Wrap Text
Second quarter results for the period ended March 2017
Sappi Limited
(Incorporated in the Republic of South Africa)
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI
Second quarter results
for the period ended March 2017
2nd 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.
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.
Sales by source*
North America 26%
Europe 49%
Southern Africa 25%
Sales by product*
Coated paper 57%
Uncoated paper 5%
Speciality paper 11%
Commodity paper 6%
Dissolving wood pulp 20%
Other 1%
Sales by destination*
North America 24%
Europe 42%
Southern Africa 9%
Asia and other 25%
Net operating assets**
North America 29%
Europe 34%
Southern Africa 37%
* For the period ended March 2017
** As at March 2017
Highlights for the quarter
- EBITDA excluding special items US$208 million (Q2 2016 US$195 million)
- Profit for the period US$88 million (Q2 2016 US$100 million)
- EPS excluding special items 17 US cents (Q2 2016 16 US cents)
- Net debt US$1,329 million, down US$323 million year-on-year
Quarter ended Half-year ended
Mar 2017 Mar 2016 Dec 2016 Mar 2017 Mar 2016
Key figures: (US$ million)
Sales 1,316 1,294 1,309 2,625 2,578
Operating profit excluding special items(1) 145 133 136 281 245
Special items - (gains) losses(2) 3 (22) (7) (4) (33)
EBITDA excluding special items(1) 208 195 201 409 370
Profit for the period 88 100 90 178 175
Basic earnings per share (US cents) 16 19 17 33 33
EPS excluding special items (US cents)(3) 17 16 16 33 29
Net debt(3) 1,329 1,652 1,338 1,329 1,652
Key ratios: (%)
Operating profit excluding special
items to sales 11.0 10.3 10.4 10.7 9.5
Operating profit excluding special items
to capital employed (ROCE)(3) 20.5 19.3 19.5 19.8 17.7
EBITDA excluding special items to sales 15.8 15.1 15.4 15.6 14.4
Net debt to EBITDA excluding special items 1.7 2.4 1.7 1.7 2.4
Interest cover(3) 7.7 6.5 7.7 7.7 6.5
Net asset value per share (US cents)(3) 290 210 270 290 210
(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.
Commentary on the quarter
Operating performance in the quarter improved principally as a result of buoyant dissolving wood pulp (DWP) markets,
which boosted sales volumes and selling prices. This success was despite the impact of a significantly stronger
Rand/Dollar exchange rate, which reduced profitability in the South African region. The group generated EBITDA
excluding special items of US$208 million, an increase of 7% over the same quarter in 2016. Profit for the period
decreased from US$100 million to US$88 million due to a US$18 million positive after tax plantation fair value
adjustment that occurred last year.
The specialised cellulose business benefited from strong demand and favourable pricing for DWP, which followed
the trends for viscose staple fibre, cotton and polyester. The average Dollar prices in the quarter were above
those of the prior quarter and the equivalent quarter last year, driven mainly by higher average DWP prices in the
Chinese market.
Profit from Europe was under pressure as a result of rapidly rising raw material costs, particularly purchased
pulp and latex, and a soft graphic paper market. However the speciality packaging business continued to achieve
strong sales growth and profit margins.
Higher DWP pricing, increased packaging and release paper volumes, and the continued focus on cost and efficiency
gains more than offset a decline in coated paper volumes and prices for the US business, leading to an improved
year-on-year result.
The paper business in South Africa had a positive quarter, with higher sales volumes in the containerboard and
newsprint categories. However, the stronger Rand/Dollar exchange rate impacted sales prices somewhat,
particularly for exports.
Net finance costs were US$24 million, a reduction from the US$25 million in the equivalent quarter last year.
Earnings per share excluding special items were 17 US cents, a slight improvement over the 16 US cents generated
in the equivalent quarter last year. Special items for the quarter resulted in a loss of US$3 million.
Cash flow and debt
Net cash generated was US$20 million, compared to the US$90 million generated in the equivalent quarter last
year. The decrease was due to the payment of the 2016 dividend during the quarter and increased cash taxes.
Capital expenditure of US$45 million was in line with the equivalent quarter last year.
Net debt of US$1,329 million was substantially lower than the US$1,652 million at the end of the equivalent
quarter last year as a result of strong cash generation in the 2016 financial year and the translation benefit
of the weaker Euro on the Euro denominated debt.
Since quarter end we have repaid the 2017 US$400 million bonds utilising our existing cash resources. This
will lower the ongoing net interest charge by approximately US$21 million per annum.
Liquidity at quarter end comprised cash on hand of US$703 million and US$569 million available from undrawn
committed revolving credit facilities.
Operating review for the quarter
Europe
Quarter ended
Mar 2017 Dec 2016 Sept 2016 Jun 2016 Mar 2016
€ million € million € million € million € million
Sales 581 602 579 540 604
Operating profit
excluding special items 29 40 31 25 33
Operating profit excluding
special items to sales (%) 5.0 6.6 5.4 4.6 5.5
EBITDA excluding special items 56 69 61 53 62
EBITDA excluding special
items to sales (%) 9.6 11.5 10.5 9.8 10.3
RONOA pa (%) 10.3 14.3 11.0 8.6 11.0
The profitability of the European business declined compared to both the prior quarter (which included
an additional accounting week) and the equivalent quarter last year. Coated paper sales prices stabilised
during the quarter, but were 4% below those of the equivalent quarter last year.
The specialities business attained a stronger sales quarter against both comparative periods, with higher
volumes offsetting slightly lower rigid packaging prices. The weaker Euro assisted export sales of
speciality packaging papers.
All major variable cost categories, with the exception of latex, declined relative to last year.
During the quarter hardwood pulp and latex prices rose rapidly and, along with the weaker Euro, impacted
margins in the latter half of the quarter. Fixed costs were well controlled and lower than in the
equivalent quarter last year.
North America
Quarter ended
Mar 2017 Dec 2016 Sept 2016 Jun 2016 Mar 2016
US$ million US$ million US$ million US$ million US$ million
Sales 335 354 360 325 339
Operating profit (loss)
excluding special items 14 8 25 (2) 13
Operating profit (loss)
excluding special items to sales (%) 4.2 2.3 6.9 (0.6) 3.8
EBITDA excluding special items 34 28 43 18 32
EBITDA excluding special items
to sales (%) 10.1 7.9 11.9 5.5 9.4
RONOA pa (%) 5.8 3.3 10.2 (0.8) 5.2
Profitability of the North American business increased compared to the prior year driven by higher DWP
pricing, growth in specialities and packaging sales volumes as well as lower variable costs, more than
offsetting declines in coated paper volumes and pricing.
The US coated paper market remained under pressure due to weak demand and lower pricing led by the strong
Dollar and a rise in imports. Coated paper sales volumes and prices were 3% and 5% respectively below those
of the equivalent period last year as a result.
The DWP business benefited from the improved Dollar pricing during the quarter and substantially lower
delivery costs improved margins further.
Packaging paper demand was positively impacted by the seasonally strong pet food industry demand and the
continued ramp-up of our new speciality packaging grades, leading to a 20% increase in the segment’s
volumes compared to the prior year. The casting and release paper business recovered during the quarter
with Chinese sales particularly strong post the Chinese New Year.
Ongoing procurement and efficiency initiatives together with lower market prices for wood and energy
led to lower variable costs for the quarter. Fixed costs were well controlled.
Southern Africa
Quarter ended
Mar 2017 Dec 2016 Sept 2016 Jun 2016 Mar 2016
ZAR million ZAR million ZAR million ZAR million ZAR million
Sales 4,818 4,230 4,760 4,306 4,568
Operating profit excluding
special items 1,317 1,169 1,256 1,050 1,255
Operating profit excluding
special items to sales (%) 27.3 27.6 26.4 24.4 27.5
EBITDA excluding special items 1,489 1,364 1,441 1,215 1,430
EBITDA excluding special
items to sales (%) 30.9 32.2 30.3 28.2 31.3
RONOA pa (%) 30.5 27.8 31.1 26.2 32.2
The South African business continued to deliver strong margins, with improved Dollar selling prices for
DWP, higher sales volumes and reverting the annual Ngodwana shut to the third quarter offsetting increased
variable costs and a stronger Rand/Dollar exchange rate.
DWP sales volumes rose compared to both the prior quarter and equivalent quarter last year. The higher
Dollar prices did not fully offset the impact of the stronger Rand/Dollar exchange rate for the period.
A planned annual maintenance shut at Saiccor Mill commenced at the end of the quarter and we expect to have
resolved the economiser tube leak issues that impacted production at the mill over the past few quarters.
The paper business experienced a strong recovery in sales volumes this past quarter compared to both
comparative periods. Containerboard and newsprint sales were particularly healthy, and the outlook for
containerboard remains strong due to an anticipated year-on-year growth in fruit exports.
Variable and fixed costs were above last year and related mainly to wood, energy and personnel, albeit
the increases were below inflation.
Directorate
Dr Boni Mehlomakulu joined the board as an independent non-executive director and as a member of the
Social, Ethics Transformation and Sustainability committee, with effect from 01 March 2017.
Outlook
Subsequent to the steady increase in the second quarter, DWP prices have moderated during April 2017.
This follows a similar trend in viscose staple fibre, cotton and polyester pricing. Nonetheless, market
dynamics appear favourable, with demand growth continuing to exceed our long-term forecast of 4% and only
limited capacity addition is expected in the next two years.
Graphic paper markets in Europe and the United States remain sluggish, although orders in Europe improved
in late March and April. Rising paper pulp and latex prices, along with a weaker Euro have started to place
pressure on European margins, with paper price increases originally scheduled for April only offering
partial relief.
Demand for speciality packaging continues to grow and we are making good progress with the conversion
projects we recently announced for Europe and North America. These will further boost production
capacity in these grades.
Capital expenditure in 2017 is expected to be approximately US$350 million. This includes the next phase
of the DWP debottlenecking project at Ngodwana Mill, the Somerset Mill wood-yard and the initial phases of
the speciality packaging conversions at Maastricht and Somerset Mills.
Based on current market conditions; in particular the higher paper pulp and latex prices and the current
Rand/Dollar exchange rate, we expect the group’s operating performance in the third quarter to be
slightly below that of the equivalent quarter in 2016. However, the full year result is likely to be
above that of the prior year.
During the course of 2017 we expect to reduce net debt further through positive cash generation and for
the net interest expense to decline following the repayment of the maturing 2017 bonds in April.
On behalf of the board
S R Binnie G T Pearce
Director Director
15 May 2017
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 Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2017 Mar 2016 Mar 2017 Mar 2016
Note US$ million US$ million US$ million US$ million
Sales 1,316 1,294 2,625 2,578
Cost of sales 1,094 1,048 2,176 2,138
Gross profit 222 246 449 440
Selling, general and administrative
expenses 81 93 163 175
Other operating expenses (income) 1 1 5 (8)
Share of profit from equity
investments (2) (3) (4) (5)
Operating profit 3 142 155 285 278
Net finance costs 24 25 49 50
Net interest expense 27 27 54 54
Net foreign exchange gain (3) (2) (5) (4)
Profit before taxation 118 130 236 228
Taxation 30 30 58 53
Profit for the period 88 100 178 175
Basic earnings per share (US cents) 4 16 19 33 33
Weighted average number of shares
in issue (millions) 534.5 529.7 533.0 528.6
Diluted earnings per share (US cents) 4 16 18 33 33
Weighted average number of shares
on fully diluted basis (millions) 548.0 541.4 545.9 538.4
Condensed group statement of comprehensive income
Reviewed Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2017 Mar 2016 Mar 2017 Mar 2016
US$ million US$ million US$ million US$ million
Profit for the period 88 100 178 175
Other comprehensive income
(loss), net of tax
Items that may or are
reclassified subsequently
to profit or loss 15 (8) 48 (87)
Exchange differences on
translation of foreign operations 16 (15) 49 (86)
Movements in hedging reserves (2) 9 (1) -
Tax effect of above items 1 (2) - (1)
Total comprehensive income
(loss) for the period 103 92 226 88
Condensed group balance sheet
Reviewed Reviewed
Mar 2017 Sept 2016
Note US$ million US$ million
ASSETS
Non-current assets 3,113 3,171
Property, plant and equipment 2,430 2,501
Plantations 5 454 441
Deferred tax assets 147 152
Derivative financial instruments 2 1
Other non-current assets 80 76
Current assets 2,005 2,006
Inventories 652 606
Trade and other receivables 579 642
Derivative financial instruments 62 44
Taxation receivable 9 11
Cash and cash equivalents 703 703
Total assets 5,118 5,177
EQUITY AND LIABILITIES
Equity
Ordinary shareholders’ interest 1,551 1,378
Non-current liabilities 2,265 2,325
Interest-bearing borrowings 1,483 1,535
Deferred tax liabilities 280 272
Other non-current liabilities 502 518
Current liabilities 1,302 1,474
Interest-bearing borrowings 549 576
Other current liabilities 722 854
Derivative financial instruments 6 2
Taxation payable 25 42
Total equity and liabilities 5,118 5,177
Number of shares in issue at
balance sheet date (millions) 534.8 530.6
Condensed group statement of cash flows
Reviewed Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2017 Mar 2016 Mar 2017 Mar 2016
US$ million US$ million US$ million US$ million
Profit for the period 88 100 178 175
Adjustment for:
Depreciation, fellings and amortisation 80 73 163 150
Taxation 30 30 58 53
Net finance costs 24 25 49 50
Defined post-employment benefits paid (12) (13) (21) (24)
Plantation fair value adjustments (16) (38) (42) (54)
Net restructuring provisions - 1 - 4
Profit on disposal of assets held for sale - (1) - (16)
Other non-cash items 9 10 20 20
Cash generated from operations 203 187 405 358
Movement in working capital (26) (22) (123) (122)
Net finance costs paid (24) (22) (41) (58)
Taxation paid (32) (4) (66) (22)
Dividend paid (59) - (59) -
Cash generated from operating activities 62 139 116 156
Cash (utilised in) generated from
investing activities (42) (49) (79) (47)
Capital expenditure (45) (45) (82) (85)
Net proceeds on disposal of assets 1 (3) 3 38
Other movements 2 (1) - -
Net cash generated 20 90 37 109
Cash effects of financing activities (10) (22) (16) (94)
Proceeds from interest-bearing borrowings (9) (3) 5 -
Repayment of interest-bearing borrowings (1) (19) (21) (94)
Net movement in cash and cash equivalents 10 68 21 15
Cash and cash equivalents at
beginning of period 681 383 703 456
Translation effects 12 6 (21) (14)
Cash and cash equivalents at end of period 703 457 703 457
Condensed group statement of changes in equity
Reviewed Reviewed
Half-year Half-year
ended ended
Mar 2017 Mar 2016
US$ million US$ million
Balance - beginning of period 1,378 1,015
Total comprehensive income for the period 226 88
Dividend (59) -
Transfers from the share purchase trust 4 12
Transfers of vested share options (2) (5)
Share-based payment reserve 4 4
Balance - end of period 1,551 1,114
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated interim financial statements for the quarter and half-year ended March 2017 are
prepared in accordance with 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 condensed consolidated interim financial statements for the half-year ended March 2017 have been
reviewed by KPMG Inc, who expressed an unmodified review conclusion. The auditor’s report does not
necessarily report on all of the information contained in these 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.
2. Segment information
Quarter ended Half-year ended
Mar 2017 Mar 2016 Mar 2017 Mar 2016
Metric Metric Metric Metric
tons tons tons tons
(000s) (000s) (000s) (000s)
Sales volume
North America 329 331 682 661
Europe 839 834 1,706 1,670
Southern Africa - Pulp and paper 408 404 772 790
- Forestry 262 241 506 500
Total 1,838 1,810 3,666 3,621
Which consists of:
Specialised cellulose 303 289 584 544
Paper 1,273 1,280 2,576 2,577
Forestry 262 241 506 500
Reviewed Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2017 Mar 2016 Mar 2017 Mar 2016
US$ million US$ million US$ million US$ million
Sales
North America 335 339 689 682
Europe 619 666 1,270 1,325
Southern Africa - Pulp and paper 347 277 636 545
- Forestry 15 12 30 26
Total 1,316 1,294 2,625 2,578
Which consists of:
Specialised cellulose 283 238 530 447
Paper 1,018 1,044 2,065 2,105
Forestry 15 12 30 26
Operating profit
excluding special items
North America 14 13 22 26
Europe 31 36 74 68
Southern Africa 99 80 183 147
Unallocated and eliminations(1) 1 4 2 4
Total 145 133 281 245
Which consists of:
Specialised cellulose 99 84 181 146
Paper 45 45 98 95
Unallocated and eliminations(1) 1 4 2 4
Special items - (gains) losses
North America - 3 - 3
Europe 1 (2) 1 2
Southern Africa - (25) (7) (40)
Unallocated and eliminations(1) 2 2 2 2
Total 3 (22) (4) (33)
Segment operating profit (loss)
North America 14 10 22 23
Europe 30 38 73 66
Southern Africa 99 105 190 187
Unallocated and eliminations(1) (1) 2 - 2
Total 142 155 285 278
EBITDA excluding special items
North America 34 32 62 63
Europe 59 68 134 133
Southern Africa 112 91 210 170
Unallocated and eliminations(1) 3 4 3 4
Total 208 195 409 370
Which consists of:
Specialised cellulose 111 94 206 168
Paper 94 97 200 198
Unallocated and eliminations(1) 3 4 3 4
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.
EBITDA excluding special items 208 195 409 370
Depreciation and amortisation (63) (62) (128) (125)
Operating profit excluding
special items 145 133 281 245
Special items - gains (losses) (3) 22 4 33
Plantation price fair value
adjustment 1 26 12 28
Net restructuring provisions - (1) - (4)
Profit on disposal of assets
held for sale - 1 - 16
Black Economic Empowerment charge (1) (1) (1) (1)
Fire, flood, storm and other events (3) (3) (7) (6)
Segment operating profit 142 155 285 278
Net finance costs (24) (25) (49) (50)
Profit before taxation 118 130 236 228
Taxation (30) (30) (58) (53)
Profit for the period 88 100 178 175
(1) Includes the group’s treasury operations and our insurance captive.
Reviewed Reviewed
Mar 2017 Mar 2016
US$ million US$ million
Segment assets
North America 989 1,013
Europe 1,194 1,324
Southern Africa 1,277 1,026
Unallocated and eliminations(1) 55 4
Total 3,515 3,367
Reconciliation of segment assets to total assets
Segment assets 3,515 3,367
Deferred taxation 147 157
Cash and cash equivalents 703 457
Other current liabilities 722 759
Derivative financial instruments 6 -
Taxation payable 25 43
Total assets 5,118 4,783
(1) Includes the group’s treasury operations and our insurance captive.
3. Operating profit
Reviewed Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2017 Mar 2016 Mar 2017 Mar 2016
US$ million US$ million US$ million US$ million
Included in operating profit
are the following items:
Depreciation and amortisation 63 62 128 125
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 17 11 35 25
Growth (15) (12) (30) (26)
2 (1) 5 (1)
Plantation price fair value adjustment (1) (26) (12) (28)
1 (27) (7) (29)
Net restructuring provisions - 1 - 4
Profit on disposal of assets
held for sale - (1) - (16)
4. Earnings per share
Reviewed Reviewed Reviewed
Quarter Quarter Half-year Half-year
ended ended ended ended
Mar 2017 Mar 2016 Mar 2017 Mar 2016
US$ million US$ million US$ million US$ million
Basic earnings per
share (US cents) 16 19 33 33
Headline earnings per
share (US cents) 16 19 33 31
EPS excluding special
items (US cents) 17 16 33 29
Weighted average number of
shares in issue (millions) 534.5 529.7 533.0 528.6
Diluted earnings per share
(US cents) 16 18 33 33
Diluted headline
earnings per share (US cents) 16 18 33 30
Weighted average number
of shares on fully diluted
basis (millions) 548.0 541.4 545.9 538.4
Calculation of headline earnings
Profit for the period 88 100 178 175
Profit on disposal of assets
held for sale - (1) - (16)
Tax effect of above items - - - 4
Headline earnings 88 99 178 163
Calculation of earnings
excluding special items
Profit for the period 88 100 178 175
Special items after tax 3 (15) (2) (22)
Special items 3 (22) (4) (33)
Tax effect - 7 2 11
Earnings excluding special items 91 85 176 153
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 Reviewed
Mar 2017 Sept 2016
US$ million US$ million
Fair value of plantations at beginning of year 441 383
Gains arising from growth 30 56
Fire, flood, storm and other events (4) (13)
In-field inventory - (1)
Gain arising from fair value price changes 12 64
Harvesting - agriculture produce (fellings) (35) (56)
Disposals - (1)
Translation difference 10 9
Fair value of plantations at end of period 454 441
6. Financial instruments
The group’s financial instruments that are measured at fair value on a recurring basis consist of
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 Mar 2017 Sept 2016
hierarchy US$ million US$ million
Investment funds(2) Level 1 7 7
Derivative financial assets Level 2 64 45
Derivative financial liabilities Level 2 6 2
(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 cash and cash equivalents, accounts
receivable, certain investments, accounts payable and current interest-bearing borrowings approximate
their fair values.
7. Capital commitments
Reviewed Reviewed
Mar 2017 Sept 2016
US$ million US$ million
Contracted 141 42
Approved but not contracted 349 71
490 113
8. Contingent liabilities
Guarantees and suretyships 6 10
Other contingent liabilities 17 11
23 21
9. Material balance sheet movements
Inventories, trade and other receivables and other current liabilities
The increase in inventories with a decrease in both trade and other receivables and other current liabilities
is largely attributable to seasonal working capital movements.
10. Related parties
There has been no material change, by nature or amount, in transactions with related parties since the 2016
financial year-end.
11. Events after balance sheet date
The group repaid its US$400 million public bond due July 2017 during the call window period in April 2017
from available cash resources.
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 Half-year ended
Mar 2017 Mar 2016 Mar 2017 Mar 2016
Key figures: (ZAR million)
Sales 17,405 20,474 35,664 38,650
Operating profit excluding special items(1) 1,918 2,104 3,818 3,673
Special items - (gains) losses(1) 40 (348) (54) (495)
EBITDA excluding special items(1) 2,751 3,085 5,557 5,547
Profit for the period 1,164 1,582 2,418 2,624
Basic earnings per share (SA cents) 218 299 454 496
Net debt(1) 17,843 25,531 17,843 25,531
Key ratios: (%)
Operating profit excluding special items to sales 11.0 10.3 10.7 9.5
Operating profit excluding special items
to capital employed (ROCE)(1) 20.0 19.9 19.9 18.0
EBITDA excluding special items to sales 15.8 15.1 15.6 14.4
(1) Refer to supplemental information for the definition of the term.
The above financial results have been translated into Rand from Dollar 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
Mar Dec Sept Jun Mar
2017 2016 2016 2016 2016
Exchange rates:
Period end rate: US$1 = ZAR 13.4259 13.7386 13.7139 15.0650 15.4548
Average rate for the quarter: US$1 = ZAR 13.2260 13.9155 14.1648 15.0053 15.8226
Average rate for the year to date:
US$1 = ZAR 13.5861 13.9155 14.7879 14.9966 14.9921
Period end rate: €1 = US$ 1.0652 1.0516 1.1226 1.1117 1.1166
Average rate for the quarter: €1 = US$ 1.0656 1.0814 1.1150 1.1304 1.1020
Average rate for the year to date: €1 = US$ 1.0738 1.0814 1.1111 1.1097 1.0994
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
Rosebank Towers, 15 Biermann Avenue
Rosebank 2196, South Africa
PO Box 61051, Marshalltown 2107, South Africa
www.computershare.com
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
48 Ameshoff Street, Braamfontein, Johannesburg, South Africa
Tel +27 (0)11 407 8111
Date: 15/05/2017 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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