Wrap Text
Fourth Quarter Results For The Period Ended September 2015
Sappi Limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
FOURTH QUARTER RESULTS
for the period ended September 2015
4TH QUARTER RESULTS
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 26%
Europe 49%
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 24%
Europe 41%
Southern Africa 11%
Asia and other 24%
**Net operating assets
North America 30%
Europe 39%
Southern Africa 31%
* for the period ended September 2015
** as at September 2015
Highlights for the quarter Highlights for the year
- EPS excluding special items - EPS excluding special items
16 US cents (Q4 FY14 12 US cents) 34 US cents (FY14 22 US cents)
- EBITDA excluding special items - EBITDA excluding special items
US$201 million (Q4 FY14 US$200 million) US$625 million (FY14 US$658 million)
- Profit for the period - Profit for the period
US$83 million (Q4 FY14 US$68 million) US$167 million (FY14 US$135 million)
- Net debt US$1,771 million, down
US$175 million year-on-year
Quarter ended Year ended
Sept 2015 Sept 2014 Jun 2015 Sept 2015 Sept 2014
Key figures: (US$ million)
Sales 1,403 1,505 1,272 5,390 6,061
Operating profit excluding
special items(1) 136 124 43 357 346
Special items – losses (gains)(2) 1 48 8 (54) 32
EBITDA excluding special items(1) 201 200 109 625 658
Profit for the period 83 68 4 167 135
Basic earnings per share (US cents) 16 13 1 32 26
EPS excluding special items
(US cents)(3) 16 12 2 34 22
Net debt(4) 1,771 1,946 1,917 1,771 1,946
Key ratios: (%)
Operating profit excluding special
items to sales 9.7 8.2 3.4 6.6 5.7
Operating profit excluding special
items to capital employed (ROCE)(3) 18.7 15.4 5.7 12.4 10.8
EBITDA excluding special items
to sales 14.3 13.3 8.6 11.6 10.9
Return on average equity (ROE)(3) 31.1 24.7 1.4 16.2 12.3
Net debt to total capitalisation(3) 63.6 65.1 63.1 63.6 65.1
Net asset value per share (US cents) 193 199 213 193 199
(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
All regions increased their profitability during the fourth quarter. In addition to stronger seasonal demand,
the markets for graphic paper and dissolving wood pulp have improved since the third quarter. The group
generated EBITDA, excluding special items, of US$201 million and operating profit, excluding special
items, of US$136 million, both above the equivalent prior year quarter. This was despite the
translation impact of a weaker Euro on EBITDA of US$10 million. Profit for the period increased by 22% to
US$83 million due to the higher operating profits and lower interest costs.
US Dollar spot prices for dissolving wood pulp in China have risen steadily in recent months, driven by
improved conditions for viscose staple fibre. This impact, combined with the weaker ZAR/USD exchange
rate, contributed towards the Specialised Cellulose business generating improved returns during the
quarter, with EBITDA excluding special items of US$90 million.
The European business was adversely affected by increased pulp prices, but demand for coated paper
was solid and helped offset the variable cost pressures when compared to the equivalent quarter last year.
In addition, the profitability of the speciality packaging business continues to improve.
The coated paper market in North America remains challenging and the business continues to experience
significant pressure as a result of the stronger US Dollar. However, a number of actions to regain sales
volumes and to lower costs have resulted in a much improved result in this seasonally stronger quarter.
Strong containerboard demand combined with excellent variable cost control enabled the South African
packaging business to continue its trend of improving performance.
Earnings per share excluding special items for the quarter was 16 US cents, an improvement over the
12 US cents generated in the equivalent quarter last year.
Year ended September 2015 compared to year ended September 2014
The execution of our strategy delivered significantly higher earnings in 2015. The refinancing of the higher
cost debt and the continued reduction in net debt resulted in significantly lower ongoing interest charges.
The completion of a number of major capital projects in Europe and North America will lower our cost base
further in the coming years.
The group's EBITDA excluding special items was US$625 million, a decrease of US$33 million compared
to the prior year, with improved operating performances in each of the regions in their underlying
currencies. The translation of the European results to US Dollars negatively impacted the group EBITDA
by US$36 million for the year. Operating profit excluding special items for the year was US$357 million
compared to US$346 million in the prior year. Special items amounted to a gain of US$54 million, and
comprised mainly of gains from the transfer of the Sappi Dutch pension fund to a general fund and plantation
fair value pricing, offset by once-off losses resulting from mechanical breakdowns and plantation fires.
Net finance costs for the year were US$182 million, an increase from the US$177 million in the prior
year as a result of one-time charges of US$61 million associated with the refinancing of the 2018 and
2019 bonds.
Net profit for the year increased by 24% to US$167 million.
Cash flow and debt
Net cash generated for the quarter was US$159 million, compared with US$288 million in the equivalent
quarter last year. The comparative period last year included proceeds from the sale of the Usutu forests of
approximately ZAR1 billion (US$97 million). Capital expenditure in the quarter was US$85 million compared
to US$105 million a year ago.
Net cash generated for the financial year was US$145 million, following the US$243 million generated last
year, which included the proceeds from the sale of the Usutu forests.
Net debt at financial year-end decreased to US$1,771 million as a result of the cash generated and gains
on the translation of Euro-denominated debt.
At the end of September 2015, liquidity comprised cash on hand of US$456 million and US$537 million
from the committed revolving credit facilities in South Africa and Europe.
Operating review for the quarter
Europe
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Sept 2015 Jun 2015 Mar 2015 Dec 2014 Sept 2014
EUR million EUR million EUR million EUR million EUR million
Sales 609 567 590 547 561
Operating profit excluding special items 23 5 24 12 26
Operating profit excluding special
items to sales (%) 3.8 0.9 4.1 2.2 4.6
EBITDA excluding special items 51 35 54 42 58
EBITDA excluding special items
to sales (%) 8.4 6.2 9.2 7.7 10.3
RONOA pa (%) 7.8 1.7 8.0 4.0 8.6
During this seasonally stronger quarter, graphic paper sales volumes were 7% above those of the prior
quarter and 5% above those of the equivalent quarter last year, with particular strength in the woodfree
coated segment.
Average net sales prices in Euro were marginally up compared to the prior quarter and 4% higher than the
equivalent quarter in the prior year, primarily due to the impact of the weaker Euro/Dollar exchange rate on
export sales pricing and the graphic paper price increases implemented in the past quarter. Variable costs
were 7% higher than the equivalent quarter last year, mainly due to increased paper pulp prices. Fixed
costs were 2% lower than the equivalent quarter last year.
The speciality paper business continued to improve its sales volumes and prices compared to both the
prior quarter and equivalent quarter last year.
North America
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Sept 2015 Jun 2015 Mar 2015 Dec 2014 Sept 2014
US$ million US$ million US$ million US$ million US$ million
Sales 369 313 342 353 390
Operating profit (loss) excluding
special items 31 (7) 7 (4) 25
Operating profit (loss) excluding
special items to sales (%) 8.4 (2.2) 2.0 (1.1) 6.4
EBITDA excluding special items 50 11 26 15 43
EBITDA excluding special items
to sales (%) 13.6 3.5 7.6 4.2 11.0
RONOA pa (%) 12.2 (2.7) 2.7 (1.6) 9.8
The North American business recovered in a seasonally stronger quarter that includes no scheduled
maintenance shuts. This was despite the continued impact of the strong US Dollar on the graphic paper
markets in the US. Coated paper demand was initially slower than expected, although orders picked up
during August and September. Coated paper sales volumes were flat year-on-year, with net sales prices
slightly lower.
Dissolving wood pulp sales volumes were higher than the prior quarter, with improved pricing being
driven by a recovery in viscose staple fibre prices. We continue to produce own-make fibre for the paper
machines at Cloquet in order to improve profitability in this period of high hardwood paper pulp prices.
The release paper business continued to experience weak demand from China, with the strong US Dollar/
Euro exchange rate impacting European pricing.
Variable costs were lower than the equivalent quarter last year, mainly as a result of lower chemical costs.
Wood costs, though still high, have declined in recent months and wood inventory levels are returning to
historical norms. Fixed costs remain tightly controlled and were slightly lower than those of the equivalent
quarter last year.
Southern Africa
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
Sept 2015 Jun 2015 Mar 2015 Dec 2014 Sept 2014
ZAR million ZAR million ZAR million ZAR million ZAR million
Sales 4,556 4,002 3,817 3,812 3,972
Operating profit excluding special
items 1,047 538 772 706 634
Operating profit excluding special
items to sales (%) 23.0 13.4 20.2 18.5 16.0
EBITDA excluding special items 1,228 707 947 863 827
EBITDA excluding special items
to sales (%) 27.0 17.7 24.8 22.6 20.8
RONOA pa (%) 28.1 14.3 20.4 19.1 16.7
The Southern African business achieved higher average prices and volumes compared to both
the equivalent quarter last year and the prior quarter. Demand for virgin fibre paper packaging grades
remains good, and the recycled containerboard market showed signs of improvement.
Dissolving wood pulp pricing was positively impacted by higher US Dollar prices in China as well as the
weaker Rand/US Dollar exchange rate. Demand remained strong and sales volumes were higher than both
the prior quarter and the equivalent quarter last year.
Variable costs remain well controlled and were flat year-on-year, with lower energy and chemical costs
offsetting increased fibre costs. Fixed costs were also below those of last year.
Post quarter-end, we received approval from the Competition Commission authorities for the sale of
the Enstra and Cape Kraft mills. Both transactions are expected to be realised by December 2015.
Directorate
Post quarter-end we announced the retirement of Dr Danie Cronje as independent Chairman of the board
at the end of February 2016. Sir Nigel Rudd, currently the lead independent director, will succeed Dr Cronje
as independent Chairman of the company with effect from 01 March 2016. We further announced the
appointment of Mr Rob Jan Renders as independent non-executive director to the board of directors of
Sappi Limited with effect from 01 October 2015.
Outlook
Dissolving wood pulp markets have improved this year as a result of higher pricing and improved operating
rates for viscose staple fibre in China. Higher hardwood paper pulp prices are also impacting dissolving
wood pulp supply as some swing producers continue to manufacture paper pulp rather than dissolving
wood pulp.
Graphic paper markets in Europe are slightly better than anticipated, albeit they are still expected to
decline. Production at our mills is full and export pricing is benefiting from a weaker Euro. However, the
business faces pressure from higher pulp prices. In North America, the strong US Dollar continues to
impact graphic paper trade flows negatively.
We expect the first quarter to show an improvement in EBITDA excluding special items and a substantial
increase in earnings per share excluding special items, compared to the equivalent quarter last year, as
a result of improved operating performance and lower interest charges. However, a severe drought is
currently being experienced in many parts of South Africa and may adversely impact our mill production
and consequent profitability, should normal summer rainfall not be forthcoming.
Based on current market conditions, and assuming current exchange rates, we expect that EBITDA
excluding special items in the 2016 financial year will be higher than 2015. As a result of lower expected
interest costs, offset somewhat by increased cash taxes, we expect strong growth in our earnings per
share excluding special items.
Capex during 2016 is expected to be in line with 2015 and is focused largely on energy and
debottlenecking projects in South Africa, together with the annual maintenance at the mills.
Depending on market conditions, we are considering utilising some of our cash reserves to repay and
refinance a portion of our debt in order to lower our future interest costs. We expect to reduce our net debt
further over the course of the year and reduce our financial leverage towards our target of two times net
debt to EBITDA.
Forward-looking statements
Certain statements in this release that are neither reported financial results nor other historical information,
are forward-looking statements, including, but not limited to, statements that are predictions of or indicate
future earnings, savings, synergies, events, trends, plans or objectives. The words "believe", "anticipate",
"expect", "intend", "estimate", "plan", "assume", "positioned", "will", "may", "should", "risk" and other similar
expressions, which are predictions of or indicate future events and future trends and which do not relate to
historical matters, may be used to identify forward-looking statements. You should not rely on forward-looking
statements because they involve known and unknown risks, uncertainties and other factors which are in some
cases beyond our control and may cause our actual results, performance or achievements to differ materially
from anticipated future results, performance or achievements expressed or implied by such forward-looking
statements (and from past results, performance or achievements). Certain factors that may cause such
differences include, but are not limited to:
- the highly cyclical nature of the pulp and paper industry (and the factors that contribute to such
cyclicality, such as levels of demand, production capacity, production, input costs including raw
material, energy and employee costs, and pricing);
- the impact on our business of 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 Quarter Year Year
ended ended ended ended
Sept 2015 Sept 2014 Sept 2015 Sept 2014
Note US$ million US$ million US$ million US$ million
Sales 1,403 1,505 5,390 6,061
Cost of sales 1,170 1,326 4,693 5,370
Gross profit 233 179 697 691
Selling, general and administrative
expenses 86 69 333 352
Other operating expenses (income) 13 36 (35) 33
Share of profit from equity investments (1) (2) (12) (8)
Operating profit 2 135 76 411 314
Net finance costs 25 39 182 177
Net interest expense 27 45 180 185
Net foreign exchange gain (2) (3) (11) (7)
Net fair value (gain) loss on financial
instruments – (3) 13 (1)
Profit before taxation 110 37 229 137
Taxation 27 (31) 62 2
Profit for the period 83 68 167 135
Basic earnings per share
(US cents) 16 13 32 26
Weighted average number of shares in
issue (millions) 526.4 523.3 525.7 522.5
Diluted earnings per share
(US cents) 16 13 31 26
Weighted average number of shares
on fully diluted basis (millions) 531.5 529.1 531.2 526.6
Condensed group statement of comprehensive income
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2015 Sept 2014 Sept 2015 Sept 2014
US$ million US$ million US$ million US$ million
Profit for the period 83 68 167 135
Other comprehensive income (loss),
net of tax
Items that will not be reclassified
subsequently to profit or loss (53) (152) (63) (152)
Actuarial losses on post-employment
benefit funds (86) (152) (96) (152)
Tax effect of above item 33 – 33 –
Items that must be reclassified
subsequently to profit or loss (137) (39) (145) (95)
Exchange differences on translation of
foreign operations (138) (14) (148) (71)
Movements in hedging reserves 2 (26) 4 (23)
Movement on available for sale financial
assets (1) – (1) (2)
Tax effect of above items – 1 – 1
Total comprehensive loss for the period (107) (123) (41) (112)
Condensed group balance sheet
Reviewed Reviewed
Sept 2015 Sept 2014
US$ million US$ million
ASSETS
Non-current assets 3,174 3,505
Property, plant and equipment 2,508 2,841
Plantations 383 430
Deferred tax assets 162 138
Other non-current assets 121 96
Current assets 1,711 1,960
Inventories 595 687
Trade and other receivables 650 731
Taxation receivable 10 14
Cash and cash equivalents 456 528
Assets held for sale 28 –
Total assets 4,913 5,465
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest 1,015 1,044
Non-current liabilities 2,806 3,198
Interest-bearing borrowings 2,031 2,311
Deferred tax liabilities 245 272
Other non-current liabilities 530 615
Current liabilities 1,091 1,223
Interest-bearing borrowings 196 163
Other current liabilities 865 1,035
Taxation payable 30 25
Liabilities associated with assets held for sale 1 –
Total equity and liabilities 4,913 5,465
Number of shares in issue at balance sheet date (millions) 526.4 524.2
Condensed group statement of cash flows
Reviewed Reviewed
Quarter Quarter year year
ended ended ended ended
Sept 2015 Sept 2014 Sept 2015 Sept 2014
US$ million US$ million US$ million US$ million
Profit for the period 83 68 167 135
Adjustment for:
Depreciation, fellings and amortisation 78 90 325 371
Taxation 27 (31) 62 2
Net finance costs 25 39 182 177
Defined post-employment benefits paid (10) (13) (56) (70)
Plantation fair value adjustments (37) (16) (106) (86)
Net restructuring provisions and loss on
disposal of assets and businesses 2 26 6 23
Non-cash employee benefit liability settlement 1 – (68) –
Other non-cash items 12 (3) 32 14
Cash generated from operations 181 160 544 566
Movement in working capital 86 153 (11) 34
Net finance costs paid (24) (26) (135) (162)
Taxation paid – – (16) (1)
Cash generated from operating activities 243 287 382 437
Cash utilised in investing activities (84) 1 (237) (194)
Capital expenditure (85) (105) (248) (295)
Cash flows on disposal of assets and businesses 1 97 1 87
Other movements – 9 10 14
Net cash generated 159 288 145 243
Cash effects of financing activities (17) 24 (127) (36)
Net movement in cash and cash
equivalents 142 312 18 207
Cash and cash equivalents at beginning
of period 351 248 528 352
Translation effects (37) (32) (90) (31)
Cash and cash equivalents at end of period 456 528 456 528
Condensed group statement of changes in equity
Reviewed Reviewed
Year Year
ended ended
Sept 2015 Sept 2014
US$ million US$ million
Balance – beginning of period 1,044 1,144
Total comprehensive loss for the period (41) (112)
Transfers from the share purchase trust 10 12
Transfers of vested share options (5) (7)
Share-based payment reserve 7 7
Balance – end of period 1,015 1,044
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated preliminary financial statements for the year ended September 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 preliminary 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 preliminary condensed consolidated financial statements was supervised by
the Chief Financial Officer, G T Pearce, CA(SA).
The preliminary financial statements for the year ended September 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
Quarter Quarter Year Year
ended ended ended ended
Sept 2015 Sept 2014 Sept 2015 Sept 2014
US$ million US$ million US$ million US$ million
2. Operating profit
Included in operating profit are the
following items:
Depreciation and amortisation 65 76 268 312
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 13 14 57 59
Growth (15) (16) (65) (68)
(2) (2) (8) (9)
Plantation price fair value adjustment (22) – (41) (18)
(24) (2) (49) (27)
Net restructuring provisions and loss on
disposal of assets and businesses 2 26 6 23
Impairment of goodwill – 1 – 1
Asset impairments – 3 – –
Employee benefit liability settlement 1 (21) (68) (21)
Black Economic Empowerment charge 1 – 2 2
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2015 Sept 2014 Sept 2015 Sept 2014
US$ million US$ million US$ million US$ million
3. Earnings per share
Basic earnings per share (US cents) 16 13 32 26
Headline earnings per share (US cents) 16 14 32 31
EPS excluding special items (US cents) 16 12 34 22
Weighted average number of shares in
issue (millions) 526.4 523.3 525.7 522.5
Diluted earnings per share (US cents) 16 13 31 26
Diluted headline earnings per share
(US cents) 16 14 31 31
Weighted average number of shares on
fully diluted basis (millions) 531.5 529.1 531.2 526.6
Calculation of headline earnings
Profit for the period 83 68 167 135
Asset impairments – 3 – –
Loss on disposal of assets and
businesses – 4 – 29
Impairment of goodwill – 1 – 1
Tax effect of above items – (2) – (1)
Headline earnings 83 74 167 164
Calculation of earnings excluding
special items
Profit for the period 83 68 167 135
Special items after tax 4 47 (47) 31
Special items 1 48 (54) 32
Tax effect 3 (1) 7 (1)
Refinancing costs (2) – 61 –
Recognition of deferred tax asset – (53) – (53)
Earnings excluding special items 85 62 181 113
Reviewed Reviewed
Sept 2015 Sept 2014
US$ million US$ million
4. Capital commitments
Contracted 60 104
Approved but not contracted 73 126
133 230
5. Contingent liabilities
Guarantees and suretyships 13 23
Other contingent liabilities 11 26
24 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
Year Year
ended ended
Sept 2015 Sept 2014
US$ million US$ million
Fair value of plantations at beginning of year 430 464
Gains arising from growth 65 65
Fire, flood, storms and related events (7) –
In-field inventory (1) (1)
Gain arising from fair value price changes 41 7
Harvesting – agriculture produce (fellings) (57) (57)
Translation difference (88) (48)
Fair value of plantations at end of period 383 430
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 Reviewed
Fair value Sept 2015 Sept 2014
hierarchy US$ million US$ million
Available for sale assets Level 1 8 10
Derivative financial assets Level 2 46 13
Derivative financial liabilities Level 2 5 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 to 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 24% 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.
Deferred tax assets
The increase is largely attributable to the deferred tax raised on actuarial losses incurred by our North
American pension liability as a result of increased longevity.
Trade and other receivables, cash and cash equivalents and other current liabilities
The decrease in trade and other receivables, cash and cash equivalents, and other current liabilities is
largely attributable to seasonal working capital movements.
Assets held for sale
During the quarter, the group announced the sale of it's Enstra and Cape Kraft mills. In accordance
with the accounting standard, IFRS 5 Non-current assets Held for Sale and Discontinued Operations,
the assets and associated liabilities of these entities have been separately classified on the condensed
group balance sheet.
Shareholders' equity
Profit for the year of US$167 million was offset by unrealised actuarial losses on post-employment
benefit funds of US$63 million and unrealised translation losses of US$148 million largely from the
weakening of the ZAR to the US Dollar.
Interest-bearing borrowings
In March 2015, the group placed an aggregate principal amount of US$504 million (EUR450 million)
senior secured notes due 2022 at a coupon of 3.375% per annum. In addition, the group increased
its US$392 million (EUR350 million) revolving credit facility to US$521 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$521 million (EUR465 million) revolving credit
facility were used to early redeem Sappi's US$280 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$61 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$54 million (ZAR750 million) to repay
it's South African bond due April 2015.
Other non-current liabilities
During the year, 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$66 million (EUR59 million).
This transfer, together with the translation effects of the abovementioned weaker currencies and the
associated currency gains on certain hedging instruments were partially offset by actuarial losses
incurred on the group's defined benefit obligations.
9. Post balance sheet event
During October 2015, Sappi Southern Africa received competition commission approval for both, the
sale of our Enstra mill to the Corruseal Group and the sale of our Cape Kraft mill to the Golden Era
Group. The Enstra sale was concluded on 02 November 2015 and the Cape Kraft sale is expected to
be concluded by the end of November 2015.
10. Segment information
Quarter Quarter Year Year
ended ended ended ended
Sept 2015 Sept 2014 Sept 2015 Sept 2014
Metric tons Metric tons Metric tons Metric tons
(000's) (000's) (000's) (000's)
Sales volume
North America 357 375 1,305 1,454
Europe 847 811 3,242 3,303
Southern Africa – Pulp and paper 482 453 1,768 1,706
Forestry 247 212 991 1,061
Total 1,933 1,851 7,306 7,524
Which consists of:
Specialised cellulose 312 313 1,161 1,199
Paper 1,374 1,326 5,154 5,264
Forestry 247 212 991 1,061
Reviewed Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2015 Sept 2014 Sept 2015 Sept 2014
US$ million US$ million US$ million US$ million
Sales
North America 369 390 1,377 1,517
Europe 679 745 2,660 3,107
Southern Africa – Pulp and paper 341 354 1,293 1,368
Forestry 14 16 60 69
Total 1,403 1,505 5,390 6,061
Which consists of:
Specialised cellulose 244 258 908 1,013
Paper 1,145 1,231 4,422 4,979
Forestry 14 16 60 69
Operating profit (loss) excluding
special items
North America 31 25 27 18
Europe 25 36 73 75
Southern Africa 83 59 256 248
Unallocated and eliminations(1) (3) 4 1 5
Total 136 124 357 346
Which consists of:
Specialised cellulose 79 62 231 243
Paper 60 58 125 98
Unallocated and eliminations(1) (3) 4 1 5
Special items – losses (gains)
North America – – – 2
Europe 4 37 (47) 33
Southern Africa (12) 2 (27) (12)
Unallocated and eliminations(1) 9 9 20 9
Total 1 48 (54) 32
Segment operating profit (loss)
North America 31 25 27 16
Europe 21 (1) 120 42
Southern Africa 95 57 283 260
Unallocated and eliminations(1) (12) (5) (19) (4)
Total 135 76 411 314
EBITDA excluding special items
North America 50 43 102 92
Europe 57 77 209 249
Southern Africa 97 77 313 312
Unallocated and eliminations(1) (3) 3 1 5
Total 201 200 625 658
Which consists of:
Specialised cellulose 90 77 281 303
Paper 114 120 343 350
Unallocated and eliminations(1) (3) 3 1 5
(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 Year Year
ended ended ended ended
Sept 2015 Sept 2014 Sept 2015 Sept 2014
US$ million US$ million US$ million US$ million
EBITDA excluding special items 201 200 625 658
Depreciation and amortisation (65) (76) (268) (312)
Operating profit excluding
special items 136 124 357 346
Special items – (losses) gains (1) (48) 54 (32)
Plantation price fair value adjustment 22 – 41 18
Net restructuring provisions and loss
on disposal of assets and businesses (2) (26) (6) (23)
Impairment of goodwill – (1) – (1)
Asset impairments – (3) – –
Employee benefit liability settlement (1) – 55 –
Black Economic Empowerment charge (1) – (2) (2)
Fire, flood, storm and other events (19) (18) (34) (24)
Segment operating profit 135 76 411 314
Net finance costs (25) (39) (182) (177)
Profit before taxation 110 37 229 137
Taxation (27) 31 (62) (2)
Profit for the period 83 68 167 135
Reviewed Reviewed
Sept 2015 Sept 2014
US$ million US$ million
Segment assets
North America 1,007 1,013
Europe 1,313 1,472
Southern Africa 1,066 1,289
Unallocated and eliminations(1) 13 (35)
Total 3,399 3,739
Reconciliation of segment assets to total assets
Segment assets 3,399 3,739
Deferred taxation 162 138
Cash and cash equivalents 456 528
Other current liabilities 865 1,035
Taxation payable 30 25
Liabilities associated with assets held for sale 1 –
Total assets 4,913 5,465
(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
Black Economic Empowerment (BEE) transaction implemented in fiscal 2010 in terms of 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.
Supplemental information (this information has not been audited or reviewed)
Summary Rand convenience translation
Quarter Quarter Year Year
ended ended ended ended
Sept 2015 Sept 2014 Sept 2015 Sept 2014
Key figures: (ZAR million)
Sales 18,150 16,172 64,486 64,037
Operating profit excluding special items(1) 1,759 1,332 4,271 3,656
Special items – losses (gains)(1) 13 516 (646) 338
EBITDA excluding special items(1) 2,600 2,149 7,478 6,952
Profit for the period 1,074 731 1,998 1,426
Basic earnings per share (SA cents) 204 140 380 273
Net debt(1) 24,641 21,851 24,641 21,851
Key ratios: (%)
Operating profit excluding special items
to sales 9.7 8.2 6.6 5.7
Operating profit excluding special items
to capital employed (ROCE)(1) 18.6 15.2 11.8 10.8
EBITDA excluding special items to sales 14.3 13.3 11.6 10.9
Return on average equity (ROE)(1) 30.9 24.4 15.5 12.3
Net debt to total capitalisation(1) 63.6 65.1 63.6 65.1
(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
Sept 2015 Sept 2014
US$ million US$ million
Interest-bearing borrowings 2,227 2,474
Non-current interest-bearing borrowings 2,031 2,311
Current interest-bearing borrowings 196 163
Cash and cash equivalents (456) (528)
Net debt 1,771 1,946
Supplemental information (this information has not been audited or reviewed)
Exchange rates
Sept Jun Mar Dec Sept
2015 2015 2015 2014 2014
Exchange rates:
Period end rate: US$1 = ZAR 13.9135 12.2025 12.0450 11.6001 11.2285
Average rate for the Quarter: US$1 = ZAR 12.9364 12.0820 11.7236 11.2122 10.7456
Average rate for the YTD: US$1 = ZAR 11.9641 11.6540 11.4552 11.2122 10.5655
Period end rate: EUR1 = US$ 1.1195 1.1166 1.0889 1.2177 1.2685
Average rate for the Quarter: EUR1 = US$ 1.1125 1.1060 1.1316 1.2504 1.3280
Average rate for the YTD: EUR1 = US$ 1.1501 1.1627 1.1910 1.2504 1.3577
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:
ADR Depositary:
Computershare Investor
Services Proprietary Limited The Bank of New York Mellon
70 Marshall Street Investor Relations
Johannesburg 2001 PO Box 11258
Church Street Station
PO Box 61051 New York, NY 10286-1258
Marshalltown 2107
Tel +1 610 382 7836
Tel +27 (0)11 370 5000
12 November 2015
JSE Sponsor: This report is available on the
UBS South Africa (Pty) Ltd Sappi website: www.sappi.com
www.sappi.com
Tel +27 (0)11 407 8111
48 Ameshoff Street
Braamfontein
Johannesburg
SOUTH AFRICA
Date: 12/11/2015 08:18:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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