Wrap Text
Fourth Quarter Results for the year ended September 2013
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
Fourth Quarter Results for the year ended September 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.
Financial summary for the quarter
- Dissolving wood pulp and speciality paper conversions commissioned
and running well
- Operating profit excluding special items US$70 million
(Q4 2012 US$118 million)
- Net cash generated US$111 million (Q4 2012 US$203 million)
- Special items charges US$177 million of which US$94 million
are non-cash
- Earnings per share excluding special items 2 US cents
(Q4 2012 11 US cents)
- Net debt US$2,214 million (Q4 2012 US$1,979 million)
Quarter ended Year ended
Sept 2013 Sept 2012 Jun 2013 Sept 2013 Sept 2012
Key figures: (US$ million)
Sales 1,530 1,585 1,417 5,925 6,347
Operating (loss) profit (107) 160 (11) 30 421
Special items - losses (gains)(1) 177 (42) 19 161 (18)
Operating profit excluding
special items(2) 70 118 8 191 403
EBITDA excluding special items(2) 158 211 91 539 772
(Loss) profit for the period (143) 107 (42) (161) 104
Basic (loss) earnings per share
(US cents) (27) 21 (8) (31) 20
Net debt(3) 2,214 1,979 2,297 2,214 1,979
Key ratios: (%)
Operating (loss) profit to sales (7.0) 10.1 (0.8) 0.5 6.6
Operating profit excluding special
items to sales 4.6 7.4 0.6 3.2 6.3
Operating profit excluding special
items to capital employed (ROCE) 8.0 13.0 0.9 5.6 11.4
EBITDA excluding special items
to sales 10.3 13.3 6.4 9.1 12.2
Return on average equity (ROE)(4) (46.1) 27.8 (12.1) (12.1) 6.9
Net debt to total capitalisation(4) 65.9 56.5 63.2 65.9 56.5
Net asset value per share
(US cents) 219 293 257 219 293
(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 (loss) profit, and (loss) 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
The group operating profit excluding special items improved compared to the prior quarter. As expected,
market conditions were challenging with continued weakness in the graphic paper markets globally.
Demand for graphic paper continues to decline in our major markets and the downward pricing pressure
in both the US and Europe reflects overcapacity in most grades of paper. During the quarter, we
announced that we intend to relocate paper production from our Nijmegen Mill to our other European
paper mills. The consultation process regarding the future of this mill is ongoing.
The Specialised Cellulose business, which included sales from our newly converted Cloquet pulp mill for
the first time, had a particularly good quarter. The Ngodwana Mill started up during the quarter, with its
first sales of dissolving wood pulp occurring just after the quarter end. More detail on the Specialised
Cellulose business is provided in the Southern African review later in this commentary.
Operating profit excluding special items was US$70 million for the quarter compared to US$118 million
for the equivalent quarter last year, and US$8 million for the quarter ended June 2013.
Special items for the quarter were a charge of US$177 million. Included in these special items were
impairment and restructuring charges following a strategic review of our operations, the implementation
of a number of cost-saving and efficiency initiatives in South Africa and Europe and the announced
consultation process regarding the future of the Nijmegen Mill. These restructuring charges amounted to
US$190 million, of which US$109 million were non-cash. The charges were offset partially by a post-
retirement medical plan amendment gain of US$24 million.
As a result of the impairment and restructuring charges in the quarter, the group incurred a net loss for
the quarter. The loss per share for the quarter was 27 US cents (including a charge of 29 US cents in
respect of special items) compared to earnings per share of 21 US cents (including a gain of 10 US cents
in respect of special items) in the equivalent quarter last year.
During the quarter, we announced the voluntary delisting of Sappi's American depository shares from the
New York Stock Exchange and our intention to terminate our registration and reporting obligations under
the US Securities Exchange Act of 1934. Sappi shares are now traded in the US through a level 1 over-
the-counter ADR programme.
Year ended September 2013 compared to year ended September 2012
2013 was an important transitional year for Sappi with the commissioning of major capital projects and
further repositioning of the business. The group's operating profit excluding special items for the year was
well below that of the previous year. Market conditions in the graphic paper business, particularly in
Europe, were worse than expected, with significant demand declines in both the European local and
export markets, and continued downward pressure on selling prices. The operating profit for the year
was negatively affected by the once-off impact of the dissolving wood pulp conversions at both the
Cloquet and Ngodwana pulp mills and the speciality packaging conversion of PM2 at Alfeld Mill.
Operating profit excluding special items for the year was US$191 million. Special items amounted to a
charge of US$161 million, comprising mainly impairment and restructuring charges of US$252 million
related to both our European and Southern African businesses. This was partially offset by plantation fair
value pricing gains of US$87 million.
Net finance costs for the year were US$166 million, a significant reduction from the US$283 million in the
prior year which included refinancing costs of US$89 million.
Cash flow and debt
Quarter
Net cash generated for the quarter was US$111 million, compared with US$203 million for the equivalent
quarter last year. Capital expenditure was US$103 million for the quarter, comparable to the
US$112 million in the equivalent quarter last year, and reflects the culmination of the capital expenditure
related to the dissolving wood pulp conversion projects at the Ngodwana and Cloquet mills. During the
quarter, we also renegotiated additional headroom for the net debt/EBITDA covenant and the removal of
the net debt/total capitalisation covenant in our European revolving credit facility.
Year
Net cash utilised for the full financial year was US$247 million compared to generation of US$127 million
last year. This increase in utilisation of cash was primarily due to the increase in capital expenditure related
to the dissolving wood pulp conversions and the lower operating performance of our European
operations in particular.
Net debt at financial year-end increased from US$1,979 million as at September 2012 to US$2,214 million
as at the end of September 2013 as a result of the capital investments during the year.
During the year, we successfully refinanced ZAR1 billion of South African debt with a new South African
bond of ZAR1,5 billion consisting of three tranches, and entered into a ZAR1 billion (US$99 million)
revolving credit facility in South Africa.
At the end of September 2013, we had liquidity comprising US$385 million of cash in addition to
US$577 million available from the undrawn committed revolving credit facilities in South Africa and
Europe.
Operating Review for the Quarter
Europe
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Sept 2013 Jun 2013 Mar 2013 Dec 2012 Sept 2012
EUR million EUR million EUR million EUR million EUR million
Sales 591 574 624 616 659
Operating (loss) profit (9) (13) (1) 16 35
excluding special items
Operating (loss) profit (1.5) (2.3) (0.2) 2.6 5.3
excluding special items to
sales (%)
EBITDA excluding special items 27 24 34 54 73
EBITDA excluding special items 4.6 4.2 5.4 8.8 11.1
to sales (%)
RONOA pa (%) (2.8) (3.8) (0.3) 4.6 9.8
Industry demand for coated paper was weak during the quarter, exacerbated particularly by export
volume declines during September. The stronger Euro/Dollar exchange rate also led to lower margins on
exports as well as downward pressure on local selling prices.
In response to the weak operating conditions, and in order to improve the performance of the business,
a range of fixed and variable cost reduction actions have been taken, including the announcement during
the quarter of the consultation process with employees regarding the transfer of production from our
Nijmegen Mill to other existing Sappi mills in Europe. We have also implemented fixed cost reduction
programmes across the business, leading to fixed costs being EUR3 million below that of last year.
Although our performance improved compared to the prior quarter, the business still made an operating
loss excluding special items for the quarter as a result of lower paper prices, increased pulp costs and a
continued decline in graphic paper demand.
Towards the end of the quarter, the conversion of PM2 at Alfeld Mill commenced. This project entails the
conversion of 150,000 tons of coated woodfree paper capacity to 135,000 tons of speciality paper
capacity, increasing our capacity in a higher margin specialised business and reducing our European
graphic paper capacity by 4%. This conversion had a short term negative impact on operating profit for
the quarter, and we expect that it will also impact the following quarter due to the extended downtime of
the machine.
North America
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Sept 2013 Jun 2013 Mar 2013 Dec 2012 Sept 2012
US$ million US$ million US$ million US$ million US$ million
Sales 366 324 341 346 377
Operating profit excluding 30 2 21 18 42
special items
Operating profit excluding 8.2 0.6 6.2 5.2 11.1
special items to sales (%)
EBITDA excluding special 50 20 42 37 63
items
EBITDA excluding special 13.7 6.2 12.3 10.7 16.7
items to sales (%)
RONOA pa (%) 11.6 0.8 8.9 7.9 18.2
Operating profit excluding special items improved compared to the prior quarter, which was negatively
impacted by the extended shut and subsequent ramp up of the Cloquet pulp mill. Operating profit
excluding special items for the quarter was lower than for the equivalent quarter last year due to a weaker
graphic paper market, particularly as regards pricing and dissolving wood pulp production and sales not
yet at the full rate for the quarter. Strong paper production, along with seasonally good sales favourably
contributed in a very competitive market.
The Cloquet pulp mill ramp up proceeded well during the quarter, with production currently at close to
full capacity and of good quality.
The release paper business had another good quarter, with higher sales volumes and better product mix
than in the equivalent quarter last year.
Variable costs per ton for paper were higher than in the equivalent quarter last year, with higher cost
purchased fibre as a result of the Cloquet pulp mill conversion. Fixed costs were largely flat year-on-year.
Southern Africa
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Sept 2013 Jun 2013 Mar 2013 Dec 2012 Sept 2012
ZAR million ZAR million ZAR million ZAR million ZAR million
Sales 3,779 3,255 3,020 2,870 3,152
Operating profit excluding 509 183 180 270 276
special items
Operating profit excluding 13.5 5.6 6.0 9.4 8.8
special items to sales (%)
EBITDA excluding special 708 355 359 452 473
items
EBITDA excluding special 18.7 10.9 11.9 15.7 15.0
items to sales (%)
RONOA pa (%) 13.0 4.6 4.8 7.8 8.2
The Southern African Specialised Cellulose business benefited from higher pulp prices, a weaker Rand/
Dollar exchange rate and increased production and shipments. The converted Ngodwana pulp mill
began operating during the quarter and has made good progress, producing quality pulp ahead of
targeted volumes by the end of the quarter. Orders are progressing well, with good customer acceptance.
The Specialised Cellulose business, inclusive of the Cloquet pulp mill in North America, performed
exceptionally well during the quarter and generated US$88 million of EBITDA excluding special items.
The combination of increased shipments, favourable exchange rate and production efficiencies resulted
in a margin of 39% which is well above the normalised margin for this business. Sales volumes for the
quarter were 253,000 tons, an increase of 36% over the equivalent quarter in the prior year.
NBSK dollar pulp prices, to which the majority of our dissolving pulp prices are linked, were higher than
both the equivalent quarter last year and the prior quarter, and for our South African business the weaker
exchange rate also contributed to higher prices. However, both the dissolving wood pulp and viscose
staple fibre (the major end use for dissolving wood pulp) markets remain highly competitive.
The local graphic paper market remains challenging, with higher paper pulp and other input prices as
well as a competitive import market. The domestic paper packaging business is improving, with
increased sales volumes and pricing during the quarter and improved operational performance as a result
of the actions we have taken in this business.
Variable costs, particularly for purchased timber and pulp, continued to increase as a result of the weaker
Rand/Dollar exchange rate. Energy costs declined as a result of a more efficient use of fuels. Fixed costs
were higher as a result of the annual wage increase implemented in July, as well as overtime
costs associated with the completion of the Ngodwana conversion project.
Outlook
Our strategy to reposition Sappi for growth, higher margins and improved profitability is on track. The
major Specialised Cellulose conversion projects in South Africa and the United States were successfully
completed during the year and both are delivering quality pulp to customers. The conversion of the Alfeld
Mill PM2 was also successfully completed in October 2013. Consequently, our profitability in the 2014
financial year is expected to be better than that of 2013 as a result of a larger Specialised Cellulose
business, the gradual improvement in performance of our European paper business, an improvement in
the profitability of our Southern African paper business and the consistent performance of our North
American paper businesses.
Markets will, however, remain challenging, particularly for the paper businesses where demand for
graphic paper in our major markets of the United States and Europe is expected to continue to decline
at approximately 3% and 6% per annum respectively. Improvements in the performance of these
businesses will come from production efficiencies, lower costs and a focus on businesses that generate
higher margins. In Europe, we expect a slow recovery in profitability, with the benefits of cost reduction
programmes likely to be fully in place only in the second half of the financial year.
In the Specialised Cellulose business, where dissolving wood pulp demand is expected to grow at
approximately 6 - 8% per annum, the increased competition from a number of new entrants and mill
conversions as well as pressure on viscose staple fibre prices will put pressure on the margins of our
Specialised Cellulose business. We believe that Sappi, as the global leader, particularly with its low cost
base, increased production capacity and high levels of contracted volumes, is well positioned to continue
to generate reasonable returns from this business despite a competitive market.
Currency movements affect margins in our various regions, having both transactional and translation
impacts. Our Southern African businesses are particularly sensitive to the value of the Rand in relation to
the US Dollar. The European paper business is also impacted by the strength of the Euro.
We continue to focus on reducing our input costs, particularly wood, paper pulp, chemicals and energy
through more efficient procurement, product composition and increasing operational efficiencies.
We expect that 2014 will see significantly reduced capital expenditure post the completion of the
dissolving wood pulp projects, and concomitantly a reduction in the operational impact that these large
capital projects had in the past year. The Alfeld Mill PM2 project extended a month into our 2014 financial
year and we expect that the start-up of that paper machine will have a negative impact on the European
result in the first financial quarter.
The expected gradual improvement in the group's underlying operational performance and reduced
capital expenditure will also enable us to generate positive cash flows. This will enable us to lower our
net debt levels towards achieving our short term target of US$2 billion.
On behalf of the board
R J Boëttger S R Binnie
Director Director 07 November 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 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 (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 Year Year
ended ended ended ended
Sept 2013 Sept 2012 Sept 2013 Sept 2012
Note US$ million US$ million US$ million US$ million
Sales 1,530 1,585 5,925 6,347
Cost of sales 1,374 1,363 5,274 5,552
Gross profit 156 222 651 795
Selling, general and administrative
expenses 94 102 384 417
Other operating expenses (income) 171 (38) 244 (41)
Share of profit from associates
and joint ventures (2) (2) (7) (2)
Operating (loss) profit 2 (107) 160 30 421
Net finance costs 42 37 166 283
Net interest expense 44 44 168 293
Net foreign exchange gain (2) (4) (1) (5)
Net fair value gain on financial
instruments - (3) (1) (5)
(Loss) profit before taxation (149) 123 (136) 138
Taxation (6) 16 25 34
Current 2 16 (4) 28
Deferred (8) - 29 6
(Loss) profit for the period (143) 107 (161) 104
Basic (loss) earnings per share
(US cents) (27) 21 (31) 20
Weighted average number of
shares in issue (millions) 521.5 520.8 521.3 520.8
Diluted (loss) earnings per
share (US cents) (27) 20 (31) 20
Weighted average number of shares
on fully diluted basis (millions) 521.5 522.3 521.3 522.2
Condensed group statement of comprehensive income
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2013 Sept 2012 Sept 2013 Sept 2012
US$ million US$ million US$ million US$ million
(Loss) profit for the period (143) 107 (161) 104
Other comprehensive loss, net of tax
Items that can subsequently be
reclassified to the income statement (34) (73) (224) (103)
Exchange differences on translation of
foreign operations (41) (50) (225) (60)
Movements in hedging reserves 7 (24) 3 (47)
Movement on available for sale
financial assets - 1 - 1
Tax effect on above items - - (2) 3
Items that cannot subsequently be
reclassified to the income statement (21) (67) (7) 34
Actuarial (loss) gain on post-
employment benefit funds - (88) 20 (88)
Tax effect on above items (21) 21 (27) 122
Total comprehensive (loss) income for
the period (198) (33) (392) 35
Condensed group balance sheet
Reviewed Reviewed
Sept 2013 Sept 2012
US$ million US$ million
ASSETS
Non-current assets 3,754 3,990
Property, plant and equipment 3,078 3,157
Plantations 464 555
Deferred taxation 92 154
Other non-current assets 120 124
Current assets 1,973 2,178
Inventories 728 726
Trade and other receivables 748 800
Prepaid income taxes 18 7
Cash and cash equivalents 385 645
Assets held for sale 94 -
Total assets 5,727 6,168
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest 1,144 1,525
Non-current liabilities 3,371 3,328
Interest-bearing borrowings 2,499 2,358
Deferred taxation 267 319
Other non-current liabilities 605 651
Current liabilities 1,212 1,315
Interest-bearing borrowings 99 261
Bank overdraft 1 5
Other current liabilities 1,094 1,023
Taxation payable 12 26
Liabilities associated with assets held for sale 6 -
Total equity and liabilities 5,727 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 Year Year
ended ended ended ended
Sept 2013 Sept 2012 Sept 2013 Sept 2012
US$ million US$ million US$ million US$ million
(Loss) profit for the period (143) 107 (161) 104
Adjustment for:
Depreciation, fellings and amortisation 104 109 414 442
Taxation (6) 16 25 34
Net finance costs 42 37 166 283
Defined post-employment benefits
paid (20) (23) (74) (62)
Plantation fair value adjustments (15) (28) (166) (68)
Asset impairments 109 13 155 10
Net restructuring provisions 81 (3) 97 (2)
Profit on disposal of investment - (11) - (11)
Profit on disposal of non-current
assets held for sale - (48) - (48)
Other non-cash items (31) 13 (9) 46
Cash generated from operations 121 182 447 728
Movement in working capital 108 115 (20) (102)
Net finance costs paid (20) (38) (164) (195)
Taxation paid (2) (8) (17) (20)
Cash generated from operating
activities 207 251 246 411
Cash utilised in investing activities (96) (48) (493) (284)
Capital expenditure (103) (112) (552) (358)
Proceeds on disposal of non-current
assets 3 60 53 71
Other movements 4 4 6 3
Net cash generated (utilised) 111 203 (247) 127
Cash effects of financing activities 34 39 (8) (103)
Net movement in cash and cash
equivalents 145 242 (255) 24
Condensed group statement of changes in equity
Reviewed Reviewed
Year Year
ended ended
Sept 2013 Sept 2012
US$ million US$ million
Balance - beginning of period 1,525 1,478
Total comprehensive (loss) income for the period (392) 35
Transfers from the share purchase trust 3 2
Transfers of vested share options (3) (2)
Share-based payment reserve 11 12
Balance - end of period 1,144 1,525
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated preliminary financial statements are prepared in accordance with the
Listings Requirements of the JSE Limited, the framework concepts and the measurement and
recognition requirements of International Financial Reporting Standards and the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and, the Financial Reporting Pronouncements as issued by
Financial Reporting Standards Council and must contain the information required by IAS 34, Interim
Financial Reporting. The accounting policies applied in the preparation of these preliminary financial
statements are consistent with those applied in the previous annual financial statements, other than
for the adoption of the amendments to IAS 1, Presentation of Financial Statements, relating to other
comprehensive income and Circular 2/2013, Headline Earnings.
The preparation of this condensed consolidated preliminary financial information was supervised by
the Chief Financial Officer, S R Binnie CA(SA).
The preliminary results for the year ended September 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. Any reference
to future financial performance included in this announcement, has not been reviewed or reported on by the
company's auditors.
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2013 Sept 2012 Sept 2013 Sept 2012
US$ million US$ million US$ million US$ million
2. Operating (loss) profit
Included in operating (loss) profit are the
following non-cash items:
Depreciation and amortisation 88 93 348 369
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 16 16 66 73
Growth (21) (19) (79) (83)
(5) (3) (13) (10)
Plantation price fair value adjustment 6 (9) (87) 15
1 (12) (100) 5
Included in other operating expenses
(income) are the following:
Net restructuring provisions 81 (3) 97 (2)
Loss (profit) on disposal of property,
plant and equipment 3 3 2 (4)
Profit on disposal of investment - (11) - (11)
Profit on disposal of non-current assets
held for sale - (48) - (48)
Asset impairments 109 13 155 10
Post-retirement plan amendment (24) - (24) -
Black Economic Empowerment charge - - 3 3
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2013 Sept 2012 Sept 2013 Sept 2012
US$ million US$ million US$ million US$ million
3. Headline (loss) earnings per share
Headline (loss) earnings per share
(US cents) (8) 12 (6) 9
Weighted average number of shares in
issue (millions) 521.5 520.8 521.3 520.8
Diluted headline (loss) earnings per share
(US cents) (8) 12 (6) 9
Weighted average number of shares on
fully diluted basis (millions) 521.5 522.3 521.3 522.2
Calculation of headline (loss) earnings
(Loss) profit for the period (143) 107 (161) 104
Asset impairments 109 13 155 10
Loss (profit) on disposal of property,
plant and equipment 3 3 2 (4)
Profit on disposal of investment - (11) - (11)
Profit on disposal of non-current assets
held for sale - (48) - (48)
Tax effect of above items (12) (3) (27) (2)
Headline (loss) earnings (43) 61 (31) 49
Reviewed Reviewed
Sept 2013 Sept 2012
US$ million US$ million
4. Capital commitments
Contracted 62 267
Approved but not contracted 195 244
257 511
5. Contingent liabilities
Guarantees and suretyships 33 31
Other contingent liabilities 11 10
44 41
6. Material balance sheet movements
Since the 2012 financial year-end, the period end ZAR rate has weakened by approximately 21% 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
Following the recent announcement in Europe to relocate production from Nijmegen Mill to other
Sappi European mills, the group has impaired Nijmegen Mill together with other assets in the region
to the value of US$63 million (EUR48 million). In South Africa, the negative outlook for certain paper and
packaging segments has resulted in impairment charges of US$92 million (ZAR854 million) related
largely to our Tugela, Enstra and Stanger mills.
Capital expenditure of US$575 million was incurred in the year largely due to the dissolving wood
pulp conversion projects at the Cloquet and Ngodwana mills and a conversion project at Alfeld Mill
to produce specialty products.
Plantations
Due to the Ngodwana mill dissolving wood pulp conversion project and the closure of the Kraft
Continuous Digester at Tugela Mill, a certain portion of Southern Africa's softwood plantations that were
previously utilised in the paper pulp production will now be sold to the local saw log markets.
Consequently, Southern Africa's plantations were revalued resulting in a once-off favourable price fair value
adjustment of US$93 million (ZAR863 million) which is included in cost of sales.
Deferred taxation assets
Deferred tax assets of US$24 million (EUR18 million) were reversed within Europe as they were no
longer deemed recoverable.
Trade and other receivables
The decrease in trade and other receivables is primarily due to the receipt of US$42 million on the
sale of the previously equity accounted 34% shareholding in Jiangxi Chenming Paper Company.
Interest-bearing borrowings and cash and cash equivalents
During the year, the group repaid the remaining senior secured notes due 2014 of US$41 million
(EUR31 million), the US$108 million (ZAR1 billion) public bond maturing in June 2013, the private
placement bonds of US$41 million (ZAR382 million) and incurred cash capital expenditure of
US$552 million. These outflows were partially funded by the placement of a public bond offering
of US$162 million (ZAR1.5 billion) and a seven-year bullet loan from GroCapital of US$43 million
(ZAR400 million).
Other non-current liabilities
The group transferred its South African medical aid scheme to an independent medical aid scheme
which resulted in reduction in the liability of US$24 million (ZAR222 million).
Other current liabilities
The increase in other current liabilities relates largely to restructuring provisions raised following the
implementation of a number of cost saving and efficiency initiatives in South Africa and Europe.
7. Assets held for sale
During the year, Sappi announced that it had entered into an agreement to sell its shares in Usutu
Forest Products Company Limited ('Usutu') as well as a shareholder loan claim against Usutu, to
Montigny Investments Limited for US$99 million (ZAR1 billion) subject to the fulfilment of certain
conditions precedent. The disposal group, consisting mainly of plantations, has been reclassified as
held for sale.
8. Segment information
Quarter Quarter Year Year
ended ended ended ended
Sept 2013 Sept 2012 Sept 2013 Sept 2012
Metric tons Metric tons Metric tons Metric tons
(000's) (000's) (000's) (000's)
Sales volume
North America 335 369 1,298 1,400
Europe 840 896 3,367 3,507
Southern Africa - Pulp and paper 447 423 1,619 1,676
Forestry 294 292 1,182 1,122
Total 1,916 1,980 7,466 7,705
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2013 Sept 2012 Sept 2013 Sept 2012
US$ million US$ million US$ million US$ million
Sales
North America 366 377 1,377 1,438
Europe 783 826 3,155 3,350
Southern Africa - Pulp and paper 363 361 1,316 1,475
Forestry 18 21 77 84
Total 1,530 1,585 5,925 6,347
Operating profit (loss) excluding
special items
North America 30 42 71 94
Europe (12) 45 (9) 133
Southern Africa 53 33 123 178
Unallocated and eliminations(1) (1) (2) 6 (2)
Total 70 118 191 403
Special items - losses (gains)
North America (2) 2 (6) 7
Europe 135 (42) 142 (45)
Southern Africa 38 3 8 25
Unallocated and eliminations(1) 6 (5) 17 (5)
Total 177 (42) 161 (18)
Segment operating (loss) profit
North America 32 40 77 87
Europe (147) 87 (151) 178
Southern Africa 15 30 115 153
Unallocated and eliminations(1) (7) 3 (11) 3
Total (107) 160 30 421
EBITDA excluding special items
North America 50 63 149 173
Europe 36 92 182 329
Southern Africa 73 57 202 271
Unallocated and eliminations(1) (1) (1) 6 (1)
Total 158 211 539 772
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2013 Sept 2012 Sept 2013 Sept 2012
US$ million US$ million US$ million US$ million
Segment assets
North America 1,046 919 1,046 919
Europe 1,594 1,776 1,594 1,776
Southern Africa 1,523 1,605 1,523 1,605
Unallocated and eliminations(1) (25) 20 (25) 20
Total 4,138 4,320 4,138 4,320
(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 (loss) profit and (loss) 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 Year Year
ended ended ended ended
Sept 2013 Sept 2012 Sept 2013 Sept 2012
US$ million US$ million US$ million US$ million
EBITDA excluding special items 158 211 539 772
Depreciation and amortisation (88) (93) (348) (369)
Operating profit excluding special
items 70 118 191 403
Special items - (losses) gains (177) 42 (161) 18
Plantation price fair value adjustment (6) 9 87 (15)
Net restructuring provisions (81) 3 (97) 2
(Loss) profit on disposal of property,
plant and equipment (3) (3) (2) 4
Profit on disposal of investment - 11 - 11
Profit on disposal of non-current
assets held for sale - 48 - 48
Asset impairments (109) (13) (155) (10)
Post-retirement plan amendment 24 - 24 -
Black Economic Empowerment charge - - (3) (3)
Fire, flood, storm and related events (2) (13) (15) (19)
Segment operating (loss) profit (107) 160 30 421
Net finance costs (42) (37) (166) (283)
(Loss) profit before taxation (149) 123 (136) 138
Taxation 6 (16) (25) (34)
(Loss) profit for the period (143) 107 (161) 104
Reconciliation of segment assets to
total assets
Segment assets 4,138 4,320 4,138 4,320
Deferred taxation 92 154 92 154
Cash and cash equivalents 385 645 385 645
Other current liabilities 1,094 1,023 1,094 1,023
Taxation payable 12 26 12 26
Liabilities associated with assets held
for sale 6 - 6 -
Total assets 5,727 6,168 5,727 6,168
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 2/2013 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.
Supplemental information (this information has not been audited or reviewed)
Summary rand convenience translation
Quarter Quarter Year Year
ended ended ended ended
Sept 2013 Sept 2012 Sept 2013 Sept 2012
Key figures: (ZAR million)
Sales 15,289 13,087 54,972 51,113
Operating (loss) profit (1,069) 1,321 278 3,390
Special items - losses (gains)(1) 1,769 (347) 1,494 (145)
Operating profit excluding special items(1) 700 974 1,772 3,245
EBITDA excluding special items(1) 1,579 1,742 5,001 6,217
(Loss) profit for the period (1,429) 883 (1,494) 838
Basic (loss) earnings per share (SA cents) (270) 170 (288) 161
Net debt(1) 22,346 16,445 22,346 16,445
Key ratios: (%)
Operating (loss) profit to sales (7.0) 10.1 0.5 6.6
Operating profit excluding special items 4.6 7.4 3.2 6.3
to sales
Operating profit excluding special items 8.0 13.0 5.6 11.2
to capital employed (ROCE)(1)
EBITDA excluding special items to sales 10.3 13.3 9.1 12.2
Return on average equity (ROE) (46.1) 27.8 (12.3) 6.8
Net debt to total capitalisation(1) 65.9 56.5 65.9 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
Sept 2013 Sept 2012
US$ million US$ million
Interest-bearing borrowings 2,599 2,624
Non-current interest-bearing borrowings 2,499 2,358
Current interest-bearing borrowings 99 261
Bank overdraft 1 5
Cash and cash equivalents (385) (645)
Net debt 2,214 1,979
Exchange rates
Sept Jun Mar Dec Sept
2013 2013 2013 2012 2012
Exchange rates:
Period end rate: US$1 = ZAR 10.0930 9.8800 9.2363 8.4851 8.3096
Average rate for the Quarter: US$1 = ZAR 9.9931 9.4756 8.9349 8.6975 8.2567
Average rate for the YTD: US$1 = ZAR 9.2779 9.0364 8.8173 8.6975 8.0531
Period end rate: EUR1 = US$ 1.3522 1.3010 1.2821 1.3217 1.2859
Average rate for the Quarter: EUR1 = US$ 1.3248 1.3060 1.3206 1.2970 1.2514
Average rate for the YTD: EUR1 = US$ 1.3121 1.3078 1.3088 1.2970 1.2988
Sponsor: UBS South Africa (Pty) Limited
Date: 07/11/2013 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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