Wrap Text
Third quarter results for the period ended June 2017
Sappi Limited
(Incorporated in the Republic of South Africa)
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI
Third quarter results for the period ended June 2017
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 48%
Southern Africa 26%
Sales by Product*
Coated paper 56%
Uncoated paper 5%
Speciality paper 11%
Commodity paper 6%
Dissolving wood pulp 21%
Other 1%
Sales by destination*
North America 23%
Europe 41%
Southern Africa 10%
Asia and other 26%
Net operating assets**
North America 28%
Europe 36%
Southern Africa 36%
* For the period ended June 2017
** As at June 2017
Highlights for the quarter
- EBITDA excluding special items US$155 million (Q3 2016 US$160 million)
- Profit for the period US$58 million (Q3 2016 US$32 million)
- EPS excluding special items 11 US cents (Q3 2016 11 US cents)
- Net debt US$1,318 million, down US$265 million year-on-year
- US$400 million bond repaid from available cash reserves
Financial highlights
Quarter ended Nine months ended
Jun 2017 Jun 2016 Mar 2017 Jun 2017 Jun 2016
Key figures: (US$ million)
Sales 1,260 1,223 1,316 3,885 3,801
Operating profit excluding special items(1) 93 97 145 374 342
Special items - (gains) losses(2) 3 1 3 (1) (32)
EBITDA excluding special items(1) 155 160 208 564 530
Profit for the period 58 32 88 236 207
Basic earnings per share (US cents) 11 6 16 44 39
EPS excluding special items (US cents)(3) 11 11 17 44 40
Net debt(3) 1,318 1,583 1,329 1,318 1,583
Key ratios: (%)
Operating profit excluding special items to sales 7.4 7.9 11.0 9.6 9.0
Operating profit excluding special items to capital
employed (ROCE)(3) 12.8 14.0 20.5 17.4 16.4
EBITDA excluding special items to sales 12.3 13.1 15.8 14.5 13.9
Net debt to EBITDA excluding special items 1.7 2.2 1.7 1.7 2.2
Interest cover(3) 8.4 7.0 7.7 8.4 7.0
Net asset value per share (US cents)(3) 304 223 290 304 223
(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
The third quarter is seasonally the weakest for Sappi and significant annual maintenance was completed during the
period. The group generated EBITDA excluding special items of US$155 million, a decrease of 3% over the same quarter last
year due to higher market prices for raw materials, mainly in Europe, and a stronger Rand/Dollar exchange rate. Profit for
the period increased from US$32 million to US$58 million, with the comparable period last year impacted negatively by
once-off refinance costs of US$23 million.
Higher sales volumes enabled the specialised cellulose business to generate US$85 million of EBITDA excluding special
items, improving on the equivalent quarter last year. Average Dollar selling prices were above last year, driven by
healthy demand and higher viscose staple fibre prices in the Chinese market. However, the stronger Rand/Dollar exchange rate
adversely impacted average pricing for our South African operations.
The European business benefited from good demand for most products and price increases for coated woodfree paper
announced for April were partially successful, thereby lifting average prices for the quarter. Coated paper selling prices
remain below a year ago and this, combined with the higher raw material costs, led to a small reduction in profitability
compared to the prior year. Conversely, the speciality packaging business continued to achieve strong sales growth and
profit margins.
In the US, the benefits of higher dissolving wood pulp (DWP) volumes and pricing compared to last year in addition to
increased packaging and coated paper sales volumes were offset by the ongoing weakness of coated paper prices. The
success of cost containment programmes and efficiency gains led to a constant year-on-year result.
The packaging paper business in South Africa had another positive quarter with higher sales volumes. Costs in the
quarter were impacted by the planned annual maintenance shut at Ngodwana Mill and replacement of economiser tubes at Saiccor
Mill.
Net finance costs were US$16 million, a reduction from the US$48 million in the equivalent quarter last year, which
included the previously mentioned refinance costs.
Earnings per share excluding special items were 11 US cents, as in the prior year. Special items for the quarter
resulted in a loss of US$2 million after tax.
Cash flow and debt
Net cash generated was US$30 million, compared to the US$82 million generated in the equivalent quarter last year. The
decrease was due to an increase in working capital and higher capital expenditure, offset by lower finance costs and
cash taxes. Capital expenditure of US$78 million is related mainly to the paper machine conversion projects in both Europe
and North America and debottlenecking projects in South Africa.
Strong cash generation over the past twelve months substantially reduced net debt to US$1,318 million from US$1,583
million at the end of the equivalent quarter last year.
During the quarter we 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$446 million and US$608 million available from undrawn committed
revolving credit facilities.
Operating review for the quarter
Europe
Quarter ended
Jun 2017 Mar 2017 Dec 2016 Sept 2016 Jun 2016
€ million € million € million € million € million
Sales 554 581 602 579 540
Operating profit excluding special items 23 29 40 31 25
Operating profit excluding special items to sales (%) 4.2 5.0 6.6 5.4 4.6
EBITDA excluding special items 51 56 69 61 53
EBITDA excluding special items to sales (%) 9.2 9.6 11.5 10.5 9.8
RONOA pa (%) 8.2 10.3 14.3 11.0 8.6
The overall performance of the European business in this seasonally slow quarter declined slightly compared to that of
the equivalent quarter last year largely due to higher raw material prices, particularly paper pulp and latex.
Graphic paper sales volumes were 4% above those of the equivalent period last year, with stronger demand in our major
export markets. The rate of decline in demand for coated woodfree and coated mechanical also moderated in Europe over
the past few months. Average net sales prices of graphic paper were above the prior quarter, but remain below last year.
Sales in the speciality paper business grew 17% year-on-year, continuing to outpace average market growth rates of 1%
to 5% for the products we produce.
All major variable cost categories, with the exception of wood, increased relative to last year leading to a 3%
increase in variable costs. Hardwood pulp prices continued to rise during the quarter; however, latex prices have started to
decline from their peak. Fixed expenses remain well controlled and were flat year-on-year.
North America
Quarter ended
Jun 2017 Mar 2017 Dec 2016 Sept 2016 Jun 2016
US$ million US$ million US$ million US$ million US$ million
Sales 314 335 354 360 325
Operating profit (loss) excluding special items (2) 14 8 25 (2)
Operating profit (loss) excluding special items to sales (%) (0.6) 4.2 2.3 6.9 (0.6)
EBITDA excluding special items 17 34 28 43 18
EBITDA excluding special items to sales (%) 5.4 10.1 7.9 11.9 5.5
RONOA pa (%) (0.8) 5.8 3.3 10.2 (0.8)
Profitability in the North American business was the same as the prior year. Higher DWP sales volumes and pricing were
offset by lower coated paper prices.
Coated paper volumes were slightly higher than last year, despite a contraction in the overall US coated paper market.
Average sales prices were 6% lower than the equivalent period last year as soft publication demand, the strong Dollar
and greater imports continued to burden local producers.
DWP sales volumes and pricing improved for the quarter versus last year and these combined with lower delivery and
variable costs led to a higher margin for the business.
Packaging paper volumes increased by 23%, led by our coated-one-side (C1S) product, offset by competitive price
pressure in our end markets. The casting and release paper business experienced an early end to the Chinese domestic garment
season, which lowered sales volume in this business compared to the prior year.
Variable cost reduced as efficiency initiatives and lower wood and energy prices more than offset higher chemical and
purchased paper pulp prices. Fixed costs were below last year due to lower maintenance costs.
Southern Africa
Quarter ended
Jun 2017 Mar 2017 Dec 2016 Sept 2016 Jun 2016
ZAR million ZAR million ZAR million ZAR million ZAR million
Sales 4,432 4,818 4,230 4,760 4,306
Operating profit excluding special items 918 1,317 1,169 1,256 1,050
Operating profit excluding special items to sales (%) 20.7 27.3 27.6 26.4 24.4
EBITDA excluding special items 1,102 1,489 1,364 1,441 1,215
EBITDA excluding special items to sales (%) 24.9 30.9 32.2 30.3 28.2
RONOA pa (%) 21.5 30.5 27.8 31.1 26.2
The Southern African business results reflect the impact of a stronger Rand/Dollar exchange rate and higher
maintenance costs due to the timing of the scheduled annual maintenance shut at Ngodwana Mill.
DWP sales volumes were above the equivalent quarter last year despite problems at the Durban port which resulted in
the shipment of 14,000 tons being delayed to July. Higher average Dollar prices were more than offset by the stronger
Rand, resulting in a slightly lower average Rand price.
The paper business experienced solid growth, particularly for containerboard and fluting. The latest citrus fruit
export forecast for 2017 is positive and this should support packaging sales in the last quarter.
Variable and fixed costs were above those of last year and relate mainly to chemicals, energy, personnel and
maintenance, albeit the increases were below inflation.
Outlook
DWP prices declined throughout the third quarter and reached a recent low at the end of June. Prices have subsequently
moved upwards in July following a similar trend in viscose staple fibre. The bulk of our DWP sales prices are based on
the prior quarter average price and we can therefore expect lower pricing for the fourth quarter than that achieved in
the past quarter. Longer-term market dynamics appear favourable, with demand growth expected to exceed supply growth in
the next two years.
In Europe, local demand for graphic paper has stabilised somewhat and export markets have experienced strong growth.
In contrast, markets remain difficult in the United States. Coated paper price increases have been announced in most
major markets, which should help offset rising raw material costs.
Demand for speciality packaging continues to grow, and the conversion of the paper machines at Maastricht and Somerset
Mills are set to be completed in the second and third fiscal quarters of 2018 respectively. This will further boost
production capacity in these grades.
Capital expenditure in the last quarter is expected to be approximately US$170 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, including higher paper pulp prices and the current Rand/Dollar exchange rate, we
expect the group’s fourth quarter operating performance to be slightly below that of last year. The full year result is
likely to be above that of the prior year.
We expect to reduce net debt further in the coming quarter through positive cash generation. However, a significant
proportion of our debt is denominated in Euros and a stronger Euro/US Dollar exchange rate negatively impacts the
translation of this debt.
On behalf of the board
S R Binnie
Director
G T Pearce
Director
02 August 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
Quarter ended Nine months ended
Note Jun 2017 Jun 2016 Jun 2017 Jun 2016
US$ million US$ million US$ million US$ million
Sales 1,260 1,223 3,885 3,801
Cost of sales 1,089 1,039 3,265 3,177
Gross profit 171 184 620 624
Selling, general and administrative expenses 82 82 245 257
Other operating expenses (income) 1 9 6 1
Share of profit from equity investments (2) (3) (6) (8)
Operating profit 3 90 96 375 374
Net finance costs 16 48 65 98
Net interest expense 20 45 74 99
Net foreign exchange gain (4) 4 (9) -
Net fair value (gain) loss on financial instruments - (1) - (1)
Profit before taxation 74 48 310 276
Taxation 16 16 74 69
Profit for the period 58 32 236 207
Basic earnings per share (US cents) 4 11 6 44 39
Weighted average number of shares in issue (millions) 534.8 530.2 533.6 529.1
Diluted earnings per share (US cents) 4 11 6 43 38
Weighted average number of shares on fully diluted
basis (millions) 550.1 541.9 547.3 539.6
Condensed group statement of comprehensive income
Quarter ended Nine months ended
Jun 2017 Jun 2016 Jun 2017 Jun 2016
US$ million US$ million US$ million US$ million
Profit for the period 58 32 236 207
Other comprehensive income (loss), net of tax
Items that may or are reclassified subsequently to
profit or loss 15 35 63 (52)
Exchange differences on translation of foreign operations 3 31 52 (55)
Movements in hedging reserves 12 4 11 4
Tax effect of above items - - - (1)
Total comprehensive income (loss) for the period 73 67 299 155
Condensed group balance sheet
Reviewed
Note Jun 2017 Sept 2016
US$ million US$ million
ASSETS
Non-current assets 3,262 3,171
Property, plant and equipment 2,544 2,501
Plantations 5 470 441
Deferred tax assets 153 152
Derivative financial instruments 1 1
Other non-current assets 94 76
Current assets 1,756 2,006
Inventories 676 606
Trade and other receivables 616 642
Derivative financial instruments 8 44
Taxation receivable 10 11
Cash and cash equivalents 446 703
Total assets 5,018 5,177
EQUITY AND LIABILITIES
Equity
Ordinary shareholders’ interest 1,627 1,378
Non-current liabilities 2,441 2,325
Interest-bearing borrowings 1,635 1,535
Deferred tax liabilities 288 272
Other non-current liabilities 518 518
Current liabilities 950 1,474
Interest-bearing borrowings 129 576
Other current liabilities 767 854
Derivative financial instruments 1 2
Taxation payable 53 42
Total equity and liabilities 5,018 5,177
Number of shares in issue at balance sheet date (millions) 534.9 530.6
Condensed group statement of cash flows
Quarter ended Nine months ended
Jun 2017 Jun 2016 Jun 2017 Jun 2016
US$ million US$ million US$ million US$ million
Profit for the period 58 32 236 207
Adjustment for:
Depreciation, fellings and amortisation 76 79 239 229
Taxation 16 16 74 69
Net finance costs 16 48 65 98
Defined post-employment benefits paid (12) (12) (33) (36)
Plantation fair value adjustments (17) (26) (59) (80)
Net restructuring provisions 1 - 1 4
Profit on disposal of assets held for sale - - - (16)
Other non-cash items 1 7 21 27
Cash generated from operations 139 144 544 502
Movement in working capital (7) 56 (130) (66)
Net finance costs paid (20) (29) (61) (87)
Taxation paid 4 (32) (62) (54)
Dividend paid - - (59) -
Cash generated from operating activities 116 139 232 295
Cash (utilised in) generated from investing
activities (86) (57) (165) (104)
Capital expenditure (78) (59) (160) (144)
Net proceeds on disposal of assets - 1 3 39
Other movements (8) 1 (8) 1
Net cash generated 30 82 67 191
Cash effects of financing activities (314) (7) (330) (101)
Proceeds from interest-bearing borrowings 131 380 136 380
Repayment of interest-bearing borrowings (445) (387) (466) (481)
Net movement in cash and cash equivalents (284) 75 (263) 90
Cash and cash equivalents at beginning of period 703 457 703 456
Translation effects 27 10 6 (4)
Cash and cash equivalents at end of period 446 542 446 542
Condensed group statement of changes in equity
Nine months ended
Jun 2017 Jun 2016
US$ million US$ million
Balance - beginning of period 1,378 1,015
Total comprehensive income for the period 299 155
Dividend (59) -
Transfers from the share purchase trust 4 13
Transfers of vested share options (2) (6)
Share-based payment reserve 7 5
Balance - end of period 1,627 1,182
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated interim financial statements for the quarter and nine months ended June 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 results are unaudited.
2. Segment information
Quarter ended Nine months ended
Jun 2017 Jun 2016 Jun 2017 Jun 2016
Metric Metric Metric Metric
tons tons tons tons
(000s) (000s) (000s) (000s)
Sales volume
North America 316 305 998 966
Europe 795 760 2,501 2,430
Southern Africa - Pulp and paper 387 407 1,159 1,197
Forestry 306 272 812 772
Total 1,804 1,744 5,470 5,365
Which consists of:
Specialised cellulose 275 265 859 809
Paper 1,223 1,207 3,799 3,784
Forestry 306 272 812 772
Quarter ended Nine months ended
Jun 2017 Jun 2016 Jun 2017 Jun 2016
US$ million US$ million US$ million US$ million
Sales
North America 314 325 1,003 1,007
Europe 610 611 1,880 1,936
Southern Africa - Pulp and paper 319 273 955 818
Forestry 17 14 47 40
Total 1,260 1,223 3,885 3,801
Which consists of:
Specialised cellulose 252 220 782 667
Paper 991 989 3,056 3,094
Forestry 17 14 47 40
Operating profit (loss) excluding
special items
North America (2) (2) 20 24
Europe 25 28 99 96
Southern Africa 70 70 253 217
Unallocated and eliminations(1) - 1 2 5
Total 93 97 374 342
Which consists of:
Specialised cellulose 73 64 254 210
Paper 20 32 118 127
Unallocated and eliminations(1) - 1 2 5
Special items - (gains) losses
North America - 1 - 4
Europe 2 2 3 4
Southern Africa (2) (3) (9) (43)
Unallocated and eliminations(1) 3 1 5 3
Total 3 1 (1) (32)
Segment operating profit (loss)
North America (2) (3) 20 20
Europe 23 26 96 92
Southern Africa 72 73 262 260
Unallocated and eliminations(1) (3) - (3) 2
Total 90 96 375 374
Quarter ended Nine months ended
Jun 2017 Jun 2016 Jun 2017 Jun 2016
US$ million US$ million US$ million US$ million
EBITDA excluding special items
North America 17 18 79 81
Europe 55 60 189 193
Southern Africa 84 81 294 251
Unallocated and eliminations(1) (1) 1 2 5
Total 155 160 564 530
Which consists of:
Specialised cellulose 85 75 291 243
Paper 71 84 271 282
Unallocated and eliminations(1) (1) 1 2 5
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 155 160 564 530
Depreciation and amortisation (62) (63) (190) (188)
Operating profit excluding special items 93 97 374 342
Special items - gains (losses) (3) (1) 1 32
Plantation price fair value adjustment 2 12 14 40
Net restructuring provisions (1) - (1) (4)
Profit on disposal of assets held for sale - - - 16
Black Economic Empowerment charge - - (1) (1)
Fire, flood, storm and other events (4) (13) (11) (19)
Segment operating profit 90 96 375 374
Net finance costs (16) (48) (65) (98)
Profit before taxation 74 48 310 276
Taxation (16) (16) (74) (69)
Profit for the period 58 32 236 207
Jun 2017 Jun 2016
US$ million US$ million
Segment assets
North America 997 991
Europe 1,293 1,271
Southern Africa 1,300 1,072
Unallocated and eliminations(1) 8 30
Total 3,598 3,364
Reconciliation of segment assets to total assets
Segment assets 3,598 3,364
Deferred taxation 153 161
Cash and cash equivalents 446 542
Other current liabilities 767 770
Derivative financial instruments 1 2
Taxation payable 53 29
Total assets 5,018 4,868
(1) Includes the group’s treasury operations and our insurance captive.
3. Operating profit
Quarter ended Nine months ended
Jun 2017 Jun 2016 Jun 2017 Jun 2016
US$ million US$ million US$ million US$ million
Included in operating profit are the following items:
Depreciation and amortisation 62 63 190 188
Fair value adjustment on plantations (included in cost
of sales)
Changes in volume
Fellings 14 16 49 41
Growth (15) (14) (45) (40)
(1) 2 4 1
Plantation price fair value adjustment (2) (12) (14) (40)
(3) (10) (10) (39)
Net restructuring provisions 1 - 1 4
Profit on disposal of assets held for sale - - - (16)
4. Earnings per share
Quarter ended Nine months ended
Jun 2017 Jun 2016 Jun 2017 Jun 2016
US$ million US$ million US$ million US$ million
Basic earnings per share (US cents) 11 6 44 39
Headline earnings per share (US cents) 11 6 44 37
EPS excluding special items (US cents) 11 11 44 40
Weighted average number of shares in issue
(millions) 534.8 530.2 533.6 529.1
Diluted earnings per share (US cents) 11 6 43 38
Diluted headline earnings per share (US cents) 11 6 43 36
Weighted average number of shares on fully diluted
basis (millions) 550.1 541.9 547.3 539.6
Calculation of headline earnings
Profit for the period 58 32 236 207
Profit on disposal of assets held for sale - - - (16)
Tax effect of above items - 1 - 5
Headline earnings 58 33 236 196
Calculation of earnings excluding special items
Profit for the period 58 32 236 207
Special items after tax 2 1 - (21)
Special items 3 1 (1) (32)
Tax effect (1) - 1 11
Refinancing costs - 23 - 23
Earnings excluding special items 60 56 236 209
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
Jun 2017 Sept 2016
US$ million US$ million
Fair value of plantations at beginning of year 441 383
Gains arising from growth 45 56
Fire, flood, storm and other events (4) (13)
In-field inventory - (1)
Gain arising from fair value price changes 14 64
Harvesting - agriculture produce (fellings) (49) (56)
Disposals - (1)
Translation difference 23 9
Fair value of plantations at end of period 470 441
6. Financial instruments
The group’s financial instruments that are measured at fair value on a recurring basis consist derivative
financial instruments and available for sale financial assets. These have been categorised in terms of
the fair value measurement hierarchy as established by IFRS 13 Fair Value Measurement per the table below.
Fair value(1)
Reviewed
Fair value Jun 2017 Sept 2016
hierarchy US$ million US$ million
Investment funds(2) Level 1 7 7
Derivative financial assets Level 2 9 45
Derivative financial liabilities Level 2 1 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 movement
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
Jun 2017 Sept 2016
US$ million US$ million
Contracted 149 42
Approved but not contracted 304 71
453 113
8. Contingent liabilities
Guarantees and suretyships - 10
Other contingent liabilities 17 11
17 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.
Cash and cash equivalents, derivative financial assets and interest-bearing borrowings
In April 2017, the group repaid its US$400 million public bond due July 2017 during the call window period
from available cash resources and unwound the related interest rate currency swap.
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
On 03 July, Sappi acquired 100% of the outstanding share capital of Rockwell Solutions Limited, a barrier
film technology business in Scotland. £8 million was paid in cash up front and there is a contingent amount
payable over the next three years dependent on the performance of the business.
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
Supplemental information (this information has not been audited or reviewed)
Summary Rand convenience translation
Quarter ended Nine months ended
Jun 2017 Jun 2016 Jun 2017 Jun 2016
Key figures: (ZAR million)
Sales 16,614 18,351 52,267 57,002
Operating profit excluding special items(1) 1,226 1,456 5,032 5,129
Special items - (gains) losses(1) 40 15 (13) (480)
EBITDA excluding special items(1) 2,044 2,401 7,588 7,948
Profit for the period 765 480 3,175 3,104
Basic earnings per share (SA cents) 143 91 595 587
Net debt(1) 17,207 23,848 17,207 23,848
Key ratios: (%)
Operating profit excluding special items to sales 7.4 7.9 9.6 9.0
Operating profit excluding special items to capital employed
(ROCE)(1) 12.7 13.8 17.5 17.0
EBITDA excluding special items to sales 12.3 13.1 14.5 13.9
(1) Refer to supplemental information for the definition of the term.
The above financial results have been translated into Rand from US 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
Jun Mar Dec Sept Jun
2017 2017 2016 2016 2016
Exchange rates:
Period end rate: US$1 = ZAR 13.0551 13.4259 13.7386 13.7139 15.0650
Average rate for the quarter: US$1 = ZAR 13.1857 13.2260 13.9155 14.1648 15.0053
Average rate for the year to date: US$1 = ZAR 13.4536 13.5861 13.9155 14.7879 14.9966
Period end rate: €1 = US$ 1.1426 1.0652 1.0516 1.1226 1.1117
Average rate for the quarter: €1 = US$ 1.1011 1.0656 1.0814 1.1150 1.1304
Average rate for the year to date: €1 = US$ 1.0827 1.0738 1.0814 1.1111 1.1097
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: 03/08/2017 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
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