Wrap Text
Fourth quarter results for the period ended September 2012
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
4th Quarter results for the period ended September 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 dissolving wood pulp
products and related services and
innovations.
Our market-leading range of paper
products includes: coated fine
papers used by printers, publishers
and corporate end-users in the
production of books, brochures,
magazines, catalogues, direct mail
and many other print applications;
casting release papers used by
suppliers to the fashion, textiles,
automobile and household industries;
and in our Southern African region,
newsprint, uncoated graphic and
business papers, premium-quality
packaging papers, paper-grade pulp
and dissolving wood pulp.
Our dissolving wood pulp products
are used worldwide by converters
to create viscose fibre, acetate tow,
pharmaceutical products as well as
a wide range of consumer products.
The pulp needed for our products
is either produced within Sappi or
bought from accredited suppliers.
Across the group, Sappi is close to
'pulp neutral', meaning that we sell
almost as much pulp as we buy.
Financial summary for the quarter
- Net profit US$107 million (Q4 2011 net loss US$127 million)
- Earnings per share of 21 US cents (Q4 2011 loss per share 24 US cents)
- Operating profit excluding special items US$118 million
(Q4 2011 US$80 million)
- Net cash generated US$203 million (Q4 2011 US$279 million)
- Targeted net debt level reached a year early – US$1,979 million
Quarter ended Year ended
Sept 2012 Sept 2011 Jun 2012 Sept 2012 Sept 2011
Key figures: (US$ million)
Sales 1,585 1,787 1,544 6,347 7,286
Operating profit (loss) 160 (88) 34 421 86
Special items – (gains) losses(1) (42) 168 26 (18) 318
Operating profit excluding special
items(2) 118 80 60 403 404
EBITDA excluding special items(2) 211 183 150 772 821
Profit (loss) for the period 107 (127) (106) 104 (232)
Basic earnings (loss) per share
(US cents) 21 (24) (20) 20 (45)
Net debt(3) 1,979 2,100 2,213 1,979 2,100
Key ratios: (%)
Operating profit (loss) to sales 10.1 (4.9) 2.2 6.6 1.2
Operating profit excluding special
items to sales 7.4 4.5 3.9 6.3 5.5
Operating profit excluding special
items to capital employed (ROCE) 13.0 8.1 6.4 11.4 10.5
EBITDA excluding special
items to sales 13.3 10.2 9.7 12.2 11.3
Return on average equity (ROE)(4) 27.8 (30.2) (26.5) 6.9 (13.8)
Net debt to total capitalisation(4) 56.5 58.7 58.7 56.5 58.7
Net asset value per share
(US cents) 293 284 299 293 284
(1) Refer to note 8 for details on special items.
(2) Refer to note 8 to the group results for the reconciliation of EBITDA excluding special items and operating profit
excluding special items to segment operating profit (loss), and profit (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
The European and North American paper businesses performed well during the quarter despite
tough market conditions. This performance reflects the positive effects of our ongoing actions to
further improve customer service, reduce costs and increase efficiencies over the past two years.
The performance of our Southern African operations was negatively impacted by both the
rescheduling of the planned maintenance shut at Saiccor Mill from the third quarter to this quarter,
and the continuing weakness in the South African paper market.
We have decided to rename the Chemical Cellulose division to Sappi Specialised Cellulose to
better reflect our product range and the increased importance to the group of our dissolving wood
pulp business.
Sales volumes for the group were approximately 3% lower than the equivalent quarter last year,
and reflect weaker market conditions, particularly in Europe. Average selling prices were lower as
a result of lower pulp prices, slightly weaker prices in certain grades of paper as well as the weaker
Rand and Euro exchange rate to the US Dollar and the translation impact this has on our prices.
Pulp prices continued to decline during the quarter. The prices of other major inputs, including
wood, chemicals and energy were largely flat both compared to the prior quarter and the
equivalent quarter last year. The exception was the cost of energy in South Africa, which continues
to see substantial increases in pricing from the national energy supplier.
Operating profit excluding special items was US$118 million for the quarter compared to
US$80 million in the equivalent quarter last year and US$60 million in the quarter ended June 2012.
The improvement in operating performance and the lower interest costs, mainly as a result of the
refinancing undertaken in the prior quarter, resulted in a net profit for the quarter of US$107 million.
The earnings per share for the quarter was 21 US cents (including a gain of 10 US cents in respect
of special items) compared with a loss per share of 24 US cents (including a charge of 26 US cents
in respect of special items) in the equivalent quarter last year.
Year ended September 2012 compared to year ended September 2011
The group's operating profit excluding special items for the year was in line with that achieved last
year, despite challenging market conditions and pulp prices that were substantially lower in US Dollar
terms, which negatively affected our Southern African and North American businesses.
Operating profit excluding special items was US$403 million. Special items amounted to a gain of
US$18 million comprising mainly the profit on the sale of assets of US$63 million, offset primarily
by fire and flood damage, asset impairment charges and an unfavourable plantation price fair value
adjustment.
Net finance costs for the year was US$283 million, including the cost of the refinancing undertaken
during the third quarter.
Net profit was US$104 million for the year compared to a net loss of US$232 million in the prior
year. The prior year net loss included special item losses of US$318 million, principally related to
the restructuring of the European and Southern African operations. Earnings per share were
significantly better, with earnings per share of 20 US cents (including a charge of 10 US cents in
respect of special items and once-off refinancing costs) compared to a loss per share of 45 US
cents (including a charge of 65 US cents in respect of special items and once-off refinancing costs)
in the prior year.
Cash flow and debt
Quarter
Net cash generated for the quarter was US$203 million, compared with US$279 million for the
equivalent quarter last year. During the quarter, US$115 million was generated from working
capital, reflecting the seasonality of our business. Capital expenditure increased to US$112 million
from US$103 million in the equivalent quarter last year as a result of the increased spending on
the dissolving wood pulp (chemical cellulose) investments at the Ngodwana and Cloquet mills.
Year
Net cash generated for the full year was US$127 million compared to US$163 million last year.
This decrease is primarily due to the additional capital expenditure for the dissolving wood pulp
conversions.
Net debt was further reduced from US$2,100 million to US$1,979 million, achieving our target of
reducing net debt to below US$2 billion a year earlier than initially indicated.
During the year, we successfully refinanced US$700 million of debt resulting in the extension of our
maturities and reduction in our finance costs. The refinancing will reduce our annual interest charge
by US$45 million and our cash interest charge by US$30 million per annum. We now have no
significant maturities due before 2017.
At September 2012, we had liquidity comprising US$645 million of cash in addition to the
EUR350 million (US$450 million) available from the undrawn committed revolving credit facility.
Operating Review for the Quarter
Sappi Fine Paper
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Sept 2012 Jun 2012 Mar 2012 Dec 2011 Sept 2011
US$ million US$ million US$ million US$ million US$ million
Sales 1,203 1,155 1,232 1,198 1,337
Operating profit excluding
special items 87 28 73 39 39
Operating profit excluding
special items to sales (%) 7.2 2.4 5.9 3.3 2.9
EBITDA excluding special
items 155 98 139 110 115
EBITDA excluding special
items to sales (%) 12.9 8.5 11.3 9.2 8.6
RONOA pa (%) 12.7 4.0 10.3 5.6 5.3
Operating profit excluding special items for the global fine paper business improved compared to both
the prior quarter ended June 2012 as well as the equivalent quarter last year. Improved efficiencies
and lower average variable costs offset sales volumes that were 4% below those achieved a year ago.
Europe
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Sept 2012 Jun 2012 Mar 2012 Dec 2011 Sept 2011
EUR million EUR million EUR million EUR million EUR million
Sales 659 620 672 628 666
Operating profit excluding
special items 35 8 37 22 3
Operating profit excluding
special items to sales (%) 5.3 1.3 5.5 3.5 0.5
EBITDA excluding special
items 73 47 73 60 44
EBITDA excluding special
items to sales (%) 11.1 7.6 10.9 9.6 6.6
RONOA pa (%) 9.8 2.2 10.2 6.1 0.8
Demand was largely as expected, with volumes down 5% compared to the equivalent quarter last
year, and up 6% compared to the prior quarter, primarily due to the typical seasonal recovery.
Sales volumes for the full year were 9% down compared to the prior year, due to a combination
of weaker coated paper sales and the closure of the Biberist mill which led to reduced uncoated
woodfree capacity.
Average prices realised for the quarter were marginally lower than for the equivalent quarter last
year, and flat compared to the prior quarter.
Fixed costs were 7% lower in the quarter compared to the equivalent quarter last year.
Raw material prices, including pulp, chemicals, wood and energy were lower than for the
equivalent quarter last year. This, in combination with the additional benefit of the variable cost
reduction programme initiated in 2011, resulted in cost savings for financial year 2012 in excess
of EUR100 million.
As a result of the cost savings initiatives, operating profit excluding special items increased from
EUR3 million in the equivalent quarter last year to EUR35 million in the fourth quarter of this year.
During the quarter, we announced the planned conversion of PM2 at the Alfeld mill from
150,000 tons of coated fine paper to 135,000 tons of speciality paper per annum. This conversion
will not only increase our capacity in a growing and higher margin specialised business, but will
also improve our cost position in coated woodfree graphic paper and further reduce our graphic
paper capacity in line with our strategy.
North America
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Sept 2012 Jun 2012 Mar 2012 Dec 2011 Sept 2011
US$ million US$ million US$ million US$ million US$ million
Sales 377 360 349 352 395
Operating profit excluding
special items 42 18 24 10 34
Operating profit excluding
special items to sales (%) 11.1 5.0 6.9 2.8 8.6
EBITDA excluding special
items 63 38 43 29 53
EBITDA excluding special
items to sales (%) 16.7 10.6 12.3 8.2 13.4
RONOA pa (%) 18.2 7.7 10.4 4.4 14.9
Operating profit excluding special items improved to both the prior quarter and the equivalent
quarter last year and reflects the continued strong performance from the coated paper business.
The performance was achieved despite weaker industry conditions and the business achieved
sales volumes similar to those for the equivalent quarter last year, with improved margins.
The pulp business continues to be negatively impacted by lower sales prices compared to both
the prior quarter and the equivalent quarter last year, with pulp prices 9% below those in the
equivalent quarter last year. The conversion of the Cloquet pulp mill from hardwood kraft pulp to
dissolving wood pulp continues on schedule.
Release sales volume was higher than in the equivalent quarter last year, with the pricing mix being
weaker due to weak demand in key global speciality markets.
Both raw material pricing and usage were favourable during the quarter, and resulted in total
variable costs being 7% lower per ton compared to the equivalent quarter last year. A strong
manufacturing performance underpinned the lower usage and strong sales volumes.
Sappi Southern Africa
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Sept 2012 Jun 2012 Mar 2012 Dec 2011 Sept 2011
ZAR million ZAR million ZAR million ZAR million ZAR million
Sales 3,152 3,159 3,113 3,131 3,217
Operating profit excluding
special items 276 255 409 494 296
Operating profit excluding
special items to sales (%) 8.8 8.1 13.1 15.8 9.2
EBITDA excluding special
items 473 426 604 680 482
EBITDA excluding special
items to sales (%) 15.0 13.5 19.4 21.7 15.0
RONOA pa (%) 8.2 7.6 12.2 15.1 8.9
The operating performance of the business was negatively impacted by the rescheduling of the
planned annual maintenance shut at Saiccor Mill from the third quarter to the fourth quarter and
lower average pulp prices.
The Specialised Cellulose (Chemical Cellulose) business continued to perform well, generating an
EBITDA excluding special items of ZAR413 million and an EBITDA excluding special items margin
of 30%. Dissolving wood pulp demand continued to grow in 2012, albeit at a slower pace than
last year. Despite the impact of the maintenance shut in the quarter, sales volumes were close to
those achieved in the equivalent quarter last year. Net prices however, were 7% lower as a result
of the lower US Dollar NBSK pulp prices that our contracted dissolving wood pulp sales are linked to,
offset to some extent by the weaker Rand. Saiccor Mill achieved record production volumes in the
past year. The conversion of the Ngodwana pulp mill from hardwood kraft pulp to dissolving wood
pulp continues on schedule.
The Southern African paper business had an improved performance compared to the
equivalent quarter last year, which was negatively impacted by an industry-wide three week strike.
Fixed costs were more than 20% lower than the equivalent quarter last year, benefiting from the
Southern African restructuring completed earlier in the year.
Post the quarter-end we announced the decision to mothball PM4, a sackkraft and containerboard
machine, at the Tugela mill from 01 January 2013. We are currently in a consultation process with
employees at the mill regarding potential retrenchments. The asset impairment charge related to
the mothballing of the machine of ZAR76 million was taken in this quarter and is included in special
items.
Outlook
Given continued uncertainty in global markets, and questions around the timing of any meaningful
economic recovery in our major markets, we expect trading conditions to remain challenging for
the next 12 months. Pulp prices, despite having recovered from their recent lows, are expected to
remain lower on average in 2013 than they were in 2012. This will negatively impact our North
American and Southern African businesses, which are net sellers of pulp, but will have a favourable
impact on our European business which is a net buyer of pulp.
We expect that demand for dissolving wood pulp in our Specialised Cellulose operations will
continue to grow in the coming year and beyond. We believe that particularly with our additional
low cost capacity, we are well positioned to take advantage of this growth. We have made further
good progress in signing long-term contracts for a significant portion of our new dissolving wood
pulp capacity.
We expect the first quarter result for the Southern African operations to be in line with that
achieved in the fourth quarter of 2012. Operating profit in the first financial quarter of 2013 is
expected to be weaker than the equivalent quarter last year as a result of lower pulp prices, slightly
lower paper prices in Europe, as well as the impact of the road transport strike in South Africa.
We expect a modest cash outflow in the important transitional year ahead due to the increase in
capital expenditure on the Specialised Cellulose investments. Our finance costs will be substantially
lower following the refinancing in 2012 and we expect that net debt will end the coming year
essentially flat year on year barring the impact of any adverse foreign currency translations.
Additional downtime, variable costs and paper pulp purchases during the start-up phase of the
Ngodwana and Cloquet projects are expected to have a negative impact of approximately
US$40 million in the 2013 financial year.
Provided that there is no further deterioration in global market conditions, we expect continued
profit growth, with the once-off negative operational impact of the conversion projects and the
expected lower pulp prices being offset by the lower finance costs.
We believe that the actions we have taken in all of our paper businesses over the past two years,
and the strategy of investing in higher margin, higher growth businesses such as Specialised
Cellulose will enable us to continue to improve our ability to generate shareholder value in the
coming year, but importantly also position us for an acceleration of that growth in the years
thereafter.
Directorate
Professor Meyer Feldberg, our lead independent director, will retire from the board at the end of
December 2012, having reached the board's mandatory retirement age. Sir Nigel Rudd who has
served as a non-executive director for six years will succeed Professor Feldberg as lead
independent director at that time.
On behalf of the board
R J Boëttger S R Binnie
Director Director 08 November 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
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2012 Sept 2011 Sept 2012 Sept 2011
Note US$ million US$ million US$ million US$ million
Sales 1,585 1,787 6,347 7,286
Cost of sales 1,363 1,582 5,552 6,454
Gross profit 222 205 795 832
Selling, general and
administrative expenses 102 126 417 454
Other operating (income)
expenses (38) 167 (41) 298
Share of profit from associates
and joint ventures (2) – (2) (6)
Operating profit (loss) 2 160 (88) 421 86
Net finance costs 37 56 283 307
Net interest 46 60 299 336
Finance cost capitalised (2) – (6) –
Net foreign exchange gain (4) (3) (5) (13)
Net fair value gain on financial
instruments (3) (1) (5) (16)
Profit (loss) before taxation 123 (144) 138 (221)
Taxation 16 (17) 34 11
Current 16 2 28 14
Deferred – (19) 6 (3)
Profit (loss) for the period 107 (127) 104 (232)
Basic earnings (loss) per
share (US cents) 21 (24) 20 (45)
Weighted average number of
shares in issue (millions) 520.8 520.4 520.8 519.9
Diluted basic earnings (loss)
per share (US cents) 20 (24) 20 (45)
Weighted average number of shares
on fully diluted basis (millions) 522.3 520.4 522.2 519.9
Condensed group statement of comprehensive income
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2012 Sept 2011 Sept 2012 Sept 2011
US$ million US$ million US$ million US$ million
Profit (loss) for the period 107 (127) 104 (232)
Other comprehensive loss,
net of tax (140) (285) (69) (205)
Exchange differences on translation
of foreign operations (50) (214) (60) (151)
Actuarial losses on post-employment
benefit funds (88) (59) (88) (59)
Movements in hedging reserves (24) (12) (47) 6
Movement on available for sale
financial assets 1 2 1 2
Deferred tax effect of above items 21 (2) 24 (3)
Recognition of previously
unrecognised deferred tax asset(1) – – 101 –
Total comprehensive (loss) income
for the period (33) (412) 35 (437)
(1) Relates to amounts recognised within other comprehensive income in previous fiscal years.
Condensed group balance sheet
Reviewed Reviewed
Sept 2012 Sept 2011
US$ million US$ million
ASSETS
Non-current assets 3,990 4,085
Property, plant and equipment 3,157 3,235
Plantations 555 580
Deferred taxation 154 45
Other non-current assets 124 225
Current assets 2,178 2,223
Inventories 726 750
Trade and other receivables 807 834
Cash and cash equivalents 645 639
Total assets 6,168 6,308
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest 1,525 1,478
Non-current liabilities 3,328 3,178
Interest-bearing borrowings 2,358 2,289
Deferred taxation 319 336
Other non-current liabilities 651 553
Current liabilities 1,315 1,652
Interest-bearing borrowings 261 449
Bank overdraft 5 1
Other current liabilities 1,023 1,182
Taxation payable 26 20
Total equity and liabilites 6,168 6,308
Number of shares in issue at balance sheet date (millions) 520.8 520.5
Condensed group statement of cash flows
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2012 Sept 2011 Sept 2012 Sept 2011
US$ million US$ million US$ million US$ million
Profit (loss) for the period 107 (127) 104 (232)
Adjustment for:
Depreciation, fellings and amortisation 109 121 442 499
Taxation 16 (17) 34 11
Net finance costs 37 56 283 307
Defined post-employment benefits paid (23) (20) (62) (70)
Plantation fair value adjustments (28) (21) (68) (65)
Impairments of assets and investments 13 98 10 167
Net restructuring provisions (3) 67 (2) 135
Profit on disposal of investment (11) – (11) –
Profit on non-current assets held for sale (48) – (48) –
Other non-cash items 13 26 46 46
Cash generated from operations 182 183 728 798
Movement in working capital 115 266 (102) (98)
Net finance costs paid (38) (62) (195) (256)
Taxation paid (8) (7) (20) (38)
Cash retained from operating activities 251 380 411 406
Cash utilised in investing activities (48) (101) (284) (243)
Net cash generated 203 279 127 163
Cash effects of financing activities 39 68 (103) (296)
Net movement in cash and cash
equivalents 242 347 24 (133)
Condensed group statement of changes in equity
Reviewed Reviewed
Year Year
ended ended
Sept 2012 Sept 2011
US$ million US$ million
Balance – beginning of period 1,478 1,896
Total comprehensive income (loss) for the period 35 (437)
Transfers from the share purchase trust 2 6
Transfers of vested share options (2) (7)
Share-based payment reserve 12 20
Balance – end of period 1,525 1,478
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated preliminary financial results for the fiscal year ended September 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 preliminary financial results are
consistent with those applied for the year ended September 2011.
The fiscal year ended September 2012 consists of 52 weeks compared to the prior fiscal year which
consisted of 53 weeks.
The preparation of this condensed consolidated financial information was supervised by the Chief
Financial Officer, S R Binnie CA(SA).
The preliminary results for the year ended September 2012 have been reviewed in accordance with 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 office.
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2012 Sept 2011 Sept 2012 Sept 2011
US$ million US$ million US$ million US$ million
2. Operating profit (loss)
Included in operating profit (loss)
are the following non-cash items:
Depreciation and amortisation 93 103 369 417
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 16 18 73 82
Growth (19) (21) (83) (81)
(3) (3) (10) 1
Plantation price fair value
adjustment (9) – 15 16
(12) (3) 5 17
Included in other operating (income)
expenses are the following:
Impairments of assets and investments 13 98 10 167
Loss (profit) on disposal of property,
plant and equipment 3 (1) (4) (1)
Profit on disposal of investment (11) – (11) –
Profit on non-current assets
held for sale (48) – (48) –
Net restructuring provisions (3) 67 (2) 135
Black Economic Empowerment
charge – 2 3 5
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2012 Sept 2011 Sept 2012 Sept 2011
US$ million US$ million US$ million US$ million
3. Headline earnings (loss) per share
Headline earnings (loss) per share
(US cents) 12 (8) 9 (16)
Weighted average number of shares
in issue (millions) 520.8 520.4 520.8 519.9
Diluted headline earnings (loss) per
share (US cents) 12 (8) 9 (16)
Weighted average number of shares
on fully diluted basis (millions) 522.3 520.4 522.2 519.9
Calculation of headline earnings
(loss)
Profit (loss) for the period 107 (127) 104 (232)
Impairments of assets and
investments 13 98 10 167
Loss (profit) on disposal of property,
plant and equipment 3 (1) (4) (1)
Profit on disposal of investment (11) – (11) –
Profit on non-current assets held
for sale (48) – (48) –
Tax effect of above items (3) (14) (2) (17)
Headline earnings (loss) 61 (44) 49 (83)
4. Capital expenditure
Property, plant and equipment 161 107 404 268
Reviewed Reviewed
Sept 2012 Sept 2011
US$ million US$ million
5. Capital commitments
Contracted 267 61
Approved but not contracted 244 416
511 477
6. Contingent liabilities
Guarantees and suretyships 31 33
Other contingent liabilities 10 15
41 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 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 six-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 placed a new bond offering comprising two tranches of senior secured
notes being 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, were used to early redeem US$700 million of the
principal amount of the senior secured notes due 2014. As a result of the early redemption, a once-
off charge consisting of premium and other costs of US$86 million was recorded to net finance costs
for the year.
In August 2012, the group entered into a EUR136 million (US$170 million) five-year term loan facility with
the Österreichische Kontrollbank, the proceeds of which will be used to fund the chemical cellulose
conversion project in North America.
In September 2012, the group repaid the drawn amount of EUR100 million (US$129 million) of the
EUR350 million (US$450 million) revolving credit facility from cash resources. At year-end, the facility
remained undrawn.
Other non-current assets
On the early redemption of the US$300 million tranche of the senior secured notes due 2014,
the group simultaneously unwound the corresponding interest rate and currency swaps resulting in
a cash inflow of US$43 million to the group.
In August 2012, the group entered into a sale agreement for its equity accounted 34% shareholding
in Jiangxi Chenming Paper company to the majority shareholder and co-founding joint venture
partner for US$42 million resulting in a profit of US$11 million which includes the realisation of a
foreign currency translation reserve that was previously disclosed in other comprehensive income.
The proceeds were received on 06 November 2012.
Deferred tax assets
In June 2012, the group reassessed the recoverability of its deferred tax assets in Sappi Fine Paper
North America. A deferred tax asset of US$101 million was recognised largely in other comprehensive
income.
Other current liabilities
Other current liabilities were reduced by payments of liabilities relating to restructuring costs
and accruals.
8. Segment information
Quarter Quarter Year Year
ended ended ended ended
Sept 2012 Sept 2011 Sept 2012 Sept 2011
Metric tons Metric tons Metric tons Metric tons
(000's) (000's) (000's) (000's)
Sales volume
Fine Paper – North America 369 379 1,400 1,436
Europe 896 942 3,507 3,845
Total 1,265 1,321 4,907 5,281
Southern Africa – Pulp and paper 423 428 1,676 1,700
Forestry 292 229 1,122 917
Total 1,980 1,978 7,705 7,898
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2012 Sept 2011 Sept 2012 Sept 2011
US$ million US$ million US$ million US$ million
Sales
Fine Paper – North America 377 395 1 438 1,520
Europe 826 942 3,350 3,965
Total 1,203 1,337 4,788 5,485
Southern Africa – Pulp and paper 361 430 1,475 1,721
Forestry 21 20 84 80
Total 1,585 1,787 6,347 7,286
Operating profit excluding special items
Fine Paper – North America 42 34 94 129
Europe 45 5 133 68
Total 87 39 227 197
Southern Africa 33 41 178 199
Unallocated and eliminations(1) (2) – (2) 8
Total 118 80 403 404
Special items – losses (gains)
Fine Paper – North America 2 (6) 7 (7)
Europe (42) 23 (45) 139
Total (40) 17 (38) 132
Southern Africa 3 105 25 136
Unallocated and eliminations(1) (5) 46 (5) 50
Total (42) 168 (18) 318
Segment operating profit (loss)
Fine Paper – North America 40 40 87 136
Europe 87 (18) 178 (71)
Total 127 22 265 65
Southern Africa 30 (64) 153 63
Unallocated and eliminations(1) 3 (46) 3 (42)
Total 160 (88) 421 86
(1) Includes the group's treasury operations and the self-insurance captive.
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2012 Sept 2011 Sept 2012 Sept 2011
US$ million US$ million US$ million US$ million
EBITDA excluding special items
Fine Paper – North America 63 53 173 203
Europe 92 62 329 300
Total 155 115 502 503
Southern Africa 57 67 271 309
Unallocated and eliminations(1) (1) 1 (1) 9
Total 211 183 772 821
Segment assets
Fine Paper – North America 919 908 919 908
Europe 1,776 1,889 1,776 1,889
Total 2,695 2,797 2,695 2,797
Southern Africa 1,605 1,574 1,605 1,574
Unallocated and eliminations(1) 20 51 20 51
Total 4,320 4,422 4,320 4,422
(1) Includes the group's treasury operations and the self-insurance captive.
Reconciliation of EBITDA excluding special items and operating profit excluding special items to
segment operating profit (loss) and profit (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.
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2012 Sept 2011 Sept 2012 Sept 2011
US$ million US$ million US$ million US$ million
EBITDA excluding special items 211 183 772 821
Depreciation and amortisation (93) (103) (369) (417)
Operating profit excluding special
items 118 80 403 404
Special items – gains (losses) 42 (168) 18 (318)
Plantation price fair value
adjustment 9 – (15) (16)
Net restructuring provisions 3 (67) 2 (135)
(Loss) profit on disposal of
property, plant and equipment (3) 1 4 1
Profit on disposal of investment 11 – 11 –
Profit on non-current assets
held for sale 48 – 48 –
Impairments of assets and
investments (13) (98) (10) (167)
Black Economic Empowerment
charge – (2) (3) (5)
Insurance recoveries – – – 10
Fire, flood, storm and related
events (13) (2) (19) (6)
Segment operating profit (loss) 160 (88) 421 86
Net finance costs (37) (56) (283) (307)
Profit (loss) before taxation 123 (144) 138 (221)
Taxation (16) 17 (34) (11)
Profit (loss) for the period 107 (127) 104 (232)
Reconciliation of segment assets
to total assets
Segment assets 4,320 4,422 4,320 4,422
Deferred taxation 154 45 154 45
Cash and cash equivalents 645 639 645 639
Other current liabilities 1,023 1,182 1,023 1,182
Taxation payable 26 20 26 20
Total assets 6,168 6,308 6,168 6,308
Supplemental information (this information has not been audited or reviewed)
General definitions
Average – averages are calculated as the sum of the opening and closing balances for the relevant
period divided by two
Black Economic Empowerment – as envisaged in the Black Economic Empowerment (BEE) legislation
in South Africa
Black Economic Empowerment charge – represents the IFRS 2 non-cash charge associated with the
BEE transaction implemented in fiscal 2010
Fellings – the amount charged against the income statement representing the standing value of the
plantations harvested
NBSK – Northern Bleached Softwood Kraft pulp. One of the main varieties of market pulp, produced
from coniferous trees (ie spruce, pine) in Scandinavia, Canada and northern USA. The price of NBSK is
a benchmark widely used in the pulp and paper industry for comparative purposes
SG&A – selling, general and administrative expenses
Non-GAAP measures
The group believes that it is useful to report certain non-GAAP measures for the following reasons:
– these measures are used by the group for internal performance analysis;
– the presentation by the group's reported business segments of these measures facilitates
comparability with other companies in our industry, although the group's measures may not be
comparable with similarly titled profit measurements reported by other companies; 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 3/2012 issued by the South African Institute of Chartered
Accountants, separates from earnings all separately identifiable re-measurements. It is not necessarily a
measure of sustainable earnings. It is a Listings Requirement of the JSE Limited to disclose headline
earnings per share
Net assets – total assets less total liabilities
Net asset value per share – net assets divided by the number of shares in issue at balance sheet date
Net debt – current and non-current interest-bearing borrowings, and bank overdraft (net of cash, cash
equivalents and short-term deposits)
Net debt to total capitalisation – net debt divided by capital employed
Net operating assets – total assets (excluding deferred taxation and cash) less current liabilities
(excluding interest-bearing borrowings and overdraft). Net operating assets equate to segment assets
ROCE – 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
Quarter Quarter Year Year
ended ended ended ended
Sept 2012 Sept 2011 Sept 2012 Sept 2011
Key figures: (ZAR million)
Sales 13,087 12,777 51,113 50,695
Operating profit (loss) 1,321 (629) 3,390 598
Special items – (gains) losses(1) (347) 1,201 (145) 2,213
Operating profit excluding special items(1) 974 572 3,245 2,811
EBITDA excluding special items(1) 1,742 1,308 6,217 5,712
Profit (loss) for the period 883 (908) 838 (1,614)
Basic earnings (loss) per share (SA cents) 170 (172) 161 (313)
Net debt(1) 16,445 17,002 16,445 17,002
Key ratios: (%)
Operating profit (loss) to sales 10.1 (4.9) 6.6 1.2
Operating profit excluding special items
to sales 7.4 4.5 6.3 5.5
Operating profit excluding special items
to capital employed (ROCE)(1) 13.0 7.8 11.2 9.7
EBITDA excluding special items to sales 13.3 10.2 12.2 11.3
Return on average equity (ROE) 27.8 (29.5) 6.8 (12.8)
Net debt to total capitalisation(1) 56.5 58.7 56.5 58.7
(1) Refer to supplemental information for the definition of the term.
The above financial results have been translated into Rands from US Dollars as follows:
– assets and liabilities at rates of exchange ruling at period end; and
– income, expenditure and cash flow items at average exchange rates.
Reconciliation of net debt to interest-bearing borrowings
Sept 2012 Sept 2011
US$ million US$ million
Interest-bearing borrowings 2,624 2,739
Non-current interest-bearing borrowings 2,358 2,289
Current interest-bearing borrowings 261 449
Bank overdraft 5 1
Cash and cash equivalents (645) (639)
Net debt 1,979 2,100
Exchange rates
Sept Jun Mar Dec Sept
2012 2012 2012 2011 2011
Exchange rates:
Period end rate: US$1 = ZAR 8.3096 8.1650 7.6725 8.0862 8.0963
Average rate for the Quarter: US$1 = ZAR 8.2567 8.1229 7.7511 8.0915 7.1501
Average rate for the YTD: US$1 = ZAR 8.0531 7.9885 7.9237 8.0915 6.9578
Period end rate: EUR1 = US$ 1.2859 1.2660 1.3344 1.2948 1.3386
Average rate for the Quarter: EUR1 = US$ 1.2514 1.2838 1.3116 1.3482 1.4126
Average rate for the YTD: EUR1 = US$ 1.2988 1.3145 1.3299 1.3482 1.3947
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
Sappi has a primary listing on the JSE Limited and a secondary listing on the New York Stock Exchange
South Africa: United States:
Computershare Investor ADR Depositary:
Services (Proprietary) Limited The Bank of New York Mellon
70 Marshall Street Investor Relations
Johannesburg 2001 PO Box 11258
PO Box 61051 Church Street Station
Marshalltown 2107 New York, NY 10286-1258
Tel +27 (0)11 370 5000 Tel +1 610 382 7836
This report is available on the Sappi website www.sappi.com
Date: 08/11/2012 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
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
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