Wrap Text
Fourth quarter results for the period ended September 2017
SAPPI
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI
Fourth quarter results for the period ended September 2017
4th quarter results
Sappi is a global diversified woodfibre company focused on providing dissolving wood pulp, packaging and
speciality papers, graphic/printing papers as well as products in adjacent fields including nanocellulose
and lignosulphonate to our direct and indirect customer base across more than 150 countries.
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. 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 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.
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 destination*
North America 23%
Europe 41%
Southern Africa 10%
Asia and other 26%
Sales by product*
Coated paper 56%
Uncoated paper 5%
Speciality paper 11%
Commodity paper 7%
Dissolving wood pulp 20%
Other 1%
Net operating assets**
North America 28%
Europe 38%
Southern Africa 34%
* For the period ended September 2017.
** As at September 2017.
Highlights for the year
- EBITDA excluding special items US$785 million (FY16 US$739 million)
- Profit for the period US$338 million (FY16 US$319 million)
- EPS excluding special items 64 US cents (FY16 57 US cents)
- Net debt US$1,322 million, down US$86 million year-on-year
- Dividend of 15 US cents declared (FY16 11 US cents)
Highlights for the quarter
- EBITDA excluding special items US$221 million (Q4 FY16 US$209 million)
- Profit for the period US$102 million (Q4 FY16 US$112 million)
- EPS excluding special items 19 US cents (Q4 FY16 18 US cents)
Financial highlights
Quarter ended Year ended
Sept 2017 Sept 2016 Jun 2017 Sept 2017 Sept 2016
Key figures: (US$ million)
Sales 1,411 1,340 1,260 5,296 5,141
Operating profit excluding
special items(1) 152 145 93 526 487
Special items - (gains) losses(2) 1 (25) 3 - (57)
EBITDA excluding special items(1) 221 209 155 785 739
Profit for the period 102 112 58 338 319
Basic earnings per share (US cents) 19 21 11 63 60
EPS excluding special items
(US cents)(3) 19 18 11 64 57
Net debt(3) 1,322 1,408 1,318 1,322 1,408
Key ratios:
Operating profit excluding special
items to sales 10.8 10.8 7.4 9.9 9.5
Operating profit excluding special
items to capital employed (ROCE)(3) 20.2 20.9 12.8 18.0 17.5
EBITDA excluding special items to sales 15.7 15.6 12.3 14.8 14.4
Net debt to EBITDA excluding
special items 1.7 1.9 1.7 1.7 1.9
Interest cover(3) 9.1 7.3 8.4 9.1 7.3
Net asset value per share
(US cents)(3) 327 260 304 327 260
(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 2017 compared to year ended September 2016
The group delivered a further increase in EBITDA as the growth of the dissolving wood pulp (DWP) and
speciality packaging businesses gained momentum. Higher paper pulp prices, a key input cost, and the negative
impact of a stronger Rand/Dollar exchange rate created significant challenges but ongoing initiatives to
reduce variable costs and lower interest charges contributed to the success.
Following the achievement of our targeted leverage of less than two times net debt to EBITDA in the prior
year, we increased investments into growth projects. Principally, these related to conversions of paper
machines in Europe and the United States into speciality packaging grades and DWP debottlenecking projects
in South Africa.
The group's EBITDA excluding special items was US$785 million, an increase of 6% on the prior year's
US$739 million. The results benefited by approximately US$20 million from an additional accounting week
in the first quarter, when compared to the prior year. Operating profit excluding special items for the
year was US$526 million compared to US$487 million in the prior year.
Net finance costs for the year were US$80 million, a decrease from the US$121 million in the prior year
as a result of both lower debt levels and once-off finance charges incurred in 2016.
Net profit for the year increased by 6% to US$338 million.
Fourth quarter commentary
The group generated EBITDA excluding special items of US$221 million, an increase of 6% over the same
quarter last year. Demand for DWP was robust, growing at double-digits throughout the year. Speciality
packaging continued to advance and we shifted more production capacity into this category. Rapidly
rising prices for purchased paper pulp affected our variable costs negatively, however, a series of
selling price increases for graphic paper in Europe and North America helped offset this impact.
A stronger Rand/Dollar compared to a year ago lowered the South African profitability somewhat.
Profit for the period decreased from US$112 million to US$102 million as a result of a positive
forestry fair value adjustment of US$24 million last year compared to only US$7 million this year.
Increased DWP sales volumes enabled the specialised cellulose business to generate US$95 million of
EBITDA excluding special items, which was slightly lower than the equivalent quarter last year as a
result of a stronger Rand/Dollar exchange rate.
The European business experienced a good quarter, with expanded sales volumes, particularly in the export
markets, offsetting the consequences of a stronger Euro and higher paper pulp prices. Price increases were
implemented in both local and export markets during the quarter to help counteract the impact of rising
hardwood paper pulp costs.
Improved packaging and release sales volumes in addition to lower fixed and variable costs outweighed lower
coated paper sales prices and volumes in our North American business. Profitability was higher than that of
the prior quarter due to seasonally stronger sales volumes, higher coated selling prices and lower costs.
The packaging paper business in South Africa had another positive quarter, with higher sales volumes and
prices compared to the prior quarter. Variable costs were tightly managed and lower than in both comparative
periods.
Net finance costs were US$15 million, a reduction from the US$23 million in the equivalent quarter last
year, due to the repayment of the 2017 bonds earlier in the year.
Earnings per share excluding special items for the quarter was 19 US cents.
Cash flow and debt
Net cash generated for the quarter was US$41 million, compared to US$168 million in the equivalent quarter
last year. The lower net cash generation was largely attributable to increases in capital expenditure and
cash taxes. Capital expenditure rose to US$197 million in the quarter compared to US$97 million a year ago
and related mainly to the paper machine conversion projects in both Europe and North America.
Net cash generation for the financial year was US$108 million (FY2016 US$359 million, which included
proceeds from the sale of Cape Kraft and Enstra mills of US$39 million). Higher working capital, a dividend
payment, increases in capital expenditure and cash taxes were also responsible for the decline in cash
generation.
Net debt at financial year-end decreased to US$1,322 million as a result of the cash generation. At the
end of September 2017, liquidity comprised cash on hand of US$550 million and US$623 million from the
unutilised committed revolving credit facilities in South Africa and Europe.
Operating review for the quarter
Europe
Quarter ended
€ million Sept 2017 Jun 2017 Mar 2017 Dec 2016 Sept 2016
Sales 583 554 581 602 579
Operating profit excluding
special items 35 23 29 40 31
Operating profit excluding
special items to sales (%) 6.0 4.2 5.0 6.6 5.4
EBITDA excluding special items 63 51 56 69 61
EBITDA excluding special
items to sales (%) 10.8 9.2 9.6 11.5 10.5
RONOA pa (%) 12.2 8.2 10.3 14.3 11.0
During this seasonally stronger quarter, graphic paper volumes were 7% above those of the prior quarter
and 3% above those of the equivalent quarter last year. Export sales volumes were particularly strong and,
coupled with a slowdown in the rate of demand decline in domestic markets, we achieved good operating rates.
Average graphic paper sales prices in Euro were flat compared to both comparative periods as domestic price
increases were offset by the translation impact of a stronger Euro on Dollar-denominated export pricing.
Sales volumes in the speciality paper business grew 8% year-on-year, ahead of the market, and the production
capacity of our machines are currently fully utilised. As with the graphic papers, the stronger Euro
negatively impacted Euro pricing for Dollar-based exports.
Variable costs rose year-on-year, led by higher hardwood pulp and latex prices. Hardwood paper pulp is a
major input cost for our European operation and Euro costs have risen 22% in the past year due to
significantly higher Dollar pricing.
North America
Quarter ended
US$ million Sept 2017 Jun 2017 Mar 2017 Dec 2016 Sept 2016
Sales 357 314 335 354 360
Operating profit (loss) excluding
special items 27 (2) 14 8 25
Operating profit (loss) excluding
special items to sales (%) 7.6 (0.6) 4.2 2.3 6.9
EBITDA excluding special items 47 17 34 28 43
EBITDA excluding special items
to sales (%) 13.2 5.4 10.1 7.9 11.9
RONOA pa (%) 10.7 (0.8) 5.8 3.3 10.2
The performance of the North American business recovered in a seasonally stronger period with no
scheduled maintenance shuts. Despite the impact of lower year-on-year coated market pricing, improved
profitability in the DWP and packaging businesses, as well as lower costs, led to an increase in
profitability compared to the equivalent quarter last year.
Coated paper sales volumes improved seasonally on the prior quarter, and the successful implementation of
a coated paper price increase in July led to higher average prices compared to earlier in the year, although
pricing was still 2% lower than the equivalent quarter last year. Coated volume was 2% below the equivalent
quarter last year, with the decline largely due to shifting some production capacity to packaging. Coated
paper sales volumes declined less than that of the overall market, leading to a market share gain.
Higher DWP sales volumes and lower variable costs compared to the prior quarter were partially offset by
lower average realised selling prices, leading to increased profitability for the business.
Packaging paper volumes for the quarter increased 54% year-on-year, led by our coated-one-side (C1S)
product, albeit from a small base. However, selling prices were under pressure throughout the year. The
casting and release paper business remained subject to weak demand from the garment sector in China.
Variable costs reduced as efficiency initiatives and lower wood and energy prices more than offset purchased
pulp and chemical price increases compared to the equivalent quarter last year.
Southern Africa
Quarter ended
ZAR million Sept 2017 Jun 2017 Mar 2017 Dec 2016 Sept 2016
Sales 4,879 4,432 4,818 4,230 4,760
Operating profit excluding
special items 1,106 918 1,317 1,169 1,256
Operating profit excluding
special items to sales (%) 22.7 20.7 27.3 27.6 26.4
EBITDA excluding special items 1,344 1,102 1,489 1,364 1,441
EBITDA excluding special
items to sales (%) 27.5 24.9 30.9 32.2 30.3
RONOA pa (%) 26.0 21.5 30.5 27.8 31.1
Margins in the Southern African business were affected negatively by a stronger Rand/Dollar exchange rate
when compared to the equivalent quarter last year. This outweighed greater overall sales volumes, and lower
average variable costs.
Average DWP Dollar selling prices were below those of the prior quarter. However, spot prices for DWP,
while lower at the start of the quarter, rebounded strongly over the last few weeks.
The paper business experienced good growth in profitability, with year-on-year sales price increases and
lower variable and delivery costs. Overall sales volumes were flat year-on-year, with gains in containerboard
offset by lower tissue and lumber sales.
Ongoing procurement and efficiency initiatives along with the stronger Rand/Dollar exchange rate led to
lower fibre and energy costs in particular. Fixed costs were less than the prior quarter due to an absence
of scheduled maintenance shuts in the fourth quarter.
Directorate
Dr Rudolf Thummer, independent non-executive director, will retire from the board at the end of December
2017, having reached the board's mandatory retirement age. Dr Thummer was appointed to the board in
February 2010 and was appointed to the Social, Ethics, Transformation and Sustainability Committee in
February 2012.
Dividends
On 15 November 2017, the directors approved a dividend (number 87) of 15 US cents per share which will be
paid to shareholders on 16 January 2018. This dividend was declared after year-end and was not included as
a liability at the end of the financial year.
The 2017 dividend is covered four times by basic earnings per share, excluding non-cash special items.
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 spot prices have increased significantly in recent weeks. After the
quarter-end a severe storm caused significant damage to the harbour and logistics infrastructure in Durban,
South Africa. The estimated impact on first quarter profitability is approximately US$4 million due to
damaged inventory and lost production at Saiccor.
A significant proportion of our DWP sales prices are based on the prior quarter average CCF hardwood DWP
price. For the first quarter of 2018 average pricing is therefore likely to be slightly lower than in the
past quarter. The recent upward momentum in CCF prices will only be realised in our second quarter.
Longer-term market dynamics remain favourable with additional demand expected to exceed supply over
the next few years.
In Europe, local demand for graphic paper has stabilised somewhat and sales to export markets continue to
grow. Paper pulp costs have continued to rise after year-end and without further price adjustments margins
will be put under pressure.
In the United States, closures of competing mills have tightened the supply in a market that otherwise
remains difficult. Further price increases have been announced and implemented after a long period of
declining prices, and we are more optimistic about the prospects in the forthcoming year.
Demand for speciality packaging continues to grow, and we require the additional capacity from the
conversions of the paper machines at Maastricht and Somerset mills in order to continue to serve this
growth. These conversions are set to be completed in the second and third fiscal quarters of 2018
respectively.
Capital expenditure in 2018 is expected to increase to US$450 million as we continue the conversions in
both Europe and North America, complete the Saiccor and Ngodwana debottlenecking and start the upgrade of
the Saiccor woodyard. The increase in expansionary capital spending during 2018 is focused on higher
margin growth segments including dissolving wood pulp and speciality packaging. This will position us
for stronger profitability from 2019 onwards.
The 2017 financial year included an extra trading week which contributed approximately US$20 million
to EBITDA in the first quarter of last year. In addition, the higher external pulp costs and the
aforementioned storm damage will have a negative impact on current profitability. As a result, we
expect the group's first quarter operating performance to be below that of the prior year.
On behalf of the board
S R Binnie
Director
G T Pearce
Director
16 November 2017
Dividend announcement
The directors have resolved to declare a gross dividend (number 87) of 15 US cents per share, payable
in ZAR at an exchange rate (US$1=ZAR) of 14.37037, being ZAR215.55555 cents per share, for the year
ended September 2017 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 7.5 US cents per share being 50% of the ordinary dividend so declared.
The South African dividend withholding tax (DWT) rate is 20% and the net dividend payable to shareholders
who are not exempt from DWT is ZAR172.44444 cents per share. Sappi currently has 557 202 573 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: 16 November 2017
Last day to trade to qualify for the dividend: 9 January 2018
Shares commence trading ex-dividend: 10 January 2018
Record date: 12 January 2018
Payment date: 16 January 2018
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 Pounds 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 certificates will not be dematerialised or rematerialised from 10 January 2018 to 12 January 2018,
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 ended Year ended
US$ million Note Sept 2017 Sept 2016 Sept 2017 Sept 2016
Sales 1,411 1,340 5,296 5,141
Cost of sales 1,164 1,093 4,429 4,270
Gross profit 247 247 867 871
Selling, general and
administrative expenses 89 79 334 336
Other operating expenses (income) 8 (1) 14 -
Share of profit from equity investments (1) (1) (7) (9)
Operating profit 3 151 170 526 544
Net finance costs 15 23 80 121
Net interest expense 18 25 92 124
Net foreign exchange gain (3) (2) (12) (2)
Net fair value (gain) loss on
financial instruments - - - (1)
Profit before taxation 136 147 446 423
Taxation 34 35 108 104
Profit for the period 102 112 338 319
Basic earnings per share (US cents) 4 19 21 63 60
Weighted average number of shares
in issue (millions) 534.9 530.4 533.9 529.4
Diluted earnings per share (US cents) 4 19 21 62 59
Weighted average number of shares on
fully diluted basis (millions) 548.9 542.6 547.4 540.3
Condensed group statement of comprehensive income
Reviewed
Quarter ended Year ended
US$ million Sept 2017 Sept 2016 Sept 2017 Sept 2016
Profit for the period 102 112 338 319
Other comprehensive income (loss),
net of tax
Items that will not be reclassified
subsequently to profit or loss 68 (12) 68 (12)
Actuarial gains (losses) on
post-employment benefit funds 101 (20) 101 (20)
Tax effect of above item (33) 8 (33) 8
Items that may or are reclassified
subsequently to profit or loss (53) 94 10 42
Exchange differences on translation
of foreign operations (53) 93 (1) 38
Movements in hedging reserves (1) - 10 4
Tax effect of above items 1 1 1 -
Total comprehensive income (loss)
for the period 117 194 416 349
Condensed group balance sheet
Reviewed
US$ million Note Sept 2017 Sept 2016
ASSETS
Non-current assets 3,378 3,171
Property, plant and equipment 2,681 2,501
Plantations 5 458 441
Deferred tax assets 123 152
Derivative financial instruments - 1
Other non-current assets 116 76
Current assets 1,869 2,006
Inventories 636 606
Trade and other receivables 668 642
Derivative financial instruments 3 44
Taxation receivable 12 11
Cash and cash equivalents 550 703
Total assets 5,247 5,177
EQUITY AND LIABILITIES
Equity
Ordinary shareholders' interest 1,747 1,378
Non-current liabilities 2,457 2,325
Interest-bearing borrowings 1,739 1,535
Deferred tax liabilities 295 272
Other non-current liabilities 423 518
Current liabilities 1,043 1,474
Interest-bearing borrowings 133 576
Trade and other payables 858 839
Provisions 10 15
Derivative financial instruments 5 2
Taxation payable 37 42
Total equity and liabilities 5,247 5,177
Number of shares in issue at balance sheet date (millions) 535.0 530.6
Condensed group statement of cash flows
Reviewed
Quarter ended Year ended
US$ million Sept 2017 Sept 2016 Sept 2017 Sept 2016
Profit for the period 102 112 338 319
Adjustment for:
Depreciation, fellings and amortisation 83 79 322 308
Taxation 34 35 108 104
Net finance costs 15 23 80 121
Defined post-employment benefits paid (10) (15) (43) (51)
Plantation fair value adjustments (20) (40) (79) (120)
Net restructuring provisions - - 1 4
Profit on disposal and written off assets 2 1 2 (15)
Non-cash employee benefit liability settlement - (8) - (8)
Other non-cash items (2) 4 19 31
Cash generated from operations 204 191 748 693
Movement in working capital 103 70 (27) 4
Net finance costs paid (20) (4) (81) (91)
Taxation paid (38) (2) (100) (56)
Dividend paid - - (59) -
Cash generated from operating activities 249 255 481 550
Cash utilised in investing activities (208) (87) (373) (191)
Capital expenditure (197) (97) (357) (241)
Proceeds on disposal of assets 1 5 4 44
Acquisition of subsidiary (11) - (11) -
Other movements (1) 5 (9) 6
Net cash generated 41 168 108 359
Cash effects of financing activities 51 (29) (279) (130)
Proceeds from interest-bearing borrowings 50 1 186 381
Repayment of interest-bearing borrowings 1 (30) (465) (511)
Net movement in cash and cash equivalents 92 139 (171) 229
Cash and cash equivalents at beginning of period 446 542 703 456
Translation effects 12 22 18 18
Cash and cash equivalents at end of period 550 703 550 703
Condensed group statement of changes in equity
Reviewed
Year ended
US$ million Sept 2017 Sept 2016
Balance - beginning of period 1,378 1,015
Total comprehensive income for the period 416 349
Dividend paid (59) -
Transfers from the share purchase trust 5 14
Transfers of vested share options (2) (7)
Share-based payment reserve 9 7
Balance - end of period 1,747 1,378
Notes to the condensed group results
1. Basis of preparation
The condensed consolidated financial statements are prepared in accordance with the requirements of
the JSE Limited Listings Requirements for preliminary reports and the requirements of the Companies
Act of South Africa. The Listings Requirements require preliminary reports to be prepared in
accordance with the framework concepts and the measurement and recognitions requirements of
International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as
issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial
Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34
Interim Financial Reporting. The accounting policies applied in the preparation of the condensed
consolidated financial statements are in terms of IFRS and are consistent with those applied in the
previous consolidated annual financial statements.
The preparation of these condensed consolidated financial statements was supervised by the Chief
Financial Officer, G T Pearce, CA(SA).
The condensed consolidated financial statements for the year ended September 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 this 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 Year ended
Metric tons (000s) Sept 2017 Sept 2016 Sept 2017 Sept 2016
Sales volume
North America 361 363 1,359 1,329
Europe 842 822 3,343 3,252
Southern Africa - Pulp and paper 447 429 1,606 1,626
- Forestry 290 274 1,102 1,046
Total 1,940 1,888 7,410 7,253
Which consists of:
Specialised cellulose 325 302 1,184 1,111
Paper 1,325 1,312 5,124 5,096
Forestry 290 274 1,102 1,046
Reviewed
Quarter ended Year ended
US$ million Sept 2017 Sept 2016 Sept 2017 Sept 2016
Sales
North America 357 360 1,360 1,367
Europe 684 646 2,564 2,582
Southern Africa - Pulp and paper 352 318 1,307 1,136
- Forestry 18 16 65 56
Total 1,411 1,340 5,296 5,141
Which consists of:
Specialised cellulose 277 262 1,059 929
Paper 1,116 1,062 4,172 4,156
Forestry 18 16 65 56
Operating profit (loss)
excluding special items
North America 27 25 47 49
Europe 41 35 140 131
Southern Africa 84 88 337 305
Unallocated and eliminations(1) - (3) 2 2
Total 152 145 526 487
Which consists of:
Specialised cellulose 80 84 334 294
Paper 72 64 190 191
Unallocated and eliminations(1) - (3) 2 2
Special items - (gains) losses
North America - (10) - (6)
Europe 1 2 4 6
Southern Africa (1) (19) (10) (62)
Unallocated and eliminations(1) 1 2 6 5
Total 1 (25) - (57)
Segment operating profit (loss)
North America 27 35 47 55
Europe 40 33 136 125
Southern Africa 85 107 347 367
Unallocated and eliminations(1) (1) (5) (4) (3)
Total 151 170 526 544
(1) Includes the group's treasury operations and our insurance captive.
Reviewed
Quarter ended Year ended
US$ million Sept 2017 Sept 2016 Sept 2017 Sept 2016
EBITDA excluding special items
North America 47 43 126 124
Europe 73 68 262 261
Southern Africa 102 101 396 352
Unallocated and eliminations(1) (1) (3) 1 2
Total 221 209 785 739
Which consists of:
Specialised cellulose 95 96 386 339
Paper 127 116 398 398
Unallocated and eliminations(1) (1) (3) 1 2
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 221 209 785 739
Depreciation and amortisation (69) (64) (259) (252)
Operating profit excluding special items 152 145 526 487
Special items - gains (losses) (1) 25 - 57
Plantation price fair value adjustment 7 24 21 64
Net restructuring provisions - - (1) (4)
Profit on disposal and written
off assets (2) (1) (2) 15
Asset impairments (6) (2) (6) (2)
Employee benefit liability settlement - 8 - 8
Black economic empowerment charge - - (1) (1)
Fire, flood, storm and other events - (4) (11) (23)
Segment operating profit 151 170 526 544
Net finance costs (15) (23) (80) (121)
Profit before taxation 136 147 446 423
Taxation (34) (35) (108) (104)
Profit for the period 102 112 338 319
(1) Includes the group's treasury operations and our insurance captive.
Reviewed
US$ million Sept 2017 Sept 2016
Segment assets
North America 1,026 967
Europe 1,373 1,256
Southern Africa 1,263 1,182
Unallocated and eliminations(1) 2 19
Total 3,664 3,424
Reconciliation of segment assets to total assets
Segment assets 3,664 3,424
Deferred taxation 123 152
Cash and cash equivalents 550 703
Trade and other payables 858 839
Provisions 10 15
Derivative financial instruments 5 2
Taxation payable 37 42
Total assets 5,247 5,177
(1) Includes the group's treasury operations and our insurance captive.
3. Operating profit
Reviewed
Quarter ended Year ended
US$ million Sept 2017 Sept 2016 Sept 2017 Sept 2016
Included in operating
profit are the following items:
Depreciation and amortisation 69 64 259 252
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 14 15 63 56
Growth (13) (16) (58) (56)
1 (1) 5 -
Plantation price fair value adjustment (7) (24) (21) (64)
(6) (25) (16) (64)
Net restructuring provisions - - 1 4
Profit on disposal and written
off assets 2 1 2 (15)
Asset impairment reversals (2) - (2) -
Asset impairments 6 2 6 2
Employee benefit liability
settlement - (8) - (8)
4. Earnings per share
Reviewed
Quarter ended Year ended
Sept 2017 Sept 2016 Sept 2017 Sept 2016
Basic earnings per share (US cents) 19 21 63 60
Headline earnings per share (US cents) 20 21 64 58
EPS excluding special items (US cents) 19 18 64 57
Weighted average number of shares
in issue (millions) 534.9 530.4 533.9 529.4
Diluted earnings per share (US cents) 19 21 62 59
Diluted headline earnings per
share (US cents) 19 21 63 57
Weighted average number of shares on
fully diluted basis (millions) 548.9 542.6 547.4 540.3
US$ million
Calculation of headline earnings
Profit for the period 102 112 338 319
Asset impairments 6 2 6 2
Asset impairment reversals (2) - (2) -
Profit on disposal and written
off assets 2 1 2 (15)
Tax effect of above items (1) (2) (1) 3
Headline earnings 107 113 343 309
Calculation of earnings excluding
special items
Profit for the period 102 112 338 319
Special items after tax 2 (18) 2 (39)
Special items 1 (25) - (57)
Tax effect 1 7 2 18
Refinancing costs - - - 23
Earnings excluding special items 104 94 340 303
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), 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 is valued using unadjusted current market prices.
Immature timber and mature timber that are 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
US$ million Sept 2017 Sept 2016
Fair value of plantations at beginning of year 441 383
Gains arising from growth 58 56
Fire, flood, storm and other events (5) (13)
In-field inventory 1 (1)
Gain arising from fair value price changes 21 64
Harvesting - agriculture produce (fellings) (63) (56)
Disposals - (1)
Translation difference 5 9
Fair value of plantations at end of period 458 441
6. Financial instruments
The group's financial instruments that are measured at fair value on a recurring basis consist of
derivative financial instruments, available for sale financial assets and a contingent consideration
liability. 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 2017 Sept 2016
US$ million hierarchy
Investment funds(2) Level 1 7 7
Derivative financial assets Level 2 3 45
Derivative financial liabilities Level 2 5 2
Contingent consideration liability(3) Level 3 13 -
(1) The fair value of the financial instruments are equal to their carrying value.
(2) Included in other non-current assets.
(3) Included in other non-current liabilities and trade and other payables.
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.
The contingent consideration is based on a multiple of targeted future earnings, of which a 92%
weighted average outcome has been projected.
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
US$ million Sept 2017 Sept 2016
Contracted 253 42
Approved but not contracted 219 71
472 113
8. Contingent liabilities
Guarantees and suretyships - 10
Other contingent liabilities 19 11
19 21
9. Material balance sheet movements
Cash and cash equivalents, derivative financials 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. Acquisition of subsidiary
On 3 July 2017, Sappi acquired a 100% interest in Rockwell Solutions Limited for a purchase consideration
of US$23 million (GBP18 million) of which US$12 million (GBP10 million) is a contingent consideration and
US$11 million was paid in cash. The net assets acquired include tangible net assets of US$7 million,
goodwill of US$3 million and identified intangible assets of US$13 million.
11. Related parties
There has been no material change, by nature or amount, in transactions with related parties since
the 2016 financial year-end.
12. Events after balance sheet date
The directors have resolved to declare a gross dividend (number 87) out of income earned for the
financial year ended September 2017 of 15 US cents per ordinary share in issue on the record date,
being 12 January 2018. The dividend is payable in ZAR at an exchange rate of 14.37037, being
ZAR215.55555 cents per share. Holders of Sappi "A" ordinary unlisted shares, issued in terms of the
BBBEE scheme, are entitled to receive 7.5 US cents (ZAR107.77778 cents per share) 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
Operating profit - a profit from business operations before deduction of net finance costs and taxes
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 Year ended
Sept 2017 Sept 2016 Sept 2017 Sept 2016
Key figures: (ZAR million)
Sales 18,591 18,981 70,867 76,025
Operating profit excluding
special items(1) 2,003 2,054 7,039 7,202
Special items - (gains) losses(1) 13 (354) - (843)
EBITDA excluding special items(1) 2,912 2,960 10,504 10,928
Profit for the period 1,344 1,586 4,523 4,717
Basic earnings per share (SA cents) 251 299 847 891
Net debt(1) 17,921 19,309 17,921 19,309
Key ratios: (%)
Operating profit excluding special
items to sales 10.8 10.8 9.9 9.5
Operating profit excluding special
items to capital employed (ROCE)(1) 20.0 20.6 17.6 18.7
EBITDA excluding special items to sales 15.7 15.6 14.8 14.4
(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
Sept Jun Mar Dec Sept
2017 2017 2017 2016 2016
Exchange rates:
Period end rate: US$1 = ZAR 13.5561 13.0551 13.4259 13.7386 13.7139
Average rate for the quarter: US$1 = ZAR 13.1761 13.1857 13.2260 13.9155 14.1648
Average rate for the year to date: 13.3813 13.4536 13.5861 13.9155 14.7879
US$1 = ZAR
Period end rate: €1 = US$ 1.1814 1.1426 1.0652 1.0516 1.1226
Average rate for the quarter: €1 = US$ 1.1756 1.1011 1.0656 1.0814 1.1150
Average rate for the year to date: €1 = US$ 1.1055 1.0827 1.0738 1.0814 1.1111
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI
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
108 Oxford Road, Rosebank (entrance on 9th), South Africa
Tel +27 (0)11 407 8111
This report is available on the
Sappi website: www.sappi.com
Date: 16/11/2017 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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