Wrap Text
2nd Quarter results for half year ended 31 March 2013
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
Second Quarter results for the
half-year ended March 2013
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.
The bulk of our dissolving wood pulp
production is used to make viscose
staple fibre, a biodegradable, natural,
organic product with breathability and
moisture absorbency properties. As the
global population grows, particularly
in Asia where most of our dissolving
wood pulp production is currently
exported, so too, will demand for
comfortable clothing. We are a market
leader in the VSF segment and are
ideally positioned to take advantage of
increased demand.
Financial summary for the quarter
- Profit for the period US$7 million (Q2 2012 US$58 million)
- EPS 1 US cent (Q2 2012 11 US cents)
- Operating profit excluding special items US$40 million
(Q2 2012 US$125 million)
- Net finance costs of US$40 million (Q2 2012 US$51 million)
- Net debt US$2,152 million (Q2 2012 US$2,133 million)
Quarter ended Half-year ended
Mar 2013 Mar 2012 Dec 2012 Mar 2013 Mar 2012
Key figures: (US$ million)
Sales 1,503 1,633 1,475 2,978 3,218
Operating profit 78 120 70 148 227
Special items – (gains) losses(1) (38) 5 3 (35) (2)
Operating profit excluding
special items(2) 40 125 73 113 225
EBITDA excluding special items(2) 128 217 162 290 411
Profit for the period 7 58 17 24 103
Basic earnings per share
(US cents) 1 11 3 5 20
Net debt(3) 2,152 2,133 2,095 2,152 2,133
Key ratios: (%)
Operating profit to sales 5.2 7.4 4.8 5.0 7.1
Operating profit excluding
special items to sales 2.7 7.7 5.0 3.8 7.0
Operating profit excluding special
items to capital employed (ROCE) 4.4 13.4 8.2 6.4 12.2
EBITDA excluding special items
to sales 8.5 13.3 11.0 9.7 12.8
Return on average equity (ROE)(4) 1.9 14.7 4.5 3.2 13.2
Net debt to total capitalisation(4) 59.9 56.5 58.1 59.9 56.5
Net asset value per share
(US cents) 277 315 290 277 315
(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,
and profit 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.
Commentary on the quarter
Market conditions for our graphic paper products remained challenging, particularly in Europe where we
experienced further deterioration across all graphic paper grades. For our Specialised Cellulose and
speciality paper businesses, conditions remained good.
The US$40 million operating profit excluding special items generated by the group was adversely
impacted by the weak performance of the European business. Paper volumes and prices in this business
were lower, whilst input costs were higher compared to the corresponding quarter last year. We were
unable to fully implement the January price increases during the quarter.
The Southern African business performed reasonably well but was, as expected, negatively impacted by
the planned extended shut at the Ngodwana Mill as a result of the conversion of the pulp mill to dissolving
wood pulp, as well as the relatively weak local demand for paper products. Dissolving wood pulp sales
volumes from the Saiccor Mill remain limited only by our production capacity. Rising NBSK pulp prices,
to which our dissolving wood pulp sales are linked, and a weaker Rand exchange rate contributed to the
strong performance of Saiccor.
The North American business continued its good performance with strong paper sales volumes offsetting
both weaker paper sales prices and the decline in paper pulp sales as the Cloquet Mill prepares for the
conversion of the pulp mill from paper pulp to dissolving wood pulp.
The second-quarter results were also impacted by major special items including a credit of US$96 million
related to the revaluation of the Southern African plantations, and asset impairment charges of
US$47 million primarily in the Southern African paper and paper packaging business.
Net finance costs for the quarter of US$40 million are US$11 million below that of the equivalent quarter
last year as a result of the refinancing of higher cost debt in the past year.
The two major dissolving wood pulp projects at Ngodwana and Cloquet Mills progressed according to
plan during the quarter and remain on schedule to start up in our third quarter.
Cash flow and debt
Net cash utilised in the quarter was US$99 million, compared to net cash generation of US$91 million in
the equivalent quarter last year. This cash utilisation was mainly as a result of lower profits from operations
and capital expenditure, which increased to US$179 million during the quarter from the US$59 million in
the equivalent quarter last year. This increased capital expenditure relates primarily to the strategic
investments in expanding our dissolving wood pulp capacity.
Net debt of US$2,152 million increased as expected when compared to both the equivalent quarter last
year (US$2,133 million) and the prior quarter (US$2,095 million), largely as a result of the increased
capital expenditure during the quarter.
After the end of the quarter, a new South African bond of ZAR1.5 billion was raised in three tranches of
ZAR255 million (three year), ZAR500 million (five year) and ZAR745 million (seven year) at a blended
interest rate of approximately 7.6% after swapping all the notes to a fixed rate. The proceeds of this bond
will be used to repay a ZAR1 billion bond due in June 2013 and to partially fund the Ngodwana
conversion project.
At quarter-end, liquidity remained strong with cash on hand of US$398 million and US$509 million
available from the undrawn committed revolving credit facilities in Europe and South Africa.
Operating Review for the Quarter
Europe
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Mar 2013 Dec 2012 Sept 2012 Jun 2012 Mar 2012
EUR million EUR million EUR million EUR million EUR million
Sales 624 616 659 620 672
Operating (loss) profit
excluding special items (1) 16 35 8 37
Operating (loss) profit
excluding special items to
sales (%) (0.2) 2.6 5.3 1.3 5.5
EBITDA excluding special
items 34 54 73 47 73
EBITDA excluding special
items to sales (%) 5.4 8.8 11.1 7.6 10.9
RONOA pa (%) (0.3) 4.6 9.8 2.2 10.2
The European business experienced very weak market conditions during the quarter and, despite the
significant cost reductions implemented over the past year, the performance of the business was
substantially weaker than a year ago.
In comparison to the equivalent quarter last year, the business experienced both lower sales volumes
and lower prices for graphic papers. Compared to the prior quarter the business experienced the usual
seasonal increase in graphic paper sales volumes, however average coated paper prices were 2 to 3%
lower.
Increased variable costs, particularly hardwood pulp, energy and delivery costs placed further pressure
on margins, leading to an operating loss for the business.
The coated specialities business had another good quarter, with volumes and prices up both quarter-on-
quarter and year-on-year.
North America
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Mar 2013 Dec 2012 Sept 2012 Jun 2012 Mar 2012
US$ million US$ million US$ million US$ million US$ million
Sales 341 346 377 360 349
Operating profit excluding
special items 21 18 42 18 24
Operating profit excluding
special items to sales (%) 6.2 5.2 11.1 5.0 6.9
EBITDA excluding special
items 42 37 63 38 43
EBITDA excluding special
items to sales (%) 12.3 10.7 16.7 10.6 12.3
RONOA pa (%) 8.9 7.9 18.2 7.7 10.4
The North American business achieved strong coated paper sales volumes, an increase of 6% over the
equivalent quarter last year and 2% higher than the prior quarter; however, prices were lower in a
competitive market.
The specialty paper business was down slightly compared to last year due to lower volume early in the
quarter before a strong rebound in March. Performance was improved compared to the prior quarter as
the market continues to recover, particularly in China.
Pulp sales volumes were wound down and inventory was built to supply the Cloquet paper machines
ahead of the planned April shut to convert the Cloquet pulp mill to dissolving wood pulp. Dissolving wood
pulp sales are scheduled to start in June 2013.
Variable costs were lower compared to both the prior quarter and the equivalent quarter last year, driven
principally by improved operational efficiency as well as generally lower input prices.
Sappi Southern Africa
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Mar 2013 Dec 2012 Sept 2012 Jun 2012 Mar 2012
ZAR million ZAR million ZAR million ZAR million ZAR million
Sales 3,020 2,870 3,152 3,159 3,113
Operating profit excluding
special items 180 270 276 255 409
Operating profit excluding
special items to sales (%) 6.0 9.4 8.8 8.1 13.1
EBITDA excluding special
items 359 452 473 426 604
EBITDA excluding special
items to sales (%) 11.9 15.7 15.0 13.5 19.4
RONOA pa (%) 4.8 7.8 8.2 7.6 12.2
The Southern African Specialised Cellulose business continued its strong performance in the quarter
generating ZAR472 million in EBITDA excluding special items and an EBITDA excluding special items
margin of 34%. Sales volumes for the quarter were 184kt, an improvement over the prior quarter and
equal to the sales in the equivalent quarter last year. NBSK dollar pulp prices, to which our dissolving
wood pulp prices are linked, have increased for the last six months, though remained on average lower
in this quarter than in the equivalent quarter last year. The weaker Rand/Dollar exchange rate more than
offset this weakness however, resulting in an improved performance compared to both the prior quarter
and the equivalent quarter last year.
The domestic paper packaging market in South Africa was generally weak and increased export sales
were only able to partially offset the local market conditions. The performance of the paper and paper
packaging business was also negatively impacted by ZAR160 million due to the extended maintenance
shut at the Ngodwana Mill as a result of the conversion project at that mill.
Variable costs were slightly up year-on-year, primarily due to increased purchased wood and pulp costs,
both impacted by the weaker Rand/Dollar exchange rate.
Special items for the quarter included a plantation price fair value adjustment of ZAR863 million largely
as a result of the revaluation of the softwood plantation assets that previously supplied the Ngodwana
softwood pulp line. As a result of the conversion of the pulp mill to hardwood dissolving wood pulp, this
softwood resource is now available to sell as saw logs which earn a price premium to pulp logs. Various
assets at the Tugela and Stanger Mills were impaired and a charge of ZAR454 million was booked in the
quarter. These charges relate to the ongoing optimisation process in the Southern African paper and
paper packaging business.
Directorate
During the quarter we announced that following the retirement in December 2012 of Professor
Meyer Feldberg and in line with the Sappi board's succession planning, Mr Robert (Bob) J DeKoch
joined the board as an independent non-executive director as from 01 March 2013.
Outlook
Market conditions for our paper businesses, particularly in Europe are expected to be weaker than
previously envisaged. Demand and pricing remain under pressure and input costs, particularly pulp,
are likely to remain high. The announced January price increases for coated woodfree paper were
only marginally successful, and further price increases were announced during the quarter for
implementation in April. These increases, to date, have not been sufficient to restore margins given
rising input costs. Despite the interventions and major cost reductions that have taken place, we
expect the European business to only achieve a breakeven operating profit excluding special items
for the full year.
This performance necessitates further action and we are evaluating a number of options that could
result in capacity and cost reductions in our European business. Further measures are also being
implemented in the Southern African business. The Specialised Cellulose and North American
businesses continue to perform according to plan.
Notwithstanding the weak European performance, and the impact of the commissioning and start-
up of the two major dissolving wood pulp projects, we expect that the group will at worst breakeven
at the net profit excluding special items level for the full year. We expect net debt to peak at
approximately US$2.4 billion in the third quarter and thereafter to decrease to approximately
US$2.2 billion by the end of the financial year.
The Ngodwana and Cloquet Mills both successfully completed their major shuts relating to the
Specialised Cellulose expansion projects during March and April. Dissolving wood pulp production
is expected to commence at both plants before the end of June, with paper pulp being produced
for internal use in the interim.
Despite the generally tough market conditions and the once-off impact of our major transitionary
projects on the current year performance, our actions and investments will position the group well
for improved performance from 2014 onwards.
On behalf of the board
R J Boëttger S R Binnie
Director Director 09 May 2013
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 distributions (including as a result of planned or unexpected power
outages);
- adverse changes in environment, tax and other laws and regulations;
- the emergence of new technologies and charges 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 (including our announced dissolving wood pulp conversion
projects), 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 Half-year Half-year
ended ended ended ended
Mar 2013 Mar 2012 Mar 2013 Mar 2012
Note US$ million US$ million US$ million US$ million
Sales 1,503 1,633 2,978 3,218
Cost of sales 1,272 1,408 2,573 2,785
Gross profit 231 225 405 433
Selling, general and administrative
expenses 100 107 195 212
Other operating expenses (income) 55 (2) 65 (6)
Share of profit from associates and
joint ventures (2) – (3) –
Operating profit 2 78 120 148 227
Net finance costs 40 51 82 105
Net interest expense 41 53 82 109
Net foreign exchange gain (1) (1) – (2)
Net fair value gain on financial
instruments – (1) – (2)
Profit before taxation 38 69 66 122
Taxation 31 11 42 19
Current – 6 3 5
Deferred 31 5 39 14
Profit for the period 7 58 24 103
Basic earnings per share
(US cents) 1 11 5 20
Weighted average number of
shares in issue (millions) 521.5 520.8 521.2 520.7
Diluted earnings per share
(US cents) 1 11 5 20
Weighted average number of
shares on fully diluted basis
(millions) 523.8 525.0 523.2 524.7
Condensed group statement of comprehensive income
Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2013 Mar 2012 Mar 2013 Mar 2012
US$ million US$ million US$ million US$ million
Profit for the period 7 58 24 103
Other comprehensive (loss) income,
net of tax (79) 64 (112) 53
Exchange differences on translation
of foreign operations (84) 58 (108) 60
Movements in hedging reserves 4 5 (5) (9)
Deferred tax effect of above items 1 1 1 2
Total comprehensive (loss) income
for the period (72) 122 (88) 156
Condensed group balance sheet
Reviewed Reviewed
Mar 2013 Sept 2012
US$ million US$ million
ASSETS
Non-current assets 3,950 3,990
Property, plant and equipment 3,102 3,157
Plantations 607 555
Deferred taxation 118 154
Other non-current assets 123 124
Current assets 1,903 2,178
Inventories 785 726
Trade and other receivables 720 807
Cash and cash equivalents 398 645
Total assets 5,853 6,168
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest 1,443 1,525
Non-current liabilities 3,170 3,328
Interest-bearing borrowings 2,243 2,358
Deferred taxation 297 319
Other non-current liabilities 630 651
Current liabilities 1,240 1,315
Interest-bearing borrowings 300 261
Bank overdraft 7 5
Other current liabilities 919 1,023
Taxation payable 14 26
Total equity and liabilities 5,853 6,168
Number of shares in issue at balance sheet date (millions) 521.5 520.8
Condensed group statement of cash flows
Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2013 Mar 2012 Mar 2013 Mar 2012
US$ million US$ million US$ million US$ million
Profit for the period 7 58 24 103
Adjustment for:
Depreciation, fellings and amortisation 104 112 210 225
Taxation 31 11 42 19
Net finance costs 40 51 82 105
Defined post-employment benefits paid (17) (12) (32) (23)
Plantation fair value adjustments (115) (15) (141) (39)
Impairments of assets 47 – 47 –
Net restructuring provisions 7 1 14 1
Other non-cash items 11 8 19 18
Cash generated from operations 115 214 265 409
Movement in working capital (6) (24) (136) (190)
Net finance costs paid (28) (37) (87) (101)
Taxation paid (3) (5) (13) (10)
Cash generated from operating
activities 78 148 29 108
Cash utilised in investing activities (177) (57) (230) (128)
Capital expenditure (179) (59) (275) (134)
Proceeds on disposal of
non-current assets 1 2 43 7
Other movements 1 – 2 (1)
Net cash (utilised) generated (99) 91 (201) (20)
Cash effects of financing activities 11 (57) (35) (174)
Net movement in cash and
cash equivalents (88) 34 (236) (194)
Condensed group statement of changes in equity
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2013 Mar 2012
US$ million US$ million
Balance – beginning of period 1,525 1,478
Total comprehensive (loss) income for the period (88) 156
Transfers from the share purchase trust 3 2
Transfers of vested share options (3) (2)
Share-based payment reserve 6 8
Balance – end of period 1,443 1,642
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated interim financial statements are prepared in accordance with
International Accounting Standard 34 Interim Financial Reporting (IAS 34), the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and the requirements of the
Companies Act of South Africa. The accounting policies applied in the preparation of these interim
financial statements are consistent with those applied in the previous annual financial statements.
The preparation of this condensed consolidated interim financial information was supervised by the
Chief Financial Officer, S R Binnie CA(SA).
The interim results for the half-year ended March 2013 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 Half-year Half-year
ended ended ended ended
Mar 2013 Mar 2012 Mar 2013 Mar 2012
US$ million US$ million US$ million US$ million
2. Operating profit
Included in operating profit are the
following non-cash items:
Depreciation and amortisation 88 92 177 186
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 16 20 33 39
Growth (19) (22) (37) (43)
(3) (2) (4) (4)
Plantation price fair value adjustment (96) 7 (104) 4
(99) 5 (108) –
Included in other operating expenses
(income) are the following:
Impairments of assets 47 – 47 –
Profit on disposal of property, plant
and equipment (1) (4) (1) (9)
Net restructuring provisions 7 1 14 1
Black Economic Empowerment charge 1 1 2 2
Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2013 Mar 2012 Mar 2013 Mar 2012
US$ million US$ million US$ million US$ million
3. Headline earnings per share
Headline earnings per share (US cents) 7 10 10 18
Weighted average number of shares
in issue (millions) 521.5 520.8 521.2 520.7
Diluted headline earnings per share
(US cents) 7 10 10 18
Weighted average number of shares on
fully diluted basis (millions) 523.8 525.0 523.2 524.7
Calculation of headline earnings
Profit for the period 7 58 24 103
Impairments of assets 47 – 47 –
Profit on disposal of property, plant and
equipment (1) (4) (1) (9)
Tax effect of above items (16) – (16) –
Headline earnings 37 54 54 94
Reviewed Reviewed
Mar 2013 Sept 2012
US$ million US$ million
4. Capital commitments
Contracted 194 267
Approved but not contracted 170 244
364 511
5. Contingent liabilities
Guarantees and suretyships 38 31
Other contingent liabilities 15 10
53 41
6. Material balance sheet movements
Since the 2012 financial year-end, the period end ZAR rate has weakened by approximately 11% to
the US Dollar, the group's presentation currency, resulting in a similar decrease on translation of the
group's ZAR functional currency assets and liabilities to US Dollar.
Property, plant and equipment
As a result of continuing difficult market conditions, Sappi Southern Africa ('SSA') impaired plant and
equipment at its Tugela and Stanger Mills to the value of US$52 million (ZAR454 million). In addition,
there was a recovery in Sappi Fine Paper Europe of US$9 million (EUR7 million) through the sale of
certain assets that had previously been impaired as well as further asset impairments of US$4 million
(EUR3 million).
Deferred taxation assets
Deferred tax assets of US$24 million (EUR18 million) were reversed within the Sappi Fine Paper Europe
region as they were no longer deemed recoverable.
Plantations
Due to the Ngodwana dissolving wood pulp conversion project and the closure of the Kraft
Continuous Digester at Tugela, a certain portion of SSA's softwood plantations that were previously
utilised in the paper pulp production will now be sold to the local saw log markets. Consequently,
SSA's plantations were revalued resulting in a favourable price fair value adjustment of US$98 million
(ZAR863 million).
Inventories, trade and other receivables and other current liabilities
The group increased its inventory levels in anticipation of the dissolving wood pulp conversion
projects. In additions, inventory increased as a result of lower than expected sales of commodity
paper in SSA. The decrease in trade and other receivables and other current liabilities is due to
seasonality and the receipt of US$42 million on the sale of the previously equity accounted 34%
shareholding in Jiangxi Chenming Paper Company.
Cash and cash equivalents and interest-bearing borrowings
Cash and cash equivalents decreased largely due to the capital expenditure outflows of
US$275 million which mostly relates to the dissolving wood pulp conversion projects. In addition, the
remaining stub of the group's senior secured notes due 2014 of US$42 million (EUR31 million) as well
as the group's private placement bonds in South Africa amounting to US$41 million (ZAR382 million)
were repaid. These outflows were partially offset by the issuance of commercial paper of
US$43 million (ZAR400 million) by SSA as well as a draw-down from the South African revolving
credit facility of US$49 million (ZAR450 million), both of which were repaid in April 2013.
7. Post balance sheet events
In April 2013, SSA placed a public bond offering of US$162 million (ZAR1.5 billion), the proceeds of
which will be used to refinance the US$108 million (ZAR1.0 billion) public bond maturing in
June 2013 and to partially fund the Ngodwana conversion project. The bond was placed in tranches
which comprised 3-year floating rate notes of US$28 million (ZAR255 million), 5-year floating rate
notes of US$54 million (ZAR500 million) and 7-year fixed rate notes of US$81 million (ZAR745 million)
which were placed at spreads of 123 basis points and 150 basis points over the Johannesburg
Inter-bank Agreed Rate ('JIBAR') and at 183 basis points over the yield curve for the 7-year fixed
rate notes. The floating rate notes were swapped into fixed rates of 6.74% and 7.46% respectively.
8. Segment information
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2013 Mar 2012 Mar 2013 Mar 2012
Metric tons Metric tons Metric tons Metric tons
(000's) (000's) (000's) (000's)
Sales volume
Sappi Fine Paper North America 332 341 666 680
Sappi Fine Paper Europe 882 919 1,731 1,768
Sappi Southern Africa – Pulp and paper 387 418 767 818
Forestry 295 295 579 536
Total 1,896 1,973 3,743 3,802
Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2013 Mar 2012 Mar 2013 Mar 2012
US$ million US$ million US$ million US$ million
Sales
Sappi Fine Paper North America 341 349 687 701
Sappi Fine Paper Europe 824 883 1,623 1,729
Sappi Southern Africa – Pulp and paper 319 379 629 747
Forestry 19 22 39 41
Total 1,503 1,633 2,978 3,218
Operating profit (loss) excluding
special items
Sappi Fine Paper North America 21 24 39 34
Sappi Fine Paper Europe (2) 49 19 78
Sappi Southern Africa 20 53 51 114
Unallocated and eliminations(1) 1 (1) 4 (1)
Total 40 125 113 225
Special items – (gains) losses
Sappi Fine Paper North America (5) – (3) –
Sappi Fine Paper Europe 1 (4) 4 (9)
Sappi Southern Africa (42) 9 (44) 7
Unallocated and eliminations(1) 8 – 8 –
Total (38) 5 (35) (2)
Segment operating profit (loss)
Sappi Fine Paper North America 26 24 42 34
Sappi Fine Paper Europe (3) 53 15 87
Sappi Southern Africa 62 44 95 107
Unallocated and eliminations(1) (7) (1) (4) (1)
Total 78 120 148 227
EBITDA excluding special items
Sappi Fine Paper North America 42 43 79 72
Sappi Fine Paper Europe 45 96 115 177
Sappi Southern Africa 40 78 92 162
Unallocated and eliminations(1) 1 – 4 –
Total 128 217 290 411
Segment assets
Sappi Fine Paper North America 980 946 980 946
Sappi Fine Paper Europe 1,750 1,901 1,750 1,901
Sappi Southern Africa 1,696 1,751 1,696 1,751
Unallocated and eliminations(1) (22) 52 (22) 52
Total 4,404 4,650 4,404 4,650
(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 and profit 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 Half-year Half-year
ended ended ended ended
Mar 2013 Mar 2012 Mar 2013 Mar 2012
US$ million US$ million US$ million US$ million
EBITDA excluding special items 128 217 290 411
Depreciation and amortisation (88) (92) (177) (186)
Operating profit excluding special
items 40 125 113 225
Special items – gains (losses) 38 (5) 35 2
Plantation price fair value adjustment 96 (7) 104 (4)
Net restructuring provisions (7) (1) (14) (1)
Profit on disposal of property, plant
and equipment 1 4 1 9
Impairments of assets (47) – (47) –
Black Economic Empowerment charge (1) (1) (2) (2)
Fire, flood, storm and related events (4) – (7) –
Segment operating profit 78 120 148 227
Net finance costs (40) (51) (82) (105)
Profit before taxation 38 69 66 122
Taxation (31) (11) (42) (19)
Profit for the period 7 58 24 103
Reconciliation of segment assets
to total assets
Segment assets 4,404 4,650 4,404 4,650
Deferred taxation 118 45 118 45
Cash and cash equivalents 398 453 398 453
Other current liabilities 919 984 919 984
Taxation payable 14 15 14 15
Total assets 5,853 6,147 5,853 6,147
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 – annualised return on average capital employed. Operating profit excluding special items divided
by average capital employed
ROE – annualised 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.
Summary rand convenience translation
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2013 Mar 2012 Mar 2013 Mar 2012
Key figures: (ZAR million)
Sales 13,429 12,658 26,258 25,498
Operating profit 697 930 1,305 1,799
Special items – (gains) losses(1) (340) 39 (309) (16)
Operating profit excluding special items(1) 357 969 996 1,783
EBITDA excluding special items(1) 1,144 1,682 2,557 3,257
Profit for the period 63 450 212 816
Basic earnings per share (SA cents) 12 85 41 158
Net debt(1) 19,877 16,365 19,877 16,365
Key ratios: (%)
Operating profit to sales 5.2 7.3 5.0 7.1
Operating profit excluding special items
to sales 2.7 7.7 3.8 7.0
Operating profit excluding special items
to capital employed (ROCE)(1) 4.5 13.2 6.4 12.3
EBITDA excluding special items to sales 8.5 13.3 9.7 12.8
Return on average equity (ROE) 1.9 14.5 3.3 13.3
Net debt to total capitalisation(1) 59.9 56.5 59.9 56.5
(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
Mar 2013 Sept 2012
US$ million US$ million
Interest-bearing borrowings 2,550 2,624
Non-current interest-bearing borrowings 2,243 2,358
Current interest-bearing borrowings 300 261
Bank overdraft 7 5
Cash and cash equivalents (398) (645)
Net debt 2,152 1,979
Exchange rates
Mar Dec Sept Jun Mar
2013 2012 2012 2012 2012
Exchange rates:
Period end rate: US$1 = ZAR 9.2363 8.4851 8.3096 8.1650 7.6725
Average rate for the Quarter: US$1 = ZAR 8.9349 8.6975 8.2567 8.1229 7.7511
Average rate for the YTD: US$1 = ZAR 8.8173 8.6975 8.0531 7.9885 7.9237
Period end rate: EUR1 = US$ 1.2821 1.3217 1.2859 1.2660 1.3344
Average rate for the Quarter: EUR1 = US$ 1.3206 1.2970 1.2514 1.2838 1.3116
Average rate for the YTD: EUR1 = US$ 1.3088 1.2970 1.2988 1.3145 1.3299
Sappi has a primary listing on the JSE Limited and a secondary listing on
the New York Stock Exchange
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
this report is available on the Sappi website
www.sappi.com
Date: 09/05/2013 08:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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