Wrap Text
Fourth quarter results for the year ended September 2014
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
Fourth quarter results for the year ended September 2014
4th 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.
Sales by source* Sales by destination*
- North America 25% - North America 21%
- Europe 51% - Europe 45%
- Southern Africa 24% - Southern Africa 11%
- Asia and other 23%
Sales by product* Net operating assets**
- Coated paper 60% - North America 27%
- Uncoated paper 6% - Europe 39%
- Speciality paper 9% - Southern Africa 34%
- Commodity paper 6%
- Dissolving wood pulp 17%
- Paper pulp 1%
- Other 1%
* for the period ended September 2014
** as at September 2014
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
- EBITDA excluding special items USD200 million (up 29% year-on-year)
- EPS excluding special items 12 US cents (restated Q4 2013 1 US cent)
- USD288 million cash generation in the quarter (restated Q4 2013 USD111 million)
Highlights for the year
- Strategy delivers strong earnings growth
- EBITDA excluding special items USD658 million (up 25% year-on-year)
- EPS excluding special items 22 US cents (restated 2013 loss per share 4 US cents)
- Net debt USD1,946 million, down USD300 million year-on-year
Quarter ended Year ended
Restated(1) Restated(1)
Sept 2014 Sept 2013 Jun 2014 Sept 2014 Sept 2013
Key figures: (USD million)
Sales 1,505 1,530 1,484 6,061 5,925
Operating profit excluding special
items(2) 124 67 67 346 180
Special items – losses (gains)(3) 48 177 (2) 32 161
EBITDA excluding special items(2) 200 155 140 658 528
Profit (loss) for the period 68 (149) 17 135 (182)
Basic earnings (loss) per share
(US cents) 13 (29) 3 26 (35)
Net debt(4) 1,946 2,247 2,286 1,946 2,247
Key ratios: (%)
Operating profit excluding special
items to sales 8.2 4.4 4.5 5.7 3.0
Operating profit excluding special
items to capital employed (ROCE)(5) 15.4 7.6 7.8 10.8 5.2
EBITDA excluding special items
to sales 13.3 10.1 9.4 10.9 8.9
Return on average equity (ROE)(5) 24.7 (48.0) 5.9 12.3 (13.6)
Net debt to total capitalisation(5) 65.1 66.3 66.3 65.1 66.3
Net asset value per share (US cents) 199 219 222 199 219
(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 (loss), and profit (loss) 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 continued the strong progress made throughout 2014 and delivered a 29% rise in EBITDA
excluding special items compared with the equivalent quarter last year. It is pleasing to note that all three
regions improved from the prior quarter. Cost reductions across the group and higher selling prices in some
markets contributed to the growth. Volumes continued to decline in the graphic paper markets, but at a
slower rate than experienced in recent years.
Lower variable costs, stable prices and seasonally stronger volumes in the European business helped
improve margins to their best levels in two years.
The North American business had an encouraging recovery in margins, with the impact from the July
price increase on coated woodfree reels and seasonally stronger paper volumes resulting in a return to an
operating profit excluding special items.
The continued improvement of the Southern African paper business together with stronger packaging paper
prices and volumes offset the weaker office paper demand and input cost increases.
The Specialised Cellulose business had another solid quarter, with increased sales volumes and a weaker
Rand/Dollar exchange rate offsetting the lower average US Dollar dissolving wood pulp prices compared to both
the prior quarter and prior year. Strong shipment volumes contributed towards an EBITDA excluding special
items of USD77 million.
Net finance costs for the quarter were USD39 million, a reduction from the USD47 million in the equivalent
quarter last year.
Earnings per share for the quarter were 13 US cents (including a gain of 1 US cent in respect of special
items), compared with a loss of 29 US cents (including a charge of 30 US cents in respect of special items)
in the restated equivalent quarter last year.
Special items for the quarter were a net charge of USD48 million. Included in the special items was a
provision for retrenchments and restructuring costs in our European paper business. These charges were
offset by a deferred tax asset of USD53 million in North America which was recognised due to the non-
taxability of bio-fuel tax credits received in fiscal 2009 and 2010.
Year ended September 2014 compared to year ended September 2013
We made significant strides in the execution of our strategy this past year. Notable achievements were
reduction of net debt, improved performance of our European and Southern African paper businesses and
delivery of substantially increased dissolving wood pulp volumes into a growing and high margin market.
Additionally, we disposed of Nijmegen Mill in order to reduce costs, and sold our Usutu forests which were
surplus to requirements, to assist with reducing net debt. The North American business had a challenging
year; however we can already see advancement in that business and expect further improvement in the year
ahead.
The group's EBITDA excluding special items increased by 25% over the prior year. Operating profit excluding
special items for the year was USD346 million compared to USD180 million in the prior year. Special items
amounted to a charge of USD32 million, comprised mainly of net restructuring charges and loss on disposal of
assets across our businesses. This was partially offset by plantation fair value pricing gains of USD18 million.
Net finance costs for the year were USD177 million, a slight reduction from the USD186 million in the prior year.
Cash flow and debt
Net cash generated for the quarter was USD288 million, compared with USD111 million in the equivalent
quarter last year. The increase was largely as a result of higher profitability and the cash received from
the sale of the Usutu forests. Capital expenditure in the quarter was USD105 million compared to
USD103 million a year ago and was mainly related to the projects at the Kirkniemi and Gratkorn mills.
Net cash generated for the full financial year was USD243 million compared to utilisation of USD247 million
last year. This significant turnaround was due to the improved operating cash generation, excellent
working capital management, reduced capital expenditure and the receipt of proceeds of ZAR1 billion
from the sale of the Usutu forests.
Net debt at financial year-end decreased to USD1,946 million as a result of the increased cash generated,
and was within our target to end the year below USD2 billion.
At the end of September 2014, we had liquidity comprising USD528 million of cash in addition to
undrawn committed revolving credit facilities of €350 million and ZAR1 billion in Europe and South Africa
respectively.
In October 2014, we utilised cash resources to redeem USD27 million (ZAR300 million) of our
USD67 million (ZAR750 million) public bonds due April 2015.
Operating review for the quarter
Europe
Restated(1)
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Sept 2014 Jun 2014 Mar 2014 Dec 2013 Sept 2013
EUR million EUR million EUR million EUR million EUR million
Sales 561 543 603 581 591
Operating profit (loss)
excluding special items 26 12 14 3 (9)
Operating profit (loss)
excluding special items
to sales (%) 4.6 2.2 2.3 0.5 (1.5)
EBITDA excluding special
items 58 39 48 38 27
EBITDA excluding special
items to sales (%) 10.3 7.2 8.0 6.5 4.6
RONOA pa (%) 8.6 4.0 4.6 1.0 (2.8)
(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.
The European business saw an encouraging improvement in margin in this seasonally better quarter,
achieving an EBITDA excluding special items margin of more than 10% for the first time since 2012.
Industry demand for coated woodfree papers was flat for the quarter compared to the prior year, whilst
coated mechanical paper demand continued to decline. The weaker Euro/Dollar exchange rate led to
improved pricing on export volumes during September, with local selling prices broadly flat compared to the
prior quarter.
The disposal of Nijmegen Mill, which was completed in the third fiscal quarter, negatively impacted volumes
as the 52,000 ton transition agreement in place with the acquirer was largely completed in the fourth
quarter. Since year-end the majority of these volumes have transitioned to our remaining mills in Europe.
Variable costs were 6% below those of the equivalent quarter last year as procurement initiatives and lower
commodity prices ensured that all major cost components, except softwood pulp, decreased over the past year.
The Specialities business progressed strongly through the quarter with improved volumes and lower costs
compared to the prior quarter.
North America
Restated(1)
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Sept 2014 Jun 2014 Mar 2014 Dec 2013 Sept 2013
USD million USD million USD million USD million USD million
Sales 390 380 382 365 366
Operating profit (loss)
excluding special items 25 (9) 5 (3) 27
Operating profit (loss)
excluding special items
to sales (%) 6.4 (2.4) 1.3 (0.8) 7.4
EBITDA excluding special
items 43 10 22 17 47
EBITDA excluding special
items to sales (%) 11.0 2.6 5.8 4.7 12.8
RONOA pa (%) 9.8 (3.5) 1.9 (1.2) 10.4
(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.
Market conditions were extremely competitive throughout the year and we experienced significant
downward pressure on pricing. During this seasonally stronger quarter, operating profit excluding special
items recovered compared with the prior quarter which included the impact of outages. The result was
slightly below that of the equivalent quarter last year due to lower paper prices and higher input costs,
particularly for wood. Prices for coated woodfree web increased during the quarter, but have yet to match
prior year price levels.
Lower dissolving wood pulp sales prices impacted Cloquet Mill. Productivity exceeded target levels over
the second half of the year however, and recent changes to our transportation network have improved
costs.
The release paper business was once again impacted by weak Chinese demand, only partially offset by
stronger sales to the rest of the world.
A number of cost reduction initiatives reduced energy and chemical costs in the quarter, whilst purchased
hardwood paper pulp prices declined. Higher wood costs resulting from short-term supply shortages
caused by the past winter and spring weather, continue to impact variable costs negatively.
Southern Africa
Restated(1) Restated(1)
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Sept 2014 Jun 2014 Mar 2014 Dec 2013 Sept 2013
ZAR million ZAR million ZAR million ZAR million ZAR million
Sales 3,972 3,781 3,942 3,488 3,779
Operating profit excluding
special items 634 653 765 568 509
Operating profit excluding
special items to sales (%) 16.0 17.3 19.4 16.3 13.5
EBITDA excluding special
items 827 810 897 761 709
EBITDA excluding special
items to sales (%) 20.8 21.4 22.8 21.8 18.8
RONOA pa (%) 16.7 16.2 18.6 14.1 12.8
(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.
Overall, this has been a good year for the Southern African business, with an expanded Specialised
Cellulose business and the restructured paper business consistently delivering enhanced margins.
The performance of the Southern African business improved compared to the equivalent quarter last year
due to increased sales volumes for dissolving wood pulp, as well as higher average prices for paper and
paper packaging.
Compared to the prior quarter, lower average Rand pricing for dissolving wood pulp and higher fixed
costs as a result of a planned maintenance shut at Saiccor contributed to the reduction in profitability.
Variable costs were 1% lower than the prior quarter and approximately 3% higher than the equivalent
quarter last year, mainly due to higher energy, wood and paper pulp costs.
Outlook
Markets will remain challenging, both for graphic paper, where demand is expected to continue to
decline, and for dissolving wood pulp due to current pricing pressures. In the dissolving wood pulp
market demand remains robust. US Dollar prices have weakened post the financial year due to pressure
from lower cotton prices and the continued oversupply of dissolving wood pulp and viscose staple fibre
production capacity. Cloquet will likely take advantage of its ability to swing between dissolving wood pulp
and hardwood paper pulp production to optimise margins for the US business. Volumes with key dissolving
wood pulp customers will not be impacted by any such optimisation. We will continue to focus on cost
management in order to maintain our current margins for the overall Specialised Cellulose business.
Currency movements affect margins in our European and Southern African businesses, having both
transactional and translational impacts. A weaker Rand and Euro in relation to the US Dollar both support
local and export pricing for these businesses, historically offsetting any input cost impact of the weaker
currency.
Capital expenditure in 2015 is expected to be in line with that of 2014, and focussed largely on the
investments at our Kirkniemi and Gratkorn mills.
The first quarter result will be negatively impacted by the Gratkorn PM11 upgrade project, resulting in
three weeks of downtime for the paper machine. The result will be further impacted by the extended
annual maintenance outage and the finalisation of the natural gas conversion project at Somerset Mill in
the US. We therefore expect the group EBITDA excluding special items in the first quarter to be similar
to that achieved in the equivalent quarter last year, despite the improved underlying performance of the
overall business.
Based on current market conditions, we believe that EBITDA excluding special items in the 2015 financial
year will be broadly similar to that of 2014. The expected improvement in the underlying operational
performance of the paper businesses will be offset by lower US Dollar dissolving wood pulp pricing and
the impact of the projects at Gratkorn and Somerset.
We are considering utilising our increased cash reserves to repay and refinance a portion of our debt in
order to lower future costs. We typically experience a cash outflow in our first fiscal quarter and this will
lead to an increase in net debt as at the end of December 2014. Nevertheless, we expect to reduce our
net debt further over the course of the year and to reduce our financial leverage towards our target of two
times net debt to EBITDA.
On behalf of the board
S R Binnie G Pearce 10 November 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, and 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 a 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 and other
strategic initiatives and achieving expected savings and synergies; and
- currency fluctuations.
We undertake no obligation to publicly update or revise any of these forward-looking statements, whether
to reflect new information or future events or circumstances or otherwise.
Condensed group income statement
Reviewed
Restated Reviewed Restated
Quarter Quarter Year Year
ended ended ended ended
Sept 2014 Sept 2013 Sept 2014 Sept 2013
Note USD million USD million USD million USD million
Sales 1,505 1,530 6,061 5,925
Cost of sales 1,326 1,377 5,370 5,285
Gross profit 179 153 691 640
Selling, general and administrative
expenses 69 94 352 384
Other operating expenses 36 171 33 244
Share of profit from equity
investments (2) (2) (8) (7)
Operating profit (loss) 3 76 (110) 314 19
Net finance costs 39 47 177 186
Net interest expense 45 49 185 188
Net foreign exchange gain (3) (2) (7) (1)
Net fair value gain on financial
instruments (3) – (1) (1)
Profit (loss) before taxation 37 (157) 137 (167)
Taxation (31) (8) 2 15
Profit (loss) for the period 68 (149) 135 (182)
Basic earnings (loss) per share
(US cents) 13 (29) 26 (35)
Weighted average number of
shares in issue (millions) 523.3 521.5 522.5 521.3
Diluted earnings (loss) per share
(US cents) 13 (29) 26 (35)
Weighted average number of
shares on fully diluted basis
(millions) 529.1 521.5 526.6 521.3
Condensed group statement of comprehensive income
Reviewed
Restated Reviewed Restated
Quarter Quarter Year Year
ended ended ended ended
Sept 2014 Sept 2013 Sept 2014 Sept 2013
USD million USD million USD million USD million
Profit (loss) for the period 68 (149) 135 (182)
Other comprehensive (loss) income,
net of tax
Items that will not be reclassified
subsequently to profit or loss (152) (15) (152) 14
Actuarial (losses) gains on post-
employment benefit funds (152) 8 (152) 51
Tax effect of above item – (23) – (37)
Items that must be reclassified
subsequently to profit or loss (39) (34) (95) (224)
Exchange differences on translation of
foreign operations (14) (41) (71) (225)
Movements in hedging reserves (26) 7 (23) 3
Movement on available for sale
financial assets – – (2) –
Tax effect of above items 1 – 1 (2)
Total comprehensive loss for
the period (123) (198) (112) (392)
Condensed group balance sheet
Reviewed
Reviewed Restated
Sept 2014 Sept 2013
USD million USD million
ASSETS
Non-current assets 3,505 3,787
Property, plant and equipment 2,841 3,078
Plantations 430 464
Deferred tax assets 138 92
Other non-current assets 96 153
Current assets 1,960 1,940
Inventories 687 728
Trade and other receivables 731 748
Taxation receivable 14 18
Cash and cash equivalents 528 352
Assets held for sale – 94
Total assets 5,465 5,727
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest 1,044 1,144
Non-current liabilities 3,198 3,371
Interest-bearing borrowings 2,311 2,499
Deferred tax liabilities 272 267
Other non-current liabilities 615 605
Current liabilities 1,223 1,212
Interest-bearing borrowings 163 99
Overdrafts – 1
Other current liabilities 1,035 1,094
Taxation payable 25 12
Liabilities associated with assets held for sale – 6
Total equity and liabilities 5,465 5,727
Number of shares in issue at balance sheet date (millions) 524.2 521.5
Condensed group statement of cash flows
Reviewed
Restated Reviewed Restated
Quarter Quarter Year Year
ended ended ended ended
Sept 2014 Sept 2013 Sept 2014 Sept 2013
USD million USD million USD million USD million
Profit (loss) for the period 68 (149) 135 (182)
Adjustment for:
Depreciation, fellings and amortisation 90 104 371 414
Taxation (31) (8) 2 15
Net finance costs 39 47 177 186
Defined post-employment benefits paid (13) (20) (70) (74)
Plantation fair value adjustments (16) (15) (86) (166)
Asset impairments 3 109 – 155
Net restructuring provisions and loss on
disposal of assets and businesses 26 84 23 99
Other non-cash items (6) (31) 14 –
Cash generated from operations 160 121 566 447
Movement in working capital 153 108 34 (20)
Net finance costs paid (26) (20) (162) (164)
Taxation paid – (2) (1) (17)
Cash generated from operating
activities 287 207 437 246
Cash generated from (utilised in)
investing activities 1 (96) (194) (493)
Capital expenditure (105) (103) (295) (552)
Net proceeds on disposal of assets and
businesses 97 3 87 53
Other movements 9 4 14 6
Net cash generated (utilised) 288 111 243 (247)
Cash effects of financing activities 24 34 (36) (8)
Net movement in cash and cash
equivalents 312 145 207 (255)
Cash and cash equivalents at
beginning of period 248 202 352 604
Translation effects (32) 5 (31) 3
Cash and cash equivalents at
end of period 528 352 528 352
Condensed group statement of changes in equity
Reviewed
Reviewed Restated
Year Year
ended ended
Sept 2014 Sept 2013
USD million USD million
Balance – beginning of period 1,144 1,525
Total comprehensive loss for the period (112) (392)
Transfers from the share purchase trust 12 3
Transfers of vested share options (7) (3)
Share-based payment reserve 7 11
Balance – end of period 1,044 1,144
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated preliminary financial results for the year ended September 2014
have been prepared in accordance with the JSE Limited Listings Requirements for preliminary
reports and the requirements of the Companies Act of South Africa. The Listings Requirements
require preliminary reports to be prepared in accordance with the framework concepts and the
measurement and recognition requirements of International Financial Reporting Standards (IFRS)
and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee
and Financial Pronouncements as issued by the Financial Reporting Standards Council and
to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting.
The accounting policies applied in the preparation of these condensed consolidated preliminary
financial statements are in terms of IFRS and 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 preliminary financial information was supervised by
the Chief Financial Officer, G Pearce CA(SA).
The preliminary results for the year ended September 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.
The auditor's report does not necessarily report on all of the information contained in this
announcement/financial results. Shareholders are therefore advised that in order to obtain a full
understanding of the nature of the auditor's engagement they should obtain a copy of the auditor's
report together with the accompanying financial information from the issuer'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 September 2013 is
as follows:
As
previously
reported Adjustment Restated
USD million USD million USD million
Condensed group income statement
Cost of sales 1,374 3 1,377
Net finance costs 42 5 47
Taxation (6) (2) (8)
Loss for the period (143) (6) (149)
Earnings per share
Basic loss per share (US cents) (27) (2) (29)
Diluted loss per share (US cents) (27) (2) (29)
Condensed group statement of comprehensive
income
Items that will not be reclassified subsequently
to profit or loss (21) 6 (15)
Actuarial gains on post-employment benefit funds – 8 8
Tax effect of above item (21) (2) (23)
The impact on profit or loss and other comprehensive loss for the year ended September 2013 is
as follows:
Condensed group income statement
Cost of sales 5,274 11 5,285
Net finance costs 166 20 186
Taxation 25 (10) 15
Loss for the period (161) (21) (182)
Earnings per share
Basic loss per share (US cents) (31) (4) (35)
Diluted loss per share (US cents) (31) (4) (35)
Condensed group statement of comprehensive
income
Items that will not be reclassified subsequently
to profit or loss (7) 21 14
Actuarial gains on post-employment benefit funds 20 31 51
Tax effect of above item (27) (10) (37)
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 2013 financial results is as follows:
As
previously
reported Adjustment Restated
USD million USD million USD 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 profit or loss and cash flows for the quarter and year ended September 2013.
3. Operating profit (loss)
Reviewed
Restated Reviewed Restated
Quarter Quarter Year Year
ended ended ended ended
Sept 2014 Sept 2013 Sept 2014 Sept 2013
USD million USD million USD million USD million
Included in operating profit (loss) are the
following items:
Depreciation and amortisation 76 88 312 348
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 14 16 59 66
Growth (16) (21) (68) (79)
(2) (5) (9) (13)
Plantation price fair value adjustment – 6 (18) (87)
(2) 1 (27) (100)
Net restructuring provisions and loss
on disposal of assets and businesses 26 84 23 99
Impairment of goodwill 1 – 1 –
Asset impairments 3 109 – 155
Post-retirement plan amendment (21) (24) (21) (24)
Black Economic Empowerment
charge – – 2 3
4. Headline earnings (loss) per share
Reviewed
Restated Reviewed Restated
Quarter Quarter Year Year
ended ended ended ended
Sept 2014 Sept 2013 Sept 2014 Sept 2013
USD million USD million USD million USD million
Headline earnings (loss) per share
(US cents) 14 (10) 31 (10)
Weighted average number of shares in 523.3 521.5 522.5 521.3
issue (millions)
Diluted headline earnings (loss) per 14 (10) 31 (10)
share (US cents)
Weighted average number of shares on 529.1 521.5 526.6 521.3
fully diluted basis (millions)
Calculation of headline earnings
(loss)
Profit (loss) for the period 68 (149) 135 (182)
Asset impairments 3 109 – 155
Loss on disposal of assets and
businesses 4 1 29 –
Impairment of goodwill 1 – 1 –
Tax effect of above items (2) (12) (1) (27)
Headline earnings (loss) 74 (51) 164 (54)
5. Capital commitments
Reviewed Reviewed
Sept 2014 Sept 2013
USD million USD million
Contracted 104 62
Approved but not contracted 126 195
230 257
6. Contingent liabilities
Reviewed Reviewed
Sept 2014 Sept 2013
USD million USD million
Guarantees and suretyships 23 33
Other contingent liabilities 26 11
49 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
Sept 2014 Sept 2013
USD million USD million
Fair value of plantations at beginning of year 464 555
Additions – 4
Gains arising from growth 65 79
Fire, flood, storms and related events – (4)
In-field inventory (1) 1
Gain arising from fair value price changes 7 87
Harvesting – agriculture produce (fellings) (57) (66)
Transferred to assets held for sale – (93)
Translation difference (48) (99)
Fair value of plantations at end of year 430 464
At September 2013, plantations amounting to USD86 million were disclosed as assets held for
sale. In accordance with IAS 41 Agriculture, these plantations were carried at fair value. Before the
disposal of the plantations in the current period, gains arising from growth amounted to USD3 million,
the price fair value adjustment amounted to USD11 million and timber worth USD2 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)
Reviewed
Reviewed Restated
Fair value Sept 2014 Sept 2013
hierachy USD million USD million
Available for sale assets Level 1 10 11
Available for sale assets Level 2 – 40
Derivative financial assets Level 2 13 21
Derivative financial liabilities Level 2 59 101
(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 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
Since the 2013 financial year-end, the ZAR and Euro has weakened just over 11% and 6% respectively to
the US Dollar, the group's presentation currency, resulting in a similar decrease of the group's assets
and liabilities held in the aforementioned functional currencies on translation to the presentation currency.
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 USD18 million on a comparative basis
for the year ended September 2014.
Deferred tax assets
During the quarter, the group received a final examination report from the US Internal Revenue
Service regarding tax years under audit of the North American entity confirming that the Alternative
Fuel Mixture Credit received in prior years was non-taxable. This credit was previously treated as
taxable by the group. As a result, the group raised an additional deferred tax asset of USD53 million
in North America.
Cash and cash equivalents and assets held for sale
The group disposed of its subsidiary, Usutu Forests Products Company Limited, for an amount
of USD97 million (ZAR1 billion) which includes a vendor loan note of USD8 million (ZAR90 million)
which is repayable over six years at prime plus 2%. The disposal group, which consisted mainly of
plantations, was held within the group's South African operations. The proceeds on sale together
with an improved operating performance resulted in an increase in cash and cash equivalents.
Interest-bearing borrowings
Interest-bearing borrowings decreased due to the repayment of certain loans in South Africa.
Additionally, USD100 million was reclassified to short-term as it falls due within the next 12 months.
Other non-current liabilities and other non-current assets
The net increase in other non-current liabilities is due to actuarial losses incurred as a result of the
effect of lower discount rates applied in valuing post-retirement benefit liabilities and the net effect of
a once-off adjustment to a plan in Europe. This increase was offset by contributions paid, the effect
of a purchase of a qualifying insurance asset, using available non-current assets, in respect of the
South African post-retirement medical aid liability and, a reduction in derivative financial liabilities
arising from the weakening of the Euro against the US Dollar.
Other current liabilities
Other current liabilities decreased due to the payment of capital accruals related to our dissolving
wood pulp projects and the utilisation of restructuring provisions. Restructuring provisions no longer
required mainly related to Nijmegen Mill and were released following its sale.
10. Post balance sheet event
In October 2014, the group utilised its existing cash resources to redeem USD27 million
(ZAR300 million) of its USD67 million (ZAR750 million) public bonds due April 2015.
11. Segment information
Quarter Quarter Year Year
ended ended ended ended
Sept 2014 Sept 2013 Sept 2014 Sept 2013
Metric tons Metric tons Metric tons Metric tons
(000's) (000's) (000's) (000's)
Sales volume
North America 375 335 1,454 1,298
Europe 811 840 3,303 3,367
Southern Africa – Pulp and paper 453 447 1,706 1,619
Forestry 212 294 1,061 1,182
Total 1,851 1,916 7,524 7,466
Which consists of:
Specialised cellulose 313 252 1,199 794
Paper 1,326 1,370 5,264 5,490
Forestry 212 294 1,061 1,182
Reviewed
Restated Reviewed Restated
Quarter Quarter Year Year
ended ended ended ended
Sept 2014 Sept 2013 Sept 2014 Sept 2013
USD million USD million USD million USD million
Sales
North America 390 366 1,517 1,377
Europe 745 783 3,107 3,155
Southern Africa – Pulp and paper 354 363 1,368 1,316
Forestry 16 18 69 77
Total 1,505 1,530 6,061 5,925
Which consists of:
Specialised cellulose 258 225 1,013 683
Paper 1,231 1,287 4,979 5,165
Forestry 16 18 69 77
Operating profit (loss) excluding
special items
North America 25 27 18 57
Europe 36 (12) 75 (8)
Southern Africa 59 53 248 125
Unallocated and eliminations (1) 4 (1) 5 6
Total 124 67 346 180
Which consists of:
Specialised cellulose 62 72 243 182
Paper 58 (4) 98 (8)
Unallocated and eliminations(1) 4 (1) 5 6
Special items – losses (gains)
North America – (2) 2 (6)
Europe 37 135 33 142
Southern Africa 2 38 (12) 8
Unallocated and eliminations(1) 9 6 9 17
Total 48 177 32 161
Segment operating profit (loss)
North America 25 29 16 63
Europe (1) (147) 42 (150)
Southern Africa 57 15 260 117
Unallocated and eliminations(1) (5) (7) (4) (11)
Total 76 (110) 314 19
EBITDA excluding special items
North America 43 47 92 135
Europe 77 36 249 183
Southern Africa 77 73 312 204
Unallocated and eliminations(1) 3 (1) 5 6
Total 200 155 658 528
Which consists of:
Specialised cellulose 77 87 303 226
Paper 120 69 350 296
Unallocated and eliminations(1) 3 (1) 5 6
Segment assets
North America 1,013 1,046 1,013 1,046
Europe 1,472 1,594 1,472 1,594
Southern Africa 1,289 1,556 1,289 1,556
Unallocated and eliminations(1) (35) (25) (35) (25)
Total 3,739 4,171 3,739 4,171
(1) Includes the group's treasury operations and the self-insurance captive.
Reconciliation of EBITDA excluding special items and operating profit excluding special items
to segment operating profit (loss) and profit (loss) for the period
Special items cover those items which management believe are material by nature or amount to the
operating results and require separate disclosure.
Reviewed
Restated Reviewed Restated
Quarter Quarter Year Year
ended ended ended ended
Sept 2014 Sept 2013 Sept 2014 Sept 2013
USD million USD million USD million USD million
EBITDA excluding special items 200 155 658 528
Depreciation and amortisation (76) (88) (312) (348)
Operating profit excluding special
items 124 67 346 180
Special items – (losses) gains (48) (177) (32) (161)
Plantation price fair value
adjustment – (6) 18 87
Net restructuring provisions and
loss on disposal of assets and
businesses (26) (84) (23) (99)
Impairment of goodwill (1) – (1) –
Asset impairments (3) (109) – (155)
Post-retirement plan amendment – 24 – 24
Black Economic Empowerment
charge – – (2) (3)
Fire, flood, storm and
other events (18) (2) (24) (15)
Segment operating profit (loss) 76 (110) 314 19
Net finance costs (39) (47) (177) (186)
Profit (loss) before taxation 37 (157) 137 (167)
Taxation 31 8 (2) (15)
Profit (loss) for the period 68 (149) 135 (182)
Reconciliation of segment assets
to total assets
Segment assets 3,739 4,171 3,739 4,171
Deferred taxation 138 92 138 92
Cash and cash equivalents(2) 528 352 528 352
Other current liabilities 1,035 1,094 1,035 1,094
Taxation payable 25 12 25 12
Liabilities associated with assets
held for sale – 6 – 6
Total assets 5,465 5,727 5,465 5,727
(2) The comparative period has been restated for the adoption of IFRS 10 Consolidated Financial Statements by an amount of
USD34 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 charge – represents the IFRS 2 non-cash charge associated with the
BEE transaction implemented in fiscal 2010 in terms of Black Economic Empowerment (BEE) legislation in South Africa
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
EPS excluding special items - earnings per share excluding special items and certain once-off finance and tax 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 overdrafts (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 tax assets and cash) less current liabilities
(excluding interest-bearing borrowings and overdrafts). 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 Year Year
ended ended ended ended
Sept 2014 Sept 2013 Sept 2014 Sept 2013
Key figures: (ZAR million)
Sales 16,172 15,289 64,037 54,972
Operating profit excluding special items(1) 1,332 670 3,656 1,670
Special items – losses(1) 516 1,769 338 1,494
EBITDA excluding special items(1) 2,149 1,549 6,952 4,899
Profit (loss) for the period 731 (1,489) 1,426 (1,689)
Basic earnings (loss) per share (SA cents) 140 (286) 273 (324)
Net debt(1) 21,851 22,679 21,851 22,679
Key ratios: (%)
Operating profit excluding special items
to sales 8.2 4.4 5.7 3.0
Operating profit excluding special items
to capital employed (ROCE)(1) 15.2 7.6 10.8 5.2
EBITDA excluding special items to sales 13.3 10.1 10.9 8.9
Return on average equity (ROE)(1) 24.4 (48.1) 12.3 (13.9)
Net debt to total capitalisation(1) 65.1 66.3 65.1 66.3
(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)
Sept 2014 Sept 2013
USD million USD million
Interest-bearing borrowings 2,474 2,599
Non-current interest-bearing borrowings 2,311 2,499
Current interest-bearing borrowings 163 99
Overdrafts – 1
Cash and cash equivalents (528) (352)
Net debt 1,946 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
Sept Jun Mar Dec Sept
2014 2014 2014 2013 2013
Exchange rates:
Period end rate: USD1 = ZAR 11.2285 10.5890 10.5760 10.5300 10.0930
Average rate for the Quarter: USD1 = ZAR 10.7456 10.5340 10.8443 10.1406 9.9931
Average rate for the YTD: USD1 = ZAR 10.5655 10.5072 10.4938 10.1406 9.2779
Period end rate: EUR1 = USD 1.2685 1.3649 1.3753 1.3742 1.3522
Average rate for the Quarter: EUR1 = USD 1.3280 1.3717 1.3705 1.3607 1.3248
Average rate for the YTD: EUR1 = USD 1.3577 1.3676 1.3656 1.3607 1.3121
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
this report is available on the Sappi website
www.sappi.com
JSE Sponsor:
UBS South Africa (Pty) Ltd
Date: 10/11/2014 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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