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SAPPI LIMITED
SAPPI, ONE OF THE WORLD'S LEADING PRODUCERS OF FINE PAPER, TODAY ANNOUNCED
RESULTS FOR THE FIRST QUARTER 2001.
RESULTS - HIGHLIGHTS
* OPERATING PROFIT UP 13% TO US$ 143 MILLION
* HEADLINE EPS UP 31% TO 34 US CENTS
* INVENTORY CORRECTION SLOWS SALES
* FOREST PRODUCTS CONTINUES ITS STRONG PERFORMANCE
* SHARE BUY-BACK COMMENCED
"DESPITE A TOUGHER OPERATING ENVIRONMENT IN NORTH AMERICA IN PARTICULAR, WE HAD
ANOTHER STRONG EARNINGS QUARTER, AND OUR MARGINS AND RETURNS ARE BETTER THAN A
YEAR EARLIER. THIS IS A DIRECT RESULT OF OUR STRATEGY OVER THE PAST DECADE TO
SPREAD OUR ASSET BASE GEOGRAPHICALLY, TO MINIMISE RISK, DELIVER GROWTH AND
VALUE TO SHAREHOLDERS AND SHOW GREATER CONSISTENCY OF EARNINGS," SAID SAPPI
EXECUTIVE CHAIRMAN EUGENE VAN AS.
RESULTS FOR THE QUARTER
THERE HAVE BEEN NUMEROUS CHANGES TO SOUTH AFRICAN ACCOUNTING STANDARDS TO
HARMONISE THEM WITH RECENTLY CHANGED INTERNATIONAL ACCOUNTING STANDARDS. SAPPI
HAS ADOPTED THE NEW POLICIES FOR 2001 AND, TO AVOID FURTHER CHANGES, ALSO THOSE
APPLICABLE FOR 2002. THESE CHANGES HAVE HAD NEGLIGIBLE EFFECT ON THE EARNINGS
PER SHARE BUT MANY BALANCE SHEET POSITIONS HAVE CHANGED MARGINALLY.
THE GROUP'S EARNINGS INCREASED 24% COMPARED TO THE COMPARATIVE QUARTER LAST
YEAR, TO US$ 82 MILLION. EARNINGS PER SHARE BEFORE EXCEPTIONAL ITEMS WERE 31%
UP TO 34 US CENTS.
OPERATING PROFIT INCREASED 13% TO US$ 143 MILLION WITH ALL THE BUSINESSES,
EXCEPT NORTH AMERICA, CONTRIBUTING TO THE IMPROVEMENT.
NET FINANCE COSTS FOR THE QUARTER WERE US$24 MILLION, 19% BELOW LAST YEAR ON A
COMPARATIVE BASIS. AS AC 133 DOES NOT ALLOW RESTATEMENT, THE FINANCE COSTS
REPORTED ARE 11% BELOW LAST YEAR.
TAXATION FOR THE QUARTER WAS US$36 MILLION, AN EFFECTIVE TAX RATE OF
APPROXIMATELY 30%, WHICH IS LOWER THAN THE RATE LAST YEAR LARGELY AS A RESULT
OF THE REGIONAL SPLIT OF PROFIT AND THE IMPACT OF THE LOWER GERMAN TAX RATE.
SAPPI'S STRONG CASH FLOW CONTINUED WITH EBITDA OF US$237 MILLION. THIS WAS
OFFSET BY A SEASONAL INCREASE IN WORKING CAPITAL OF US$80 MILLION AND CAPITAL
EXPENDITURE OF US$93 MILLION, MUCH OF WHICH (US$29 MILLION) RELATED TO ONE-OFF
ENVIRONMENTAL EXPENDITURE IN NORTH AMERICA (TO COMPLY WITH THE EPA "CLUSTER
RULES") AND IN SOUTHERN AFRICA.
CONTINUED DEBT REDUCTION WAS OFFSET DURING THE QUARTER BY THE EFFECT OF
ACCOUNTING STANDARDS CHANGES AND CURRENCY MOVEMENTS.
OPERATIONAL REVIEW
FINE PAPER
IN NORTH AMERICA OPERATING PROFIT OF US$18 MILLION WAS EXTREMELY WEAK AND ONLY
HALF OF LAST YEAR. VOLUMES FOR THE QUARTER WERE ESSENTIALLY FLAT WITH SHIPMENTS
DROPPING OFF SHARPLY IN NOVEMBER AND DECEMBER. TWO CAPITAL PROJECTS - ONE
INVOLVING EPA "CLUSTER RULE" COMPLIANCE AND THE OTHER RELATING TO PAPER QUALITY
IMPROVEMENT - RESULTED IN DOWNTIME DURING THE QUARTER. THE IMPACT OF BUYING
PULP DURING THE DOWNTIME, PULP PRICE INCREASES AND THE INCREASE IN THE COST OF
ENERGY COULD NOT BE COVERED BY PRICE INCREASES, WHICH WERE ONLY 2% HIGHER THAN
LAST YEAR. MANAGEMENT EXPECTS BOTH PERFORMANCE AND RETURNS IN NORTH AMERICA TO
IMPROVE IN THE NEXT PERIODS, ALTHOUGH THEY ARE UNLIKELY TO MATCH LAST YEAR.
IN EUROPE, SALES VOLUMES WERE SLIGHTLY LOWER THAN A YEAR EARLIER AS A RESULT OF
SOME INVENTORY CORRECTION. HOWEVER PROFITS INCREASED SLIGHTLY AS A RESULT OF
CONTINUED TIGHT COST CONTROL AND EXCELLENT OPERATING EFFICIENCIES.
IN SOUTH AFRICA, THE FINE PAPER OPERATIONS SHOWED A MUCH IMPROVED PERFORMANCE.
OPERATING INCOME INCREASED BY 20% TO US$6 MILLION, OPERATING MARGINS INCREASED
TO 10.5% AND RETURN ON NET OPERATING ASSETS INCREASED TO 22.3%.
FOREST PRODUCTS
FOREST PRODUCTS CONTINUED ITS STRONG PERFORMANCE. IT PROVIDES THE GROUP WITH AN
ECONOMIC HEDGE FOR THE PULP PURCHASE OF ITS PAPER BUSINESSES. SALES VOLUMES
INCREASED BY 10% AND AVERAGE PRICES ACHIEVED INCREASED BY 20% IN LOCAL
CURRENCY. THE OPERATING MARGIN WAS 31.5% WITH THE RETURN ON NET OPERATING
ASSETS AT 26.4%, TWO AND A HALF TIMES THE RETURN A YEAR EARLIER.
SHARE BUY BACK
SHAREHOLDER APPROVAL WAS OBTAINED ON 15TH DECEMBER 2000 FOR THE PURCHASE OF UP
TO 10% OF SAPPI'S SHARES BY A SUBSIDIARY. THIS BUY BACK HAS NOW COMMENCED. TO
DATE, THE SUBSIDIARY HAS BOUGHT 5,7 MILLION SHARES REPRESENTING APPROXIMATELY
2.4 % OF THE ISSUED SHARE CAPITAL, AT AN AVERAGE PRICE OF R53,47 PER SHARE.
PROSPECTS
MANY MARKET ANALYSTS ARE EXPECTING A SLOWER START TO THE CALENDAR YEAR,
ALTHOUGH TO DATE CONTRACT PULP PRICES HAVE REMAINED AT US$ 710 PER TON AND
PRODUCER AND CUSTOMER INVENTORIES REMAIN AT REASONABLE LEVELS. DEMAND FOR
WOODFREE PAPER REMAINS FIRM AND ALTHOUGH THERE IS CONTINUED PRESSURE ON PRICES
IN NORTH AMERICA, PRICES IN EUROPE ARE FIRM.
COMMENTING ON GROUP PROSPECTS VAN AS SAID THAT SAPPI WAS WELL POSITIONED.
"THROUGH OUR FOCUS ON COST CONTROL AND OPERATIONAL EFFICIENCIES WE ARE DRIVING
GOOD PERFORMANCE FROM OUR ASSET BASE DESPITE TOUGHENING OPERATING ENVIRONMENTS
IN SOME OF OUR MARKETS " HE SAID. "PERFORMANCE IN NORTH AMERICA IS EXPECTED TO
IMPROVE AND GLOBAL GROWTH SHOULD STILL BE REASONABLE. IN THESE CIRCUMSTANCES WE
STILL EXPECT TO MATCH LAST YEAR'S US DOLLAR EARNINGS PER SHARE FOR THE FULL
YEAR."
ENDS
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS REPORT THAT ARE NEITHER REPORTED FINANCIAL RESULTS
NOR OTHER HISTORICAL INFORMATION, ARE FORWARD-LOOKING STATEMENTS, INCLUDING,
BUT NOT LIMITED TO STATEMENTS THAT ARE PREDICTIONS OF OR INDICATE FUTURE
EVENTS, TRENDS, PLANS OR OBJECTIVES. UNDUE RELIANCE SHOULD NOT BE PLACED ON
SUCH STATEMENTS BECAUSE, BY THEIR NATURE, THEY ARE SUBJECT TO KNOWN AND UNKNOWN
RISKS AND UNCERTAINTIES AND CAN BE AFFECTED BY OTHER FACTORS, THAT COULD CAUSE
ACTUAL RESULTS AND COMPANY PLANS AND OBJECTIVES TO DIFFER MATERIALLY FROM THOSE
EXPRESSED OR IMPLIED IN THE FORWARD-LOOKING STATEMENTS (OR FROM PAST RESULTS).
SUCH RISKS, UNCERTAINTIES AND FACTORS INCLUDE, BUT ARE NOT LIMITED TO THE
HIGHLY CYCLICAL NATURE OF THE PULP AND PAPER INDUSTRY (AND THE FACTORS THAT
CONTRIBUTE TO SUCH CYCLICALITY, SUCH AS LEVELS OF DEMAND, PRODUCTION CAPACITY,
PRODUCTION AND PRICING), ADVERSE CHANGES IN THE MARKETS FOR THE GROUP'S
PRODUCTS, CONSEQUENCES OF SUBSTANTIAL LEVERAGE, CHANGING REGULATORY
REQUIREMENTS, UNANTICIPATED PRODUCTION DISRUPTIONS, ECONOMIC AND POLITICAL
CONDITIONS IN INTERNATIONAL MARKETS, THE IMPACT OF INVESTMENTS, ACQUISITIONS
AND DISPOSITIONS (INCLUDING RELATED FINANCING) AND CURRENCY FLUCTUATIONS. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY OF THESE
FORWARD-LOOKING STATEMENTS, WHETHER TO REFLECT NEW INFORMATION OR FUTURE EVENTS
OR CIRCUMSTANCES OR OTHERWISE.
RELEASED ON BEHALF OF SAPPI BY BRUNSWICK. FOR FURTHER INFORMATION:
ROBERT HOPE
DIRECTOR STRATEGIC DEVELOPMENT
SAPPI LIMITED
TEL: +27 (0) 11 407 8492
FAX: +27 (0) 11 403 1493
ROBHO@ZA.SAPPI.COM
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