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SAP - Sappi Limited - Sappi strategy update
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
JOHANNESBURG
07 October 2011
Sappi today announced a strategy update that will position the global pulp,
paper and cellulose-based solutions group for the future.
Dealing with the current tough market conditions and the declining trend in
demand for graphic paper in its major markets, Sappi has indicated for some
time that it was taking decisive action to reposition itself for improved
performance.
Group Strategy
Sappi`s strategy involves four key themes, namely: continuing to optimise our
better performing businesses, fixing our underperforming businesses,
investing for future growth in higher margin businesses, including chemical
cellulose, and achieving this within the reality of the group`s liquidity and
balance sheet.
We aim to generate at least 60% of operating profit from these higher margin
growth businesses within 3 to 5 years, achieving real growth in the revenue
line and asset base and exceeding our minimum ROCE target of 12%.
It is clear that there is a declining demand trend for graphic paper in our
major markets but we see opportunities in these businesses, which are
currently the backbone of the group, to generate reasonable net profits and
strong cashflows for many years.
- Optimising better performing businesses
Our North American business, which we restructured in 2009, and our
chemical cellulose business have continued to perform well. We will
explore further opportunities to enhance the returns and cash generation
of these businesses.
- Fixing under-performing businesses
We have undertaken wide-ranging reviews of our existing businesses with
a focus on our graphic paper business, in particular in Europe, and our
Southern African business.
- Europe
Cost saving and capacity management measures are well advanced in
Europe. Following the closure of the Biberist Mill in July/August
2011 Sappi is progressing with the next stage of cost reduction
action, including both fixed and variable cost minimisation. The
annual savings resulting from these actions (including the Biberist
Mill closure) are expected to reach US$100 million on a relative
basis with effect from the next calendar quarter. We have had good
support for these changes from our customers.
- Southern Africa (paper business)
We are restructuring our business processes and paper operations in
South Africa to ensure that we adapt to our customers` changing
needs and that we match our assets to profitable markets and future
growth. The first step in this regard was the closure of the
Adamas Mill, which has now been completed. We are well advanced
with the implementation of further cost reduction and streamlining
at both our administrative and production areas. Regrettably, we
expect that these measures will lead to a significant additional
reduction of jobs during the first half of financial 2012.
We expect that these essential changes will result in savings and
benefits of approximately R250 million (US$30 million) a year once
fully implemented. In addition we expect to save approximately
R100 million (US$12 million) a year as a result of avoided
maintenance capital expenditure.
- Impact on the group
As a result of the reviews and actions we have undertaken and
planned, the group expects to take impairment and restructuring
charges of approximately US$160 million in the fourth financial
quarter ended September 2011, of which US$20 million are cash
impairment charges.
The impairment and restructuring charges for the full financial
year ended September 2011 will therefore be approximately US$300
million, of which approximately US$80 million are cash charges.
Although some of the benefits of our restructuring actions are starting
to materialise, the real benefits will be achieved in the new financial
year.
- Investing for future growth
In order to achieve the shift of focus to higher margin businesses and
to achieve real growth in revenue and returns we will invest in the
higher growth chemical cellulose business, in innovative products based
on our very successful Ultracast and other technologies, in energy
projects related to our core operations and in low cost wood resources.
Sappi is a global leader in chemical cellulose production, a fast
growing, high margin business serving the textiles, consumer goods,
foodstuffs and pharmaceutical industries. The investment of US$340
million in the Ngodwana Mill announced in May this year will add 210,000
tpa of chemical cellulose production, raising Sappi`s total chemical
cellulose capacity to a million tons per year. This project is
progressing well and is set to start up in early 2013. A number of
additional opportunities are at an advanced stage of evaluation, and
Sappi will focus on taking advantage of its leading market position and
cost structure which is at the very low end of the industry scale.
- Liquidity and balance sheet
In implementing our growth strategy we will continue focusing on
maintaining a good liquidity position and carefully manage the group`s
gearing.
During the 2011 year we successfully refinanced most of our debt which
was due to mature in the next 3 years, with long term financing.
Current trading conditions
Market conditions remain uncertain with demand in many of our markets showing
less resilience than anticipated.
The outlook we reported at the end of our third financial quarter pointed to
a considerable improvement in operating profit excluding special items for
the fourth financial quarter compared to the third financial quarter. As a
result of the recent slowdown in almost all of our markets we now expect the
operating profit excluding special items for the fourth quarter ended
September 2011 to be weaker than previously indicated. We nevertheless
expect it to be better than the third financial quarter and for the full year
to be much improved on last year.
The impairment and restructuring charges referred to above will have an
unfavourable impact on net profit for the quarter and the full year.
We expect strong cash generation for the fourth financial quarter and
positive cash generation for the full year. Our liquidity position is
robust.
Commenting on the strategy update, Ralph Boettger, CEO of Sappi said:
"We are confident that the major interventions, painful and regrettable as
they are in terms of our staff, the relationships we are continuing to build
with our customers and the exciting investments in growth will position Sappi
well for the future. These actions are not only particularly relevant and
appropriate given prevailing market conditions, but will position Sappi well
for improved returns and growth, in the shorter and longer term. We expect
the financial benefits of these actions to commence in this new financial
year."
For further information -
Ralph Boettger
Chief Executive Officer
Sappi Limited
Tel +27 (0)11 407 8001
Ralph.Boettger@sappi.com
Robert Hope
Group Head Strategic Development
Sappi Limited
Tel +27 (0)11 407 8438
Robert.Hope@sappi.com
Byron Kennedy
Director
Brunswick South Africa
Tel + 27 11 502 7300
bkennedy@brunswick.co.za
Date: 07/10/2011 09:54:14 Supplied by www.sharenet.co.za
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