Wrap Text
First Quarter Results for the period ended December 2014
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
FIRST QUARTER RESULTS
for the period ended December 2014
1st 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
North America - 25%
Europe - 50%
Southern Africa - 25%
*Sales by product
Coated paper - 59%
Uncoated pape - 6%
Speciality paper
Commodity paper - 7%
Dissolving wood pulp - 18%
Paper pulp - 9%
Other - 1%
*Sales by destination
North America - 20%
Europe - 41%
Southern Africa - 10%
Asia and other - 29%
**Net operating assets
North America - 27%
Europe - 39%
Southern Africa - 34%
* for the period ended December 2014
** as at December 2014
Highlights for the quarter
- Profit for the period USD24 million (Q1 2014 USD18 million)
- EPS excluding special items 5 US cents (Q1 2014 2 US cents)
- EBITDA excluding special items USD145 million (Q1 2014 USD147 million)
- Net debt USD2,040 million, down USD340 million year-on-year
Quarter ended
Restated(1)
Dec 2014 Dec 2013 Sept 2014
Key figures: (USD million)
Sales 1,377 1,499 1,505
Operating profit excluding special items (2) 74 60 124
Special items - losses (gains)(3) 5 (10) 48
EBITDA excluding special items (2) 145 147 200
Profit for the period 24 18 68
Basic earnings per share (US cents) 5 3 13
Net debt (4) 2,040 2,380 1,946
Key ratios: (%)
Operating profit excluding special items to sales 5.4 4.0 8.2
Operating profit excluding special items to capital employed (ROCE)(5) 9.7 7.0 15.4
EBITDA excluding special items to sales 10.5 9.8 13.3
Return on average equity (ROE)(5) 9.1 6.4 24.7
Net debt to total capitalisation(5) 65.8 68.0 65.1
Net asset value per share (US cents) 202 215 199
(1) Restated for the adoption of 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
Operating performance in the quarter was in line with expectations and the equivalent
quarter last year. The group generated an EBITDA excluding special items of USD145
million, operating profit excluding special items of USD74 million and profit for the period
of USD24 million.
The Specialised Cellulose business continued to generate good returns during the
quarter, with EBITDA excluding special items of USD70 million. US Dollar prices for
dissolving wood pulp remain under pressure in all market segments due to excess
market supply as well as the weak margins in the viscose staple fibre sector. The
decline in cotton and polyester prices and large cotton reserves are compounding the
pricing pressures. The weaker Rand/Dollar exchange rate has enabled the
South African mills to maintain Rand pricing, while good variable and fixed cost control across
the business is helping to maintain margins.
The European business benefited from lower fixed costs after the disposal of the
Nijmegen mill, higher sales prices for coated woodfree paper as well as an improved
performance from the specialities business at Alfeld.
A planned extended annual maintenance shut and the completion of a number of capital
projects in the North American business had a significant impact on costs during the
quarter resulting in an operating loss for the quarter. However, the underlying
performance improved, particularly in the coated paper business, as a result of higher
selling prices. In the current pricing environment, the decision to produce paper pulp
for own consumption as well as dissolving wood pulp at the Cloquet pulp mill also
enhanced profitability.
The paper business in South Africa continues to show steady improvement, while the
transition from graphic paper grades to packaging paper commenced during the quarter.
Net finance costs for the quarter were USD37 million, a reduction from the USD48 million
in the equivalent quarter last year.
Earnings per share for the quarter were 5 US cents, compared with 3 US cents
(including a gain of 1 US cent in respect of special items) in the equivalent quarter
last year.
There were no major special items for the quarter. The net charge of USD5 million
includes a self-insured mechanical failure at the Ngodwana mill.
Cash flow and debt
Net cash utilised for the quarter was USD121 million, lower than the net cash utilised of
USD133 million in the equivalent quarter last year. The cash outflow for the quarter was
mainly as a result of a seasonal increase in working capital. Capital expenditure in the
quarter of USD68 million was marginally less than the USD71 million spent in the
equivalent quarter last year.
Net debt of USD2,040 million is down substantially from USD2,380 million at the end of
the restated equivalent quarter last year as a result of the strong cash generation in the
past financial year and the translation benefit of the weaker Euro on the Euro
denominated debt. As previously announced, the net debt increased compared to the
USD1,946 million as of the end of the prior quarter as a result of the seasonal increase in
cash utilisation.
Liquidity comprises cash on hand of USD329 million and USD512 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
Dec 2014 Sept 2014 Jun 2014 Mar 2014 Dec 2013
EUR million EUR million EUR million EUR million EUR million
Sales 547 561 543 603 581
Operating profit excluding special items 12 26 12 14 3
Operating profit excluding special items to sales (%) 2.2 4.6 2.2 2.3 0.5
EBITDA excluding special items 42 58 39 48 38
EBITDA excluding special items to sales (%) 7.7 10.3 7.2 8.0 6.5
RONOA pa (%) 4.0 8.6 4.0 4.6 1.0
In this seasonally slower quarter, the performance of the European business improved
compared to that of the equivalent quarter last year. This was despite the EUR12 million
cost and lost margin impact of the paper machine upgrade at the Gratkorn mill. The
improvement was largely as a result of higher average sales prices for coated woodfree
paper and lower fixed costs, with variable costs flat year-on-year. Coated mechanical
paper prices and volumes remain under pressure.
The weaker Euro negatively affected US Dollar denominated variable costs, particularly
for paper pulp, compared to the prior quarter. Conversely, paper exports from Europe
benefited from the weaker Euro and largely offset the effect of increased pulp costs.
The disposal of the Nijmegen mill in the previous financial year assisted in reducing fixed
costs for the business.
The quarter saw a further improvement in the operating and sales performance of the
Alfeld speciality mill with a better product mix and average pricing level.
North America
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Dec 2014 Sept 2014 Jun 2014 Mar 2014 Dec 2013
USD million USD million USD million USD million USD million
Sales 353 390 380 382 365
Operating (loss) profit excluding special items (4) 25 (9) 5 (3)
Operating (loss) profit excluding special items to sales (%) (1.1) 6.4 (2.4) 1.3 (0.8)
EBITDA excluding special items 15 43 10 22 17
EBITDA excluding special items to sales (%) 4.2 11.0 2.6 5.8 4.7
RONOA pa (%) (1.6) 9.8 (3.5) 1.9 (1.2)
Profitability for the business was similar to that of the equivalent quarter last year despite
a planned extended annual maintenance shut at the Somerset mill and a number of
completed capital projects. These negatively impacted the quarter by approximately
USD10 million in additional expenses and lost margin compared to the equivalent quarter
last year.
Coated paper sales in this seasonally slower quarter were only marginally below those of the
prior year, despite the extended Somerset mill shut. However, prices and the selling mix
improved, both compared to the prior quarter and the equivalent quarter last year.
Dissolving wood pulp sales volumes were lower as the Cloquet mill commenced periodic
hardwood paper pulp production runs to eliminate most of its paper pulp purchases.
The release business continues to be adversely affected by weak demand in China.
Pricing in European markets was also negatively impacted by the weaker Euro.
Variable costs were generally flat with the prior quarter and lower than last year.
Lower cost fibre, from use of own-make Cloquet pulp production, as well as lower starch and
latex costs have offset higher wood costs resulting from low inventory levels in the
supply chain.
Fixed costs were well controlled and lower than the equivalent quarter last year, despite
additional cost related to the extended cold outage at the Somerset mill.
Sappi Southern Africa
Restated(1)
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Dec 2014 Sept 2014 Jun 2014 Mar 2014 Dec 2013
ZAR million ZAR million ZAR million ZAR million ZAR million
Sales 3,812 3,972 3,781 3,942 3,488
Operating profit excluding special items 706 634 653 765 568
Operating profit excluding special items to sales (%) 18.5 16.0 17.3 19.4 16.3
EBITDA excluding special items 863 827 810 897 761
EBITDA excluding special items to sales (%) 22.6 20.8 21.4 22.8 21.8
RONOA pa (%) 19.1 16.7 16.2 18.6 14.1
(1) Restated for the adoption of IFRS 10 Consolidated Financial Statements. Refer to note 2 to the group results for more detail.
The Southern African business had an improved performance this past quarter, with
exchange rate gains on export sales and variable cost savings contributing positively.
Dissolving wood pulp volumes and Rand pricing increased compared to the equivalent
quarter last year but were flat compared to the prior quarter. The weaker Rand/Dollar
exchange rate offset Dollar based declines in prices during the quarter.
The South African paper business delivered an improved performance due to the
effective control of fixed and variable costs as well as improved pricing for packaging
grades. Sales volumes were flat year-on-year, but lower than the prior quarter due to
weaker specialities and office paper markets.
Production in the quarter at the Ngodwana mill was impacted by a boiler tube leak during
December. However, sales for the quarter were not affected by this incident.
Outlook
Graphic paper markets remain challenging, but appear to be marginally better than
originally anticipated, in both Europe and North America. Paper demand has in general
declined at a lower rate and price expectations have been met. Exchange rate volatility
may affect selling prices, particularly in Europe.
The dissolving wood pulp market is under further pressure, consistent with pressure on
viscose, polyester and cotton. Prices in US Dollars have declined further than expected.
The lower prices are likely to be substantially offset by a weaker Rand/Dollar exchange rate
and our ability to swing the Cloquet pulp mill between dissolving wood pulp and paper pulp.
Currency movements affect margins in our European and Southern African businesses,
having both transactional and translational effects. A weaker Euro and Rand in relation
to the US Dollar support both local and export pricing for these businesses, historically
offsetting any input cost increases as a result of the weaker currency.
Capital expenditure in 2015 is expected to be below USD300 million and will focus
largely on the efficiency improvement investments at our Kirkniemi and Gratkorn mills.
As discussed when reporting last quarter's result, we are evaluating opportunities to
utilise our cash resources to refinance a portion of our debt in order to lower future
interest costs. We expect to reduce net debt levels by year end to below those of the
prior year.
Our outlook for the year, based on current market conditions, is for the operating
performance to be broadly similar to 2014. The expected improvement in the paper
businesses will be offset by lower US Dollar dissolving wood pulp pricing and the
projects at Gratkorn and Somerset mills. In addition, at current exchange rates, the
translation of Euro and Rand results to Dollars may be negatively impacted compared to
the prior year.
On behalf of the board
S.R Binnie G.T Pearce 11 February 2015
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 Reviewed
Quarter ended Quarter ended
Dec 2014 Dec 2013
Note USD million USD million
Sales 1,377 1,499
Cost of sales 1,224 1,339
Gross profit 153 160
Selling, general and administrative expenses 84 94
Other operating expenses (income) 2 (2)
Share of profit from equity investments (2) (2)
Operating profit 3 69 70
Net finance costs 37 48
Net interest expense 40 48
Net foreign exchange gain (2) (1)
Net fair value (gain) loss on financial instruments (1) 1
Profit before taxation 32 22
Taxation 8 4
Profit for the period 24 18
Basic earnings per share (US cents) 5 3
Weighted average number of shares in issue (millions) 524.5 521.7
Diluted earnings per share (US cents) 5 3
Weighted average number of shares on fully diluted basis (millions) 529.1 523.4
Condensed group statement of comprehensive income
Reviewed Reviewed
Quarter ended Quarter ended
Dec 2014 Dec 2013
USD million USD million
Profit for the period 24 18
Other comprehensive loss, net of tax
Items that must be reclassified subsequently to profit or loss (12) (42)
Exchange differences on translation of foreign operations (8) (54)
Movements in hedging reserves (4) 13
Movement on available for sale financial assets – (1)
Total comprehensive income (loss) for the period 12 (24)
Condensed group balance sheet
Reviewed
Reviewed Reviewed Restated
Dec 2014 Sept 2014 Dec 2013
USD million USD million USD million
ASSETS
Non-current assets 3,410 3,505 3,707
Property, plant and equipment 2,758 2,841 3,012
Plantations 419 430 451
Deferred tax assets 141 138 96
Other non-current assets 92 96 148
Current assets 1,735 1,960 1,835
Inventories 708 687 771
Trade and other receivables 688 731 776
Taxation receivable 10 14 17
Cash and cash equivalents 329 528 178
Assets held for sale – – 93
Total assets 5,145 5,465 5,542
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest 1,059 1,044 1,122
Non-current liabilities 3,069 3,198 3,322
Interest-bearing borrowings 2,238 2,311 2,444
Deferred tax liabilities 270 272 267
Other non-current liabilities 561 615 611
Current liabilities 1,017 1,223 1,098
Interest-bearing borrowings 131 163 114
Other current liabilities 865 1,035 971
Taxation payable 21 25 8
Liabilities associated with assets held for sale – – 5
Total equity and liabilities 5,145 5,465 5,542
Number of shares in issue at balance sheet
date (millions) 525.3 524.2 522.5
Condensed group statement of cash flows
Reviewed
Reviewed Restated
Quarter Quarter
ended ended
Dec 2014 Dec 2013
USD million USD million
Profit for the period 24 18
Adjustment for:
Depreciation, fellings and amortisation 85 102
Taxation 8 4
Net finance costs 37 48
Defined post-employment benefits paid (14) (17)
Plantation fair value adjustments (18) (26)
Net restructuring provisions 1 1
Other non-cash items 14 6
Cash generated from operations 137 136
Movement in working capital (136) (149)
Net finance costs paid (52) (56)
Taxation paid (3) (1)
Cash utilised in operating activities (54) (70)
Cash utilised in investing activities (67) (63)
Capital expenditure (68) (71)
Net proceeds on disposal of assets and businesses – 6
Other movements 1 2
Net cash utilised (121) (133)
Cash effects of financing activities (61) (43)
Net movement in cash and cash equivalents (182) (176)
Cash and cash equivalents at beginning of period 528 352
Translation effects (17) 2
Cash and cash equivalents at end of period 329 178
Condensed group statement of changes in equity
Reviewed Reviewed
Quarter Quarter
ended ended
Dec 2014 Dec 2013
USD million USD million
Balance – beginning of period 1,044 1,144
Total comprehensive income (loss) for the period 12 (24)
Transfers from the share purchase trust 5 4
Transfers of vested share options (4) (4)
Share-based payment reserve 2 2
Balance – end of period 1,059 1,122
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated interim financial statements for the three months ended December 2014
have been prepared in accordance with the Listings Requirements of the JSE Limited, International
Financial Reporting Standard, (IAS) 34 Interim Financial Reporting, the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued
by Financial Reporting Standards Council and the requirements of the Companies Act of South Africa.
The accounting policies applied in the preparation of these interim financial statements are in terms
of International Financial Reporting Standards and are consistent with those applied in the previous
annual financial statements.
The preparation of this condensed consolidated interim financial information was supervised by the
Chief Financial Officer, G T Pearce CA(SA).
The interim results for the three months ended December 2014 and December 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. 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
Change in accounting arising after the adoption of IFRS 10 Consolidated Financial Statements
The group adopted IFRS 10 in the 2014 financial year. IFRS 10 provides a single consolidation model
that identifies control as the basis for consolidation for all types of entities. In addition, specified
assets or a portion of an investee is considered to be a deemed separate entity and should be consolidated
provided that those assets are, in substance, ring-fenced from other creditors.
Subsequent to the release of the December 2013 results, an interpretation of a discussion paper
issued by the Financial Services Board in South Africa (which stated that, although the insurance
industry is governed by contractual arrangements, cell captives are not legally ring-fenced in the event
of liquidation) was released. Following the interpretation, the group consequently deconsolidated its
assets with its South African insurer.
The impact of this change on the December 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 116 32 148
Cash and cash equivalents 210 (32) 178
Condensed group statement of cash flows
Cash and cash equivalents at beginning of period 385 (33) 352
Translation effects 1 1 2
Cash and cash equivalents at end of period 210 (32) 178
Net debt 2,348 32 2,380
There is no impact on profit or loss or equity for the period.
Reviewed Reviewed
Quarter Quarter
ended ended
Dec 2014 Dec 2013
USD million USD million
3. Operating profit
Included in operating profit are the following items:
Depreciation and amortisation 71 87
Fair value adjustment on plantations (included in cost of sales)
Changes in volume
Fellings 14 15
Growth (17) (18)
(3) (3)
Plantation price fair value adjustment (1) (8)
(4) (11)
Net restructuring provisions 1 1
Profit on disposal of property, plant and equipment – (1)
Asset impairment reversals – (2)
Reviewed Reviewed
Quarter Quarter
ended ended
Dec 2014 Dec 2013
USD million USD million
4. Headline earnings per share
Headline earnings per share (US cents) 5 3
Weighted average number of shares in issue (millions) 524.5 521.7
Diluted headline earnings per share (US cents) 5 3
Weighted average number of shares on fully diluted basis (millions) 529.1 523.4
Calculation of headline earnings
Profit for the period 24 18
Asset impairment reversals – (2)
Profit on disposal of property, plant and equipment – (1)
Tax effect of above items – –
Headline earnings 24 15
Reviewed Reviewed Reviewed
Dec 2014 Sept 2014 Dec 2013
USD million USD million USD million
5. Capital commitments
Contracted 105 104 99
Approved but not contracted 127 126 250
232 230 349
Reviewed Reviewed Reviewed
Dec 2014 Sept 2014 Dec 2013
USD million USD million USD million
6. Contingent liabilities
Guarantees and suretyships 20 23 34
Other contingent liabilities 16 26 11
36 49 45
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 Reviewed
Dec 2014 Sept 2014 Dec 2013
USD million USD million USD million
Fair value of plantations at beginning of year 430 464 464
Gains arising from growth 17 65 17
In-field inventory (1) (1) (1)
Gain arising from fair value price changes 1 7 4
Harvesting – agriculture produce (fellings) (14) (57) (14)
Translation difference (14) (48) (19)
Fair value of plantations at end of year 419 430 451
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. At December 2013,
gains arising from growth amounted to USD1 million, the price fair value adjustment amounted to
USD4 million and timber worth USD1 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 Reviewed
Fair value Dec 2014 Sept 2014 Dec 2013
hierachy USD million USD million USD million
Available for sale assets Level 1 9 10 10
Available for sale assets Level 2 – – 39
Derivative financial assets Level 2 11 13 19
Derivative financial liabilities Level 2 20 59 108
(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
Cash and cash equivalents and other current liabilities
The decrease in cash and cash equivalents and other current liabilities is largely due to seasonal
working capital movements.
Interest-bearing borrowings and other non-current liabilities
Interest-bearing borrowings and other non-current liabilities decreased largely due to the weakening
of the Euro against the US Dollar, the repayment of the amount due under the OëkB term loan and a
lower utilisation of our on-balance sheet securitisation facility due to lower trade receivables.
10. Post-balance sheet event
The group has entered into an agreement to transfer one of its European defined benefit pension
schemes to an industry-wide pension fund. The transfer is currently subject to regulatory audit and is
expected to be recorded in the quarter ending March 2015.
11.Segment information
Quarter Quarter
ended ended
Dec 2014 Dec 2013
Metric tons Metric tons
(000's) (000's)
Sales volume
North America 333 348
Europe 775 836
Southern Africa – Pulp and paper 426 403
Forestry 228 257
Total 1,762 1,844
Which consists of:
Specialised cellulose 300 286
Paper 1,234 1,301
Forestry 228 257
Reviewed Reviewed
Quarter Quarter
ended ended
Dec 2014 Dec 2013
USD million USD million
Sales
North America 353 365
Europe 684 790
Southern Africa – Pulp and paper 325 327
Forestry 15 17
Total 1,377 1,499
Which consists of:
Specialised cellulose 243 247
Paper 1,119 1,235
Forestry 15 17
Reviewed Reviewed
Quarter Quarter
ended ended
Dec 2014 Dec 2013
USD million USD million
Operating profit (loss) excluding special items
North America (4) (3)
Europe 15 4
Southern Africa 63 56
Unallocated and eliminations(1) – 3
Total 74 60
Which consists of:
Specialised cellulose 56 55
Paper 18 2
Unallocated and eliminations(1) – 3
Special items – losses (gains)
North America – (1)
Europe 1 –
Southern Africa 4 (10)
Unallocated and eliminations(1) – 1
Total 5 (10)
Segment operating profit (loss)
North America (4) (2)
Europe 14 4
Southern Africa 59 66
Unallocated and eliminations(1) – 2
Total 69 70
EBITDA excluding special items
North America 15 17
Europe 53 52
Southern Africa 77 75
Unallocated and eliminations(1) – 3
Total 145 147
Which consists of:
Specialised cellulose 70 74
Paper 75 70
Unallocated and eliminations(1) – 3
(1) Includes the group's treasury operations and our insurance captive.
Reconciliation of EBITDA excluding special items and operating profit excluding special
items to segment operating profit and profit for the period
Special items cover those items which management believe are material by nature or amount to the
operating results and require separate disclosure.
Reviewed Reviewed
Quarter Quarter
ended ended
Dec 2014 Dec 2013
USD million USD million
EBITDA excluding special items 145 147
Depreciation and amortisation (71) (87)
Operating profit excluding special items 74 60
Special items – (losses) gains (5) 10
Plantation price fair value adjustment 1 8
Net restructuring provisions (1) (1)
Profit on disposal of property, plant and equipment – 1
Asset impairment reversals – 2
Fire, flood, storm and other events (5) –
Segment operating profit 69 70
Net finance costs (37) (48)
Profit before taxation 32 22
Taxation (8) (4)
Profit for the period 24 18
Reviewed
Reviewed Restated
Dec 2014 Dec 2013
USD million USD million
Segment assets
North America 1,004 1,030
Europe 1,495 1,698
Southern Africa 1,305 1,566
Unallocated and eliminations(1) (15) (10)
Total 3,789 4,284
Reconciliation of segment assets to total assets
Segment assets 3,789 4,284
Deferred taxation 141 96
Cash and cash equivalents(2) 329 178
Other current liabilities 865 971
Taxation payable 21 8
Liabilities associated with assets held for sale – 5
Total assets 5,145 5,542
(1) Includes the group's treasury operations and our insurance captive.
(2) The comparative period has been restated for the change in accounting arising after the adoption of IFRS 10 Consolidated
Financial Statements by an amount of USD32 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 bank 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 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
Quarter Quarter
ended ended
Dec 2014 Dec 2013
Key figures: (ZAR million)
Sales 15,439 15,201
Operating profit excluding special items(1) 830 609
Special items – losses/(gains)(1) 56 (101)
EBITDA excluding special items(1) 1,626 1,491
Profit for the period 269 183
Basic earnings per share (SA cents) 51 30
Net debt(1) 23,664 25,061
Key ratios: (%)
Operating profit excluding special items to sales 5.4 4.0
Operating profit excluding special items to capital employed (ROCE)(1) 9.6 6.9
EBITDA excluding special items to sales 10.5 9.8
Return on average equity (ROE)(1) 9.0 6.3
Net debt to total capitalisation(1) 65.8 68.0
(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)
Dec 2014 Sept 2014 Dec 2013
USD million USD million USD million
Interest-bearing borrowings 2,369 2,474 2,558
Non-current interest-bearing borrowings 2,238 2,311 2,444
Current interest-bearing borrowings 131 163 114
Cash and cash equivalents (329) (528) (178)
Net debt 2,040 1,946 2,380
(1) Restated for the change in accounting arising after 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
Dec Sept Jun Mar Dec
2014 2014 2014 2014 2013
Exchange rates:
Period end rate: USD1 = ZAR 11.6001 11.2285 10.5890 10.5760 10.5300
Average rate for the Quarter: USD1 = ZAR 11.2122 10.7456 10.5340 10.8443 10.1406
Average rate for the YTD: USD1 = ZAR 11.2122 10.5655 10.5072 10.4938 10.1406
Period end rate: EUR1 = USD 1.2177 1.2685 1.3649 1.3753 1.3742
Average rate for the Quarter: EUR1 = USD 1.2504 1.3280 1.3717 1.3705 1.3607
Average rate for the YTD: EUR1 = USD 1.2504 1.3577 1.3676 1.3656 1.3607
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: United States:
Computershare Investor ADR Depositary:
Services (Proprietary) Limited The Bank of New York Mellon
70 Marshall Street Investor Relations
Johannesburg 2001 PO Box 11258 JSE Sponsor:
PO Box 61051 Church Street Station UBS South Africa
Marshalltown 2107 New York, NY 10286-1258 (Pty) Ltd
Tel +27 (0)11 370 5000 Tel +1 610 382 7836
This report is available on the Sappi website
www.sappi.com
11 February 2015
UBS South Africa (Pty) Ltd
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