Wrap Text
3rd Quarter results for the period ended June 2012
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
3rd Quarter results for
the period ended
June 2012
Sappi works closely with customers,
both direct and indirect, in over
100 countries to provide them with
relevant and sustainable paper,
paper-pulp and chemical cellulose
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 chemical cellulose.
Our chemical cellulose 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
- Operating profit excluding special items US$60 million
(Q3 2011 US$60 million)
- Market conditions deteriorated during the quarter
- Extended maturities and lower finance costs from refinancing of 2014
bonds going forward
- Once-off charges of US$89 million related to refinancing negative EPS
- Impact of planned annual maintenance shuts at major pulp mills
- Chemical cellulose expansions on track
Quarter ended Nine months ended
Jun 2012 Jun 2011 Mar 2012 Jun 2012 Jun 2011
Key figures: (US$ million)
Sales 1,544 1,802 1,633 4,762 5,499
Operating profit 34 54 120 261 174
Special items losses(1) 26 6 5 24 150
Operating profit excluding special
items(2) 60 60 125 285 324
EBITDA excluding special items(2) 150 164 217 561 638
Basic (loss) earnings per share
(US cents) (20) (13) 11 (1) (20)
Net debt(3) 2,213 2,475 2,133 2,213 2,475
Key ratios: (%)
Operating profit to sales 2.2 3.0 7.4 5.5 3.2
Operating profit excluding special
items to sales 3.9 3.3 7.7 6.0 5.9
Operating profit excluding special
items to capital employed (ROCE) 6.4 5.5 13.4 10.3 10.2
EBITDA excluding special items to sales 9.7 9.1 13.3 11.8 11.6
Return on average equity (ROE)(4) (26.5) (14.2) 14.7 (0.3) (7.4)
Net debt to total capitalisation(4) 58.7 56.8 56.5 58.7 56.8
Net asset value per share (US cents) 299 362 315 299 362
(1) Refer to note 10 for details on special items.
(2) Refer to note 10 to the group results for the reconciliation of EBITDA excluding special items and operating profit excluding
special items to segment operating 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.
The table above has not been audited or reviewed.
Commentary on the quarter
Operating profit excluding special items for the quarter was in line with guidance and similar to that
achieved in the corresponding quarter in the prior year. Performance was impacted, as anticipated,
by planned annual maintenance shuts as well as seasonal factors when compared to the prior
quarter. Market conditions however deteriorated more than expected in the quarter as a result of
the uncertainty in Europe and a general slowdown in all major markets.
Sales for the quarter was US$1.5 billion, a decrease of 14% in US Dollar terms compared to the
equivalent quarter a year ago primarily due to a stronger US Dollar which impacted the translation
of the European and South African sales, and 7% lower sales volumes in Europe.
The Southern African chemical cellulose business continued to perform strongly, with higher
US Dollar pulp prices compared to the prior quarter being aided by a weaker Rand. The scheduled
annual maintenance shut at Saiccor was postponed until early in the fourth quarter to enable the
business to benefit from robust demand, continued strong manufacturing performance and in light
of the declining trend in pulp prices.
During the quarter we announced a tender offer and redemption for up to US$700 million of the
2014 bonds. The repurchase of the 2014 bonds will be completed in early August and will result
in annual cash interest savings of approximately US$30 million. The bonds were successfully
refinanced with a US$400 million bond due 2017 at 7.750% and a US$300 million bond due 2019
at 8.375%. The full US$89 million accounting cost of the refinancing of the 2014 bonds was
booked in the quarter, US$44 million of this charge is non-cash and relates to the accelerated
write-off of the discount and costs incurred at the issue of these bonds.
The repayment of the 2014 bonds resulted in the unwinding of currency swaps linked to the
bonds. The mark-to-market of the swaps is in Sappi's favour and a positive cash settlement of
approximately US$36 million is expected in our fourth quarter.
Special items for the quarter was a charge of US$26 million, comprised mainly of a plantation price
fair value adjustment and charges related to flooding at Cloquet Mill.
Cash flow and debt
Cash retained from operating activities was US$52 million for the quarter, an improvement from
the same quarter last year.
Net capital expenditure for the quarter was US$108 million, compared to US$60 million in the prior
quarter and reflects the increased capital expenditure attributable to the Ngodwana and Cloquet
chemical cellulose conversions. Capital expenditure for the full year is expected to be below
US$425 million.
Net debt increased during the quarter to US$2,213 million as a result of the net cash utilised and
the once-off charges related to the early redemption of the 2014 bonds, partly offset by currency
movements.
Operating Review Quarter ended June 2012 compared with quarter
ended June 2011
Sappi Fine Paper
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Jun 2012 Mar 2012 Dec 2011 Sept 2011 Jun 2011
US$ million US$ million US$ million US$ million US$ million
Sales 1,155 1,232 1,198 1,337 1,350
Operating profit excluding
special items 28 73 39 39 30
Operating profit excluding
special items to sales (%) 2.4 5.9 3.3 2.9 2.2
EBITDA excluding special
items 98 139 110 115 107
EBITDA excluding special
items to sales (%) 8.5 11.3 9.2 8.6 7.9
RONOA pa (%) 4.0 10.3 5.6 5.3 3.9
Sales volumes for the quarter were 5% lower than in the previous quarter and the equivalent quarter
in the prior year. The improvement in margins compared to the equivalent quarter in the prior year
reflects the benefits of the various variable and fixed cost reductions that have been implemented in
the past year across all regions.
Europe
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Jun 2012 Mar 2012 Dec 2011 Sept 2011 Jun 2011
EUR million EUR million EUR million EUR million EUR million
Sales 620 672 628 666 679
Operating profit excluding
special items 8 37 22 3 (2)
Operating profit excluding
special items to sales (%) 1.3 5.5 3.5 0.5 (0.3)
EBITDA excluding special
items 47 73 60 44 38
EBITDA excluding special
items to sales (%) 7.6 10.9 9.6 6.6 5.6
RONOA pa (%) 2.2 10.2 6.1 0.8 (0.5)
Volumes sold during the quarter were lower as a result of the seasonally slower demand and the
planned maintenance shuts at our pulp mills. Nevertheless, demand was weaker than expected
and 7% below that of the equivalent quarter last year.
Average prices realised were marginally higher than the previous quarter, helped by a weaker Euro
exchange rate and the impact on export sales prices. However, variable costs per ton were also
higher as the prices of most major inputs increased. Despite this, expenses continue to be tightly
managed and were 5% lower than the equivalent quarter last year. As a result, operating margins
have all improved.
Sappi Fine Paper Europe incurred fire damage at Nijmegen Mill in July 2012, the financial impact
of which is estimated to be US$7 million to the group.
North America
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Jun 2012 Mar 2012 Dec 2011 Sept 2011 Jun 2011
US$ million US$ million US$ million US$ million US$ million
Sales 360 349 352 395 371
Operating profit excluding
special items 18 24 10 34 32
Operating profit excluding
special items to sales (%) 5.0 6.9 2.8 8.6 8.6
EBITDA excluding special
items 38 43 29 53 50
EBITDA excluding special
items to sales (%) 10.6 12.3 8.2 13.4 13.5
RONOA pa (%) 7.7 10.4 4.4 14.9 13.7
Despite a weaker market environment, sales volumes in the North American business were 2%
and 3% higher than in the equivalent quarter last year and the prior quarter respectively, as higher
coated paper sales volumes more than offset lower pulp and speciality paper sales volumes.
Paper prices were lower, compared both to the prior quarter and the equivalent quarter last year,
whilst pulp prices were lower than in the equivalent quarter last year, but higher than in the prior
quarter.
A focus on cost containment and productivity improvements ensured variable costs per ton were
lower than in the equivalent quarter last year and the prior quarter. During the quarter, Cloquet Mill
completed a scheduled cold outage which negatively impacted the results compared to the prior
quarter.
Severe flooding in Minnesota led to a temporary shutdown of Cloquet Mill in late June, impacting
both paper and pulp production for approximately 7 days. The impact on the group operating
profit was approximately US$5 million for the quarter, recorded in special items.
Sappi Southern Africa
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Jun 2012 Mar 2012 Dec 2011 Sept 2011 Jun 2011
ZAR million ZAR million ZAR million ZAR million ZAR million
Sales 3,159 3,113 3,131 3,217 3,068
Operating profit excluding
special items 255 409 494 296 172
Operating profit excluding
special items to sales (%) 8.1 13.1 15.8 9.2 5.6
EBITDA excluding special
items 426 604 680 482 355
EBITDA excluding special
items to sales (%) 13.5 19.4 21.7 15.0 11.6
RONOA pa (%) 7.6 12.2 15.1 8.9 4.9
The Southern African chemical cellulose business had an excellent production and sales quarter,
with higher US Dollar pulp prices and a weaker Rand compared to the prior quarter, generating
ZAR480 million in EBITDA excluding special items and an EBITDA excluding special items margin
of approximately 30%.
During the quarter, Ngodwana Mill underwent an extended planned annual maintenance shut.
This shut negatively impacted the results compared to the prior quarter. The decision was made
to postpone the planned annual maintenance shut at Saiccor Mill to July due to the strong sales
momentum, operating performance and declining US Dollar pulp prices.
The Southern African paper business experienced a decline in sales volumes and prices compared
to the prior quarter. In particular, the containerboard and paper pulp sales were challenging for
both volume and price, whilst the office paper and newsprint businesses were more robust.
Variable costs per ton remain in line with the equivalent quarter last year, whilst benefits from the
fixed cost savings as a result of the Southern African restructuring started to take effect during the
quarter.
Outlook
Market conditions are expected to remain generally tough, with greater uncertainty and lack of
visibility. Trading conditions are expected to be weaker than a year ago, with lower volumes for
most of our products and pricing, particularly for pulp, to remain under pressure. We believe input
prices should remain generally flat and that fixed costs are well under control.
US Dollar exchange rate strength should be favourable for our European and South African
businesses with increased margins on export sales in particular.
Saiccor Mill's production remains sold out and both the Ngodwana and Cloquet mills conversion
projects are progressing well and expected to begin operations in the third fiscal quarter of 2013.
Good progress continues to be made with volume commitments for the additional chemical
cellulose capacity.
The benefits from the refinancing of the 2014 bonds completed in the past quarter are expected
to commence in the fourth fiscal quarter, and the annual interest charge is expected to decrease
by approximately US$45 million as a result, with the cash interest charge reducing by approximately
US$30 million per annum. The refinancing has left us with a much improved maturity profile, with
no substantial debt repayments until 2017.
For the fourth fiscal quarter, operating profit is expected to be higher than in the equivalent quarter
in 2011. Operating profit excluding special items for the year is expected to be below that achieved
in 2011. We expect positive earnings per share for the full year.
Cash generated from operations for the quarter is expected to be strong. In addition, we are
making good progress in terms of our strategy to dispose of non-essential assets in order to
improve cash generation. Following the end of the quarter, the Biberist mill and associated land
was sold for US$57 million and the Adamas mill land and buildings were sold for US$6 million. We
expect our net debt to reduce through the quarter to around US$2 billion.
Notwithstanding the current tough trading conditions, we believe that the strategic actions that we
are and have been taking are positioning the group well for both improved margins from our paper
divisions and for expansion in higher margin growth businesses such as chemical cellulose.
We are confident that the actions taken, including the refinancing completed in the last quarter, the
disposal of non-essential assets described above as well as the reduction in our cost base, will
allow us to complete the current growth projects whilst reducing our debt and strengthening our
financial position.
Directorate
Mr Steve Binnie joined Sappi as Chief Financial Officer designate on 09 July 2012, and will be
appointed Chief Financial Officer and an Executive Director of the company on 01 September 2012,
following Mr Mark Thompson's retirement as Chief Financial Officer and Executive Director at the
end of August 2012.
Professor Meyer Feldberg, the lead independent director, will retire from the board at the end of
December 2012, having reached the board's retirement age of 70 years. Sir Nigel Rudd will
succeed Professor Feldberg as lead independent director at that time.
On behalf of the board
R J Boëttger M R Thompson
Director Director 03 August 2012
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, 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
Quarter Quarter Nine months Nine months
ended Jun 2012 ended Jun 2011 ended Jun 2012 ended Jun 2011
Note US$ million US$ million US$ million US$ million
Sales 1,544 1,802 4,762 5,499
Cost of sales 1,404 1,639 4,189 4,872
Gross profit 140 163 573 627
Selling, general and
administrative expenses 103 107 315 328
Other operating expenses
(income) 3 4 (3) 131
Share of profit from associates
and joint ventures (2) (6)
Operating profit 2 34 54 261 174
Net finance costs 141 112 246 251
Net interest 142 121 253 276
Finance cost capitalised (2) (4)
Net foreign exchange loss
(gain) 1 (3) (1) (10)
Net fair value gain on
financial instruments (6) (2) (15)
(Loss) profit before taxation (107) (58) 15 (77)
Taxation (1) 10 18 28
Current 7 8 12 12
Deferred (8) 2 6 16
Loss for the period (106) (68) (3) (105)
Basic loss per share (US cents) (20) (13) (1) (20)
Weighted average number of
shares in issue (millions) 520.8 519.9 520.7 519.7
Diluted basic loss per share
(US cents) (20) (13) (1) (20)
Weighted average number of
shares on fully diluted basis
(millions) 520.8 519.9 520.7 519.7
Condensed group statement of comprehensive income
Nine Nine
Quarter Quarter months months
ended Jun 2012 ended Jun 2011 ended Jun 2012 ended Jun 2011
US$ million US$ million US$ million US$ million
Loss for the period (106) (68) (3) (105)
Other comprehensive income
(loss), net of tax 18 (3) 71 80
Exchange differences on
translation of foreign operations (70) (6) (10) 63
Movements in hedging reserves (14) 3 (23) 18
Deferred tax effect of above items 1 3 (1)
Recognition of previously
unrecognised deferred tax asset(1) 101 101
Total comprehensive (loss) income
for the period (88) (71) 68 (25)
(1) Relates to amounts recognised within other comprehensive income in previous fiscal years.
Condensed group balance sheet
Reviewed
Jun 2012 Sept 2011
US$ million US$ million
ASSETS
Non-current assets 4,035 4,085
Property, plant and equipment 3,098 3,235
Plantations 560 580
Deferred taxation 144 45
Other non-current assets 233 225
Current assets 1,978 2,223
Inventories 773 750
Trade and other receivables 782 834
Cash and cash equivalents 403 639
Assets held for sale 20
Total assets 6,013 6,308
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest 1,557 1,478
Non-current liabilities 3,080 3,178
Interest-bearing borrowings 2,209 2,289
Deferred taxation 334 336
Other non-current liabilities 537 553
Current liabilities 1,376 1,652
Interest-bearing borrowings 406 449
Bank overdraft 1 1
Other current liabilities 950 1,182
Taxation payable 19 20
Total equity and liabilities 6,013 6,308
Number of shares in issue at balance sheet date (millions) 520.8 520.5
Condensed group statement of cash flows
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2012 Jun 2011 Jun 2012 Jun 2011
US$ million US$ million US$ million US$ million
Loss for the period (106) (68) (3) (105)
Adjustment for:
Depreciation, fellings and amortisation 108 125 333 378
Taxation (1) 10 18 28
Net finance costs 141 112 246 251
Defined post-employment benefits (16) (17) (39) (50)
Plantation fair value adjustments (1) (21) (40) (44)
Asset (impairment reversals)
impairments (3) (3) 69
Net restructuring provisions 2 1 68
Other non-cash items 15 5 33 20
Cash generated from operations 137 148 546 615
Movement in working capital (27) (46) (217) (364)
Net finance costs paid (56) (40) (157) (194)
Taxation paid (2) (17) (12) (31)
Cash retained from operating
activities 52 45 160 26
Cash utilised in investing activities (108) (65) (236) (142)
Net cash utilised (56) (20) (76) (116)
Cash effects of financing activities 32 (190) (142) (364)
Net movement in cash and cash
equivalents (24) (210) (218) (480)
Condensed group statement of changes in equity
Nine Nine
months months
ended ended
Jun 2012 Jun 2011
US$ million US$ million
Balance beginning of period 1,478 1,896
Total comprehensive income (loss) for the period 68 (25)
Transfers from the share purchase trust 2 6
Transfers of vested share options (2) (7)
Share-based payment reserve 11 14
Balance end of period 1,557 1,884
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated interim financial results for the nine months ended June 2012 have
been prepared in compliance with the Listings Requirements of the JSE Limited and in accordance
with the framework concepts and the measurement and recognition requirements of International
Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board,
AC 500 standards issued by the Accounting Practices Board, the requirements of the Companies
Act of South Africa and the information required by IAS 34 Interim Financial Reporting. The
accounting policies applied in the preparation of these interim financial results are consistent with
those applied for the year ended September 2011.
The 9 months ended June 2012 consists of 39 weeks compared to the prior year 9 months which
consisted of 40 weeks.
The preparation of this condensed consolidated financial information was supervised by the Chief
Financial Officer, M R Thompson CA (SA).
The results are unaudited.
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2012 Jun 2011 Jun 2012 Jun 2011
US$ million US$ million US$ million US$ million
2. Operating profit
Included in operating profit are the
following non-cash items:
Depreciation and amortisation 90 104 276 314
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 18 21 57 64
Growth (21) (23) (64) (60)
(3) (2) (7) 4
Plantation price fair value
adjustment 20 2 24 16
17 17 20
Included in other operating expenses
(income) are the following:
Asset (impairment reversals)
impairments (3) (3) 69
Loss (profit) on disposal of
property, plant and
equipment 2 (7)
Net restructuring provisions 2 1 68
Black Economic
Empowerment charge 1 1 3 3
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2012 Jun 2011 Jun 2012 Jun 2011
US$ million US$ million US$ million US$ million
3. Headline loss per share
Headline loss per share (US cents) (20) (13) (2) (8)
Weighted average number of shares
in issue (millions) 520.8 519.9 520.7 519.7
Diluted headline loss per share
(US cents) (20) (13) (2) (8)
Weighted average number of shares
on fully diluted basis (millions) 520.8 519.9 520.7 519.7
Calculation of headline loss
Loss for the period (106) (68) (3) (105)
Asset (impairment reversals)
impairments (3) (3) 69
Loss (profit) on disposal of property,
plant and equipment 2 (7)
Tax effect of above items 1 2 1 (3)
Headline loss (106) (66) (12) (39)
4. Capital expenditure
Property, plant and equipment 107 69 243 161
Reviewed
Jun 2012 Sept 2011
US$ million US$ million
5. Capital commitments
Contracted 254 61
Approved but not contracted 263 416
517 477
6. Contingent liabilities
Guarantees and suretyships 31 33
Other contingent liabilities 8 15
39 48
7. Material balance sheet movements
Interest-bearing borrowings
In October 2011, the group repaid US$130 million (ZAR1,000 million) of the ZAR 10.64% fixed rate
public bonds in Southern Africa with US$130 million from cash resources.
In April 2012, the group issued a three-year ZAR750 million (US$98 million) floating rate bond
('SSA02') at a 144 basis points spread over the 6-month Johannesburg Inter-bank Agreed Rate. The
floating rate of the new bond was swapped into a fixed rate of 7.78%. The proceeds of the bonds
were used partly to refinance the ZAR500 million (US$65 million) bond ('SMF3') that matured on
29 June 2012.
In June 2012, the group accelerated the premium and other costs associated with its senior secured
notes due 2014 in line with its intention to early redeem these notes. This resulted in an increase
in net debt at reporting date and a corresponding charge of US$89 million which is included in net
finance costs.
Deferred tax assets
During the quarter, the group reassessed the recoverability of its deferred tax assets in Sappi
Fine Paper North America. A deferred tax asset of US$101 million was recognised largely in other
comprehensive income.
Other current liabilities
Other current liabilities were reduced by payments of liabilities relating to restructuring costs and
accruals.
8. Assets held for sale
As at the end of the quarter, the following assets were classified as assets held for sale:
The shares of Sappi Schweiz AG in Sappi Fine Paper Europe. The shares were disposed of in
July 2012.
Property, plant and equipment in Sappi Southern Africa with a book value of ZAR73 million
(US$9 million).
Refer to note 9 for more detail on assets sold subsequent to quarter-end.
9. Post balance sheet events
Sappi Fine Paper Europe concluded an agreement to sell the shares of Sappi Schweiz AG. The
assets in the company which are disclosed as held for sale, comprised mostly of the Biberist Mill
land and buildings with a book value of EUR9 million (US$11 million). The shares were sold for
EUR43 million (US$57 million) resulting in a profit on disposal of US$51 million which includes the
realisation of a foreign currency translation reserve that was previously disclosed in other
comprehensive income. Biberist Mill was closed in fiscal 2011.
Sappi Southern Africa disposed of land and buildings at Adamas Mill that were held for sale at
quarter-end. These assets with a book value of ZAR22 million (US$3 million) were sold for
ZAR45 million (US$6 million) resulting in a profit on disposal of US$3 million. Adamas Mill was closed
in fiscal 2012.
Sappi Fine Paper Europe incurred fire damage at its Nijmegen Mill. The damage was limited to the
electric cables infrastructure which resulted in a temporary shut of the paper machine. The financial
impact of the fire is estimated to be EUR5 million (US$7 million) to the group.
In July 2012, the group received the proceeds of US$700 million relating to a new bond offering of
senior secured notes. The new notes were placed in June 2012 and comprise US$400 million notes
due 2017 with a coupon of 7.750% per annum and US$300 million notes due 2019 with a coupon
of 8.375% per annum. The proceeds of the new notes together with cash on hand, via tender offer
and call redemption, are being used to refinance US$700 million of the principal amount of the
existing senior secured notes due 2014. This refinancing transaction will result in reduced annual
cash interest costs of approximately US$30 million. Refer to note 7 for the once-off costs incurred
in the quarter as a result of the refinancing.
10. Segment information
Quarter Quarter Nine months Nine months
ended ended ended ended
Jun 2012 Jun 2011 Jun 2012 Jun 2011
Metric tons Metric tons Metric tons Metric tons
(000's) (000's) (000's) (000's)
Sales volume
Fine Paper North America 351 344 1,031 1,057
Europe 843 909 2,611 2,903
Total 1,194 1,253 3,642 3,960
Southern Africa Pulp and paper 435 406 1,253 1,272
Forestry 294 252 830 688
Total 1,923 1,911 5,725 5,920
Quarter Quarter Nine months Nine months
ended ended ended ended
Jun 2012 Jun 2011 Jun 2012 Jun 2011
US$ million US$ million US$ million US$ million
Sales
Fine Paper North America 360 371 1,061 1,125
Europe 795 979 2,524 3,023
Total 1,155 1,350 3,585 4,148
Southern Africa Pulp and paper 367 430 1,114 1,291
Forestry 22 22 63 60
Total 1,544 1,802 4,762 5,499
Operating profit (loss) excluding
special items
Fine Paper North America 18 32 52 95
Europe 10 (2) 88 63
Total 28 30 140 158
Southern Africa 31 26 145 158
Unallocated and eliminations(1) 1 4 8
Total 60 60 285 324
Special items losses (gains)
Fine Paper North America 5 5 (1)
Europe 6 2 (3) 116
Total 11 2 2 115
Southern Africa 15 4 22 31
Unallocated and eliminations(1) 4
Total 26 6 24 150
(1) Includes the group's treasury operations, the self-insurance captive and the investment in the Jiangxi Chenming
joint venture.
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2012 Jun 2011 Jun 2012 Jun 2011
US$ million US$ million US$ million US$ million
Segment operating profit (loss)
Fine Paper North America 13 32 47 96
Europe 4 (4) 91 (53)
Total 17 28 138 43
Southern Africa 16 22 123 127
Unallocated and eliminations(1) 1 4 4
Total 34 54 261 174
EBITDA excluding special items
Fine Paper North America 38 50 110 150
Europe 60 57 237 238
Total 98 107 347 388
Southern Africa 52 53 214 242
Unallocated and eliminations(1) 4 8
Total 150 164 561 638
Segment assets
Fine Paper North America 926 916 926 916
Europe 1,852 2,216 1,852 2,216
Total 2,778 3,132 2,778 3,132
Southern Africa 1,653 2,072 1,653 2,072
Unallocated and eliminations(1) 66 72 66 72
Total 4,497 5,276 4,497 5,276
(1) Includes the group's treasury operations, the self-insurance captive and the investment in the Jiangxi Chenming joint venture.
Reconciliation of EBITDA excluding special items and operating profit excluding special items
to segment operating 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. 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.
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2012 Jun 2011 Jun 2012 Jun 2011
US$ million US$ million US$ million US$ million
EBITDA excluding special
items 150 164 561 638
Depreciation and amortisation (90) (104) (276) (314)
Operating profit excluding
special items 60 60 285 324
Special items (losses) gains (26) (6) (24) (150)
Plantation price fair value
adjustment (20) (2) (24) (16)
Net restructuring provisions (2) (1) (68)
(Loss) profit on disposal of
property, plant and
equipment (2) 7
Asset impairment reversals
(impairments) 3 3 (69)
Black Economic
Empowerment charge (1) (1) (3) (3)
Insurance recoveries (1) 10
Fire, flood, storm and
related events (6) (6) (4)
Segment operating profit 34 54 261 174
Net finance costs (141) (112) (246) (251)
(Loss) profit before taxation (107) (58) 15 (77)
Taxation 1 (10) (18) (28)
Loss for the period (106) (68) (3) (105)
Reconciliation of segment assets to total assets
Segment assets 4,497 5,276 4,497 5,276
Deferred taxation 144 57 144 57
Cash and cash equivalents 403 362 403 362
Other current liabilities 950 1,167 950 1,167
Taxation payable 19 26 19 26
Total assets 6,013 6,888 6,013 6,888
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 groups reported business segments of these measures facilitates
comparability with other companies in our industry, although the groups 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
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 3/2009 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 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 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.
Supplemental information (this information has not been audited or reviewed)
Summary rand convenience translation
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2012 Jun 2011 Jun 2012 Jun 2011
Key figures: (ZAR million)
Sales 12,542 12,234 38,041 37,911
Operating profit 276 367 2,085 1,200
Special items losses(1) 211 41 192 1,034
Operating profit excluding special
items(1) 487 408 2,277 2,234
EBITDA excluding special items(1) 1,218 1,113 4,482 4,398
Basic loss per share (SA cents) (162) (88) (8) (138)
Net debt(1) 18,069 16,657 18,069 16,657
Key ratios: (%)
Operating profit to sales 2.2 3.0 5.5 3.2
Operating profit excluding special items
to sales 3.9 3.3 6.0 5.9
Operating profit excluding special
items to capital employed (ROCE)(1) 6.5 5.6 10.2 10.2
EBITDA excluding special items to sales 9.7 9.1 11.8 11.6
Return on average equity (ROE) (27.2) (14.4) (0.3) (7.4)
Net debt to total capitalisation(1) 58.7 56.8 58.7 56.8
(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 2012 Sept 2011
US$ million US$ million
Interest-bearing borrowings 2,616 2,739
Non-current interest-bearing borrowings 2,209 2,289
Current interest-bearing borrowings 406 449
Bank overdraft 1 1
Cash and cash equivalents (403) (639)
Net debt 2,213 2,100
Exchange rates
Jun Mar Dec Sept Jun
2012 2012 2011 2011 2011
Exchange rates:
Period end rate: US$1 = ZAR 8.1650 7.6725 8.0862 8.0963 6.7300
Average rate for the Quarter: US$1 = ZAR 8.1229 7.7511 8.0915 7.1501 6.7890
Average rate for the YTD: US$1 = ZAR 7.9885 7.9237 8.0915 6.9578 6.8941
Period end rate: EUR1 = US$ 1.2660 1.3344 1.2948 1.3386 1.4525
Average rate for the Quarter: EUR1 = US$ 1.2838 1.3116 1.3482 1.4126 1.4398
Average rate for the YTD: EUR1 = US$ 1.3145 1.3299 1.3482 1.3947 1.3890
Sappi has a primary listing on the JSE Limited and a secondary listing on
the New York Stock Exchange
this report is available on the Sappi website www.sappi.com
Date: 03/08/2012 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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