Wrap Text
Third quarter results for the period ended June 2015
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
THIRD QUARTER RESULTS
for the period ended June 2015
Sappi works closely
with customers, both
direct and indirect, in
over 160 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 paper 5%
Speciality paper 10%
Commodity paper 7%
Dissolving wood pulp 17%
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 37%
Southern Africa 34%
* for the period ended June 2015
** as at June 2015
Highlights for the quarter
- EPS excluding special items 2 US cents (Q3 2014 2 US cents)
- Profit for the period US$4 million (Q3 2014 US$17 million)
- EBITDA excluding special items US$109 million (Q3 2014 US$140 million)
- Net debt US$1,917 million (Q3 2014 US$2,286 million)
Quarter ended Nine months ended
Jun 2015 Jun 2014 Mar 2015 Jun 2015 Jun 2014
Key figures: (US$ million)
Sales 1,272 1,484 1,338 3,987 4,556
Operating profit excluding
special items(1) 43 67 104 221 222
Special items – losses (gains)(2) 8 (2) (68) (55) (16)
EBITDA excluding special items(1) 109 140 170 424 458
Profit for the period 4 17 56 84 67
Basic earnings per share (US cents) 1 3 11 16 13
EPS excluding special items
(US cents)(3) 2 2 11 18 10
Net debt(4) 1,917 2,286 1,916 1,917 2,286
Key ratios: (%)
Operating profit excluding special
items to sales 3.4 4.5 7.8 5.5 4.9
Operating profit excluding special
items to capital employed (ROCE)(3) 5.7 7.8 13.5 9.8 8.7
EBITDA excluding special items
to sales 8.6 9.4 12.7 10.6 10.1
Return on average equity (ROE)(3) 1.4 5.9 20.4 10.4 7.8
Net debt to total capitalisation(3) 63.1 66.3 62.8 63.1 66.3
Net asset value per share (US cents) 213 222 216 213 222
(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 definition of the term.
(4) Refer to supplemental information for the reconciliation of net debt to interest-bearing borrowings.
Commentary on the quarter
The third quarter is seasonally the weakest for Sappi. In addition, the pulp mill upgrade at Gratkorn and
planned annual maintenance shuts in all three regions reduced profit by approximately US$27 million when
compared to the equivalent quarter last year. Furthermore, the North American business experienced
significant pressure as a result of the stronger US Dollar, which led to increased imports of coated paper
and reduced competitiveness in the export market. The group generated EBITDA excluding special items
of US$109 million, operating profit excluding special items of US$43 million and profit for the period of
US$4 million.
The Specialised Cellulose business continued to generate solid returns during the quarter, with EBITDA
excluding special items, of US$56 million. The planned annual maintenance shuts at Saiccor and
Ngodwana reduced margins relative to the prior quarter. US Dollar prices for dissolving wood pulp
remained constant compared to the prior quarter, though the South African mills benefited from a
weakening ZAR/USD exchange rate.
The performance of the European business was adversely impacted by the higher cost of raw materials
due to the stronger US Dollar and additional pulp purchases during the upgrade of the recovery boiler at
Gratkorn. The market for graphic paper continues to decline in Western Europe. However, the weaker Euro
made exports more competitive and profitable.
The abovementioned strengthening of the US Dollar negatively impacted our North American business
during the quarter resulting in lower coated paper sales volumes and lower margins for the release paper
business. The domestic graphic paper market was also weaker than expected.
In the South African paper business, the virgin fibre packaging grades continue to show good demand
growth. However, newsprint and recycled packaging paper demand were flat.
Earnings per share excluding special items for the quarter was 2 US cent, as it was in the equivalent
quarter last year.
Cash flow and debt
Net cash generation for the quarter was US$25 million, compared to US$44 million net cash utilised in
the equivalent quarter last year. The improvement in cash generation was primarily due to lower working
capital and interest costs during the quarter. Capital expenditure in the quarter was US$49 million and
mainly related to maintenance and efficiency improvement projects.
Net debt of US$1,917 million was flat compared to the prior quarter and US$369 million below that of
the equivalent quarter last year as a result of cash generation from operations, debt repayments and
favourable exchange rates on the translation of our debt. Cash resources were used in the quarter to
repay a maturing ZAR450 million bond in South Africa, and the maturity of the €330 million international
securitisation facility was extended to 2018.
Liquidity comprises cash on hand of US$351 million and US$490 million from the committed revolving
credit facilities in South Africa and Europe.
Operating review for the quarter
Europe
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Jun 2015 Mar 2015 Dec 2014 Sept 2014 Jun 2014
EUR million EUR million EUR million EUR million EUR million
Sales 567 590 547 561 543
Operating profit excluding special items 5 24 12 26 12
Operating profit excluding special items
to sales (%) 0.9 4.1 2.2 4.6 2.2
EBITDA excluding special items 35 54 42 58 39
EBITDA excluding special items
to sales (%) 6.2 9.2 7.7 10.3 7.2
RONOA pa (%) 1.7 8.0 4.0 8.6 4.0
During this seasonally slow quarter, graphic paper sales volumes were 5% below those of the prior quarter
and stable year-on-year. Overall sales volumes were 1% up on the equivalent quarter last year as a result
of the continued growth in speciality packaging paper sales. The upgrade of the recovery boiler at Gratkorn
had a once-off impact on operating profit of EUR10 million during the quarter.
Average net sales prices in Euro were flat compared to the prior quarter and up 3% compared to the
equivalent quarter last year, primarily due to the impact of the weaker Euro/Dollar exchange rate on export
sales pricing. Variable costs were impacted by the upgrade to the recovery boiler at Gratkorn and higher
raw material costs due to the weaker Euro exchange rate.
The speciality paper business continued to grow sales volumes, compared to both the prior quarter and
the equivalent quarter last year, and we are pursuing further growth opportunities in this market at our
Maastricht and Ehingen mills.
North America
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Jun 2015 Mar 2015 Dec 2014 Sept 2014 Jun 2014
US$ million US$ million US$ million US$ million US$ million
Sales 313 342 353 390 380
Operating profit (loss) excluding
special items (7) 7 (4) 25 (9)
Operating profit (loss) excluding
special items to sales (%) (2.2) 2.0 (1.1) 6.4 (2.4)
EBITDA excluding special items 11 26 15 43 10
EBITDA excluding special items
to sales (%) 3.5 7.6 4.2 11.0 2.6
RONOA pa (%) (2.7) 2.7 (1.6) 9.8 (3.5)
The North American graphic paper markets were impacted negatively by the strong US Dollar in the
quarter. A combination of increased imports of coated paper, particularly from Asia, and a decline in
exports resulted in lower than expected sales volumes. Apparent consumption in the local market was
also weaker.
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 paper business continued to be impacted by weaker than expected sales volume in the
coated fabrics segment in Asia and by European pricing which was negatively affected by a stronger
US Dollar/Euro exchange rate.
Variable costs were lower than the equivalent quarter last year as lower chemicals, fibre and energy prices
more than offset higher wood prices. We also realised the benefit of our variable usage improvement
programmes. Raw material costs remained flat and variable usage improved following difficult
operating conditions in the prior quarter as a result of the extreme weather conditions experienced in
the Northeast US.
Southern Africa
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Jun 2015 Mar 2015 Dec 2014 Sept 2014 Jun 2014
ZAR million ZAR million ZAR million ZAR million ZAR million
Sales 4,002 3,817 3,812 3,972 3,781
Operating profit excluding
special items 538 772 706 634 653
Operating profit excluding special
items to sales (%) 13.4 20.2 18.5 16.0 17.3
EBITDA excluding special items 707 947 863 827 810
EBITDA excluding special items
to sales (%) 17.7 24.8 22.6 20.8 21.4
RONOA pa (%) 14.3 20.4 19.1 16.7 16.2
The Southern African business achieved higher average prices and volumes compared to both the
equivalent quarter last year and the prior quarter. Operating profit for the quarter was impacted by
ZAR204 million as a result of the planned annual maintenance shuts at Ngodwana and Saiccor.
The weaker Rand/US Dollar exchange rate has improved demand for our virgin fibre paper packaging,
while the slow domestic growth and an oversupplied recycled-based packaging paper market has placed
pressure on sales for recycled containerboard.
Dissolving wood pulp pricing continued to be supported by the weaker Rand/Dollar exchange rate as well
as higher US Dollar pricing in China. Demand remained strong and sales volumes were up on both the
prior quarter as well as the equivalent quarter last year.
Post quarter-end, we announced the sales of our Enstra Mill's recycled packaging paper business and
Cape Kraft paper mill. This is in line with our strategic focus on the virgin fibre packaging business in
South Africa.
Outlook
Graphic paper markets remain challenging and currency movements are having a significant impact on
trade flows. These negatively affected our US business while improving export margins for our European
coated paper business. The European business continues to face pressure from higher pulp prices.
Dissolving wood pulp prices in China have risen steadily over the past four months and this should
translate into higher short-term fixed prices with our major customers. The weaker Rand/US Dollar
exchange rate will support the profitability of this business in South Africa.
Capital expenditure in the last quarter of fiscal 2015 is expected to be approximately US$80 million
(US$245 million for the full year) and is focused largely on maintenance projects and efficiency
improvement investments.
We expect to reduce net debt levels during the fourth quarter. Any proceeds received from the sale
of Cape Kraft, Enstra and/or the Twello forestry assets before year-end would further reduce net debt.
We expect that the regional 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 will adversely impact the group results. Nevertheless,
due to lower interest costs, earnings per share excluding special items for the full year are expected to
be substantially better than that of the prior year.
On behalf of the board
S R Binnie G T Pearce 07 August 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
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2015 Jun 2014 Jun 2015 Jun 2014
Note US$ million US$ million US$ million US$ million
Sales 1,272 1,484 3,987 4,556
Cost of sales 1,161 1,325 3,523 4,044
Gross profit 111 159 464 512
Selling, general and administrative
expenses 79 94 247 283
Other operating expenses (income) 3 (2) (48) (3)
Share of profit from equity investments (6) (2) (11) (6)
Operating profit 2 35 69 276 238
Net finance costs 23 42 157 138
Net interest expense 27 43 153 140
Net foreign exchange gain (3) (1) (9) (4)
Net fair value (gain) loss on financial
instruments (1) – 13 2
Profit before taxation 12 27 119 100
Taxation 8 10 35 33
Profit for the period 4 17 84 67
Basic earnings per share
(US cents) 1 3 16 13
Weighted average number of shares
in issue (millions) 526.3 522.6 525.5 522.3
Diluted earnings per share
(US cents) 1 3 16 13
Weighted average number of shares
on fully diluted basis (millions) 532.4 526.7 531.3 525.6
Condensed group statement of comprehensive income
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2015 Jun 2014 Jun 2015 Jun 2014
US$ million US$ million US$ million US$ million
Profit for the period 4 17 84 67
Other comprehensive income (loss), net
of tax
Items that will not be reclassified
subsequently to profit or loss – – (10) –
Actuarial losses on post-employment
benefit funds – – (10) –
Tax effect of above item – – – –
Items that must be reclassified
subsequently to profit or loss (22) (4) (8) (56)
Exchange differences on translation of
foreign operations (30) 2 (10) (57)
Movements in hedging reserves 9 (4) 2 3
Movement on available for sale financial
assets – (2) – (2)
Tax effect of above items 1 – – –
Total comprehensive income (loss)
for the period (18) 13 66 11
Condensed group balance sheet
Reviewed
Jun 2015 Sept 2014
US$ million US$ million
ASSETS
Non-current assets 3,284 3,505
Property, plant and equipment 2,595 2,841
Plantations 419 430
Deferred tax assets 141 138
Other non-current assets 129 96
Current assets 1,669 1,960
Inventories 678 687
Trade and other receivables 631 731
Taxation receivable 9 14
Cash and cash equivalents 351 528
Total assets 4,953 5,465
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest 1,120 1,044
Non-current liabilities 2,763 3,198
Interest-bearing borrowings 2,050 2,311
Deferred tax liabilities 265 272
Other non-current liabilities 448 615
Current liabilities 1,070 1,223
Interest-bearing borrowings 218 163
Other current liabilities 826 1,035
Taxation payable 26 25
Total equity and liabilities 4,953 5,465
Number of shares in issue at balance sheet date (millions) 526.4 524.2
Condensed group statement of cash flows
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2015 Jun 2014 Jun 2015 Jun 2014
US$ million US$ million US$ million US$ million
Profit for the period 4 17 84 67
Adjustment for:
Depreciation, fellings and amortisation 82 89 247 281
Taxation 8 10 35 33
Net finance costs 23 42 157 138
Defined post-employment benefits paid (15) (19) (46) (57)
Plantation fair value adjustments (17) (21) (69) (70)
Net restructuring provisions and loss on
disposal of assets and businesses 1 (4) 4 (3)
Non-cash employee benefit liability settlement 1 – (69) –
Other non-cash items 3 4 20 17
Cash generated from operations 90 118 363 406
Movement in working capital 16 (29) (97) (119)
Net finance costs paid (21) (50) (111) (136)
Taxation paid (12) (4) (16) (1)
Cash generated from operating activities 73 35 139 150
Cash utilised in investing activities (48) (79) (153) (195)
Capital expenditure (49) (57) (163) (190)
Cash flows on disposal of assets and businesses – (22) – (10)
Other movements 1 – 10 5
Net cash generated (utilised) 25 (44) (14) (45)
Cash effects of financing activities (77) (13) (110) (60)
Net movement in cash and cash
equivalents (52) (57) (124) (105)
Cash and cash equivalents at beginning
of period 399 307 528 352
Translation effects 4 (2) (53) 1
Cash and cash equivalents at end of period 351 248 351 248
Condensed group statement of changes in equity
Nine Nine
months months
ended ended
Jun 2015 Jun 2014
US$ million US$ million
Balance – beginning of period 1,044 1,144
Total comprehensive income for the period 66 11
Transfers from the share purchase trust 10 5
Transfers of vested share options (5) (5)
Share-based payment reserve 5 5
Balance – end of period 1,120 1,160
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated interim financial statements for the quarter and nine months ended
June 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 these condensed consolidated interim financial statements was supervised by the
Chief Financial Officer, G T Pearce, CA(SA).
The results are unaudited.
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2015 Jun 2014 Jun 2015 Jun 2014
US$ million US$ million US$ million US$ million
2. Operating profit
Included in operating profit are the
following items:
Depreciation and amortisation 66 73 203 236
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 16 16 44 45
Growth (17) (16) (50) (52)
(1) – (6) (7)
Plantation price fair value adjustment – (5) (19) (18)
(1) (5) (25) (25)
Net restructuring provisions and loss on
disposal of assets and businesses 1 (4) 4 (3)
Asset impairment reversals – – – (3)
Employee benefit liability settlement 1 – (69) –
Black Economic Empowerment charge – 1 1 2
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2015 Jun 2014 Jun 2015 Jun 2014
US$ million US$ million US$ million US$ million
3. Earnings per share
Basic earnings per share (US cents) 1 3 16 13
Headline earnings per share (US cents) 1 9 16 17
EPS excluding special items (US cents) 2 2 18 10
Weighted average number of shares in
issue (millions) 526.3 522.6 525.5 522.3
Diluted earnings per share (US cents) 1 3 16 13
Diluted headline earnings per share (US
cents) 1 9 16 17
Weighted average number of shares on
fully diluted basis (millions) 532.4 526.7 531.3 525.6
Calculation of headline earnings
Profit for the period 4 17 84 67
Asset impairment reversals – – – (3)
Loss on disposal of assets and
businesses – 27 – 25
Tax effect of above items – 1 – 1
Headline earnings 4 45 84 90
Calculation of earnings excluding
special items
Profit for the period 4 17 84 67
Special items after tax 8 (5) (51) (16)
Special items 8 (2) (55) (16)
Tax effect – (3) 4 –
Refinancing costs – – 63 –
Earnings excluding special items 12 12 96 51
Reviewed
Jun 2015 Sept 2014
US$ million US$ million
4. Capital commitments
Contracted 87 104
Approved but not contracted 93 126
180 230
5. Contingent liabilities
Guarantees and suretyships 14 23
Other contingent liabilities 14 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.
Nine Reviewed
months Year
ended ended
Jun 2015 Sept 2014
US$ million US$ million
Fair value of plantations at beginning of year 430 464
Gains arising from growth 50 65
In-field inventory (1) (1)
Gain arising from fair value price changes 19 7
Harvesting – agriculture produce (fellings) (44) (57)
Translation difference (35) (48)
Fair value of plantations at end of period 419 430
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 instruments 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
Fair value Jun 2015 Sept 2014
hierarchy US$ million US$ million
Available for sale assets Level 1 8 10
Derivative financial assets Level 2 48 13
Derivative financial liabilities Level 2 2 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 9% and 12%
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$502 million (EUR450 million)
senior secured notes due 2022 at a coupon of 3.375% per annum. In addition, the group increased
its US$391 million (EUR350 million) revolving credit facility to US$519 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$112 million (EUR100 million) under the US$519 million (EUR465 million) revolving credit
facility were used to early redeem Sappi's US$279 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$62 million (of which US$10 million was non-cash), which includes the pre-
arranged call premiums on the early redemption of the notes and the unwinding of an interest rate
currency swap, were recorded in net finance costs.
During the financial year, the group utilised cash on hand of US$61 million (ZAR750 million) to repay
it's South African bond due April 2015. Of this amount, US$37 million (ZAR450 million) was repaid in
the June quarter.
Other non-current liabilities
During the prior quarter, the group transferred one of its European defined benefit pension funds to an
industry-wide pension fund which resulted in a net liability derecognition of US$66 million (EUR59 million).
9. Post balance sheet event
In July 2015, Sappi Southern Africa announced the sales of its Enstra Mill's recycled packaging paper
business to the Corruseal Group and it's Cape Kraft recycled packaging mill to the Golden Era Group.
These announced disposals are in line with Sappi Southern Africa's strategy to unlock value from non-
core assets and free up resources for investment in dissolving wood pulp, virgin containerboard and
other new business opportunities. Sappi will receive just short of US$49 million (ZAR600 million) from
the two transactions.
10. Segment information
Quarter Quarter Nine months Nine months
ended ended ended ended
Jun 2015 Jun 2014 Jun 2015 Jun 2014
Metric tons Metric tons Metric tons Metric tons
(000's) (000's) (000's) (000's)
Sales volume
North America 294 362 948 1,079
Europe 792 783 2,395 2,492
Southern Africa – Pulp and paper 436 423 1,286 1,253
Forestry 283 275 744 849
Total 1,805 1,843 5,373 5,673
Which consists of:
Specialised cellulose 282 305 849 886
Paper 1,240 1,263 3,780 3,938
Forestry 283 275 744 849
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2015 Jun 2014 Jun 2015 Jun 2014
US$ million US$ million US$ million US$ million
Sales
North America 313 380 1,008 1,127
Europe 627 745 1,981 2,362
Southern Africa – Pulp and paper 315 341 952 1,014
Forestry 17 18 46 53
Total 1,272 1,484 3,987 4,556
Which consists of:
Specialised cellulose 216 258 664 755
Paper 1,039 1,208 3,277 3,748
Forestry 17 18 46 53
Operating profit (loss) excluding
special items
North America (7) (9) (4) (7)
Europe 5 16 48 39
Southern Africa 44 62 173 189
Unallocated and eliminations(1) 1 (2) 4 1
Total 43 67 221 222
Which consists of:
Specialised cellulose 43 55 152 181
Paper (1) 14 65 40
Unallocated and eliminations(1) 1 (2) 4 1
Special items – losses (gains)
North America – 3 – 2
Europe 4 (5) (51) (4)
Southern Africa – – (15) (14)
Unallocated and eliminations(1) 4 – 11 –
Total 8 (2) (55) (16)
Segment operating profit (loss)
North America (7) (12) (4) (9)
Europe 1 21 99 43
Southern Africa 44 62 188 203
Unallocated and eliminations(1) (3) (2) (7) 1
Total 35 69 276 238
(1) Includes the group's treasury operations and our insurance captive.
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2015 Jun 2014 Jun 2015 Jun 2014
US$ million US$ million US$ million US$ million
EBITDA excluding special items
North America 11 10 52 49
Europe 38 54 152 172
Southern Africa 58 77 216 235
Unallocated and eliminations(1) 2 (1) 4 2
Total 109 140 424 458
Which consists of:
Specialised cellulose 56 70 191 226
Paper 51 71 229 230
Unallocated and eliminations(1) 2 (1) 4 2
(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.
Nine Nine
Quarter Quarter months months
ended ended ended ended
Jun 2015 Jun 2014 Jun 2015 Jun 2014
US$ million US$ million US$ million US$ million
EBITDA excluding special items 109 140 424 458
Depreciation and amortisation (66) (73) (203) (236)
Operating profit excluding
special items 43 67 221 222
Special items – (losses) gains (8) 2 55 16
Plantation price fair value adjustment – 5 19 18
Net restructuring provisions and loss
on disposal of assets and businesses (1) 4 (4) 3
Asset impairment reversals – – – 3
Employee benefit liability settlement (1) – 56 –
Black Economic Empowerment charge – (1) (1) (2)
Fire, flood, storm and other events (6) (6) (15) (6)
Segment operating profit 35 69 276 238
Net finance costs (23) (42) (157) (138)
Profit before taxation 12 27 119 100
Taxation (8) (10) (35) (33)
Profit for the period 4 17 84 67
Jun 2015 Jun 2014
US$ million US$ million
Segment assets
North America 1,029 1,022
Europe 1,334 1,703
Southern Africa 1,225 1,505
Unallocated and eliminations(1) 21 (31)
Total 3,609 4,199
Reconciliation of segment assets to total assets
Segment assets 3,609 4,199
Deferred taxation 141 98
Cash and cash equivalents 351 248
Other current liabilities 826 931
Taxation payable 26 17
Total assets 4,953 5,493
(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
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
Fellings – the amount charged against the income statement representing the standing value of the
plantations harvested
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
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
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
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
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
SG&A – selling, general and administrative expenses
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
Summary Rand convenience translation
Quarter Quarter Nine months Nine months
ended ended ended ended
Jun 2015 Jun 2014 Jun 2015 Jun 2014
Key figures: (ZAR million)
Sales 15,368 15,632 46,464 47,871
Operating profit excluding special items(1) 520 706 2,576 2,333
Special items – losses (gains)(1) 97 (21) (641) (168)
EBITDA excluding special items(1) 1,317 1,475 4,941 4,812
Profit for the period 48 179 979 704
Basic earnings per share (SA cents) 9 34 186 135
Net debt(1) 23,392 24,206 23,392 24,206
Key ratios: (%)
Operating profit excluding special items
to sales 3.4 4.5 5.5 4.9
Operating profit excluding special items
to capital employed (ROCE)(1) 5.6 7.8 9.7 8.8
EBITDA excluding special items to sales 8.6 9.4 10.6 10.1
Return on average equity (ROE)(1) 1.4 5.9 10.3 7.9
Net debt to total capitalisation(1) 63.1 66.3 63.1 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
Jun 2015 Sept 2014
US$ million US$ million
Interest-bearing borrowings 2,268 2,474
Non-current interest-bearing borrowings 2,050 2,311
Current interest-bearing borrowings 218 163
Cash and cash equivalents (351) (528)
Net debt 1,917 1,946
Exchange rates
Jun Mar Dec Sept Jun
2015 2015 2014 2014 2014
Exchange rates:
Period end rate: US$1 = ZAR 12.2025 12.0450 11.6001 11.2285 10.5890
Average rate for the Quarter: US$1 = ZAR 12.0820 11.7236 11.2122 10.7456 10.5340
Average rate for the YTD: US$1 = ZAR 11.6540 11.4552 11.2122 10.5655 10.5072
Period end rate: EUR1 = US$ 1.1166 1.0889 1.2177 1.2685 1.3649
Average rate for the Quarter: EUR1 = US$ 1.1060 1.1316 1.2504 1.3280 1.3717
Average rate for the YTD: EUR1 = US$ 1.1627 1.1910 1.2504 1.3577 1.3676
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
Date: 07/08/2015 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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