (loss) earnings
Loss for the period (42) (106) (18) (3)
Asset (impairment reversals) impairments (1) (3) 46 (3)
Loss (profit) on disposal of property,
plant and equipment – 2 (1) (7)
Tax effect of above items 1 1 (15) 1
Headline (loss) earnings (42) (106) 12 (12)
Reviewed
Jun 2013 Sept 2012
US$ million US$ million
4. Capital commitments
Contracted 121 267
Approved but not contracted 169 244
290 511
5. Contingent liabilities
Guarantees and suretyships 24 31
Other contingent liabilities 15 10
39 41
6. Material balance sheet movements
Since the 2012 financial year-end, the period end ZAR rate has weakened by approximately 19% to
the US Dollar, the group's presentation currency, resulting in a similar decrease on translation of the
group's ZAR functional currency assets and liabilities to US Dollar.
Property, plant and equipment
As a result of continuing difficult market conditions, Sappi Southern Africa ('SSA') impaired plant and
equipment at its Tugela and Stanger mills to the value of US$51 million (ZAR462 million). In addition,
there was a recovery in Sappi Fine Paper Europe of US$9 million (EUR7 million) through the sale of
certain assets that had previously been impaired as well as further asset impairments of US$4 million
(EUR3 million).
Deferred taxation assets
Deferred tax assets of US$24 million (EUR18 million) were reversed within the Sappi Fine Paper Europe
region as they were no longer deemed recoverable.
Plantations
Due to the Ngodwana mill dissolving wood pulp conversion project and the closure of the Kraft
Continuous Digester at Tugela mill, a certain portion of SSA's softwood plantations that were
previously utilised in the paper pulp production will now be sold to the local saw log markets.
Consequently, SSA's plantations were revalued resulting in a once-off favourable price fair value
adjustment of US$96 million (ZAR863 million).
Inventories, trade and other receivables and other current liabilities
The group increased its inventory levels in anticipation of the dissolving wood pulp conversion
projects. The decrease in trade and other payables is due to seasonality together with a decline in
operating volumes and the decrease in trade and other receivables is primarily due to the receipt of
US$42 million on the sale of the previously equity accounted 34% shareholding in Jiangxi Chenming
Paper Company.
Cash and cash equivalents and interest-bearing borrowings
Cash and cash equivalents decreased largely due to the capital expenditure outflows of
US$449 million which relates mostly to the dissolving wood pulp conversion projects. In addition, the
remaining stub of the group's senior secured notes due 2014 of US$41 million (EUR31 million),
the US$111 million (ZAR1.0 billion) public bond maturing in June 2013 as well as the group's private
placement bonds in South Africa amounting to US$42 million (ZAR382 million) were repaid. These
outflows were partially offset by the placement of a public bond offering of US$166 million
(ZAR1.5 billion) and a seven-year bullet loan from GroCapital of US$44 million (ZAR400 million).
7. Assets held for sale
During the quarter, Sappi entered into an agreement to sell its shares in Usutu Forest Products
Company Limited ('Usutu') as well as the shareholder loan claim against Usutu, to Montigny
Investments Limited subject to the fulfilment of certain conditions precedent. The disposal group,
consisting mainly of plantations, has been reclassified as held for sale.
8. Segment information
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2013 Jun 2012 Jun 2013 Jun 2012
Metric tons Metric tons Metric tons Metric tons
(000's) (000's) (000's) (000's)
Sales volume
Sappi Fine Paper North America 297 351 963 1,031
Sappi Fine Paper Europe 796 843 2,527 2,611
Sappi Southern Africa – Pulp and paper 405 435 1,172 1,253
Forestry 309 294 888 830
Total 1,807 1,923 5,550 5,725
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2013 Jun 2012 Jun 2013 Jun 2012
US$ million US$ million US$ million US$ million
Sales
Sappi Fine Paper North America 324 360 1,011 1,061
Sappi Fine Paper Europe 749 795 2,372 2,524
Sappi Southern Africa – Pulp and paper 324 367 953 1,114
Forestry 20 22 59 63
Total 1,417 1,544 4,395 4,762
Operating profit (loss) excluding
special items
Sappi Fine Paper North America 2 18 41 52
Sappi Fine Paper Europe (16) 10 3 88
Sappi Southern Africa 19 31 70 145
Unallocated and eliminations(1) 3 1 7 –
Total 8 60 121 285
Special items – loss (gain)
Sappi Fine Paper North America (1) 5 (4) 5
Sappi Fine Paper Europe 3 6 7 (3)
Sappi Southern Africa 14 15 (30) 22
Unallocated and eliminations(1) 3 – 11 –
Total 19 26 (16) 24
Segment operating (loss) profit
Sappi Fine Paper North America 3 13 45 47
Sappi Fine Paper Europe (19) 4 (4) 91
Sappi Southern Africa 5 16 100 123
Unallocated and eliminations(1) – 1 (4) –
Total (11) 34 137 261
EBITDA excluding special items
Sappi Fine Paper North America 20 38 99 110
Sappi Fine Paper Europe 31 60 146 237
Sappi Southern Africa 37 52 129 214
Unallocated and eliminations(1) 3 – 7 –
Total 91 150 381 561
Segment assets
Sappi Fine Paper North America 1,027 926 1,027 926
Sappi Fine Paper Europe 1,793 1,852 1,793 1,852
Sappi Southern Africa 1,607 1,653 1,607 1,653
Unallocated and eliminations(1) (12) 66 (12) 66
Total 4,415 4,497 4,415 4,497
(1) Includes the group's treasury operations and the self-insurance captive.
Reconciliation of EBITDA excluding special items and operating profit excluding special items to
segment operating (loss) profit and loss for the period
Special items cover those items which management believe 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 2013 Jun 2012 Jun 2013 Jun 2012
US$ million US$ million US$ million US$ million
EBITDA excluding special items 91 150 381 561
Depreciation and amortisation (83) (90) (260) (276)
Operating profit excluding special
items 8 60 121 285
Special items – (losses) gains (19) (26) 16 (24)
Plantation price fair value adjustment (11) (20) 93 (24)
Net restructuring provisions (2) – (16) (1)
(Loss) profit on disposal of property,
plant and equipment – (2) 1 7
Asset impairment reversals
(impairments) 1 3 (46) 3
Black Economic Empowerment
charge (1) (1) (3) (3)
Fire, flood, storm and related events (6) (6) (13) (6)
Segment operating (loss) profit (11) 34 137 261
Net finance costs (42) (141) (124) (246)
(Loss) profit before taxation (53) (107) 13 15
Taxation 11 1 (31) (18)
Loss for the period (42) (106) (18) (3)
Reconciliation of segment assets
to total assets
Segment assets 4,415 4,497 4,415 4,497
Deferred taxation 120 144 120 144
Cash and cash equivalents 236 403 236 403
Other current liabilities 883 950 883 950
Taxation payable 13 19 13 19
Liabilities associated with assets held
for sale 5 – 5 –
Total assets 5,672 6,013 5,672 6,013
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
Black Economic Empowerment – as envisaged in the Black Economic Empowerment (BEE) legislation
in South Africa
Black Economic Empowerment charge – represents the IFRS 2 non-cash charge associated with the
BEE transaction implemented in fiscal 2010
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 (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
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;
– 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 3/2012 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 Listings 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) less current liabilities
(excluding interest-bearing borrowings and overdraft). Net operating assets equate to segment assets
ROCE – annualised return on average capital employed. Operating profit excluding special items divided
by average capital employed
ROE – annualised 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 segment 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.
Summary rand convenience translation
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2013 Jun 2012 Jun 2013 Jun 2012
Key figures: (ZAR million)
Sales 13,427 12,542 39,715 38,041
Operating (loss) profit (104) 276 1,238 2,085
Special items – losses (gains)(1) 180 211 (145) 192
Operating profit excluding special items(1) 76 487 1,093 2,277
EBITDA excluding special items(1) 862 1,218 3,443 4,482
Loss for the period (398) (861) (163) (24)
Basic loss per share (SA cents) (76) (162) (31) (8)
Net debt(1) 22,694 18,069 22,694 18,069
Key ratios:(%)
Operating (loss) profit to sales (0.8) 2.2 3.1 5.5
Operating profit excluding special items
to sales 0.6 3.9 2.8 6.0
Operating profit excluding special items to
capital employed (ROCE)(1) 0.9 6.5 4.5 10.2
EBITDA excluding special items to sales 6.4 9.7 8.7 11.8
Return on average equity (ROE) (12.0) (27.2) (1.7) (0.3)
Net debt to total capitalisation(1) 63.2 58.7 63.2 58.7
(1) 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
Jun 2013 Sept 2012
US$ million US$ million
Interest-bearing borrowings 2,533 2,624
Non-current interest-bearing borrowings 2,434 2,358
Current interest-bearing borrowings 98 261
Bank overdraft 1 5
Cash and cash equivalents (236) (645)
Net debt 2,297 1,979
Exchange rates
Jun Mar Dec Sept Jun
2013 2013 2012 2012 2012
Exchange rates:
Period end rate: US$1 = ZAR 9.8800 9.2363 8.4851 8.3096 8.1650
Average rate for the Quarter: US$1 = ZAR 9.4756 8.9349 8.6975 8.2567 8.1229
Average rate for the YTD: US$1 = ZAR 9.0364 8.8173 8.6975 8.0531 7.9885
Period end rate: EUR1 = US$ 1.3010 1.2821 1.3217 1.2859 1.2660
Average rate for the Quarter: EUR1 = US$ 1.3060 1.3206 1.2970 1.2514 1.2838
Average rate for the YTD: EUR1 = US$ 1.3078 1.3088 1.2970 1.2988 1.3145
Sappi has a primary listing on the JSE Limited and a secondary listing on
the New York Stock Exchange
South Africa: United States:
Computershare Investor ADR Depositary:
Services (Proprietary) Limited The Bank of New York Mellon
70 Marshall Street Investor Relations
Johannesburg 2001 PO Box 11258
PO Box 61051 Church Street Station
Marshalltown 2107 New York, NY 10286-1258
Tel +27 (0)11 370 5000 Tel +1 610 382 7836
this report is available on the Sappi website
www.sappi.com
Sponsor: UBS South Africa (Pty) Ltd
Date: 02/08/2013 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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