Wrap Text
Fourth quarter results for the year ended September 2016
Sappi Limited
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI
Fourth quarter results
for the year ended September 2016
4th quarter results
Sappi is a global diversified woodfibre company focused on providing graphic/printing papers, packaging
and speciality papers, dissolving wood pulp as well as products in adjacent fields including nanocellulose
and lignosulphonate to our direct and indirect customer base across more than 150 countries.
Our market-leading range of graphic paper products are used by printers in the production of books,
brochures, magazines, catalogues, direct mail and many other print applications; quality packaging
and speciality papers are used in the manufacture of such products as soup sachets, luxury carry bags,
cosmetic and confectionery packaging, boxes for agricultural products for export, tissue wadding for
household tissue products and casting release papers used by suppliers to the fashion, textiles,
automobile and household industries; our dissolving wood pulp (specialised cellulose) products are
used worldwide by converters to create viscose fibre for fashionable clothing and textiles,
pharmaceutical products as well as a wide range of consumer and household products.
Sales by Source*
Europe 50%
North America 27%
Southern Africa 23%
Sales by product*
Coated paper 59%
Uncoated paper 5%
Speciality paper 11%
Commodity paper 5%
Dissolving wood pulp 18%
Paper pulp 1%
Other 1%
Sales by destination*
Europe 44%
North America 24%
Southern Africa 9%
Asia and other 23%
Net operating assets**
Europe 37%
North America 28%
Southern Africa 35%
* for the period ended September 2016
** as at September 2016
The wood and 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.
Highlights for the year
- EBITDA excluding special items US$739 million (FY15 US$625 million)
- Profit for the period US$319 million (FY15 US$167 million)
- EPS excluding special items 57 US cents (FY15 34 US cents)
- Net debt US$1,408 million, down US$363 million year-on-year
- Dividend of 11 US cents declared
Highlights for the quarter
- EBITDA excluding special items US$209 million (Q4 FY15 US$201 million)
- Profit for the period US$112 million (Q4 FY15 US$83 million)
- EPS excluding special items 18 US cents (Q4 FY15 16 US cents)
Financial highlights
Quarter ended Year ended
Sept 2016 Sept 2015 Jun 2016 Sept 2016 Sept 2015
Key figures: (US$ million)
Sales 1,340 1,403 1,223 5,141 5,390
Operating profit
excluding special items(1) 145 136 97 487 357
Special items - (gains) losses(2) (25) 1 1 (57) (54)
EBITDA excluding special items(1) 209 201 160 739 625
Profit for the period 112 83 32 319 167
Basic earnings per share (US cents) 21 16 6 60 32
EPS excluding special items (US cents)(3) 18 16 11 57 34
Net debt(3) 1,408 1,771 1,583 1,408 1,771
Key ratios:
Operating profit excluding special
items to sales 10.8 9.7 7.9 9.5 6.6
Operating profit excluding special
items to capital employed (ROCE)(3) 20.9 18.7 14.0 17.5 12.4
EBITDA excluding special items to sales 15.6 14.3 13.1 14.4 11.6
Net debt to EBITDA excluding special items 1.9 2.8 2.2 1.9 2.8
Interest cover(3) 7.3 4.4 7.0 7.3 4.4
Net asset value per share (US cents)(3) 260 193 223 260 193
(1) Refer to note 2 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 2 to the group results for details on special items.
(3) Refer to supplemental information for the definition of the term.
Year ended September 2016 compared to year ended September 2015
The continued success of our strategy implementation and the benefits of a weaker Rand/Dollar exchange
rate delivered further significant gains in earnings. Ongoing projects to improve our cost position and
enhance our competitiveness in graphic paper ensured an improved operating performance. Furthermore,
initiatives to accelerate growth in speciality packaging in Europe and North America have boosted volumes
and lifted margins. We continued to seek opportunities to shift production from graphic paper to various
speciality packaging grades.
Improved cash generation has resulted in the group achieving the targeted leverage of less than two times
net debt to EBITDA earlier than expected. The reduction in net debt and refinancing of high-cost debt will
result in lower ongoing interest charges.
The group's EBITDA excluding special items was US$739 million, an increase of US$114 million, or 18%, on
the prior year. Operating profit excluding special items for the year was US$487 million compared to
US$357 million in the prior year. Special items amounted to a gain of US$57 million, comprised mainly of
a plantation fair value gain as a result of the weaker Rand and the resultant increase in local timber prices.
Net finance costs for the year were US$121 million, a decrease from the US$182 million in the prior year
as a result of both lower debt levels and one-time refinancing charges incurred in 2016.
Net profit for the year increased by 91% to US$319 million.
Fourth quarter commentary
The quarter was characterised by buoyant dissolving wood pulp (DWP) markets, strong growth in speciality
packaging sales and cost savings across the group. These helped to offset the effect of lower graphic paper
volumes and selling prices. The group generated EBITDA excluding special items of US$209 million and operating
profit excluding special items of US$145 million, both above that of the equivalent quarter last year.
Profit for the period increased by 35% to US$112 million due to the improved operating profits and a
plantation fair value gain.
Spot prices for DWP in China have risen steadily in recent months as a smaller than expected cotton crop
boosted the demand for DWP and downstream viscose staple fibre markets continued to be strong. The Specialised
Cellulose business delivered improved returns during the quarter, with EBITDA excluding special items
of US$96 million.
Consistent with the earlier quarters this year, the European business delivered enhanced profitability,
with lower variable costs more than offsetting reduced volumes and prices compared to the equivalent
quarter last year. There was accelerated growth and margin improvement within our speciality
packaging business.
Improved year-on-year sales volumes and lower variable costs could not offset the decline in average selling
prices in our North American business. However, profitability was higher than that of the prior quarter due
to seasonally stronger sales volumes and higher DWP prices.
Higher average net selling prices and lower fixed costs in the South African business facilitated an improved
operating performance compared to the prior year, more than offsetting the lost sales volumes post the
disposal of the Cape Kraft and Enstra Mills in December 2015.
Earnings per share excluding special items for the quarter was 18 US cents.
Cash flow and debt
Net cash generated for the quarter was US$168 million, compared to US$159 million in the equivalent
quarter last year. Capital expenditure in the quarter was US$97 million compared to US$85 million a year
ago and encompasses a number of energy and efficiency projects across the group.
Net cash generation for the financial year was US$359 million (FY2015 US$145 million), which included proceeds
from the sale of Cape Kraft and Enstra mills of US$39 million.
Net debt at financial year-end decreased to US$1,408 million as a result of the cash generation. This
equates to leverage of 1.9 times EBITDA, achieving our long-term target of less than two times leverage.
At the end of September 2016, liquidity comprised cash on hand of US$703 million and US$595 million from
the unutilised committed revolving credit facilities in South Africa and Europe.
During the quarter, all existing security previously granted to secure certain indebtedness of Sappi
Papier Holding GmbH (SPH) was released. Sappi was required to meet various release conditions and having
met these conditions the bank and public debt of SPH has now reverted to a senior unsecured status.
Operating review for the quarter
Europe
Quarter ended
Sept 2016 Jun 2016 Mar 2016 Dec 2015 Sept 2015
€ million € million € million € million € million
Sales 579 540 604 601 609
Operating profit excluding special items 31 25 33 29 23
Operating profit excluding special
items to sales (%) 5.4 4.6 5.5 4.8 3.8
EBITDA excluding special items 61 53 62 59 51
EBITDA excluding special items to sales (%) 10.5 9.8 10.3 9.8 8.4
RONOA pa (%) 11.0 8.6 11.0 9.7 7.8
During this seasonally stronger quarter, graphic paper sales volumes were 9% above those of the prior
quarter, but 4% below those of the equivalent quarter last year.
Average net sales prices in Euro were marginally down compared to both the prior quarter and the equivalent
quarter last year largely as a result of weak demand in the summer months for coated woodfree and coated
mechanical paper. The improved cost competitiveness of the industry together with lower paper pulp prices
has increased the pressure on selling prices.
Lower raw material prices and ongoing cost reduction initiatives ensured variable costs were 9% lower
than last year.
Sales of our speciality packaging papers grew by 15% year-on-year, continuing to outpace average market
growth rates of 1% to 5% for the products we produce. Average selling prices continued to be stable.
North America
Quarter ended
Sept 2016 Jun 2016 Mar 2016 Dec 2015 Sept 2015
US$ million US$ million US$ million US$ million US$ million
Sales 360 325 339 343 369
Operating profit (loss)
excluding special items 25 (2) 13 13 31
Operating profit (loss) excluding
special items to sales (%) 6.9 (0.6) 3.8 3.8 8.4
EBITDA excluding special items 43 18 32 31 50
EBITDA excluding special
items to sales (%) 11.9 5.5 9.4 9.0 13.6
RONOA pa (%) 10.2 (0.8) 5.2 5.2 12.2
The North American business recovered in a seasonally stronger quarter that had no scheduled
maintenance shuts. The strong Dollar, low paper pulp prices and an oversupplied coated freesheet market
continued to put pressure on selling prices. Improved coated web and packaging volumes as well as lower
variable costs offset these headwinds.
DWP sales volumes were higher than both the prior quarter and equivalent quarter last year as we sought
to benefit from improved selling prices and proactively offset any potential drought impact in South Africa.
The release paper business continues to experience weak sales volumes into China and lower average
sales prices due to our sales mix.
Ongoing procurement and efficiency initiatives along with favourable markets for purchased pulp,
chemicals, wood and energy led to lower average variable costs. Fixed costs were less than in the prior
quarter due to the absence of scheduled annual maintenance shuts in the fourth quarter.
Southern Africa
Quarter ended
Sept 2016 Jun 2016 Mar 2016 Dec 2015 Sept 2015
ZAR million ZAR million ZAR million ZAR million ZAR million
Sales 4,760 4,306 4,568 3,993 4,556
Operating profit excluding
special items 1,256 1,050 1,255 949 1,047
Operating profit excluding
special items to sales (%) 26.4 24.4 27.5 23.8 23.0
EBITDA excluding special items 1,441 1,215 1,430 1,119 1,228
EBITDA excluding special
items to sales (%) 30.3 28.2 31.3 28.0 27.0
RONOA pa (%) 31.1 26.2 32.2 25.2 28.1
The Southern African business continued to strengthen in the quarter. Higher average net selling
prices for containerboard, tissue and office papers, tight fixed cost control and an improved sales
mix contributed to the enhanced margins when compared to the equivalent quarter last year.
DWP pricing was lifted by higher US Dollar spot prices in China. Demand remained strong and sales
volumes improved versus the prior quarter.
Variable costs were well controlled with lower fibre, chemical and energy costs compared to the
prior quarter. Fixed costs remained below those of the prior year post the disposal of the Cape
Kraft and Enstra Mills in December 2015.
Directorate
In October 2016, we announced the retirement of Mrs Bridgette Radebe and Mr Frits Beurskens,
at the end of February 2017, as independent non-executive directors after serving for 12 and
five years respectively.
Mrs Radebe was appointed to the board in May 2004 and was appointed to the Social, Ethics, Transformation
and Sustainability Committee in February 2012. Mr Beurskens was appointed to the board in October 2011
and served on the Audit Committee and chaired the Audit Committee of Sappi Europe.
Dividends
On 09 November 2016, the directors declared a dividend (number 86) of 11 US cents per share
(US$60 million) which will be paid to shareholders on 17 January 2017. This dividend was declared after
year-end and was not included as a liability at the end of the financial year.
The 2016 dividend was covered five times by basic earnings per share. The group aims to declare
ongoing annual dividends, and over time achieve a long-term average earnings to dividend ratio of
three to one.
Outlook
Demand for DWP remains favourable and recent gains in spot prices in China indicate that the market
is currently tightly supplied. We therefore expect higher average Dollar pricing in the first quarter
of fiscal 2017. The concerns regarding possible Saiccor production losses due to drought conditions in
South Africa have lessened in the past few months after some late winter rains. We do not currently
foresee any impact from drought in the first quarter.
Graphic paper markets continue to be weak in Europe and the United States. Variable cost reductions in
both regions continue to be important as prices remain under pressure. While the prices of most inputs
are not expected to continue to reduce in the coming year, we believe savings in variable costs can be
achieved as a result of the group procurement and efficiency initiatives currently under way.
We believe that demand for our speciality packaging grades will continue to grow and we will therefore
look to allocate more of our graphic paper capacity to these products.
The first quarter of our 2017 financial year will comprise 14 weeks instead of the typical 13-week quarter.
This is in order to adjust our reporting periods closer to the calendar periods. This will result in
increased sales compared to comparative quarters.
Based on current market conditions; in particular the recent strengthening of the Rand relative to
the US Dollar, stronger US Dollar pricing for DWP and weaker paper demand and pricing in Europe, we
expect the group's performance in 2017 to be broadly in line with 2016.
Capex expenditure in 2017 is expected to increase to approximately US$350 million as we continue the
debottlenecking of DWP production at Ngodwana and Saiccor, and seek to take advantage of our strong
growth in speciality packaging.
We expect to reduce net debt levels further during the course of 2017 and are considering utilising
some cash reserves to repay the maturing 2017 bonds in order to lower future finance costs.
On behalf of the board
S R Binnie
Director
G T Pearce
Director
10 November 2016
Dividend announcement
The directors have resolved to declare a gross dividend (number 86) of 11 US cents per share, payable
in ZAR at an exchange rate of (US$1 = ZAR) 13.56686, being ZAR149.23546 cents per share, for the year
ended 25 September 2016 out of income, in respect of Sappi ordinary shares in issue on the record
date as detailed below. Holders of Sappi "A" ordinary unlisted shares in issue on the record date
shall be entitled to receive 5.5 US cents per share being 50% of the ordinary dividend so declared.
The South African dividend tax rate is 15% and the net dividend payable to shareholders who are not
exempt from dividend tax is ZAR126.85014 cents per share. Sappi currently has 541 446 223 ordinary
shares in issue. The income tax reference number is 9175203711.
In compliance with the JSE Listings Requirements the salient dates in respect of the dividend are
detailed below:
Declaration and finalisation date: 10 November 2016
Last day to trade to qualify for the dividend: 10 January 2017
Shares commence trading ex-dividend: 11 January 2017
Record date: 13 January 2017
Payment date: 17 January 2017
Dividends payable to shareholders on the South African register will be paid in South African Rand and
all dividends attributable to holders of the ADR shares on the NYSE will be dealt with in accordance
with their custody agreements in place with their local custodian.
Certificated shareholders who previously held their shares on the UK register, which has subsequently
been discontinued, shall be paid in Pound Sterling at the ruling exchange rate at the time.
No currency elections are permitted.
All shareholders need to ensure that their current bank mandates with their service providers are
up to date. Furthermore, shareholders who have not yet done so, should submit their service providers
with their tax numbers and other relevant information for dividend tax purposes. Where shareholders
qualify for withholding tax exemptions they need to ensure that such exemption applications have been
lodged with their service providers.
Certificated and own name shareholders can call Computershare in South Africa on 0861 100 950 for
assistance in this regard.
Share certificate will not be dematerialised or rematerialised from 11 January 2017 to 13 January 2017
both days inclusive.
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, identify forward-looking statements. In addition, this document includes
forward-looking statements relating to our potential exposure to various types of market risks, such as interest
rate risk, foreign exchange rate risk and commodity price risk. 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 adverse changes in global economic conditions;
- 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 restructurings or 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
Quarter Quarter Year Year
ended ended ended ended
Sept 2016 Sept 2015 Sept 2016 Sept 2015
Note US$ million US$ million US$ million US$ million
Sales 1,340 1,403 5,141 5,390
Cost of sales 1,093 1,170 4,270 4,693
Gross profit 247 233 871 697
Selling, general and administrative
expenses 79 86 336 333
Other operating (income) expenses (1) 13 - (35)
Share of profit from equity investments (1) (1) (9) (12)
Operating profit 3 170 135 544 411
Net finance costs 23 25 121 182
Net interest expense 25 27 124 180
Net foreign exchange gain (2) (2) (2) (11)
Net fair value (gain) loss on
financial instruments - - (1) 13
Profit before taxation 147 110 423 229
Taxation 35 27 104 62
Profit for the period 112 83 319 167
Basic earnings per share (US cents) 21 16 60 32
Weighted average number of shares in
issue (millions) 530.4 526.4 529.4 525.7
Diluted earnings per share (US cents) 21 16 59 31
Weighted average number of shares on
fully diluted basis (millions) 542.6 531.5 540.3 531.2
Condensed group statement of comprehensive income
Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2016 Sept 2015 Sept 2016 Sept 2015
US$ million US$ million US$ million US$ million
Profit for the period 112 83 319 167
Other comprehensive income (loss),
net of tax
Items that will not be reclassified
subsequently to profit or loss (12) (53) (12) (63)
Actuarial losses on post-employment
benefit funds (20) (86) (20) (96)
Tax effect of above item 8 33 8 33
Items that must be reclassified
subsequently to profit or loss 94 (137) 42 (145)
Exchange differences on translation
of foreign operations 93 (138) 38 (148)
Movements in hedging reserves - 2 4 4
Movement on available for sale
financial assets - (1) - (1)
Tax effect of above items 1 - - -
Total comprehensive income (loss)
for the period 194 (107) 349 (41)
Condensed group balance sheet
Reviewed
Sept 2016 Sept 2015
US$ million US$ million
ASSETS
Non-current assets 3,171 3,174
Property, plant and equipment 2,501 2,508
Plantations 441 383
Deferred tax assets 152 162
Derivative financial instruments 1 41
Other non-current assets 76 80
Current assets 2,006 1,711
Inventories 606 595
Trade and other receivables 642 645
Derivative financial instruments 44 5
Taxation receivable 11 10
Cash and cash equivalents 703 456
Assets held for sale - 28
Total assets 5,177 4,913
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest 1,378 1,015
Non-current liabilities 2,325 2,806
Interest-bearing borrowings 1,535 2,031
Deferred tax liabilities 272 245
Other non-current liabilities 518 530
Current liabilities 1,474 1,091
Interest-bearing borrowings 576 196
Other current liabilities 854 860
Derivative financial instruments 2 5
Taxation payable 42 30
Liabilities associated with assets
held for sale - 1
Total equity and liabilities 5,177 4,913
Number of shares in issue at balance
sheet date (millions) 530.6 526.4
Condensed group statement of cash flows
Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2016 Sept 2015 Sept 2016 Sept 2015
US$ million US$ million US$ million US$ million
Profit for the period 112 83 319 167
Adjustment for:
Depreciation, fellings and
amortisation 79 78 308 325
Taxation 35 27 104 62
Net finance costs 23 25 121 182
Defined post-employment benefits paid (15) (10) (51) (56)
Plantation fair value adjustments (40) (37) (120) (106)
Net restructuring provisions - 2 4 6
Profit on disposal of assets
held for sale and other assets 1 - (15) -
Non-cash employee benefit
liability settlement (8) 1 (8) (68)
Other non-cash items 4 12 31 32
Cash generated from operations 191 181 693 544
Movement in working capital 70 86 4 (11)
Net finance costs paid (4) (24) (91) (135)
Taxation paid (2) - (56) (16)
Cash generated from operating activities 255 243 550 382
Cash utilised in investing activities (87) (84) (191) (237)
Capital expenditure (97) (85) (241) (248)
Net proceeds on disposal of assets 5 1 44 1
Other movements 5 - 6 10
Net cash generated 168 159 359 145
Cash effects of financing activities (29) (17) (130) (127)
Net movement in cash and
cash equivalents 139 142 229 18
Cash and cash equivalents at
beginning of period 542 351 456 528
Translation effects 22 (37) 18 (90)
Cash and cash equivalents
at end of period 703 456 703 456
Condensed group statement of changes in equity
Reviewed
Year Year
ended ended
Sept 2016 Sept 2015
US$ million US$ million
Balance - beginning of period 1,015 1,044
Total comprehensive income (loss) for the period 349 (41)
Transfers from the share purchase trust 14 10
Transfers of vested share options (7) (5)
Share-based payment reserve 7 7
Balance - end of period 1,378 1,015
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated preliminary financial statements for the year ended September 2016 have been
prepared in accordance with the Listings Requirements of the JSE Limited, the framework concepts and
measurement recognition requirements of International Financial Reporting Standards, the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee, Financial Pronouncements as issued by
Financial Reporting Standards Council, the requirements of the Companies Act of South Africa and containing
the minimum information required by IAS 34 Interim Financial Reporting. 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 group 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 condensed consolidated financial statements for the year ended September 2016 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.
Quarter Quarter Year Year
ended ended ended ended
Sept 2016 Sept 2015 Sept 2016 Sept 2015
Metric tons Metric tons Metric tons Metric tons
(000's) (000's) (000's) (000's)
2. Segment information
Sales volume
North America 363 357 1,329 1,305
Europe 822 847 3,252 3,242
Southern Africa - Pulp and paper 429 482 1,626 1,768
- Forestry 274 247 1,046 991
Total 1,888 1,933 7,253 7,306
Which consists of:
Specialised cellulose 302 312 1,111 1,161
Paper 1,312 1,374 5,096 5,154
Forestry 274 247 1,046 991
Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2016 Sept 2015 Sept 2016 Sept 2015
US$ million US$ million US$ million US$ million
Sales
North America 360 369 1,367 1,377
Europe 646 679 2,582 2,660
Southern Africa - Pulp and paper 318 341 1,136 1,293
- Forestry 16 14 56 60
Total 1,340 1,403 5,141 5,390
Which consists of:
Specialised cellulose 262 244 929 908
Paper 1,062 1,145 4,156 4,422
Forestry 16 14 56 60
Operating profit (loss)excluding
special items
North America 25 31 49 27
Europe 35 25 131 73
Southern Africa 88 83 305 256
Unallocated and eliminations(1) (3) (3) 2 1
Total 145 136 487 357
Which consists of:
Specialised cellulose 84 79 294 231
Paper 64 60 191 125
Unallocated and eliminations(1) (3) (3) 2 1
(1) Includes the group's treasury operations and our insurance captive.
Special items - (gains) losses
North America (10) - (6) -
Europe 2 4 6 (47)
Southern Africa (19) (12) (62) (27)
Unallocated and eliminations(1) 2 9 5 20
Total (25) 1 (57) (54)
Segment operating profit (loss)
North America 35 31 55 27
Europe 33 21 125 120
Southern Africa 107 95 367 283
Unallocated and eliminations(1) (5) (12) (3) (19)
Total 170 135 544 411
EBITDA excluding special items
North America 43 50 124 102
Europe 68 57 261 209
Southern Africa 101 97 352 313
Unallocated and eliminations(1) (3) (3) 2 1
Total 209 201 739 625
Which consists of:
Specialised cellulose 96 90 339 281
Paper 116 114 398 343
Unallocated and eliminations(1) (3) (3) 2 1
(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
Quarter Quarter Year Year
ended ended ended ended
Sept 2016 Sept 2015 Sept 2016 Sept 2015
US$ million US$ million US$ million US$ million
EBITDA excluding special items 209 201 739 625
Depreciation and amortisation (64) (65) (252) (268)
Operating profit excluding
special items 145 136 487 357
Special items - gains (losses) 25 (1) 57 54
Plantation price fair value adjustment 24 22 64 41
Net restructuring provisions - (2) (4) (6)
Profit on disposal of assets
held for sale and other assets (1) - 15 -
Asset impairments (2) - (2) -
Employee benefit liability settlement 8 (1) 8 55
Black economic empowerment charge - (1) (1) (2)
Fire, flood, storm and other events (4) (19) (23) (34)
Segment operating profit 170 135 544 411
Net finance costs (23) (25) (121) (182)
Profit before taxation 147 110 423 229
Taxation (35) (27) (104) (62)
Profit for the period 112 83 319 167
Reviewed
Sept 2016 Sept 2015
US$ million US$ million
Segment assets
North America 967 1,007
Europe 1,256 1,313
Southern Africa 1,182 1,066
Unallocated and eliminations(1) 19 13
Total 3,424 3,399
Reconciliation of segment assets to
total assets
Segment assets 3,424 3,399
Deferred taxation 152 162
Cash and cash equivalents 703 456
Other current liabilities 854 860
Derivative financial instruments 2 5
Taxation payable 42 30
Liabilities associated with assets
held for sale - 1
Total assets 5,177 4,913
(1) Includes the group's treasury operations and our insurance captive.
Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2016 Sept 2015 Sept 2016 Sept 2015
US$ million US$ million US$ million US$ million
3. Operating profit
Included in operating profit
are the following items:
Depreciation and amortisation 64 65 252 268
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 15 13 56 57
Growth (16) (15) (56) (65)
(1) (2) - (8)
Plantation price fair value adjustment (24) (22) (64) (41)
(25) (24) (64) (49)
Net restructuring provisions - 2 4 6
Profit on disposal of assets held for
sale and other assets 1 - (15) -
Asset impairments 2 - 2 -
Employee benefit liability settlement (8) 1 (8) (68)
Reviewed
Quarter Quarter Year Year
ended ended ended ended
Sept 2016 Sept 2015 Sept 2016 Sept 2015
US$ million US$ million US$ million US$ million
4. Earnings per share
Basic earnings per share (US cents) 21 16 60 32
Headline earnings per share (US cents) 21 16 58 32
EPS excluding special items (US cents) 18 16 57 34
Weighted average number of shares
in issue (millions) 530.4 526.4 529.4 525.7
Diluted earnings per share (US cents) 21 16 59 31
Diluted headline earnings
per share (US cents) 21 16 57 31
Weighted average number of shares on
fully diluted basis (millions) 542.6 531.5 540.3 531.2
Calculation of headline earnings
Profit for the period 112 83 319 167
Asset impairments 2 - 2 -
Profit on disposal of assets
held for sale and other assets 1 - (15) -
Tax effect of above items (2) - 3 -
Headline earnings 113 83 309 167
Calculation of earnings excluding
special items
Profit for the period 112 83 319 167
Special items after tax (18) 4 (39) (47)
Special items (25) 1 (57) (54)
Tax effect 7 3 18 7
Refinancing costs - (2) 23 61
Earnings excluding special items 94 85 303 181
5. 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
Sept 2016 Sept 2015
US$ million US$ million
Fair value of plantations at beginning of year 383 430
Gains arising from growth 56 65
Fire, flood, storm and related events (13) (7)
In-field inventory (1) (1)
Gain arising from fair value price changes 64 41
Harvesting - agriculture produce (fellings) (56) (57)
Disposals (1) -
Translation difference 9 (88)
Fair value of plantations at end of period 441 383
6. 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 Sept 2016 Sept 2015
hierarchy US$ million US$ million
Available for sale assets(2) Level 1 7 8
Derivative financial assets Level 2 45 46
Derivative financial liabilities Level 2 2 5
(1) The fair value of the financial instruments are equal to their carrying value.
(2) Included in other non-current assets.
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.
Reviewed
Sept 2016 Sept 2015
US$ million US$ million
7. Capital commitments
Contracted 42 60
Approved but not contracted 71 73
113 133
8. Contingent liabilities
Guarantees and suretyships 10 13
Other contingent liabilities 11 11
21 24
9. Material balance sheet movements
Assets held for sale
During the financial year, the conditions precedent related to the sale of the group's Enstra and
Cape Kraft mills were fulfilled. Proceeds of US$39 million were received and a combined profit on disposal
of US$13 million was recorded.
Interest-bearing borrowings and derivative financial instruments
During the year, the group issued an aggregate principal amount of €350 million (US$389 million) in
senior secured notes due 2023 at a coupon of 4.00% per annum. The proceeds from these notes were used to
redeem the full amount of the group's US$350 million senior secured notes due 2021 at a price of 103.313%
of the principal amount thereof. The coupon on the notes redeemed was 6.625%. In August 2016, the security
provided in terms of these 2023 notes, the notes due 2017 and 2022 as well as the €465 million
(US$522 million) revolving credit facility was released due to the group having achieved certain financial
covenants in terms of the respective agreements.
During the quarter, the group's US$400 million senior notes due July 2017 and the associated interest rate
currency swap were reclassified to short term. The group intends to repay the bond using a combination of
cash resources and existing committed facilities.
As at the 2015 financial year-end, the group had drawn €50 million (US$56 million) from its €465 million
(US$522 million) revolving credit facility. This amount as well as the amounts due under the OekB term
loan of €18 million (US$20 million), the group's ZAR255 million (US$17 million) and ZAR500 million
(US$34 million) public bonds which matured in April 2016 and June 2016 respectively were repaid from
existing cash resources.
10. Related parties
There has been no material change, by nature or amount, in transactions with related party since the
2015 financial year-end.
11. Events after balance sheet date
The directors have resolved to declare a gross dividend (number 86) out of income earned for the financial
year ended September 2016 of 11 US cents per ordinary share in issue on the record date, being
13 January 2017. The dividend is payable in ZAR at an exchange rate of (US$1 = ZAR) 13.56686 being
ZAR149.23546 cents per share. Holders of Sappi "A" ordinary unlisted shares, issued in terms of the BBBEE scheme,
are entitled to receive 5.5 US cents per share ZAR74.61773 cents per share being 50% of the ordinary
dividend declared.
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
Broad-based Black Economic Empowerment (BBBEE) charge - represents the IFRS 2 non-cash charge associated
with the BBBEE transaction implemented in fiscal 2010 in terms of BBBEE 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 2/2015, issued by the South African Institute of Chartered
Accountants in October 2015, 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
Interest cover - last 12 months EBITDA excluding special items to net interest adjusted for refinancing costs
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, bank overdrafts less cash and cash equivalents
Net debt to EBITDA excluding special items - Net debt divided by the last 12 months EBITDA excluding special items
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
RONOA - return on average net operating assets. Operating profit excluding special items divided by average net
operating 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
Summary Rand convenience translation
Quarter ended Year ended
Sept 2016 Sept 2015 Sept 2016 Sept 2015
Key figures: (ZAR million)
Sales 18,981 18,150 76,025 64,486
Operating profit excluding special items(1) 2,054 1,759 7,202 4,271
Special items - (gains) losses(1) (354) 13 (843) (646)
EBITDA excluding special items(1) 2,960 2,600 10,928 7,478
Profit for the period 1,586 1,074 4,717 1,998
Basic earnings per share (SA cents) 299 204 891 380
Net debt(1) 19,309 24,641 19,309 24,641
Key ratios: (%)
Operating profit excluding special
items to sales 10.8 9.7 9.5 6.6
Operating profit excluding special
items to capital employed (ROCE)(1) 20.6 18.6 18.7 11.8
EBITDA excluding special items to sales 15.6 14.3 14.4 11.6
(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.
Exchange rates
Sept Jun Mar Dec Sept
2016 2016 2016 2015 2015
Exchange rates:
Period-end rate: US$1 = ZAR 13.7139 15.0650 15.4548 15.2865 13.9135
Average rate for the Quarter: US$1 = ZAR 14.1648 15.0053 15.8226 14.1577 12.9364
Average rate for the YTD: US$1 = ZAR 14.7879 14.9966 14.9921 14.1577 11.9641
Period-end rate: €1 = US$ 1.1226 1.1117 1.1166 1.0977 1.1195
Average rate for the Quarter: €1 = US$ 1.1150 1.1304 1.1020 1.0968 1.1125
Average rate for the YTD: €1 = US$ 1.1111 1.1097 1.0994 1.0968 1.1501
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 (Pty) Ltd
70 Marshall Street
Johannesburg 2001
PO Box 61051, Marshalltown 2107
Telephone +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
48 Ameshoff Street, Braamfontein, Johannesburg, South Africa
Tel +27 (0)11 407 8111
This report is available on the
Sappi website: www.sappi.com
JSE Sponsor:
UBS South Africa (Pty) Ltd
Date: 10/11/2016 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
