Wrap Text
Second quarter results for the period ended March 2015
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
SECOND QUARTER RESULTS
for the period ended March 2015
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.
*Sales by source
North America 26%
Europe 50%
Southern Africa 24%
*Sales by product
Coated paper 59%
Uncoated paper 6%
Speciality paper 10%
Commodity paper 7%
Dissolving wood pulp 16%
Paper pulp 1%
Other 1%
*Sales by destination
North America 23%
Europe 42%
Southern Africa 12%
Asia and other 23%
**Net operating assets
North America 29%
Europe 36%
Southern Africa 35%
* for the period ended March 2015
** as at March 2015
Highlights for the quarter
- Profit for the period US$56 million (Q2 2014 US$32 million)
- EPS excluding special items 11 US cents (Q2 2014 5 US cents)
- EBITDA excluding special items US$170 million (Q2 2014 US$171 million)
- Net debt US$1,916 million (Q2 2014 US$2,248 million)
- Successful refinancing of 2018 and 2019 bonds
Quarter ended Half-year ended
Mar 2015 Mar 2014 Dec 2014 Mar 2015 Mar 2014
Key figures: (US$ million)
Sales 1,338 1,573 1,377 2,715 3,072
Operating profit excluding
special items(1) 104 95 74 178 155
Special items – (gains) losses(2) (68) (4) 5 (63) (14)
EBITDA excluding special items(1) 170 171 145 315 318
Profit for the period 56 32 24 80 50
Basic earnings per share (US cents) 11 6 5 15 10
Net debt(3) 1,916 2,248 2,040 1,916 2,248
Key ratios: (%)
Operating profit excluding special
items to sales 7.8 6.0 5.4 6.6 5.0
Operating profit excluding special
items to capital employed (ROCE)(4) 13.5 11.0 9.7 11.8 9.1
EBITDA excluding special items
to sales 12.7 10.9 10.5 11.6 10.4
Return on average equity (ROE)(4) 20.4 11.3 9.1 14.7 8.7
Net debt to total capitalisation(4) 62.8 66.2 65.8 62.8 66.2
Net asset value per share (US cents) 216 219 202 216 219
(1) Refer to note 10 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.
(2) Refer to note 10 to the group results for details on special items.
(3) Refer to supplemental information for the reconciliation of net debt to interest-bearing borrowings.
(4) Refer to supplemental information for the definition of the term.
Commentary on the quarter
Operating performance in the quarter was in line with our expectations and the equivalent quarter last
year. The group generated EBITDA, excluding special items, of US$170 million, operating profit excluding
special items of US$104 million and profit for the period of US$56 million.
The Specialised Cellulose business continued to generate solid returns during the quarter, with EBITDA,
excluding special items, of US$65 million. US Dollar prices for dissolving wood pulp declined compared to
the prior quarter due to excess market supply as well as low prices and margins in the viscose staple fibre
sector. However, the weaker Rand/Dollar exchange rate enabled the South African mills to maintain Rand
pricing and margins.
The European business increased profitability but its performance was impacted adversely by higher
costs of raw materials due to the weaker Euro/US Dollar exchange rate and particularly weak demand in
January. Export paper prices benefited from the weaker Euro.
The North American business was boosted by higher coated paper prices and returned to an operating
profit in the quarter. This improvement was achieved despite severe weather in the northeast of the United
States, which impacted both logistics and production at the Somerset Mill.
The paper business in South Africa improved operating performance further in this quarter, with increased
sales volumes and prices offsetting increased variable costs.
During the quarter we repaid our 2018 and 2019 bonds through the issue of a new EUR450 million seven-
year bond, with a coupon of 3.375%, and through a drawing from the European revolving credit facility.
That facility was also renewed and increased to EUR465 million (previously EUR350 million).
Earnings per share for the quarter were 11 US cents, compared with 6 US cents (including a gain of 1 US
cent in respect of special items) in the equivalent quarter last year.
Special items for the quarter included a gain of US$57 million resulting from the transfer of the Sappi Dutch
pension fund to a general fund and a positive plantation fair value pricing adjustment of US$18 million for
the South African plantations. These benefits were offset by once-off finance charges of US$63 million
relating to the refinancing of the 2018 and 2019 bonds. The finance charges included breakage fees,
accelerated amortisation of costs and unwinding of an interest rate swap. The cash impact of the
refinancing was a negative US$53 million.
Cash flow and debt
Net cash generation for the quarter of US$82 million was lower than the net cash generated of US$132
million in the equivalent quarter last year as a result of lower working capital inflows due to inventory
increases during the period. Capital expenditure in the quarter was US$46 million and mainly related to
maintenance and efficiency projects.
Net debt of US$1,916 million declined by US$124 million from the prior quarter, as a result of the cash generated
from operations, lower working capital and favourable exchange rates on the translation of our debt.
Liquidity comprises cash on hand of US$399 million and US$480 million from the committed revolving
credit facilities in South Africa and Europe.
Operating review for the quarter
Europe
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Mar 2015 Dec 2014 Sept 2014 Jun 2014 Mar 2014
EUR million EUR million EUR million EUR million EUR million
Sales 590 547 561 543 603
Operating profit excluding special items 24 12 26 12 14
Operating profit excluding special items
to sales (%) 4.1 2.2 4.6 2.2 2.3
EBITDA excluding special items 54 42 58 39 48
EBITDA excluding special items
to sales (%) 9.2 7.7 10.3 7.2 8.0
RONOA pa (%) 8.0 4.0 8.6 4.0 4.6
Compared to the equivalent quarter last year, the European business benefited from higher average coated
woodfree sales prices, lower fixed costs post the disposal of the Nijmegen Mill last year and the transfer
of the Sappi Dutch pension fund. Demand was particularly weak in January and there were declines in
domestic prices for graphic paper during the quarter.
Paper export prices and margins are benefiting from the weaker Euro/US Dollar exchange rate, which to
date, has largely offset the associated increase in variable costs, particularly for paper pulp, arising from the
currency move. Logistics costs increased due to increased export sales and increased freight rates.
The specialities business recorded price and volume gains compared to both the prior quarter and the
equivalent quarter last year as we further optimise the business post the conversion at Alfeld. In addition,
we recently launched a trial of a new folding boxboard product at our Maastricht Mill to expand our
packaging offering further.
North America
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Mar 2015 Dec 2014 Sept 2014 Jun 2014 Mar 2014
US$ million US$ million US$ million US$ million US$ million
Sales 342 353 390 380 382
Operating profit (loss) excluding
special items 7 (4) 25 (9) 5
Operating profit (loss) excluding
special items to sales (%) 2.0 (1.1) 6.4 (2.4) 1.3
EBITDA excluding special items 26 15 43 10 22
EBITDA excluding special items
to sales (%) 7.6 4.2 11.0 2.6 5.8
RONOA pa (%) 2.7 (1.6) 9.8 (3.5) 1.9
The North American business returned to profitability following the extended outage at the Somerset Mill
in the prior quarter, benefiting from higher coated prices, improved coated sales mix and lower variable
costs. The northeast United States experienced historically severe weather conditions during the quarter,
negatively affecting productivity and the transport of goods.
Dissolving wood pulp sales volumes were lower than both the prior quarter and the equivalent quarter last
year as we maximised own-make fibre production for the paper machines at Cloquet in order to improve
profitability.
The release business continued to be impacted by weaker than expected sales in the coated fabrics
segment in China, and the weaker Euro/US Dollar exchange rate negatively impacted US Dollar pricing for
sales into Europe.
Variable costs compared to both the prior quarter and prior year were lower, with lower chemical and
energy prices offsetting high wood costs. Lower fibre costs, from own-make Cloquet pulp production,
have also contributed favourably to the result.
Southern Africa
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Mar 2015 Dec 2014 Sept 2014 Jun 2014 Mar 2014
ZAR million ZAR million ZAR million ZAR million ZAR million
Sales 3,817 3,812 3,972 3,781 3,942
Operating profit excluding
special items 772 706 634 653 765
Operating profit excluding special
items to sales (%) 20.2 18.5 16.0 17.3 19.4
EBITDA excluding special items 947 863 827 810 897
EBITDA excluding special items
to sales (%) 24.8 22.6 20.8 21.4 22.8
RONOA pa (%) 20.4 19.1 16.7 16.2 18.6
The Southern African business continued to deliver strong earnings. The exchange rate gains on export
sales and fixed cost savings contributed positively to the improvement.
Dissolving wood pulp sales volumes were impacted negatively by 7,000 tons for the quarter as a result of
the boiler tube leak at the Ngodwana Mill in December. Dissolving wood pulp pricing was supported by the
weaker exchange rate, with pricing in Rand higher than the prior quarter and the corresponding quarter
last year, despite lower US Dollar prices.
The South African paper business continued to progress with increased volumes, pricing and lower
logistics and fixed costs more than offsetting increased variable costs. Strong fruit export sales which have
benefited from the weaker Rand are boosting demand for our virgin fibre packaging grades.
Outlook
Graphic paper markets, particularly for coated mechanical, remain difficult and continued cost pressure
from higher paper pulp and wood prices are placing margins under pressure. Lower oil and energy costs
are providing some relief. Coated woodfree paper price increases in the US market have widened the
gap with European pricing levels; however, no significant increase in imports into the US market has been
experienced to date.
Textile prices, particularly for those of cotton and viscose, appear to have stabilised over the past few
months, after a long period of decline. Dissolving wood pulp prices have followed a similar trend. We
remain well positioned to meet the changing market needs. The weaker Rand/US Dollar exchange rate will
support the profitability of this business.
Capital expenditure in 2015 is expected to be approximately US$280 million and is focused largely on
maintenance projects and efficiency improvement investments at our Kirkniemi and Gratkorn mills.
We estimate that, post the refinancing of our 2018 and 2019 bonds, reduction in debt and movements in
currencies, net finance costs will be approximately US$110 million per annum. At current exchange rates,
we expect to reduce net debt levels further by year-end.
The third quarter is seasonally weaker in both North America and Europe. The pulp mill upgrade at
Gratkorn and regular annual maintenance shuts in all three regions will negatively impact the results of the
third quarter by approximately US$21 million when compared to the equivalent quarter last year.
We expect operating performance for the year will be broadly similar to 2014 despite a number of
significant once-off impacts from various capital projects. At current exchange rates, the
translation of Euro and Rand results to US Dollar may have an impact on group results. Nevertheless,
earnings per share excluding special items are expected to be substantially better than that of the prior year.
On behalf of the board
S R Binnie G T Pearce 14 May 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 Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2015 Mar 2014 Mar 2015 Mar 2014
Note US$ million US$ million US$ million US$ million
Sales 1,338 1,573 2,715 3,072
Cost of sales 1,138 1,380 2,362 2,719
Gross profit 200 193 353 353
Selling, general and administrative
expenses 84 95 168 189
Other operating (income) expenses (53) 1 (51) (1)
Share of profit from equity investments (3) (2) (5) (4)
Operating profit 2 172 99 241 169
Net finance costs 97 48 134 96
Net interest expense 86 49 126 97
Net foreign exchange gain (4) (2) (6) (3)
Net fair value loss on financial
instruments 15 1 14 2
Profit before taxation 75 51 107 73
Taxation 19 19 27 23
Profit for the period 56 32 80 50
Basic earnings per share
(US cents) 11 6 15 10
Weighted average number of shares
in issue (millions) 525.7 522.5 525.1 522.1
Diluted earnings per share
(US cents) 11 6 15 10
Weighted average number of shares
on fully diluted basis (millions) 531.5 525.6 530.4 524.8
Condensed group statement of comprehensive income
Reviewed Reviewed Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2015 Mar 2014 Mar 2015 Mar 2014
US$ million US$ million US$ million US$ million
Profit for the period 56 32 80 50
Other comprehensive (loss) income,
net of tax
Items that will not be reclassified
subsequently to profit or loss (10) – (10) –
Actuarial losses on post-employment
benefit funds (10) – (10) –
Tax effect of above item – – – –
Items that must be reclassified
subsequently to profit or loss 26 (10) 14 (52)
Exchange differences on translation of
foreign operations 28 (5) 20 (59)
Movements in hedging reserves (3) (6) (7) 7
Movement on available for sale financial
assets – 1 – –
Tax effect of above items 1 – 1 –
Total comprehensive income (loss)
for the period 72 22 84 (2)
Condensed group balance sheet
Reviewed Reviewed
Mar 2015 Sept 2014
US$ million US$ million
ASSETS
Non-current assets 3,286 3,505
Property, plant and equipment 2,591 2,841
Plantations 422 430
Deferred tax assets 138 138
Other non-current assets 135 96
Current assets 1,705 1,960
Inventories 682 687
Trade and other receivables 614 731
Taxation receivable 10 14
Cash and cash equivalents 399 528
Total assets 4,991 5,465
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest 1,135 1,044
Non-current liabilities 2,795 3,198
Interest-bearing borrowings 2,086 2,311
Deferred tax liabilities 265 272
Other non-current liabilities 444 615
Current liabilities 1,061 1,223
Interest-bearing borrowings 229 163
Other current liabilities 801 1,035
Taxation payable 31 25
Total equity and liabilities 4,991 5,465
Number of shares in issue at balance sheet date (millions) 525.9 524.2
Condensed group statement of cash flows
Reviewed Reviewed Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2015 Mar 2014 Mar 2015 Mar 2014
US$ million US$ million US$ million US$ million
Profit for the period 56 32 80 50
Adjustment for:
Depreciation, fellings and amortisation 80 90 165 192
Taxation 19 19 27 23
Net finance costs 97 48 134 96
Defined post-employment benefits paid (17) (21) (31) (38)
Plantation fair value adjustments (34) (23) (52) (49)
Net restructuring provisions 2 2 3 3
Non-cash employee benefit liability settlement (70) – (70) –
Other non-cash items 3 5 17 11
Cash generated from operations 136 152 273 288
Movement in working capital 23 59 (113) (90)
Net finance costs paid (38) (30) (90) (86)
Taxation (paid) refunded (1) 4 (4) 3
Cash generated from operating activities 120 185 66 115
Cash utilised in investing activities (38) (53) (105) (116)
Capital expenditure (46) (62) (114) (133)
Net proceeds on disposal of assets
and businesses – 6 – 12
Other movements 8 3 9 5
Net cash generated (utilised) 82 132 (39) (1)
Cash effects of financing activities 28 (4) (33) (47)
Net movement in cash and cash
equivalents 110 128 (72) (48)
Cash and cash equivalents at beginning
of period 329 178 528 352
Translation effects (40) 1 (57) 3
Cash and cash equivalents at end of period 399 307 399 307
Condensed group statement of changes in equity
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2015 Mar 2014
US$ million US$ million
Balance – beginning of period 1,044 1,144
Total comprehensive income (loss) for the period 84 (2)
Transfers from the share purchase trust 9 5
Transfers of vested share options (6) (5)
Share-based payment reserve 4 4
Balance – end of period 1,135 1,146
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated interim financial statements for the quarter and half-year ended
March 2015 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 statements was supervised by the
Chief Financial Officer, G T Pearce, CA(SA).
The interim financial statements for the quarter and half-year ended March 2015 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.
Reviewed Reviewed Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2015 Mar 2014 Mar 2015 Mar 2014
US$ million US$ million US$ million US$ million
2. Operating profit
Included in operating profit are the
following items:
Depreciation and amortisation 66 76 137 163
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 14 14 28 29
Growth (16) (18) (33) (36)
(2) (4) (5) (7)
Plantation price fair value adjustment (18) (5) (19) (13)
(20) (9) (24) (20)
Net restructuring provisions raised 2 2 3 3
Profit on disposal of property, plant and
equipment – – – (1)
Profit on disposal of assets held for sale – (1) – (1)
Asset impairment reversals – (1) – (3)
Employee benefit liability settlement (70) – (70) –
Black Economic Empowerment charge 1 1 1 1
3. Headline earnings per share
Headline earnings per share (US cents) 11 6 15 9
Weighted average number of shares in
issue (millions) 525.7 522.5 525.1 522.1
Diluted headline earnings per share
(US cents) 11 6 15 9
Weighted average number of shares on
fully diluted basis (millions) 531.5 525.6 530.4 524.8
Calculation of headline earnings
Profit for the period 56 32 80 50
Asset impairment reversals – (1) – (3)
Profit on disposal of property,
plant and equipment – – – (1)
Profit on disposal of assets held for sale – (1) – (1)
Tax effect of above items – – – –
Headline earnings 56 30 80 45
Reviewed Reviewed
Mar 2015 Sept 2014
US$ million US$ million
4. Capital commitments
Contracted 93 104
Approved but not contracted 107 126
200 230
5. Contingent liabilities
Guarantees and suretyships 12 23
Other contingent liabilities 16 26
28 49
6. 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
Half-year Year
ended ended
Mar 2015 Sept 2014
US$ million US$ million
Fair value of plantations at beginning of year 430 464
Gains arising from growth 33 65
In-field inventory (2) (1)
Gain arising from fair value price changes 19 7
Harvesting – agriculture produce (fellings) (28) (57)
Translation difference (30) (48)
Fair value of plantations at end of period 422 430
7. 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
Fair value Mar 2015 Sept 2014
hierarchy US$ million US$ million
Available for sale assets Level 1 9 10
Derivative financial assets Level 2 59 13
Derivative financial liabilities Level 2 6 59
(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.
8. Material balance sheet movements
Since the 2014 financial year-end, the ZAR and Euro have weakened by approximately 7% and 14%
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.
Trade and other receivables, cash and cash equivalents and other current liabilities
The decrease in cash and cash equivalents is largely attributable to working capital movements.
Interest-bearing borrowings
In March 2015, the group placed an aggregate principal amount of US$490 million (EUR450 million)
senior secured notes due 2022 at a coupon of 3.375% per annum. In addition, the group increased
its US$381 million (EUR350 million) to revolving credit facility to US$506 million (EUR465 million) and
extended the maturity date to March 2020. The proceeds of the new notes together with cash
on hand and drawings of US$109 million (EUR100 million) under the US$506 million (EUR465 million)
revolving credit facility were used to early redeem Sappi's US$272 million (EUR250 million) senior secured
notes due 2018 and the US$300 million senior secured notes due 2019. As a result of the early redemption,
once-off charges of US$63 million were recorded in net finance costs (of which US$10 million was non-cash)
which includes the pre-arranged call premiums on early redemption of the notes and the unwinding of an
interest rate currency swap.
Other non-current liabilities
During the quarter the group transferred one of its European defined pension funds to an industry-
wide pension fund which resulted in a net liability derecognition of US$64 million (EUR59 million).
9. Post-balance sheet event
The remaining US$37 million (ZAR450 million) of our US$62 million (ZAR750 million) public bond due
April 2015 were redeemed on maturity from existing cash resources.
The outstanding US$7 million (ZAR90 million) vendor loan note arising on the disposal of Usutu Forest
Products Company Limited to Montigny Investments Limited in June 2014 was received.
10. Segment information
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2015 Mar 2014 Mar 2015 Mar 2014
Metric tons Metric tons Metric tons Metric tons
(000's) (000's) (000's) (000's)
Sales volume
North America 321 369 654 717
Europe 828 873 1,603 1,709
Southern Africa – Pulp and paper 424 427 850 830
Forestry 233 317 461 574
Total 1,806 1,986 3,568 3,830
Which consists of:
Specialised cellulose 267 295 567 581
Paper 1,306 1,374 2,540 2,675
Forestry 233 317 461 574
Reviewed Reviewed Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2015 Mar 2014 Mar 2015 Mar 2014
US$ million US$ million US$ million US$ million
Sales
North America 342 382 695 747
Europe 670 827 1,354 1,617
Southern Africa – Pulp and paper 312 346 637 673
Forestry 14 18 29 35
Total 1,338 1,573 2,715 3,072
Which consists of:
Specialised cellulose 205 250 448 497
Paper 1,119 1,305 2,238 2,540
Forestry 14 18 29 35
Operating profit excluding
special items
North America 7 5 3 2
Europe 28 19 43 23
Southern Africa 66 71 129 127
Unallocated and eliminations(1) 3 – 3 3
Total 104 95 178 155
Which consists of:
Specialised cellulose 53 71 109 126
Paper 48 24 66 26
Unallocated and eliminations(1) 3 – 3 3
Special items – (gains) losses
North America – – – (1)
Europe (56) 1 (55) 1
Southern Africa (19) (4) (15) (14)
Unallocated and eliminations(1) 7 (1) 7 –
Total (68) (4) (63) (14)
Segment operating profit (loss)
North America 7 5 3 3
Europe 84 18 98 22
Southern Africa 85 75 144 141
Unallocated and eliminations(1) (4) 1 (4) 3
Total 172 99 241 169
EBITDA excluding special items
North America 26 22 41 39
Europe 61 66 114 118
Southern Africa 81 83 158 158
Unallocated and eliminations (1) 2 – 2 3
Total 170 171 315 318
Which consists of:
Specialised cellulose 65 82 135 156
Paper 103 89 178 159
Unallocated and eliminations(1) 2 – 2 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 Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2015 Mar 2014 Mar 2015 Mar 2014
US$ million US$ million US$ million US$ million
EBITDA excluding special items 170 171 315 318
Depreciation and amortisation (66) (76) (137) (163)
Operating profit excluding
special items 104 95 178 155
Special items – gains (losses) 68 4 63 14
Plantation price fair value adjustment 18 5 19 13
Net restructuring provisions raised (2) (2) (3) (3)
Profit on disposal of property, plant
and equipment – – – 1
Profit on disposal of assets held
for sale – 1 – 1
Asset impairment reversals – 1 – 3
Employee benefit liability settlement 57 – 57 –
Black Economic Empowerment charge (1) (1) (1) (1)
Fire, flood, storm and other events (4) – (9) –
Segment operating profit 172 99 241 169
Net finance costs (97) (48) (134) (96)
Profit before taxation 75 51 107 73
Taxation (19) (19) (27) (23)
Profit for the period 56 32 80 50
Reviewed Reviewed
Mar 2015 Mar 2014
US$ million US$ million
Segment assets
North America 1,049 1,063
Europe 1,278 1,620
Southern Africa 1,262 1,546
Unallocated and eliminations(1) 33 (32)
Total 3,622 4,197
Reconciliation of segment assets to total assets
Segment assets 3,622 4,197
Deferred taxation 138 94
Cash and cash equivalents 399 307
Other current liabilities 801 998
Taxation payable 31 8
Liabilities associated with assets held for sale – 3
Total assets 4,991 5,607
(1) Includes the group's treasury operations and our insurance captive.
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 remeasurements.
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
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2015 Mar 2014 Mar 2015 Mar 2014
Key figures: (ZAR million)
Sales 15,686 17,058 31,101 32,237
Operating profit excluding special items(1) 1,219 1,030 2,039 1,627
Special items – gains(1) (797) (43) (722) (147)
EBITDA excluding special items(1) 1,993 1,854 3,608 3,337
Profit for the period 657 347 916 525
Basic earnings per share (SA cents) 125 66 174 101
Net debt(1) 23,078 23,775 23,078 23,775
Key ratios: (%)
Operating profit excluding special items
to sales 7.8 6.0 6.6 5.0
Operating profit excluding special items
to capital employed (ROCE)(1) 13.4 11.3 11.6 9.3
EBITDA excluding special items to sales 12.7 10.9 11.6 10.4
Return on average equity (ROE)(1) 20.3 11.6 14.4 8.9
Net debt to total capitalisation(1) 62.8 66.2 62.8 66.2
(1) Refer to supplemental information for the definition of the term.
The above financial results have been translated into Rands from US Dollars as follows:
– assets and liabilities at rates of exchange ruling at period end; and
– income, expenditure and cash flow items at average exchange rates.
Reconciliation of net debt to interest-bearing borrowings
Mar 2015 Sept 2014
US$ million US$ million
Interest-bearing borrowings 2,315 2,474
Non-current interest-bearing borrowings 2,086 2,311
Current interest-bearing borrowings 229 163
Cash and cash equivalents (399) (528)
Net debt 1,916 1,946
Supplemental information (this information has not been audited or reviewed)
Exchange rates
Mar Dec Sept Jun Mar
2015 2014 2014 2014 2014
Exchange rates:
Period end rate: US$1 = ZAR 12.0450 11.6001 11.2285 10.5890 10.5760
Average rate for the Quarter: US$1 = ZAR 11.7236 11.2122 10.7456 10.5340 10.8443
Average rate for the YTD: US$1 = ZAR 11.4552 11.2122 10.5655 10.5072 10.4938
Period end rate: EUR1 = US$ 1.0889 1.2177 1.2685 1.3649 1.3753
Average rate for the Quarter: EUR1 = US$ 1.1316 1.2504 1.3280 1.3717 1.3705
Average rate for the YTD: EUR1 = US$ 1.1910 1.2504 1.3577 1.3676 1.3656
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
This report is available on the
Sappi website: www.sappi.com
www.sappi.com
Tel +27 (0)11 407 8111
48 Ameshoff Street
Braamfontein
Johannesburg
SOUTH AFRICA
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