Wrap Text
First quarter results for the period ended December 2017
SAPPI
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI
Investing in growth
First quarter results for the period ended December 2017
1st quarter results
Sappi is a global diversified woodfibre company focused on providing dissolving wood pulp, specialities and packaging
papers, printing and writing 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 specialities and packaging 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 printing and writing papers 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%
Southern Africa 24%
Europe 50%
Sales by destination*
North America 23%
Southern Africa 9%
Europe 46%
Asia and other 22%
Sales by product*
Coated paper 59%
Uncoated paper 5%
Speciality paper 11%
Commodity paper 6%
Dissolving wood pulp 18%
Other 1%
Net operating assets**
North America 26%
Southern Africa 38%
Europe 36%
* For the period ended December 2017
** As at December 2017
Highlights for the quarter
- EBITDA excluding special items US$172 million (Q1 2017 like-for-like US$181 million)
- Profit for the period US$63 million (Q1 2017 US$90 million)
- EPS excluding special items 14 US cents (Q1 2017 16 US cents)
- Net debt US$1,349 million (Q1 2017 US$1,338 million)
Quarter ended
Dec 2017 Dec 2016 Sept 2017
Key figures: (US$ million)
Sales 1,330 1,309 1,411
Operating profit excluding special items(1) 105 136 152
Special items - (gains) losses(2) (11) (7) 1
EBITDA excluding special items(1) 172 201 221
Profit for the period 63 90 102
Basic earnings per share (US cents) 12 17 19
EPS excluding special items (US cents)(3) 14 16 19
Net debt(3) 1,349 1,338 1,322
Key ratios: (%)
Operating profit excluding special items to sales 7.9 10.4 10.8
Operating profit excluding special items to capital employed (ROCE)(3) 14.1 19.5 20.2
EBITDA excluding special items to sales 12.9 15.4 15.7
Net debt to EBITDA excluding special items 1.8 1.7 1.7
Interest cover(3) 9.9 7.7 9.1
Net asset value per share (US cents)(3) 338 270 327
(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 was in line with expectations and the group generated EBITDA excluding special
items of US$172 million. On a like-for-like basis this is comparable to the US$181 million generated last year before
the addition of US$20 million related to an additional accounting week. Profit for the comparative period decreased
from US$90 million to US$63 million principally as a result of the extra week last year and a US$19 million non-cash
income statement charge following the lowering of the corporate income tax rate in the United States and its impact
on the deferred tax asset.
Demand for dissolving wood pulp (DWP) remains strong, despite viscose staple fibre (VSF) prices softening in the last
weeks of the quarter. DWP spot prices were stable throughout the quarter, supported by higher prices for competing
textiles and strong demand for kraft pulp. EBITDA margins remain healthy at 31%.
Growth in demand for specialities and packaging papers continues to be healthy across all major product segments and
EBITDA margins were maintained at 14%. Sales volumes are constrained by our current production capacity.
The European business experienced a good quarter despite the impact of a stronger Euro on export sales prices and
continued paper pulp cost pressure. Further selling price increases were implemented in both local and export markets
during the quarter to counteract these pressures. The market dynamic for graphic paper improved, particularly exports.
Outages for capital projects and annual maintenance, as well as lower coated paper production and dissolving wood pulp
sales prices led to a decline in performance for the North American business. The positive impact from the closure of
two competing coated woodfree mills during the quarter began to be realised once remaining inventory had been sold
into the market.
Excellent packaging and office paper sales volumes in the South African business were unable to offset the impact of
lower contracted dissolving wood pulp pricing as well as the negative impact of a major storm in Durban, South Africa,
which affected Saiccor production and shipments from the port.
Earnings per share excluding special items was 14 US cents, a decline from the 16 US cents generated in the equivalent
quarter last year. Special items and the once-off tax rate adjustment resulted in a loss of US$11 million.
Cash flow and debt
Net cash utilised for the quarter was US$14 million, compared to US$17 million cash generated in the equivalent quarter
last year. A US$51 million increase in capital expenditure, related to the paper machine conversion projects, which
contributed to the decline in net cash generation.
An energy tax refund of US$6 million was received in the quarter, contrasting with tax payments of US$34 million in
the prior year.
Net debt of US$1,349 million was up marginally from US$1,338 million at the end of the equivalent quarter last year as
a result of the increased capital expenditure over the past year as well as the stronger Euro which impacted the translation
of Euro debt into US Dollar for reporting purposes.
Liquidity comprises cash on hand of US$618 million and US$639 million available from the undrawn committed revolving
credit facilities in Southern Africa and Europe.
Operating review for the quarter
Europe
Quarter ended
€ million Dec 2017 Sept 2017 Jun 2017 Mar 2017 Dec 2016
Sales 571 583 554 581 602
Operating profit excluding special items 31 35 23 29 40
Operating profit excluding special items to sales (%) 5.4 6.0 4.2 5.0 6.6
EBITDA excluding special items 59 63 51 56 69
EBITDA excluding special items to sales (%) 10.3 10.8 9.2 9.6 11.5
RONOA pa (%) 10.6 12.2 8.2 10.3 14.3
The European operating performance was solid, with strong export markets and the successful implementation of selling
price increases for graphic paper offsetting the ongoing rise in pulp costs. Within Europe, the market for graphic paper
stabilised. Overall sales volumes were 5% lower than the equivalent quarter last year, however this was almost solely
due to the additional accounting week in the prior year.
The specialities paper business experienced like-for-like sales growth of 9% (normalised to a 13 week quarter),
however, the stronger Euro impacted US Dollar-based exports negatively and lowered overall net sales prices.
Variable costs were 2% higher than in both comparative periods. Paper pulp and latex prices continued to rise
throughout the quarter. Fixed costs were 2% higher than a year ago due to an increased headcount post the Rockwell
acquisition and annual personnel cost increases.
North America
Quarter ended
US$ million Dec 2017 Sept 2017 Jun 2017 Mar 2017 Dec 2016
Sales 342 357 314 335 354
Operating profit (loss) excluding special items (1) 27 (2) 14 8
Operating profit (loss) excluding special items
to sales (%) (0.3) 7.6 (0.6) 4.2 2.3
EBITDA excluding special items 18 47 17 34 28
EBITDA excluding special items to sales (%) 5.3 13.2 5.4 10.1 7.9
RONOA pa (%) (0.4) 10.7 (0.8) 5.8 3.3
The performance of the North American business was impacted negatively by lower sales volumes as a result of
production challenges at the paper mills, project work at the Somerset Mill for the new woodyard as well as the first
phase of the PM1 conversion to paperboard together with a new headbox for PM12 at Cloquet Mill.
The US coated paper market changed notably during the quarter as approximately 15% of competing coated free sheet
capacity exited the market with the closure of two mills. Low paper inventories and contractual price protection for
major customers limited the positive impact from price increases and higher operating rates during the quarter. The
outlook for the coming quarters has improved as operating rates rise and further price increases have been announced.
The positive impact of increased dissolving wood pulp sales volumes was negated by lower average selling prices and
higher purchased paper pulp costs as the Cloquet Mill raised dissolving wood pulp production, resulting in additional
paper pulp purchases for the paper machines.
Both the packaging and release paper businesses experienced good year-on-year volume growth, although both products
experienced lower average pricing, primarily due to product and customer mix.
Variable costs were negatively impacted by the various capital projects during the quarter, as well as higher
purchased paper pulp and chemical prices. The ongoing initiatives to improve efficiency and lower purchasing costs
helped offset these somewhat.
Southern Africa
Quarter ended
ZAR million Dec 2017 Sept 2017 Jun 2017 Mar 2017 Dec 2016
Sales 4,291 4,879 4,432 4,818 4,230
Operating profit excluding special items 940 1,106 918 1,317 1,169
Operating profit excluding special items
to sales (%) 21.9 22.7 20.7 27.3 27.6
EBITDA excluding special items 1,144 1,344 1,102 1,489 1,364
EBITDA excluding special items to sales (%) 26.7 27.5 24.9 30.9 32.2
RONOA pa (%) 21.3 26.0 21.5 30.5 27.8
Improved year-on-year sales volumes across all major product categories were not enough to offset lower US Dollar
dissolving wood pulp prices, the stronger Rand/US Dollar exchange rate and the impact of the storm damage in the Durban
area on logistics and Saiccor Mill production.
Dissolving wood pulp sales volumes were greater than the equivalent quarter last year, but lower than those of the
prior quarter due to the logistical challenges in the Durban port as mentioned above. Lower average US Dollar prices
coupled with a stronger Rand/US Dollar exchange rate led to average sales prices that were 7% below those of a year ago.
Improved packaging sales volumes, driven by strong citrus demand, and higher pricing resulted in a strong performance
from the paper business. Office paper and newsprint achieved sales volume growth and higher pricing.
Variable costs remain well controlled compared to the prior year, with increased energy costs being offset by lower
fibre usage.
Outlook
Demand for DWP remains good, and our realised US Dollar sales prices will improve in the second quarter as we benefit
from the higher average Chinese market prices. While VSF prices currently remain under pressure, recent rises in
competing textile prices such as cotton and polyester should provide support to the VSF market, which in turn should
support DWP pricing in upcoming quarters. In light of increased demand and positive outlook for DWP we are advancing
plans for the possible expansion of Saiccor Mill by 110,000 tons per annum.
Graphic paper operating rates remain healthy in Europe as export demand growth helps to offset more moderate demand
declines in Western Europe. Coated paper price increases over the past few quarters have allowed margins to remain
relatively stable despite continued input cost pressure from purchased paper pulp.
In the United States we will be taking extended downtime on PM1 at Somerset Mill in order to complete the conversion
project at the mill. This is expected to have a US$9 million negative impact on EBITDA during our second and third
quarters. Coated paper price increases implemented over the past six months will start to be fully realised in the
second quarter and the higher DWP prices referred to earlier will allow us to offset the aforementioned impact.
Speciality and packaging paper demand continues to grow as the push to encourage the use of paper-based packaging over
plastic gathers momentum. Our acquisition of Rockwell Solutions in 2017 and the announced acquisition of Cham Paper,
which is expected to be completed at the end of February 2018, positions us well for growth in this market. The
conversions of the paper machines at Maastricht and Somerset Mills will be completed in the second and third quarter
respectively and will further add to our coated packaging capabilities.
Capital expenditure in 2018 is expected to be approximately US$500 million as we complete the conversions at
Maastricht and Somerset Mills, the Saiccor, Ngodwana and Cloquet Mills DWP debottlenecking projects and start the
upgrade of the Saiccor Mill woodyard. These projects are focused on higher margin growth segments including dissolving
wood pulp and speciality packaging. This will position us for stronger profitability from 2019 onwards.
The group's second quarter operating performance is expected to be slightly below that of the prior year as the impact
of the stronger Rand and lower comparative US Dollar DWP prices negatively impact the South African operations.
On behalf of the board
S R Binnie
Director
G T Pearce
Director
6 February 2018
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, and may be used to
identify forward-looking statements. You should not rely on forward-looking statements because they involve known and
unknown risks, uncertainties and other factors which are in some cases beyond our control and may cause our actual results,
performance or achievements to differ materially from anticipated future results, performance or achievements expressed or
implied by such forward-looking statements (and from past results, performance or achievements). Certain factors that may
cause such differences include but are not limited to:
- the highly cyclical nature of the pulp and paper industry (and the factors that contribute to such cyclicality, such
as levels of demand, production capacity, production, input costs including raw material, energy and employee costs,
and pricing);
- the impact on our business of a global economic downturn;
- unanticipated production disruptions (including as a result of planned or unexpected power outages);
- changes in environmental, tax and other laws and regulations;
- adverse changes in the markets for our products;
- the emergence of new technologies and changes in consumer trends including increased preferences for digital media;
- consequences of our leverage, including as a result of adverse changes in credit markets that affect our ability to
raise capital when needed;
- adverse changes in the political situation and economy in the countries in which we operate or the effect of
governmental efforts to address present or future economic or social problems;
- the impact of restructurings, investments, acquisitions, dispositions and other strategic initiatives (including
related financing), any delays, unexpected costs or other problems experienced in connection with dispositions or with
integrating acquisitions or implementing restructuring and other strategic initiatives and achieving expected savings
and synergies; and
- currency fluctuations.
We undertake no obligation to publicly update or revise any of these forward-looking statements, whether to reflect
new information or future events or circumstances or otherwise.
Condensed group income statement
Quarter ended
US$ million Note Dec 2017 Dec 2016
Sales 1,330 1,309
Cost of sales 1,121 1,082
Gross profit 209 227
Selling, general and administrative expenses 94 82
Other operating expenses 1 4
Share of profit from equity investments (2) (2)
Operating profit 3 116 143
Net finance costs 15 25
Net interest expense 16 27
Net foreign exchange gain (1) (2)
Profit before taxation 101 118
Taxation 38 28
Profit for the period 63 90
Basic earnings per share (US cents) 4 12 17
Weighted average number of shares in issue (millions) 535.8 531.6
Diluted earnings per share (US cents) 4 11 17
Weighted average number of shares on fully diluted basis (millions) 549.0 544.0
Condensed group statement of comprehensive income
Quarter ended
US$ million Dec 2017 Dec 2016
Profit for the period 63 90
Other comprehensive income (loss), net of tax
Items that will not be reclassified subsequently to profit or loss (19) -
Tax effect resulting from change in tax rates (19) -
Items that may or are reclassified subsequently to profit or loss 106 33
Exchange differences on translation of foreign operations 97 33
Movements in hedging reserves 12 1
Tax effect of above items (3) (1)
Total comprehensive income for the period 150 123
Condensed group balance sheet
Audited
US$ million Note Dec 2017 Sept 2017
ASSETS
Non-current assets 3,545 3,378
Property, plant and equipment 2,803 2,681
Plantations 5 521 458
Deferred tax assets 93 123
Other non-current assets 128 116
Current assets 2,004 1,869
Inventories 697 636
Trade and other receivables 655 668
Derivative financial instruments 26 3
Taxation receivable 8 12
Cash and cash equivalents 618 550
Total assets 5,549 5,247
EQUITY AND LIABILITIES
Equity
Ordinary shareholders' interest 1,821 1,747
Non-current liabilities 2,588 2,457
Interest-bearing borrowings 1,831 1,739
Deferred tax liabilities 328 295
Other non-current liabilities 429 423
Current liabilities 1,140 1,043
Interest-bearing borrowings 136 133
Trade and other payables 828 858
Provisions 9 10
Derivative financial instruments 7 5
Taxation payable 85 37
Shareholders for dividend 75 -
Total equity and liabilities 5,549 5,247
Number of shares in issue at balance sheet date (millions) 538.6 535.0
Condensed group statement of cash flows
Quarter ended
US$ million Dec 2017 Dec 2016
Profit for the period 63 90
Adjustment for:
Depreciation, fellings and amortisation 80 83
Taxation 38 28
Net finance costs 15 25
Defined post-employment benefits paid (10) (9)
Plantation fair value adjustments (32) (26)
Other non-cash items 8 11
Cash generated from operations 162 202
Movement in working capital (83) (97)
Net finance costs paid (6) (17)
Taxation refund (paid) 6 (34)
Cash generated from operating activities 79 54
Cash utilised in investing activities (93) (37)
Capital expenditure (88) (37)
Proceeds on disposal of assets - 2
Other movements (5) (2)
Net cash (utilised) generated (14) 17
Cash effects of financing activities 58 (6)
Proceeds from interest-bearing borrowings 58 14
Repayment of interest-bearing borrowings - (20)
Net movement in cash and cash equivalents 44 11
Cash and cash equivalents at beginning of period 550 703
Translation effects 24 (33)
Cash and cash equivalents at end of period 618 681
Condensed group statement of changes in equity
Quarter ended
US$ million Dec 2017 Dec 2016
Balance - beginning of period 1,747 1,378
Total comprehensive income for the period 150 123
Shareholders for dividend (81) (59)
Transfers from the share purchase trust 3 2
Transfers of vested share options (1) (3)
Share-based payment reserve 3 1
Balance - end of period 1,821 1,442
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 interim reports and the requirements of the Companies Act of South Africa. The Listings
Requirements require interim reports to be prepared in accordance with the framework concepts and the measurement
and recognition 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 results are unaudited.
2. Segment information
The group's reportable segments comprise the geographic regions of North America, Europe and Southern Africa and
have remained unchanged from the prior year. The group has however changed the financial information by major product
category, as reviewed by the chief operating decision maker during the quarter ended December 2017. Accordingly, the
group has restated the financial information presented by major product category for the quarter ended December 2016.
Quarter ended
Dec 2017 Dec 2016
(000's) Metric tons Metric tons
Sales volume
North America 343 353
Europe 822 867
Southern Africa - Pulp and paper 383 364
- Forestry 248 244
Total 1,796 1,828
Which consists of:
Specialised cellulose 287 281
Specialities and packaging papers 198 181
Printing and writing papers 1,063 1,122
Forestry 248 244
Quarter ended
US$ million Dec 2017 Dec 2016
Sales
North America 342 354
Europe 673 651
Southern Africa - Pulp and paper 299 289
- Forestry 16 15
Total 1,330 1,309
Which consists of:
Specialised cellulose 241 247
Specialities and packaging papers 196 179
Printing and writing papers 877 868
Forestry 16 15
Operating profit (loss) excluding special items
North America (1) 8
Europe 37 43
Southern Africa 69 84
Unallocated and eliminations(1) - 1
Total 105 136
Which consists of:
Specialised cellulose 62 82
Specialities and packaging papers 16 15
Printing and writing papers 27 38
Unallocated and eliminations(1) - 1
Special items - (gains) losses
North America 2 -
Europe 2 -
Southern Africa (16) (7)
Unallocated and eliminations(1) 1 -
Total (11) (7)
Segment operating profit (loss)
North America (3) 8
Europe 35 43
Southern Africa 85 91
Unallocated and eliminations(1) (1) 1
Total 116 143
(1) Includes the group's treasury operations and our insurance captive.
Quarter ended
US$ million Dec 2017 Dec 2016
EBITDA excluding special items
North America 18 28
Europe 69 75
Southern Africa 84 98
Unallocated and eliminations(1) 1 -
Total 172 201
Which consists of:
Specialised cellulose 75 95
Specialities and packaging papers 27 25
Printing and writing papers 69 81
Unallocated and eliminations(1) 1 -
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 believes are material by
nature or amount to the operating results
and require separate disclosure.
EBITDA excluding special items 172 201
Depreciation and amortisation (67) (65)
Operating profit excluding special items 105 136
Special items - gains (losses) 11 7
Plantation price fair value adjustment 16 11
Fire, flood, storm and other events (5) (4)
Segment operating profit 116 143
Net finance costs (15) (25)
Profit before taxation 101 118
Taxation (38) (28)
Profit for the period 63 90
(1) Includes the group's treasury operations and our insurance captive.
Quarter ended
US$ million Dec 2017 Dec 2016
Segment assets
North America 1,031 956
Europe 1,414 1,184
Southern Africa 1,464 1,265
Unallocated and eliminations(1) (75) 2
Total 3,834 3,407
Reconciliation of segment assets
to total assets
Segment assets 3,834 3,407
Deferred taxation 93 150
Cash and cash equivalents 618 681
Trade and other payables 828 704
Provisions 9 13
Derivative financial instruments 7 2
Taxation payable 85 39
Shareholders for dividend 75 49
Total assets 5,549 5,045
(1) Includes the group's treasury operations and our insurance captive.
3. Operating profit
Quarter ended
US$ million Dec 2017 Dec 2016
Included in operating profit are the following items:
Depreciation and amortisation 67 65
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 13 18
Growth (16) (15)
(3) 3
Plantation price fair value adjustment (16) (11)
(19) (8)
4. Earnings per share
Quarter ended
US$ million Dec 2017 Dec 2016
Basic earnings per share (US cents) 12 17
Headline earnings per share (US cents) 12 17
EPS excluding special items (US cents) 14 16
Weighted average number of shares in issue (millions) 535.8 531.6
Diluted earnings per share (US cents) 11 17
Diluted headline earnings per share (US cents) 11 17
Weighted average number of shares on fully
diluted basis (millions) 549.0 544.0
Calculation of headline earnings
Profit for the period 63 90
Headline earnings 63 90
Calculation of earnings excluding special items
Profit for the period 63 90
Special items after tax (8) (5)
Special items (11) (7)
Tax effect 3 2
Tax special items 19 -
Earnings excluding special items 74 85
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
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.
Quarter ended
Audited
US$ million Dec 2017 Sept 2017
Fair value of plantations at beginning of year 458 441
Gains arising from growth 16 58
Fire, flood, storm and other events - (5)
In-field inventory (2) 1
Gain arising from fair value price changes 16 21
Harvesting - agriculture produce (fellings) (13) (63)
Translation difference 46 5
Fair value of plantations at end of period 521 458
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)
Fair value Audited
US$ million hierarchy Dec 2017 Sept 2017
Investment funds(2) Level 1 7 7
Derivative financial assets Level 2 26 3
Derivative financial liabilities Level 2 7 5
Contingent consideration liability(3) Level 3 14 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
Quarter ended
Audited
US$ million Dec 2017 Sept 2017
Contracted 256 253
Approved but not contracted 189 219
445 472
8. Contingent liabilities
Other contingent liabilities 20 19
20 19
9. Material balance sheet movements
Since the 2017 financial year-end, the ZAR and Euro have strengthened by approximately 8.7% and 1.6% respectively
to the US Dollar, the group's presentation currency, resulting in a similar increase of the group's assets and
liabilities held in the aforementioned functional currencies on translation to the presentation currency.
Deferred tax assets
There was reduction in the corporate tax rate in our North America operations resulting in a decrease of
US$38.5 million in our deferred tax asset balance of which US$19 million was recorded through the income statement
and US$19 million through other comprehensive income.
10. Related parties
There has been no material change, by nature or amount, in transactions with related parties since the
2017 financial year-end.
11. Events after balance sheet date
There have been no reportable events that occurred between the balance sheet date and the date of authorisation
for issue of these financial statements.
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 believes 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
Dec 2017 Dec 2016
Key figures: (ZAR million)
Sales 18,117 18,215
Operating profit excluding special items(1) 1,430 1,893
Special items - (gains) losses(1) (150) (97)
EBITDA excluding special items(1) 2,343 2,797
Profit for the period 858 1,252
Basic earnings per share (SA cents) 160 236
Net debt(1) 16,690 18,382
Key ratios: (%)
Operating profit excluding special items to sales 7.9 10.4
Operating profit excluding special items to capital employed (ROCE)(1) 14.2 19.8
EBITDA excluding special items to sales 12.9 15.4
(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
Dec Sept Jun Mar Dec
2017 2017 2017 2017 2016
Exchange rates:
Period end rate: US$1 = ZAR 12.3724 13.5561 13.0551 13.4259 13.7386
Average rate for the quarter:
US$1 = ZAR 13.6220 13.1761 13.1857 13.2260 13.9155
Average rate for the year to date:
US$1 = ZAR 13.6220 13.3813 13.4536 13.5861 13.9155
Period end rate: €1 = US$ 1.1998 1.1814 1.1426 1.0652 1.0516
Average rate for the quarter:
€1 = US$ 1.1778 1.1756 1.1011 1.0656 1.0814
Average rate for the year to date:
€1 = US$ 1.1778 1.1055 1.0827 1.0738 1.0814
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
This report is available on the
Sappi website: www.sappi.com
Date: 07/02/2018 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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