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SAP - Sappi Limited - 2nd Quarter Results For The Period Ended March 2009
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
2nd quarter results for the period ended March 2009
Financial summary
- Global economic downturn/weak demand impacted operating profitability
- Continued production curtailment
- Basic loss per share of 7 US cents
- Positive cash generation
- Acquisition synergies on track
Quarter ended
Mar 2009 Mar 2008 Dec 2008
Key figures: (US$ million)
Sales 1,313 1,473 1,187
Operating profit 6 221 57
Special items - gains * (23) (124) (32)
Operating (loss) profit excluding
special items (17) 97 25
EBITDA excluding special items ** 82 190 106
Basic EPS (US cents) *** (7) 43 6
Net debt **** (excluding rights
offer cash in Dec 08) 2,735 2,661 2,497
Key ratios: (%)
Operating profit to sales 0.5 15.0 4.8
Operating (loss) profit excluding
special items to sales (1.3) 6.6 2.1
Operating (loss) profit excluding
special items to
Capital Employed (ROCE) ** (1.6) 9.0 2.6
EBITDA excluding special
items to sales 6.2 12.9 8.9
Return on average equity (ROE) **** (7.5) 35.9 5.3
Net debt to total capitalisation ****
(excluding rights offer
cash in Dec 08) 59.4 61.3 57.3
Half-year ended
Mar 2009 Mar 2008
Key figures: (US$ million)
Sales 2,500 2,850
Operating profit 63 312
Special items - gains * (55) (123)
Operating (loss) profit excluding special items 8 189
EBITDA excluding special items ** 188 378
Basic EPS (US cents) *** (3) 54
Net debt **** (excluding rights offer
cash in Dec 08) 2,735 2,661
Key ratios: (%)
Operating profit to sales 2.5 11.0
Operating (loss) profit excluding
special items to sales 0.3 6.6
Operating (loss) profit excluding
special items to
Capital Employed (ROCE) ** 0.4 9.0
EBITDA excluding special items to sales 7.5 13.3
Return on average equity (ROE) **** (1.4) 22.6
Net debt to total capitalisation ****
(excluding rights offer cash in Dec 08) 59.4 61.3
* Refer to details on special items.
** Refer to Supplemental Information for the reconciliation of
EBITDA excluding special items to (loss) profit for the period.
*** Comparative figures have been revised in accordance with IAS 33 to reflect
the impact of the rights offer.
**** Refer to Supplemental Information for the definition of the
term.
The table above has not been audited or reviewed.
Commentary
The quarter was characterised by a sharp decline in our sales volumes, which
was driven by declines in demand for coated paper and pulp in our major
markets. Our sales volumes declined approximately 24% compared to the
corresponding quarter last year, including the mills acquired from M-real on 31
December 2008 (the Acquisition) in both periods. Actual sales volumes including
the new business were approximately 95% of volumes reported a year ago.
Average prices realised by the group in the quarter were 6% lower in US dollar
terms than a year ago mainly as a result of the sharp fall in pulp prices,
which fell 32% relative to a year earlier. Prices realised for coated paper
were higher than in the corresponding quarter a year ago.
We curtailed production extensively in each of our regions during the quarter
to match supply with demand and reduce inventories. Our finished goods
inventories were reduced by 13% in volume terms compared to December 2008,
excluding the Acquisition.
Raw material, in particular pulp, and energy prices were lower in the quarter
compared to the prior quarter and corresponding quarter last year. This had
some effect on costs in the quarter; however, we expect that a greater effect
will be apparent in our third quarter now that higher cost inventories have
been depleted.
We announced the suspension of operations at Muskegon Mill for at least six
months and a further restructuring affecting 70 people in the North American
business in response to weak demand, as part of our actions to manage costs and
inventories. A restructuring provision of US$8 million was therefore recorded
in the quarter.
The acquired mills were also impacted by low operating rates as a result of
global economic conditions. The operating result for the Acquisition was a loss
of US$2.6 million for the period since 31 December 2008. The integration of the
Acquisition has progressed well and the achievement of our previously announced
synergies of Euro 120 million per annum within 3 years is on track.
Operating profit for the quarter was US$6 million compared to US$221 million in
the corresponding period last year. Special items comprising mainly a
favourable adjustment to plantation price fair value offset by the North
American restructuring provision amounted to US$23 million in the quarter
compared to a favourable adjustment last year of US$124 million. We therefore
report an operating loss excluding special items of US$17 million for the
quarter compared to a profit of US$97 million a year ago.
Net finance costs for the quarter increased to US$40 million compared to US$27
million last year as a result of increased debt and the effect of interest
capitalised a year ago.
The group did not benefit from tax relief on reported losses as a result of tax
losses in certain regions that could not be raised.
The basic loss per share was 7 US cents for the quarter compared to EPS of 43
US cents a year earlier, which was favourably impacted by special items of 30
US cents per share.
Cash flow and debt
During the quarter we completed the Acquisition, resulting in a net cash
investment of US$586 million, essentially from the proceeds of the rights offer
completed in December 2008. In addition, the Acquisition resulted in increased
debt of US$359 million (Euro 220 million of Vendor Loan Notes and Euro 50
million of interest bearing assumed debt). Details of the preliminary
accounting for the Acquisition are included in note 9.
Cash generated from operations for the quarter was US$99 million, down from
US$176 million a year ago as a result of lower operating profit, but much
improved on the previous quarter. In addition US$28 million was released from
working capital in the quarter.
Capital expenditure during the quarter was US$39 million, a major reduction
from US$164 million last year which included part of the Saiccor expansion
project.
Net cash generated (excluding cash invested in the Acquisition) was US$75
million for the quarter compared to an outflow of US$108 million a year ago.
Net debt increased from approximately US$2.0 billion in December to US$2.7
billion as a result of the Acquisition, offset by the cash generated in the
business and currency effect of approximately US$100 million.
Liquidity
Our liquidity situation is soundly managed. At March Sappi had cash and cash
equivalents of US$711 million and undrawn commitments under the revolving
credit facility of US$266 million (Euro 200 million). Sappi`s short term
borrowings of US$1,292 million include drawings under our Euro 600 million long
term revolving credit facility which runs until May 2010 (US$543 million),
financing under the securitised receivables programme which runs until 2012
(US$279 million) and a number of smaller short term facilities, commercial
paper programmes and overdrafts (US$470 million).
We do not have any major borrowings maturing in the next 12 months.
Operating review for the quarter ended March 2009
compared to the quarter ended March 2008
Sappi Fine Paper
Quarter Quarter Quarter
ended ended ended
March 2009 March 2008 % Dec 2008
US$ million US$ million change US$ million
Sales 1,112 1,209 (8.0) 998
Operating (loss) profit (43) 47 - 8
Operating (loss)
profit to sales (%) (3.9) 3.9 - 0.8
Special items
(gains) losses 8 (2) - -
Operating (loss)
profit excluding
special items (35) 45 - 8
Operating (loss)
profit excluding special
items to sales (%) (3.1) 3.7 - 0.8
EBITDA excluding
special items 48 120 (60.0) 74
EBITDA excluding
special items
to sales (%) 4.3 9.9 - 7.4
RONOA pa (%) (4.3) 5.5 - 1.1
Europe
Quarter Quarter
ended ended %
March 2009 March 2008 change
US$ million US$ million (US$)
Sales 737 697 5.7
Operating (loss) profit (21) 18 -
Operating (loss) profit to sales (%) (2.8) 2.6 -
Special items (gains) - (2) -
Operating (loss) profit excluding
special items (21) 16 -
Operating (loss) profit excluding
special items to sales (%) (2.8) 2.3 -
EBITDA excluding special items 34 61 (44.3)
EBITDA excluding special
items to sales (%) 4.6 8.8 -
RONOA pa (%) (4.2) 3.1 -
Quarter
% ended
change Dec 2008
(Euro) US$ million
Sales 19.3 561
Operating (loss) profit - 13
Operating (loss) profit to sales (%) - 2.3
Special items (gains) - -
Operating (loss) profit excluding
special items - 13
Operating (loss) profit excluding
special items to sales (%) - 2.3
EBITDA excluding special items (36.0) 50
EBITDA excluding special
items to sales (%) - 8.9
RONOA pa (%) - 3.1
Volumes for the quarter were impacted by the exceptionally weak market
conditions. Apparent consumption in Europe declined by 23% for coated woodfree
paper and 27% for lightweight coated paper compared to the corresponding
quarter last year. Total shipments including exports declined approximately 28%
and 30% respectively.
We curtailed production by approximately 30% during the quarter across all our
European mills, including the mills acquired from M-real, on 1 January 2009, to
match our production to the reduced demand level and to reduce inventories.
Average prices realised in the quarter in Euros were 3% above the corresponding
quarter last year. Further price increases for coated fine paper were
implemented in Europe in the quarter.
The integration of the Acquisition has progressed well. The achievement of the
synergy target of Euro 120 million per annum within three years is on track as
is the target for 2009, despite current difficult market conditions.
North America
Quarter Quarter Quarter
ended ended ended
March 2009 March 2008 % Dec 2008
US$ million US$ million change US$ million
Sales 301 423 (28.8) 363
Operating (loss) profit (24) 26 - (7)
Operating (loss)
profit to sales (%) (8.0) 6.1 - (1.9)
Special items - losses 8 - - -
Operating (loss) profit
excluding special items (16) 26 - (7)
Operating (loss)
profit excluding
special items to sales (%) (5.3) 6.1 - (1.9)
EBITDA excluding
special items 8 51 (84.3) 19
EBITDA excluding special
items to sales (%) 2.7 12.1 - 5.2
RONOA pa (%) (5.9) 9.7 - (2.6)
Total sales volumes declined about 30% compared to the corresponding quarter
last year, with pulp sales volumes declining 40%. Average prices realised were
at the same level as a year ago. Paper prices realised, although lower than the
peak achieved in mid-2008, were 2% higher than a year ago. Pulp prices,
however, were more than 30% lower than the corresponding quarter last year.
We curtailed coated paper production by approximately 100,000 tons during the
quarter and reduced our paper inventories by 13% in volume terms. In addition
we suspended operations at Muskegon Mill, which has a capacity of 170,000 tons
per annum, for at least six months. During this period 190 people have been
temporarily laid off. We have reduced a further 70 positions across the North
American business to help manage our costs. Costs of raw materials and energy
declined in the quarter but were partly offset by inefficiencies of stopping
and starting operations.
Southern Africa
Quarter Quarter
ended ended %
March 2009 March 2008 change
US$ million US$ million (US$)
Sales 74 89 (16.9)
Operating profit 2 3 (33.3)
Operating profit to sales (%) 2.7 3.4 -
Special items - - -
Operating profit excluding
special items 2 3 (33.3)
Operating profit excluding
special items to sales (%) 2.7 3.4 -
EBITDA excluding special items 6 8 (25.0)
EBITDA excluding special
items to sales (%) 8.1 9.0 -
RONOA pa (%) 4.6 8.6 -
Quarter
% ended
change Dec 2008
(Rand) US$ million
Sales 10.2 74
Operating profit (9.1) 2
Operating profit to sales (%) - 2.7
Special items - -
Operating profit excluding
special items (9.1) 2
Operating profit excluding
special items to sales (%) - 2.7
EBITDA excluding special items (1.7) 5
EBITDA excluding special
items to sales (%) - 6.8
RONOA pa (%) - 5.7
The business generated a small operating profit; however, margins declined as a
result of a 10% decline in sales volumes and continued cost pressure.
Forest Products
Quarter Quarter
ended ended %
March 2009 March 2008 change
US$ million US$ million (US$)
Sales 201 264 (23.9)
Operating profit 48 172 (72.1)
Operating profit to sales (%) 23.9 65.2 -
Special items - (gains) (31) (122) -
Operating profit excluding
special items 17 50 (66.0)
Operating profit excluding
special items to sales (%) 8.5 18.9 -
EBITDA excluding special items 32 67 (52.2)
EBITDA excluding special
items to sales (%) 15.9 25.4 -
RONOA pa (%) 4.6 11.3 -
Quarter
% ended
change Dec 2008
(Rand) US$ million
Sales 1.0 189
Operating profit (63.0) 49
Operating profit to sales (%) - 25.9
Special items - (32)
Operating profit excluding
special items (55.0) 17
Operating profit excluding
special items to sales (%) - 9.0
EBITDA excluding special items (36.6) 32
EBITDA excluding special
items to sales (%) - 16.9
RONOA pa (%) - 4.3
The forest products` business was affected by weakening demand in the Southern
African and export markets for its packaging paper. Sales volumes of chemical
cellulose, although well below Saiccor Mill`s expanded capacity, were higher
than volumes in the equivalent quarter last year.
Pulp prices continued to fall in US Dollar terms and were more than 30% lower
than a year ago impacting paper pulp and chemical cellulose sales.
Wood, other raw material and energy input costs in Rand terms increased
significantly compared to a year ago, partly as a result of the weakening of
the Rand against the US Dollar.
Outlook
The general economic outlook and market conditions remain depressed. In these
circumstances we expect demand for our products to remain weak and we will
therefore continue to curtail production to match supply with demand.
It has been difficult to identify the extent to which the fall in apparent
demand for our products is an inventory effect, but it appears that the decline
of inventories in the downstream supply chain has been significant. We are of
the opinion that downstream inventories are stabilising and therefore expect
apparent demand to start improving slightly in many of our markets.
Demand for chemical cellulose, particularly in Asia, has started to improve and
we are continuing to ramp up production at Saiccor Mill. We expect the
operating rate to be close to the total expanded capacity by our financial year
end. Pricing, however, is expected to remain weak for the rest of the year. The
other Southern African businesses will continue to manage production to match
demand. The Rand has recently strengthened relative to the US Dollar, which, if
sustained, will put pressure on margins.
In Europe stabilisation of downstream inventories is expected to help improve
the supply/demand balance. M-real ceased coated fine paper production at
Hallein and Gohrsmuhle at the end of April 2009. We were selling the output of
these mills for M-real on an agency basis and therefore expect the operating
rates of our own mills to improve following this cessation as we transfer this
production to our mills. This, together with the continued achievement of
Acquisition synergies, is expected to improve the region`s profitability. In
North America we do not expect a significant market improvement this year.
The actions taken to restructure the business including suspending operations
at Muskegon Mill are expected to help improve profitability.
Although market conditions remain difficult and there is still little
visibility, we expect our profitability to improve in the next quarter as a
result of the actions we have taken to manage costs, continued declines in
input costs and the gradual achievement of Acquisition synergies.
Prioritising cash generation and liquidity remains our critical objective as we
stated in our trading update at the group`s Annual General Meeting in March.
Each of our operating businesses is implementing production curtailment and
variable and fixed cost reduction plans to minimise the cash impact of the
current weak market conditions, including the suspension of operations at
Muskegon Mill. We are also tightly managing working capital down to minimum
levels without compromising on service excellence. We are targeting a further
reduction in working capital by our financial year end. In addition, we are
reducing capital expenditure to a minimum. In the current financial year we
expect capital expenditure in our operations to be below US$200 million
compared to US$505 million last year. As a result of these actions we expect
positive cash generation for the full financial year.
Given the weak global market conditions, we are expecting the rest of 2009 to
remain challenging. Our actions and plans are focused on dealing with these
tough market conditions and importantly to ensure that Sappi develops even
closer relationships with our customers through the quality of our service and
continued improvements in efficiencies and remains well positioned to take full
advantage of our leading positions in coated graphic paper and chemical
cellulose when markets start to recover.
On behalf of the board
R J Boettger M R Thompson
Director Director 05 May 2009
sappi limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
Other information (this information has not been reviewed)
special items
Special items cover those items which management believe are material by nature
or amount to the operating results and require separate disclosure. Such items
would generally include profit or loss on disposal of property, investments and
businesses, asset impairments, restructuring charges, financial impacts of
natural disasters and non-cash gains or losses on the price fair value
adjustment of plantations.
Special items, excluding interest and tax effects, for the relevant periods
are:
Quarter Quarter
ended ended
Mar 2009 Mar 2008
US$ million US$ million
Plantation price fair value adjustment (35) (118)
Restructuring provisions raised (released) 8 (2)
Profit on disposal of property, plant and
equipment - (3)
Asset impairments 2 -
Fire, flood, storm and related events 2 (1)
(23) (124)
Half-year Half-year
ended ended
Mar 2009 Mar 2008
US$ million US$ million
Plantation price fair value adjustment (69) (117)
Restructuring provisions raised (released) 8 (3)
Profit on disposal of property, plant and
equipment (1) (4)
Asset impairments 5 2
Fire, flood, storm and related events 2 (1)
(55) (123)
key regional figures
Quarter Quarter
ended ended
Mar 2009 Mar 2008
Metric tons Metric tons
(000`s) (000`s)
Sales volume
Fine Paper -
North America 289 402
Europe 759 657
Southern Africa 75 83
Total 1,123 1,142
Forest Products - Pulp and paper operations 334 347
Forestry operations 189 247
Total 1,646 1,736
US$ million US$ million
Sales
Fine Paper -
North America 301 423
Europe 737 697
Southern Africa 74 89
Total 1,112 1,209
Forest Products - Pulp and paper operations 189 246
Forestry operations 12 18
Total 1,313 1,473
Half-year Half-year
ended ended
Mar 2009 Mar 2008
Metric tons Metric tons
(000`s) (000`s)
Sales volume
Fine Paper -
North America 619 775
Europe 1,315 1,281
Southern Africa 152 159
Total 2,086 2,215
Forest Products - Pulp and paper operations 613 692
Forestry operations 431 447
Total 3,130 3,354
US$ million US$ million
Sales
Fine Paper -
North America 664 807
Europe 1,298 1,335
Southern Africa 148 176
Total 2,110 2,318
Forest Products - Pulp and paper operations 363 498
Forestry operations 27 34
Total 2,500 2,850
Other information (this information has not been reviewed)
Quarter Quarter
ended ended
Mar 2009 Mar 2008
US$ million US$ million
Operating profit (loss)
Fine Paper -
North America (24) 26
Europe (21) 18
Southern Africa 2 3
Total (43) 47
Forest Products 48 172
Corporate and other 1 2
Total 6 221
Special items - (gains) losses
Fine Paper -
North America 8 -
Europe - (2)
Southern Africa - -
Total 8 (2)
Forest Products (31) (122)
Total (23) (124)
Operating profit (loss) excluding special items
Fine Paper -
North America (16) 26
Europe (21) 16
Southern Africa 2 3
Total (35) 45
Forest Products 17 50
Corporate and other 1 2
Total (17) 97
EBITDA excluding special items
Fine Paper -
North America 8 51
Europe 34 61
Southern Africa 6 8
Total 48 120
Forest Products 32 67
Corporate and other 2 3
Total 82 190
Half-year Half-year
ended ended
Mar 2009 Mar 2008
US$ million US$ million
Operating profit
Fine Paper -
North America (31) 37
Europe (8) 37
Southern Africa 4 4
Total (35) 78
Forest Products 97 227
Corporate and other 1 7
Total 63 312
Special items - (gains) losses
Fine Paper -
North America 8 2
Europe - (4)
Southern Africa - -
Total 8 (2)
Forest Products (63) (121)
Total (55) (123)
Operating profit excluding special items
Fine Paper -
North America (23) 39
Europe (8) 33
Southern Africa 4 4
Total (27) 76
Forest Products 34 106
Corporate and other 1 7
Total 8 189
EBITDA excluding special items
Fine Paper -
North America 27 91
Europe 84 123
Southern Africa 11 12
Total 122 226
Forest Products 64 144
Corporate and other 2 8
Total 188 378
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. Undue reliance should
not be placed on such statements because, by their nature, they are subject to
known and unknown risks and uncertainties and can be affected by other factors,
that could cause actual results and company plans and objectives to differ
materially from those expressed or implied in the forward-looking statements
(or from past results). Such risks, uncertainties and factors include, but are
not limited to, the impact of the global economic downturn, the risk that the
Acquisition will not be integrated successfully or such integration
may be more difficult, time-consuming or costly than expected, expected revenue
synergies and cost savings from the acquisition may not be fully realized or
realized within the expected time frame, revenues following the acquisition may
be lower than expected, any anticipated benefits from the consolidation of the
European paper business may not be achieved, the highly cyclical nature of the
pulp and paper industry (and the factors that contribute to such cyclicality,
such as levels of demand, production capacity, production, input costs
including raw material, energy and employee costs, and pricing), adverse
changes in the markets for the group`s products, consequences of substantial
leverage, including as a result of adverse changes in credit markets that
affect our ability to raise capital when needed, changing regulatory
requirements, unanticipated production disruptions (including as a result of
planned or unexpected power outages), economic and political conditions in
international markets, the impact of investments, acquisitions and dispositions
(including related financing), any delays, unexpected costs or other problems
experienced with integrating acquisitions and achieving expected savings and
synergies and currency fluctuations. 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.
We have included in this announcement an estimate of total synergies from the
acquisition of M-real`s coated graphic paper business and the integration of
the acquired business into our existing business. The estimate of synergies
that we expect to achieve following the completion of the acquisition is based
on assumptions which in the view of our management were prepared on a
reasonable basis, reflect the best currently available estimates and judgments,
and present, to the best of our management`s knowledge and belief, the expected
course of action and the expected future financial impact on our performance
due to the acquisition. However, the assumptions about these expected synergies
are inherently uncertain and, though considered reasonable by management as of
the date of preparation, are subject to a wide variety of significant business,
economic and competitive risks and uncertainties that could cause actual
results to differ materially from those contained in this estimate of
synergies. There can be no assurance that we will be able to successfully
implement the strategic or operational initiatives that are intended, or
realise the estimated synergies. This synergy estimate is not a profit forecast
or a profit estimate and should not be treated as such or relied on by
shareholders or prospective investors to calculate the likely level of profits
or losses for Sappi for fiscal 2009 or beyond.
Group income statement
Reviewed Reviewed
Quarter Quarter
ended ended
Mar 2009 Mar 2008 %
Notes US$ million US$ million change
Sales 1,313 1,473 (11)
Cost of sales 1,196 1,162
Gross profit 117 311 (62)
Selling, general and
administrative expenses 97 102
Other operating expenses
(income) 11 (7)
Share of loss (profit) from
associates and joint
ventures 3 (5)
Operating profit 3 6 221 (97)
Net finance costs 40 27
Net interest 41 26
Finance cost capitalised - (6)
Net foreign exchange gains (4) (4)
Net fair value loss on
financial instruments 3 11
(Loss) profit before
taxation (34) 194 -
Taxation 1 39
Current (6) 1
Deferred 7 38
(Loss) profit for the
period (35) 155 -
Basic (loss) earnings per
share (US cents) 1 (7) 43
Weighted average number of
shares in issue (millions) 1 515.8 362.3
Diluted basic (loss)
earnings
per share (US cents) 1 (7) 42
Weighted average number
of shares on fully diluted
basis (millions) 1 517.8 365.0
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2009 Mar 2008 %
US$ million US$ million change
Sales 2,500 2,850 (12)
Cost of sales 2,238 2,354
Gross profit 262 496 (47)
Selling, general and
administrative expenses 183 199
Other operating expenses
(income) 14 (6)
Share of loss (profit) from
associates and joint ventures 2 (9)
Operating profit 63 312 (80)
Net finance costs 61 55
Net interest 72 63
Finance cost capitalised - (15)
Net foreign exchange gains (11) (5)
Net fair value loss on
financial instruments - 12
(Loss) profit before taxation 2 257 (99)
Taxation 14 60
Current 4 4
Deferred 10 56
(Loss) profit for the period (12) 197 -
Basic (loss) earnings per
share (US cents) (3) 54
Weighted average number of
shares in issue (millions) 449.4 361.9
Diluted basic (loss) earnings
per share (US cents) (3) 54
Weighted average number
of shares on fully diluted
basis (millions) 451.5 364.9
Group balance sheet
Reviewed Reviewed
Mar 2009 Sept 2008
US$ million US$ million
ASSETS
Non-current assets 4,669 4,408
Property, plant and equipment 3,626 3,361
Plantations 605 631
Deferred taxation 36 41
Other non-current assets 402 375
Current assets 2,373 1,701
Inventories 821 725
Trade and other receivables 841 702
Cash and cash equivalents 711 274
Total assets 7,042 6,109
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` interest 1,866 1,605
Non-current liabilities 2,873 2,578
Interest-bearing borrowings 2,154 1,832
Deferred taxation 334 399
Other non-current liabilities 385 347
Current liabilities 2,303 1,926
Interest-bearing borrowings 1,259 821
Bank overdraft 33 26
Other current liabilities 959 1,025
Taxation payable 52 54
Total equity and liabilities 7,042 6,109
Number of shares in issue at balance sheet date
(millions) 515.8 229.2
Group cash flow statement
Reviewed Reviewed
Quarter Quarter
ended ended
Mar 2009 Mar 2008
US$ million US$ million
(Loss) profit for the period (35) 155
Adjustment for:
Depreciation, fellings and amortisation 114 112
Taxation 1 39
Net finance costs 40 27
Post employment benefits (11) (39)
Other non-cash items (10) (118)
Cash generated from operations 99 176
Movement in working capital 28 (30)
Net finance costs (10) (8)
Taxation paid (3) (9)
Dividends paid * - (73)
Cash retained from operating activities 114 56
Cash utilised in investing activities (625) (164)
Capital expenditure (39) (164)
Acquisition of M-real (586) -
(511) (108)
Cash effects of financing activities 243 (118)
Net movement in cash and
cash equivalents (268) (226)
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2009 Mar 2008
US$ million US$ million
(Loss) profit for the period (12) 197
Adjustment for:
Depreciation, fellings and amortisation 211 229
Taxation 14 60
Net finance costs 61 55
Post employment benefits (19) (53)
Other non-cash items (61) (157)
Cash generated from operations 194 331
Movement in working capital (68) (163)
Net finance costs (54) (67)
Taxation paid (2) (16)
Dividends paid * (37) (73)
Cash retained from operating activities 33 12
Cash utilised in investing activities (665) (253)
Capital expenditure (79) (253)
Acquisition of M-real (586) -
(632) (241)
Cash effects of financing activities 1,036 105
Net movement in cash and
cash equivalents 404 (136)
* Dividend no 85: 16 US cents per share paid on 28 November 2008.
Group statement of recognised income and expense
Reviewed Reviewed
Quarter Quarter
ended ended
Mar 2009 Mar 2008
US$ million US$ million
Exchange differences on translation of
foreign operations 6 (262)
Realised gain on cash flow hedge (32) -
Sundry other movements in equity 9 -
Net expense recorded directly
in equity (17) (262)
(Loss) profit for the period (35) 155
Total recognised expense for the period (52) (107)
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2009 Mar 2008
US$ million US$ million
Exchange differences on translation of
foreign operations (287) (272)
Realised gain on cash flow hedge - -
Sundry other movements in equity - 2
Net expense recorded directly
in equity (287) (270)
(Loss) profit for the period (12) 197
Total recognised expense for the period (299) (73)
Notes to the group results
1. Basis of preparation
The condensed financial statements have been prepared in accordance with
International Accounting Standard 34, Interim Financial Reporting. The
accounting policies and methods of computation used in the preparation of the
results are consistent, in all material respects, with those used in the annual
financial statements for September 2008 which are compliant with International
Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board.
The preliminary results for the six month period and quarter ended March 2009
have been reviewed in terms of the International Standard on Review
Engagements 2410 by the group`s auditors, Deloitte & Touche.
Their unmodified review report is available for inspection at the company`s
registered offices.
In November and December 2008, Sappi conducted a renounceable rights offer of
286,886,270 new ordinary shares of ZAR1.00 each to qualifying Sappi
shareholders recorded in the shareholders register at the close of business on
Friday 21 November 2008, at a subscription price of ZAR20.27 per rights offer
share in the ratio of 6 rights offer shares for every 5 Sappi shares held. The
rights offer was fully subscribed and the shareholders received their shares on
15 December 2008. The rights offer raised ZAR5,8 billion which was used to
partly finance the acquisition of the coated graphic paper business of M-Real
and the related costs. In accordance with IAS 33, prior period basic, headline
and diluted earnings per share have been restated to take into account the
bonus element of the rights offer. The prior period weighted average number of
shares has been adjusted by a factor of 1.58 (the adjustment factor). Please
refer to Supplemental Information for a summary of this calculation.
2. Reconciliation of movement in shareholders` equity
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2009 Mar 2008
US$ million US$ million
Balance - beginning of period 1,605 1,816
Total recognised expense for the period (299) (73)
Dividends paid (37) (73)
Rights offer 575 -
Costs directly attributable to the rights offer (31) -
Issue of new shares to M-real 45 -
Transfer to participants of the share purchase trust 3 3
Share based payment reserve 5 4
Balance - end of period 1,866 1,677
3. Operating profit
Reviewed Reviewed Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2009 Mar 2008 Mar 2009 Mar 2008
US$ million US$ million US$ million US$ million
Included in operating
profit are the following
non-cash items:
Depreciation and
amortisation 99 93 180 189
Fair value adjustment
on plantations
(included in
cost of sales)
Changes in volume
Fellings 15 19 31 40
Growth (16) (17) (32) (35)
(1) 2 (1) 5
Plantation
price fair value
adjustment (35) (118) (69) (117)
(36) (116) (70) (112)
Included in
other operating expenses
are the following:
Asset impairments 2 - 5 2
Profit on disposal
of property, plant and
equipment - (3) (1) (4)
Restructuring
Provisions raised
(released) 8 (2) 8 (3)
4. Headline earnings per share *
Headline earnings per
share (US cents) ** (6) 42 (2) 54
Weighted average
number of shares in
issue (millions) ** 515.8 362.3 449.4 361.9
Diluted headline
earnings per
share (US cents) ** (6) 41 (2) 53
Weighted average
number of shares on
fully diluted basis
(millions) ** 517.8 365.0 451.5 364.9
Calculation of
headline earnings *
(Loss) profit
for the period (35) 155 (12) 197
Asset impairments 2 - 5 2
Profit on disposal of
property, plant
and equipment - (3) (1) (4)
Tax effect of
above items - (1) - -
Headline (loss)
earnings (33) 151 (8) 195
* Headline earnings disclosure is required by the JSE Limited.
** Prior period headline earnings per share has been restated for the bonus
element of the rights offer in accordance with IAS 33.
Please refer to Supplemental Information for a summary of this
calculation.
5. Capital expenditure
Property, plant
and equipment 46 165 93 274
Mar 2009 Sept 2008
US$ million US$ million
6. Capital commitments
Contracted 96 76
Approved but not contracted 160 130
256 206
Mar 2009 Sept 2008
US$ million US$ million
7. Contingent liabilities
Guarantees and suretyships 36 38
Other contingent liabilities 7 7
43 45
8. Material balance sheet movements
Acquisition of M-real`s coated graphic paper business
See note 9 for details of how the acquisition is recorded in the balance sheet.
Interest-bearing borrowings and cash and cash equivalents
Included in long term borrowings is the EUR220 million (US$293 million)
vendor loan note and the assumed interest bearing debt both used to partly
finance the acquisition of M-real`s coated graphic paper business. During
the six months ended March 2009, the group also drew down EUR200 million
(US$266 million) of its committed facilities and raised a further
US$52 million in long term bank loans. All of this is currently held in cash.
9. Acquisition
On 31 December 2008, Sappi acquired M-real`s coated graphic paper business for
EUR750 million (US$1.1 billion). The transaction includes M-real`s coated
graphic paper business (excluding M-real`s South African business), including
brands and company knowledge, as well as four coated graphic mills.
The acquisition was financed through a combination of equity, assumed debt, the
cash proceeds from a rights offering and a vendor loan note.
The acquired business contributed revenues of US$280 million, a net operating
loss of US$3 million and a net loss of US$7 million to the group for the period
from acquisition to 29 March 2009.
Details of net assets acquired and goodwill are as follows:
EURO US$
Purchase consideration:
Cash consideration 400 563
Shares issued * 32 45
Vendor loan note 220 308
Adjustments to working capital 6 8
Gain on forward exchange contract covering purchase
consideration (24) (32)
Direct costs relating to the acquisition 21 30
Total purchase consideration 655 922
Provisional fair value of net identifiable assets acquired
(see below) 628 884
Provisional goodwill ** 27 38
* 11,159,702 Sappi shares were issued to M-real as partial payment of the
acquisition price. The fair value of US$45 million (EUR32 million) was
determined using Sappi`s published market price at the date of exchange.
** The initial accounting for the business combination has been determined
provisionally as at the end of the second quarter ended March 2009 because the
group is still in the process of finalising the fair values of the identifiable
assets and liabilities of the acquired business of M-real.
The assets and liabilities arising from the acquisition are as follows:
EURO EURO US$ US$
Acquiree`s Provisional Acquiree`s Provisional
carrying fair carrying fair
amount value amount value
Property, plant
and equipment 640 494 901 695
Information
technology
related
intangibles 2 2 3 3
Brand names - 18 - 25
Inventories 118 116 166 163
Trade receivables 200 200 281 281
Prepayments and
other debit
balances 15 21 21 30
Cash and cash
equivalents 5 5 7 7
Trade payables (86) (86) (121) (121)
Pension
liabilities (37) (40) (52) (56)
Borrowings (46) (47) (65) (66)
Provisions (4) (4) (6) (6)
Other payables
and accruals (66) (64) (93) (89)
Net deferred tax
(liabilities)
assets (10) 13 (14) 18
Net identifiable
assets acquired 731 628 1,028 884
Outflow of cash to acquire business, net of cash acquired:
EURO US$
Cash consideration 400 563
Direct costs relating to acquisition 21 30
Cash and cash equivalents in subsidiary acquired (5) (7)
Cash outflow on acquisition 416 586
Notes to the group results
Reviewed Reviewed
Quarter Quarter
ended ended
Mar 2009 Mar 2008 %
US$ million US$ million change
10. Regional information Sales
Fine Paper - North America 301 423 (29)
Europe 737 697 6
Southern Africa 74 89 (17)
Total 1,112 1,209 (8)
Forest
Products - Pulp and paper
operations 189 246 (23)
Forestry operations 12 18 (33)
Total 1,313 1,473 (11)
Operating profit
Fine Paper - North America (24) 26 -
Europe (21) 18 -
Southern Africa 2 3 (33)
Total 43 47 -
Forest Products 48 172 (72)
Corporate and other 1 2 (50)
Total 6 221 (97)
Net operating assets
Fine Paper - North America 1,070 1,116 (4)
Europe 2,376 2,085 14
Southern Africa 181 127 43
Total 3,627 3,328 9
Forest Products 1,531 1,695 (10)
Corporate and other 126 8 -
Total 5,284 5,031 5
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2009 Mar 2008 %
US$ million US$ million change
10. Regional information Sales
Fine Paper - North America 664 807 (18)
Europe 1,298 1,335 (3)
Southern Africa 148 176 (16)
Total 2,110 2,318 (9)
Forest
Products - Pulp and paper
operations 363 498 (27)
Forestry operations 27 34 (21)
Total 2,500 2,850 (12)
Operating profit
Fine Paper - North America (31) 37 -
Europe (8) 37 -
Southern Africa 4 4 -
Total (35) 78 -
Forest Products 97 227 (57)
Corporate and other 1 7 100
Total 63 312 (80)
Net operating assets
Fine Paper - North America 1,070 1,116 (4)
Europe 2,376 2,085 14
Southern Africa 181 127 43
Total 3,627 3,328 9
Forest Products 1,531 1,695 (10)
Corporate and other 126 8 -
Total 5,284 5,031 5
Supplemental Information (this information has not been reviewed)
general definitions
Average - averages are calculated as the sum of the opening and closing
balances for the relevant period divided by two
Fellings - the amount charged against the income statement representing the
standing value of the plantations harvested
NBSK - Northern Bleached Softwood Kraft pulp. One of the main varieties of
market pulp, mainly produced from spruce trees in Scandinavia, Canada and north
eastern USA. The NBSK is a benchmark widely used in the pulp and paper industry
for comparative purposes
SG&A - selling, general and administrative expenses
Non-GAAP measures
The group believes that it is useful to report certain non-GAAP measures for
the following reasons:
- these measures are used by the group for internal performance analysis;
- the presentation by the group`s reported business segments of these measures
facilitates comparability with other companies in our industry, although the
group`s measures may not be comparable with similarly titled profit
measurements reported by other companies; and
- it is useful in connection with discussion with the investment analyst
community and debt rating agencies.
These non-GAAP measures should not be considered in isolation or construed as a
substitute for GAAP measures in accordance with IFRS
Acquisition - the acquisition of M-real`s coated graphic paper business
on 31 December 2008
Adjustment factor - This is calculated using the pre-announcement share price
divided by the theoretical ex-rights price (TERP). TERP is the ((Number of new
shares multiplied by the Subscription price) plus the (Number of shares held
multiplied by the Ex-dividend share price)) all divided by the (Number of new
shares plus the number of shares held prior to the rights offer).
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 8/2007 issued by the South African
Institute of Chartered Accountants, separates from earnings all separately
identifiable re-measurements. It is not necessarily a measure of sustainable
earnings. It is a listing requirement of the JSE Limited to disclose headline
earnings per share
Net debt - current and non-current interest-bearing borrowings, and bank
overdraft (net of cash, cash equivalents and short-term deposits)
Net debt to total capitalisation - net debt divided by capital employed
Net operating assets - total assets (excluding deferred taxation and cash and
cash equivalents) less current liabilities (excluding interest-bearing
borrowings and bank overdraft)
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
ROCE - return on average capital employed. Operating profit excluding special
items divided by average capital employed
ROE - return on average equity. Profit for the period divided by average
shareholders` equity
RONOA - return on average net operating assets. Operating profit excluding
special items divided by average net operating assets
Special items - special items cover those items which management believe are
material by nature or amount to the operating results and require separate
disclosure. Such items would generally include profit or loss on disposal of
property, investments and businesses, asset impairments, restructuring charges,
financial impacts of natural disasters and non-cash gains or losses on the
price fair value adjustment of plantations
The above financial measures are presented to assist our shareholders and the
investment community in interpreting our financial results.
These financial measures are regularly used and compared between companies in
our industry.
Supplemental Information (this information has not been reviewed)
EBITDA excluding special items
Quarter Quarter
ended ended
Mar 2009 Mar 2008
US$ million US$ million
Reconciliation of (loss) profit for the period to
EBITDA excluding special items (1)
(Loss) profit for the period (35) 155
Net finance costs 40 27
Taxation 1 39
Special items - gains (23) (124)
Operating (loss) profit excluding special
items (17) 97
Depreciation and amortisation 99 93
EBITDA excluding special items (1) 82 190
Half-year Half-year
ended ended
Mar 2009 Mar 2008
US$ million US$ million
Reconciliation of (loss) profit for the period to
EBITDA excluding special items (1)
(Loss) profit for the period (12) 197
Net finance costs 61 55
Taxation 14 60
Special items - (gains) losses (55) (123)
Operating profit (loss) excluding special items 8 189
Depreciation and amortisation 180 189
EBITDA excluding special items (1) 188 378
Mar 2009 Sept 2008
US$ million US$ million
Net debt (US$ million) (2) 2,735 2,405
Net debt to total capitalisation (%) (2) 59.4 60.0
Net asset value per share (US$) (2) 3.62 7.00
(1) In connection with the U.S. Securities Exchange Commission ("SEC") rules
relating to "Conditions for Use of Non-GAAP Financial Measures", we have
reconciled EBITDA excluding special items to net profit rather than operating
profit. As a result our definition retains minority interest as part of EBITDA
excluding special items.
Operating profit excluding special items represents earnings before interest
(net finance costs), taxation and special items. Net finance costs includes:
gross interest paid; interest received; interest capitalised; net foreign
exchange gains; and net fair value adjustments on interest rate financial
instruments. See the group income statement for an explanation of the
computation of net finance costs. 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 and
loss on disposal of property, investments and businesses, asset impairments,
restructuring charges, financial impacts of natural disasters and non-cash
gains or losses on the price fair value adjustment of plantations.
EBITDA excluding special items represents operating profit before depreciation,
amortisation and special items.
We use both operating profit excluding special items and EBITDA excluding
special items as internal measures of performance to benchmark and compare
performance, both between our own operations and as against other companies.
Operating profit excluding special items and EBITDA excluding special items are
measures used by the group, together with measures of performance under IFRS,
to compare the relative performance of operations in planning, budgeting and
reviewing the performances of various businesses. We believe they are useful
and commonly used measures of financial performance in addition to net profit,
operating profit and other profitability measures under IFRS because they
facilitate operating performance comparisons from period to period and company
to company. By eliminating potential differences in results of operations
between periods or companies caused by factors such as depreciation and
amortisation methods, historic cost and age of assets, financing and capital
structures and taxation positions or regimes, we believe both operating profit
excluding special items and EBITDA excluding special items can provide a useful
additional basis for comparing the current performance of the operations being
evaluated. For these reasons, we believe operating profit excluding special
items and EBITDA excluding special items and similar measures are regularly
used by the investment community as a means of comparison of companies in our
industry. Different companies and analysts may calculate operating profit
excluding special items and EBITDA excluding special items differently, so
making comparisons among companies on this basis should be done very carefully.
Operating profit excluding special items and EBITDA excluding special items are
not measures of performance under IFRS and should not be considered in
isolation or construed as a substitute for operating profit or net profit as
indicators of the company`s operations in accordance with IFRS.
(2) Refer to Supplemental Information for the definition of the term.
Supplemental Information (this information has not been reviewed)
summary rand convenience translation
Quarter ended
Mar 2009 Mar 2008 % change
Key figures: (ZAR million)
Sales 12,996 10,988 18
Operating profit 59 1,649 (96)
Special items - gains * (228) (925) -
Operating (loss) profit excluding
special items (168) 724 -
EBITDA excluding special items * 812 1,417 (43)
Basic EPS (SA cents) (69) 321 -
Net debt * 26,215 21,669 21
Key ratios: (%)
Operating profit to sales 0.5 15.0
Operating (loss) profit excluding
special items to sales (1.3) 6.6
Operating (loss) profit excluding
special items to Capital
Employed (ROCE) (1.7) 9.0
EBITDA excluding special items
to sales 6.2 12.9
Net debt to total capitalisation * 59.4 61.3
Half-year ended
Mar 2009 Mar 2008 % change
Key figures: (ZAR million)
Sales 24,754 20,368 22
Operating profit 624 2,230 (72)
Special items - (gains) losses * (545) (879) -
Operating (loss) profit excluding
special items 79 1,351 (94)
EBITDA excluding special items * 1,861 2,701 (31)
Basic EPS (SA cents) (30) 386 -
Net debt * 26,215 21,669 21
Key ratios: (%)
Operating profit to sales 2.5 10.9
Operating (loss) profit excluding
special items to sales 0.3 6.6
Operating (loss) profit excluding
special items to Capital
Employed (ROCE) 0.4 8.6
EBITDA excluding special items
to sales 7.5 13.3
Net debt to total capitalisation * 59.4 61.3
* Refer to Supplemental Information for the definition of the term.
The above financial results have been translated into ZAR 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.
exchange rates
Mar Dec Sept
2009 2008 2008
Exchange rates:
Period end rate: US$1 = ZAR 9.5849 9.7148 8.0751
Average rate for the Quarter: US$1 = ZAR 9.8979 9.8584 7.8150
Average rate for the YTD: US$1 = ZAR 9.9015 9.8584 7.4294
Period end rate: EUR 1 = US$ 1.3301 1.4064 1.4615
Average rate for the Quarter: EUR 1 = US$ 1.3300 1.3471 1.5228
Average rate for the YTD: EUR 1 = US$ 1.3288 1.3471 1.5064
June Mar
2008 2008
Exchange rates:
Period end rate: US$1 = ZAR 7.9145 8.1432
Average rate for the Quarter: US$1 = ZAR 7.8385 7.4593
Average rate for the YTD: US$1 = ZAR 7.3236 7.1465
Period end rate: EUR 1 = US$ 1.5795 1.5802
Average rate for the Quarter: EUR 1 = US$ 1.5747 1.5006
Average rate for the YTD: EUR 1 = US$ 1.5071 1.4790
The financial results of entities with reporting currencies other than the US
Dollar are translated into US Dollars as follows:
- Assets and liabilities at rates of exchange ruling at period end; and
- Income, expenditure and cash flow items at average exchange rates.
Other interested parties can obtain printed copies of this report from:
South Africa:
Computershare Investor
Services (Proprietary) Limited
70 Marshall Street
Johannesburg 2001
PO Box 61051
Marshalltown 2107
Tel +27 (0)11 370 5000
United States:
ADR Depositary:
The Bank of New York Mellon
Investor Relations
PO Box 11258
Church Street Station
New York, NY 10286-1258
Tel +1 610 382 7836
Channel Islands:
Capita Registrars
(Jersey) Limited
12 Castle Street
St Helier,
Jersey
JE2 3RT
Tel +44 (0)208 639 3399
this report is available on the Sappi website
www.sappi.com
Date: 05/05/2009 08:55:13 Supplied by www.sharenet.co.za
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