Wrap Text
Second quarter results for the period ended March 2014
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
Second Quarter
results for the
period ended
March 2014
2nd quarter results
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.
Cover picture – Shutterstock
We are the market leader in specialised cellulose used widely in the
Viscose Staple Fibre (VSF) segment. We are ideally positioned to take
advantage of increased demand.
Highlights for the quarter
- Strong cash flow generation
- Good performance from South African business
- Profit for the period US$32 million (Q2 2013 US$2 million)
- EPS 6 US cents (Q2 2013 0 US cents)
- EBITDA excluding special items US$171 million (Q2 2013 US$126 million)
- Net debt US$2,248 million (Q1 2014 US$2,380 million)
Quarter ended Half-year ended
Restated(1) Restated(1) Restated(1)
Mar 2014 Mar 2013 Dec 2013 Mar 2014 Mar 2013
Key figures: (US$ million)
Sales 1,573 1,503 1,499 3,072 2,978
Operating profit excluding special
items(2) 95 38 60 155 108
Special items – gains(3) (4) (38) (10) (14) (35)
EBITDA excluding special items(2) 171 126 147 318 285
Profit for the period 32 2 18 50 14
Basic earnings per share (US cents) 6 – 3 10 3
Net debt(4) 2,248 2,189 2,380 2,248 2,189
Key ratios: (%)
Operating profit excluding special
items to sales 6.0 2.5 4.0 5.0 3.6
Operating profit excluding special
items to capital employed (ROCE)(5) 11.0 4.2 7.0 9.1 6.0
EBITDA excluding special items
to sales 10.9 8.4 9.8 10.4 9.6
Return on average equity (ROE)(5) 11.3 0.5 6.4 8.7 1.9
Net debt to total capitalisation(5) 66.2 60.3 68.0 66.2 60.3
Net asset value per share (US cents) 219 277 215 219 277
(1) Restated for the adoption of IAS 19 (Revised) Employee Benefits and IFRS 10 Consolidated Financial Statements. Refer to note 2
to the group results for more detail.
(2) Refer to note 11 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 note 11 to the group results for details on special items.
(4) Refer to supplemental information for the reconciliation of net debt to interest-bearing borrowings.
(5) Refer to supplemental information for the definition of the term.
Commentary on the quarter
The group maintained the improving trend in operating performance for the quarter, with EBITDA
excluding special items of US$171 million, operating profit excluding special items of US$95 million and
profit for the period of US$32 million. There were no major special items for the quarter. The special
items gain of US$4 million was mainly as a result of a positive plantation fair value price adjustment of
US$5 million.
The past quarter saw an improvement in the operating performance of all three of our operating regions,
despite tough market conditions overall.
The graphic paper markets in Europe and North America continue to experience demand declines for
most major grades, and sales prices remained under pressure in both markets. These market dynamics
were anticipated and we responded by implementing a number of cost cutting initiatives across the
group. This, combined with the seasonally stronger second quarter, delivered an improved operating
performance in both businesses.
The Southern African paper business continued the trend of improving performance, with increased sales
prices offsetting cost pressures.
Against a backdrop of more challenging dissolving wood pulp markets, the Specialised Cellulose business
had another good quarter with strong shipment volumes, generating US$82 million in EBITDA excluding
special items at an EBITDA margin of 33%. Due to the competitive nature of the market and weak
viscose staple fibre pricing, we experienced increased pressure on our prices, leading to a lower average
dollar price for our dissolving wood pulp than achieved in the prior quarter.
Finance costs of US$48 million were in line with the restated equivalent quarter last year.
Earnings per share for the quarter was 6 US cents (including a gain of 1 US cent in respect of special
items), compared to 0 US cents (including a gain of 2 US cents in respect of special items) in the restated
equivalent quarter last year.
Cash flow and debt
As a result of the improved operational performance, lower capital expenditure post the completion of the
three major conversion projects and stringent working capital management, net cash generated for the
quarter was US$132 million compared to net cash utilisation of US$99 million in the equivalent quarter
last year. Capital expenditure in the quarter declined to US$62 million compared to US$179 million a year
ago, reflecting the completion of the expenditure on the dissolving wood pulp projects.
Net debt of US$2,248 million declined by US$132 million from the prior quarter, as a result of the cash
generated from operations and the lower working capital.
Liquidity comprises cash on hand of US$307 million and US$576 million available from the undrawn
committed revolving credit facilities in South Africa and Europe.
Operating review for the quarter
Europe
Restated(1) Restated(1) Restated(1)
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Mar 2014 Dec 2013 Sept 2013 Jun 2013 Mar 2013
EUR million EUR million EUR million EUR million EUR million
Sales 603 581 591 574 624
Operating profit (loss)
excluding special items 14 3 (9) (12) (1)
Operating profit (loss)
excluding special items
to sales (%) 2.3 0.5 (1.5) (2.1) (0.2)
EBITDA excluding special
items 48 38 27 24 35
EBITDA excluding special
items to sales (%) 8.0 6.5 4.6 4.2 5.6
RONOA pa (%) 4.6 1.0 (2.8) (3.5) (0.3)
(1) The group adopted IAS 19 (Revised) Employee Benefits for the year ended September 2014. Refer to note 2 to the group results for
more detail.
Graphic paper markets in Europe are still difficult, albeit volumes are declining at a slower rate than
experienced in much of 2013. The operating result of our European business continued to improve
during the quarter, with reductions in variable and fixed costs more than offsetting the declines in graphic
paper sales volumes and prices compared to the equivalent quarter in the prior year.
Negotiations with interested stakeholders to relocate production from Nijmegen to other mills are ongoing.
The specialities business continues to grow post the completion of the conversion of Alfeld PM2, with
volumes for the quarter up 26% compared to the equivalent quarter in the prior year.
North America
Restated(1) Restated(1) Restated(1)
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Mar 2014 Dec 2013 Sept 2013 Jun 2013 Mar 2013
US$ million US$ million US$ million US$ million US$ million
Sales 382 365 366 324 341
Operating profit (loss)
excluding special items 5 (3) 27 (2) 18
Operating profit (loss)
excluding special items
to sales (%) 1.3 (0.8) 7.4 (0.6) 5.3
EBITDA excluding special
items 22 17 47 16 39
EBITDA excluding special
items to sales (%) 5.8 4.7 12.8 4.9 11.4
RONOA pa (%) 1.9 (1.2) 10.4 (0.8) 7.6
(1) The group adopted IAS 19 (Revised) Employee Benefits for the year ended September 2014. Refer to note 2 to the group results for
more detail.
Graphic paper markets have been more challenging than we expected throughout fiscal 2014;
nevertheless, the North American business returned to profitability this quarter from the prior quarter loss,
largely due to an improved performance from the specialities business, as well as lower fixed costs.
The coated paper markets remains under pressure. Continued declines in paper prices, high energy
prices as a consequence of the extremely cold weather experienced in this region, as well as higher paper
pulp prices have impacted margins.
Dissolving wood pulp sales volumes were negatively impacted by the extremely cold weather and a
five week truckers' strike at the Vancouver port that we utilise for our exports, as well as overall mill
optimisation undertaken during the quarter.
Southern Africa
Restated(1) Restated(1) Restated(1) Restated(1)
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Mar 2014 Dec 2013 Sept 2013 Jun 2013 Mar 2013
ZAR million ZAR million ZAR million ZAR million ZAR million
Sales 3,942 3,488 3,779 3,255 3,020
Operating profit excluding
special items 765 568 509 192 181
Operating profit excluding
special items to sales (%) 19.4 16.3 13.5 5.9 6.0
EBITDA excluding special
items 897 761 709 364 359
EBITDA excluding special
items to sales (%) 22.8 21.8 18.8 11.2 11.9
RONOA pa (%) 18.6 14.1 12.8 4.8 4.7
(1) The group adopted IAS 19 (Revised) Employee Benefits and IFRS 10 Consolidated Financial Statements for the year ended
September 2014. Refer to note 2 to the group results for more detail.
The Southern African business had an improved performance compared to both the prior quarter and the
equivalent quarter last year due to better pricing across all major product categories and improved sales
volumes, notwithstanding the annual maintenance shut at the Ngodwana Mill.
The South African Specialised Cellulose business achieved another solid quarter, with the Ngodwana
mill contributing to increased sales volumes. Higher NBSK reference prices and a weaker Rand/Dollar
exchange rate led to higher Rand net sales prices compared to both the prior quarter and the equivalent
quarter last year.
The South African paper business continued to generate profits, with higher sales prices offsetting slightly
lower sales volumes and increased variable costs.
Directorate
On 15 January 2014 it was announced that Ralph Boëttger will relinquish his position as CEO
and Director on 30 June 2014 due to a serious illness. On 10 February 2014, it was subsequently
announced that Steve Binnie, currently the CFO, will succeed Ralph Boëttger as CEO on 01 July 2014.
On 17 March 2014, it was announced that Glen Pearce, currently CFO of Sappi Europe, will
succeed Steve Binnie as CFO and join the Sappi Limited board of directors as an Executive Director
on 01 July 2014.
Outlook
Continued emphasis on lowering cost and optimising sales in both the coated paper and dissolving wood
pulp markets have enabled us to compete effectively. We will continue to take actions in North America,
Europe and Southern Africa to improve our competitiveness and enable us to reduce debt.
Demand in the Specialised Cellulose business remains firm, though pricing pressure continues to be
evident. The Rand/Dollar exchange rate will continue to play a major role in the operating performance of
the South African Specialised Cellulose business as well as the Southern African paper business.
Capital expenditure for the full year is expected to be below US$300 million, with positive cash generation
for the remainder of the year. We anticipate net debt levels to end the year close to US$2 billion.
The third quarter is seasonally weaker in both North America and Europe, and scheduled annual
maintenance shuts during the quarter in all three regions will also impact the results in the third quarter,
leading to a weaker operating performance than the past quarter, though we expect the result to be
substantially better than the equivalent quarter in the prior year.
Our outlook for the year is one of significantly improved performance for the 2014 financial year when
compared to 2013.
On behalf of the board
R J Boëttger S R Binnie 12 May 2014
Director Director
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 and which do not
relate to historical matters, may be used to 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
Restated Reviewed Restated
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2014 Mar 2013 Mar 2014 Mar 2013
Note US$ million US$ million US$ million US$ million
Sales 1,573 1,503 3,072 2,978
Cost of sales 1,380 1,274 2,719 2,578
Gross profit 193 229 353 400
Selling, general and administrative
expenses 95 100 189 195
Other operating expenses (income) 1 55 (1) 65
Share of profit from equity
investments (2) (2) (4) (3)
Operating profit 3 99 76 169 143
Net finance costs 48 45 96 92
Net interest expense 49 46 97 92
Net foreign exchange gain (2) (1) (3) –
Net fair value loss on financial
instruments 1 – 2 –
Profit before taxation 51 31 73 51
Taxation 19 29 23 37
Profit for the period 32 2 50 14
Basic earnings per share
(US cents) 6 – 10 3
Weighted average number of
shares in issue (millions) 522.5 521.5 522.1 521.2
Diluted earnings per share
(US cents) 6 – 10 3
Weighted average number of
shares on fully diluted basis
(millions) 525.6 523.8 524.8 523.2
Condensed group statement of comprehensive income
Reviewed
Restated Reviewed Restated
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2014 Mar 2013 Mar 2014 Mar 2013
US$ million US$ million US$ million US$ million
Profit for the period 32 2 50 14
Other comprehensive loss, net of tax
Items that will not be reclassified
subsequently to profit or loss – 5 – 10
Actuarial gains on post-employment
benefit funds – 7 – 15
Tax effect of above item – (2) – (5)
Items that must be reclassified
subsequently to profit or loss (10) (79) (52) (112)
Exchange differences on translation
of foreign operations (5) (84) (59) (108)
Movements in hedging reserves (6) 4 7 (5)
Movement on available for sale
financial assets 1 – – –
Tax effect of above items – 1 – 1
Total comprehensive income (loss)
for the period 22 (72) (2) (88)
Condensed group balance sheet
Reviewed
Reviewed Restated
Mar 2014 Sept 2013
US$ million US$ million
ASSETS
Non-current assets 3,674 3,787
Property, plant and equipment 2,978 3,078
Plantations 454 464
Deferred tax assets 94 92
Other non-current assets 148 153
Current assets 1,933 1,940
Inventories 756 728
Trade and other receivables 764 748
Taxation receivable 13 18
Cash and cash equivalents 307 352
Assets held for sale 93 94
Total assets 5,607 5,727
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest 1,146 1,144
Non-current liabilities 3,340 3,371
Interest-bearing borrowings 2,443 2,499
Deferred tax liabilities 284 267
Other non-current liabilities 613 605
Current liabilities 1,121 1,212
Interest-bearing borrowings 112 99
Overdrafts – 1
Other current liabilities 998 1,094
Taxation payable 8 12
Liabilities associated with assets held for sale 3 6
Total equity and liabilities 5,607 5,727
Number of shares in issue at balance sheet date (millions) 522.6 521.5
Condensed group statement of cash flows
Reviewed
Restated Reviewed Restated
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2014 Mar 2013 Mar 2014 Mar 2013
US$ million US$ million US$ million US$ million
Profit for the period 32 2 50 14
Adjustment for:
Depreciation, fellings and amortisation 90 104 192 210
Taxation 19 29 23 37
Net finance costs 48 45 96 92
Defined post-employment benefits paid (21) (17) (38) (32)
Plantation fair value adjustments (23) (115) (49) (141)
Asset (impairment reversals) impairments (1) 47 (3) 47
Net restructuring provisions 2 7 3 14
Other non-cash items 6 13 14 24
Cash generated from operations 152 115 288 265
Movement in working capital 59 (6) (90) (136)
Net finance costs paid (30) (28) (86) (87)
Taxation received (paid) 4 (3) 3 (13)
Cash generated from operating
activities 185 78 115 29
Cash utilised in investing activities (53) (177) (116) (230)
Capital expenditure (62) (179) (133) (275)
Proceeds on disposal of assets and
assets held for sale 6 1 12 43
Other movements 3 1 5 2
Net cash generated (utilised) 132 (99) (1) (201)
Cash effects of financing activities (4) 11 (47) (35)
Net movement in cash and cash
equivalents 128 (88) (48) (236)
Cash and cash equivalents at beginning
of period 178 464 352 604
Translation effects 1 (15) 3 (7)
Cash and cash equivalents at end
of period 307 361 307 361
Condensed group statement of changes in equity
Reviewed
Reviewed Restated
Half-year Half-year
ended ended
Mar 2014 Mar 2013
US$ million US$ million
Balance – beginning of period 1,144 1,525
Total comprehensive loss for the period (2) (88)
Share-based payment reserve 4 6
Balance – end of period 1,146 1,443
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated interim financial results for the six months ended March 2014 have been
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 interim financial statements are consistent with those applied in the
previous annual financial statements, other than for the adoption of IFRS 10 Consolidated Financial
Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IFRS 13
Fair Value Measurement, IAS 19 (Revised) Employee Benefits, IAS 27 Separate Financial Statements,
IAS 28 Investments in Associates and Joint Ventures and various other improvements. The adoption
of these accounting standards did not have a material impact on the group results other than as
described in note 2 below.
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 2014 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.
2. Restatement
Adoption of IAS 19 (Revised) Employee Benefits
This standard, which is required to be applied retrospectively, was adopted by the group for the year
ended September 2014. As a result of the change, the group now determines the net interest expense
(income) for the period by applying the discount rate used to measure the defined benefit obligation at
the beginning of the annual period, adjusted for any changes as a result of contributions and benefit
payments, to the net defined benefit liability (asset). Previously, the group determined interest income on
plan assets based on the assets long-term rate of expected return. The group also reclassified the net
interest expense (income) from operating profit (loss) to finance costs as an accounting policy choice.
The impact on profit or loss and other comprehensive loss for the quarter ended March 2013 is as
follows:
As
previously
reported Adjustment Restated
US$ million US$ million US$ million
Condensed group income statement
Cost of sales 1,272 2 1,274
Net finance costs 40 5 45
Taxation 31 (2) 29
Profit for the period 7 (5) 2
Earnings per share
Basic earnings per share (US cents) 1 (1) –
Diluted earnings per share (US cents) 1 (1) –
Condensed group statement of comprehensive
income
Items that will not be reclassified subsequently
to profit or loss – 5 5
Actuarial gains on post-employment benefit funds – 7 7
Tax effect of above item – (2) (2)
The impact on profit or loss and other comprehensive loss for the reviewed half-year ended
March 2013 is as follows:
As
previously
reported Adjustment Restated
US$ million US$ million US$ million
Condensed group income statement
Cost of sales 2,573 5 2,578
Net finance costs 82 10 92
Taxation 42 (5) 37
Profit for the period 24 (10) 14
Earnings per share
Basic earnings per share (US cents) 5 (2) 3
Diluted earnings per share (US cents) 5 (2) 3
Condensed group statement of comprehensive
income
Items that will not be reclassified subsequently
to profit or loss – 10 10
Actuarial gains on post-employment benefit funds – 15 15
Tax effect of above item – (5) (5)
Adoption of IFRS 10 Consolidated Financial Statements
IFRS 10 provides a single consolidation model that identifies control as the basis for consolidation
for all types of entities. An investor controls an investee when the investor is exposed or has rights
to variable returns from its involvement with the investee and has the ability to affect those returns
through its power over the investee.
Additionally, specified assets or a portion of an investee that are considered to be a deemed separate
entity should be consolidated provided that those assets are in substance ring-fenced from other
creditors. Following a recent interpretation of a discussion paper issued by the Financial Services
Board in South Africa (which states that although the insurance industry is governed by contractual
arrangements, cell captives are not legally ring-fenced in the event of liquidation), the group
consequently deconsolidated its assets with its South African insurer.
The impact of this change on the reviewed 2013 financial results is as follows:
As
previously
reported Adjustment Restated
US$ million US$ million US$ million
Condensed group balance sheet
Other non-current assets 120 33 153
Cash and cash equivalents 385 (33) 352
Net debt 2,214 33 2,247
There is no impact on the profit and cash flows for the quarter and half-year ended March 2013
as the opening balance of cash and cash equivalents was restated by the same amount as the
closing balance.
3. Operating profit
Reviewed
Restated Reviewed Restated
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2014 Mar 2013 Mar 2014 Mar 2013
US$ million US$ million US$ million US$ million
Included in operating profit are the
following non-cash items:
Depreciation and amortisation 76 88 163 177
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 14 16 29 33
Growth (18) (19) (36) (37)
(4) (3) (7) (4)
Plantation price fair value adjustment (5) (96) (13) (104)
(9) (99) (20) (108)
Included in other operating expenses
(income) are the following:
Net restructuring provisions 2 7 3 14
Profit on disposal of property,
plant and equipment – (1) (1) (1)
Profit on disposal of assets held
for sale (1) – (1) –
Asset (impairment reversals)
impairments (1) 47 (3) 47
Black Economic Empowerment
charge 1 1 1 2
4. Headline earnings per share
Headline earnings per share (US cents) 6 6 9 8
Weighted average number of shares in
issue (millions) 522.5 521.5 522.1 521.2
Diluted headline earnings per share
(US cents) 6 6 9 8
Weighted average number of shares on
fully diluted basis (millions) 525.6 523.8 524.8 523.2
Calculation of headline earnings
Profit for the period 32 2 50 14
Asset (impairment reversals)
impairments (1) 47 (3) 47
Profit on disposal of property,
plant and equipment – (1) (1) (1)
Profit on disposal of assets held
for sale (1) – (1) –
Tax effect of above items – (16) – (16)
Headline earnings 30 32 45 44
5. Capital commitments
Reviewed Reviewed
Mar 2014 Sept 2013
US$ million US$ million
Contracted 129 62
Approved but not contracted 217 195
346 257
6. Contingent liabilities
Guarantees and suretyships 32 33
Other contingent liabilities 18 11
50 44
7. Plantations
Plantations are stated at fair value less estimated cost to sell at the harvesting stage. In arriving at
plantation fair values, the key assumptions are estimated prices less cost of delivery, discount rates
(pre-tax weighted average cost of capital), and volume and growth estimations.
Expected future price trends and recent market transactions involving comparable plantations are also
considered in estimating fair value. Mature timber that is expected to be felled within 12 months from
the end of the reporting period are valued using unadjusted current market prices. Immature timber
and mature timber that is to be felled in more than 12 months from the reporting date are valued using
a 12 quarter rolling historical average price which, taking the length of the growth cycle of a plantation
into account, is considered reasonable.
The fair value of plantations is a Level 3 measure in terms of the fair value measurement hierarchy as
established by IFRS 13 Fair Value Measurement.
Reviewed Reviewed
Mar 2014 Sept 2013
US$ million US$ million
Fair value of plantations at beginning of year 464 555
Additions – 4
Gains arising from growth 34 79
Fire, flood, storms and related events – (4)
In-field inventory (2) 1
Gain arising from fair value price changes 6 87
Harvesting – agriculture produce (fellings) (27) (66)
Transferred to assets held for sale – (93)
Translation difference (21) (99)
Fair value of plantations at end of year 454 464
Included in assets held for sale are plantations carried at fair value amounting to US$85 million
(September 2013: US$86 million). During the current period, gains arising from growth amounted to
US$2 million, the price fair value adjustment amounted to US$7 million and timber worth US$2 million
was felled in these plantations.
8. Financial instruments
The group's financial instruments that are measured at fair value on a recurring basis consist of cash
and cash equivalents, derivative financial instuments and available for sale financial assets. These have
been categorised in terms of the fair value measurement hierarchy as established by IFRS 13
Fair Value Measurement per the table below.
Fair value(1)
Restated
Fair value Mar 2014 Sept 2013
hierarchy US$ million US$ million
Available for sale assets Level 1 10 11
Available for sale assets Level 2 39 40
Derivative financial assets Level 2 21 21
Derivative financial liabilities Level 2 113 101
(1) The fair value of the financial instruments are equal to their carrying value.
There have been no transfers of financial assets or financial liabilities between the categories of the fair
value hierarchy.
The fair value of all external over-the-counter derivatives is calculated based on the discount
rate adjustment technique. The discount rate used is derived from observable rates of return for
comparable assets or liabilities traded in the market. The credit risk of the external counterparty is
incorporated into the calculation of fair values of financial assets and own credit risk is incorporated in
the measurement of financial liabilities. The change in fair value is therefore impacted by the move of
the interest rate curves, by the volatility of the applied credit spreads, and by any changes of the credit
profile of the involved parties.
There are no financial assets and liabilities that have been remeasured to fair value on a non-recurring
basis. The carrying value of assets and liabilities (excluding plantations) which are held for sale, are
considered to be below their net recoverable amount.
The carrying amounts of other financial instruments which include accounts receivable, certain
investments, accounts payable and current interest-bearing borrowings approximate their fair values.
9. Material balance sheet movements
Other current liabilities, inventories and cash and cash equivalents
The decrease in cash and cash equivalents is largely due to seasonal working capital movements
which include an increase in inventory levels and the payment of creditors which included capital
accruals related to our dissolving wood pulp projects.
Property, plant and equipment
The estimated useful life of the group's pulp mill equipment was extended from 20 to 30 years and, as
such, the depreciation charge decreased by approximately US$9 million on a comparative basis for
the half-year ended March 2014.
10. Post balance sheet events
The group has entered into an agreement, subject to the fulfilment of certain conditions precedent, to
sell a portion of its South African softwood plantations for US$66 million (ZAR700 million).
11. Segment information
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2014 Mar 2013 Mar 2014 Mar 2013
Metric tons Metric tons Metric tons Metric tons
(000's) (000's) (000's) (000's)
Sales volume
North America 369 332 717 666
Europe 873 882 1,709 1,731
Southern Africa – Pulp and paper 427 387 830 767
Forestry 317 295 574 579
Total 1,986 1,896 3,830 3,743
Which consists of:
Specialised cellulose 295 184 581 359
Paper 1,374 1,417 2,675 2,805
Forestry 317 295 574 579
Reviewed
Restated Reviewed Restated
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2014 Mar 2013 Mar 2014 Mar 2013
US$ million US$ million US$ million US$ million
Sales
North America 382 341 747 687
Europe 827 824 1,617 1,623
Southern Africa – Pulp and paper 346 319 673 629
Forestry 18 19 35 39
Total 1,573 1,503 3,072 2,978
Which consists of:
Specialised cellulose 250 155 497 301
Paper 1,305 1,329 2,540 2,638
Forestry 18 19 35 39
Operating profit (loss) excluding
special items
North America 5 18 2 32
Europe 19 (1) 23 20
Southern Africa 71 20 127 52
Unallocated and eliminations(1) – 1 3 4
Total 95 38 155 108
Which consists of:
Specialised cellulose 71 43 126 71
Paper 24 (6) 26 33
Unallocated and eliminations(1) – 1 3 4
Special items – (gains) losses
North America – (5) (1) (3)
Europe 1 1 1 4
Southern Africa (4) (42) (14) (44)
Unallocated and eliminations(1) (1) 8 – 8
Total (4) (38) (14) (35)
Segment operating profit (loss)
North America 5 23 3 35
Europe 18 (2) 22 16
Southern Africa 75 62 141 96
Unallocated and eliminations(1) 1 (7) 3 (4)
Total 99 76 169 143
EBITDA excluding special items
North America 22 39 39 72
Europe 66 46 118 116
Southern Africa 83 40 158 93
Unallocated and eliminations(1) – 1 3 4
Total 171 126 318 285
Which consists of:
Specialised cellulose 82 50 156 88
Paper 89 75 159 193
Unallocated and eliminations(1) – 1 3 4
Segment assets
North America 1,063 980 1,063 980
Europe 1,620 1,750 1,620 1,750
Southern Africa 1,546 1,733 1,546 1,733
Unallocated and eliminations(1) (32) (22) (32) (22)
Total 4,197 4,441 4,197 4,441
(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
Restated Reviewed Restated
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2014 Mar 2013 Mar 2014 Mar 2013
US$ million US$ million US$ million US$ million
EBITDA excluding special items 171 126 318 285
Depreciation and amortisation (76) (88) (163) (177)
Operating profit excluding special
items 95 38 155 108
Special items – gains (losses) 4 38 14 35
Plantation price fair value
adjustment 5 96 13 104
Net restructuring provisions (2) (7) (3) (14)
Profit on disposal of property,
plant and equipment – 1 1 1
Profit on disposal of assets held
for sale 1 – 1 –
Asset impairment reversals
(impairments) 1 (47) 3 (47)
Black Economic Empowerment
charge (1) (1) (1) (2)
Fire, flood, storm and related
events – (4) – (7)
Segment operating profit 99 76 169 143
Net finance costs (48) (45) (96) (92)
Profit before taxation 51 31 73 51
Taxation (19) (29) (23) (37)
Profit for the period 32 2 50 14
Reconciliation of segment assets
to total assets
Segment assets 4,197 4,441 4,197 4,441
Deferred taxation 94 118 94 118
Cash and cash equivalents(1) 307 361 307 361
Other current liabilities 998 919 998 919
Taxation payable 8 14 8 14
Liabilities associated with assets
held for sale 3 – 3 –
Total assets 5,607 5,853 5,607 5,853
(1) The comparative period has been restated for the adoption of IFRS 10 Consolidated Financial Statements by an amount of
US$37 million. Refer to note 2 for more detail.
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, reissued by the South African Institute of Chartered
Accountants in December 2013, which 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
Restated Restated
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2014 Mar 2013 Mar 2014 Mar 2013
Key figures: (ZAR million)
Sales 17,058 13,429 32,237 26,258
Operating profit excluding special items(1) 1,030 340 1,627 952
Special items – gains(1) (43) (340) (147) (309)
EBITDA excluding special items(1) 1,854 1,126 3,337 2,513
Profit for the period 347 18 525 123
Basic earnings per share (SA cents) 66 3 101 24
Net debt(1) 23,775 20,218 23,775 20,218
Key ratios: (%)
Operating profit excluding special items to
sales 6.0 2.5 5.0 3.6
Operating profit excluding special items to
capital employed (ROCE)(1) 11.3 4.2 9.3 6.0
EBITDA excluding special items to sales 10.9 8.4 10.4 9.6
Return on average equity (ROE) 11.6 0.6 8.9 1.9
Net debt to total capitalisation(1) 66.2 60.3 66.2 60.3
(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
Restated(1)
Mar 2014 Sept 2013
US$ million US$ million
Interest-bearing borrowings 2,555 2,599
Non-current interest-bearing borrowings 2,443 2,499
Current interest-bearing borrowings 112 99
Overdrafts – 1
Cash and cash equivalents (307) (352)
Net debt 2,248 2,247
(1) Restated for the adoption of IFRS 10 Consolidated Financial Statements. Refer to note 2 for more detail.
Supplemental information (this information has not been audited or reviewed)
Exchange rates
Mar Dec Sept Jun Mar
2014 2013 2013 2013 2013
Exchange rates:
Period end rate: US$1 = ZAR 10.5760 10.5300 10.0930 9.8800 9.2363
Average rate for the Quarter: US$1 = ZAR 10.8443 10.1406 9.9931 9.4756 8.9349
Average rate for the YTD: US$1 = ZAR 10.4938 10.1406 9.2779 9.0364 8.8173
Period end rate: EUR1 = US$ 1.3753 1.3742 1.3522 1.3010 1.2821
Average rate for the Quarter: EUR1 = US$ 1.3705 1.3607 1.3248 1.3060 1.3206
Average rate for the YTD: EUR1 = US$ 1.3656 1.3607 1.3121 1.3078 1.3088
Sappi has a
primary listing on
the JSE Limited
and a Level 1 ADR
programme that
trades in the over-
the-counter market
in the United States
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
JSE Sponsor:
UBS South Africa (Pty) Ltd
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