Wrap Text
Fourth quarter results for the period ended September 2018
SAPPI LIMITED
Registration number: 1936/008963/06
JSE code: SAP
ISIN code: ZAE000006284
Issuer code: SAVVI
INVESTING IN GROWTH
Fourth quarter results for the period ended September 2018
4th 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 biomaterials and biochemicals to our direct and indirect customer base
across more than 150 countries.
Our dissolving wood pulp products are used worldwide mainly by converters to create viscose fibre for fashionable
clothing and textiles, as well as other consumer 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; biomaterials include nanocellulose, fibre composites and lignosulphonate;
biochemicals include second generation sugars.
The wood and pulp needed for our products are either produced within Sappi or bought from accredited suppliers.
Sappi sells almost as much as it buys.
Sales by source*
North America 25%
Southern Africa 24%
Europe 51%
Sales by destination*
North America 23%
Southern Africa 10%
Europe 45%
Asia and other 22%
Sales by product*
Coated paper 55%
Uncoated paper 5%
Speciality paper 14%
Commodity paper 7%
Dissolving wood pulp 18%
Other 1%
Net operating assets**
North America 28%
Southern Africa 34%
Europe 38%
* For the period ended September 2018.
** As at September 2018.
Highlights for the quarter
- EBITDA excluding special items US$224 million (Q4 FY17: US$221 million)
- Profit for the period US$107 million (Q4 FY17: US$102 million)
- EPS excluding special items 19 US cents (Q4 FY17: 19 US cents)
Highlights for the year
- EBITDA excluding special items US$762 million (FY17: US$785 million)
- Profit for the period US$323 million (FY17: US$338 million)
- EPS excluding special items 60 US cents (FY17: 64 US cents)
- Net debt US$1,568 million (FY17: US$1,322 million)
- Dividend of 17 US cents (FY17: 15 US cents)
Quarter ended Year ended
Sep 2018 Sep 2017 Jun 2018 Sep 2018 Sep 2017
Key figures: (US$ million)
Sales 1,535 1,411 1,445 5,806 5,296
Operating profit excluding
special items(1) 148 152 85 480 526
Special items - loss (gain)(2) 13 1 1 (9) -
EBITDA excluding special items(1) 224 221 155 762 785
Profit for the period 107 102 51 323 338
Basic earnings per share (US cents) 20 19 9 60 63
EPS excluding special items (US cents)(3) 19 19 10 60 64
Net debt(3) 1,568 1,322 1,603 1,568 1,322
Key ratios: (%)
Operating profit excluding special
items to sales 9.6 10.8 5.9 8.3 9.9
Operating profit excluding special
items to capital employed (ROCE)(3) 17.0 20.2 9.7 14.6 18.0
EBITDA excluding special items to sales 14.6 15.7 10.7 13.1 14.8
Net debt to EBITDA excluding special items 2.1 1.7 2.1 2.1 1.7
Interest cover(3) 11.0 9.1 11.0 11.0 9.1
Net asset value per share (US cents)(3) 361 327 342 361 327
(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.
Year ended September 2018 compared to year ended September 2017
The overall result was in line with that of the prior year on a like-for-like basis, notwithstanding the downtime
related to the completion of several large strategic growth projects during the year. Market demand for dissolving
wood pulp (DWP) and speciality and packaging papers ensured our production capacity in these grades was fully
utilised, further supporting our decision to invest in additional capacity in these business segments. In the
graphic paper market, a series of successful selling price increases throughout the year enabled margins to be
maintained notwithstanding significantly higher raw material costs, mainly from paper pulp and various process
chemicals. A stronger Rand during most of the year placed the profitability of the South African business
under pressure.
Increased capital expenditure in strategic growth projects, including the conversions of paper machines in Europe
and North America as well as debottlenecking DWP plants in South Africa, was managed around our target of two
times net debt to EBITDA. This facilitated a further shift in the product mix of the group away from the
traditional graphic paper business towards higher margin and growth segments.
The group's EBITDA excluding special items was US$762 million, declining US$3 million on a like-for-like basis
(FY2017 benefited by approximately US$20 million due to an additional accounting week). Operating profit excluding
special items for the year was US$480 million compared to US$526 million in the prior year.
Net finance costs for the year were US$68million, a decrease from US$80 million in the prior year, due to lower
average debt levels during the year.
Net profit for the year decreased by 4% to US$323 million due to an increased depreciation expense following the
higher capital expenditure activity.
Fourth quarter commentary
The group generated EBITDA excluding special items of US$224 million, an increase of 1% over the same quarter last
year. The production challenges of the prior quarter were resolved and combined with higher graphic paper prices
and stable demand across most product categories led to the improved performance.
DWP demand and market pricing remain healthy, albeit that net sales for the quarter were negatively impacted by
translation losses related to currency hedges contracted earlier in the year at a time when the Rand was significantly
stronger. The impact of lost DWP production volumes in the third quarter, following start-up issues after mill
upgrade projects, was felt in this quarter as inventory levels impacted sales volumes. We launched the Sappi Verve
brand as the umbrella brand for our DWP products, which emphasises Sappi's commitment to producing a natural fibre
sourced from sustainably managed forests.
Demand for specialities and packaging papers continued to grow in each region and across all major product categories.
EBITDA margins were impacted by higher raw material prices and a delay in implementing price increases due to the
longer-term contracts typical in this market. The qualification process of the paperboard grades at the Somerset and
Maastricht mills is under way, with positive customer response to date. This qualification and ramp-up process also
negatively impacted average pricing and costs for the quarter.
The European business performed well, with coated paper price increases offsetting cost increases. Overall graphic
paper markets in Europe weakened during the quarter, however, market share gains helped mitigate the impact.
Higher coated paper and DWP prices in addition to the ramp-up of sales volumes from Somerset PM1 led to an improved
result for the North American business.
An increase in Rand selling prices offset variable costs pressures, some of which related to imported raw materials,
in the South African business. Sales volumes were broadly in line with those of last year, being slightly affected
by the lost DWP production volumes in the third quarter and a late citrus season which impacted containerboard sales.
Net finance costs were US$14 million compared to US$15 million in the equivalent quarter last 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$26 million, compared to US$41 million in the equivalent quarter last year.
The reduction in net cash generation was as a result of a smaller decrease in working capital, offset somewhat by lower
capital expenditure. Capital expenditure of US$146 million related mainly to the finalisation of debottlenecking of DWP
production at the Ngodwana and Saiccor mills, the Saiccor mill woodyard upgrade as well as initial work related to the
expansion at Saiccor. Agreement has yet to be reached with suppliers and contractors on the finalisation of the Somerset
PM1 upgrade cost overrun, with the result that capital expenditure in the quarter was less than forecast.
Net cash utilised for the financial year was US$254 million (FY2017 US$108 million generated). The cash utilisation
arose from the Cham Paper acquisition cost of US$132 million, combined with increases in capital expenditure, dividends
and working capital. These were partially offset by lower cash interest and tax charges.
Net debt at financial year-end increased to US$1,568 million as a result of the cash utilisation. At the end of
September 2018, liquidity comprised cash on hand of US$363 million and US$680 million from the unutilised committed
revolving credit facilities in South Africa and Europe.
Operating review for the quarter
Europe
Quarter ended
€ million Sep 2018 Jun 2018 Mar 2018 Dec 2017 Sep 2017
Sales 671 636 616 571 583
Operating profit excluding
special items 38 31 37 31 35
Operating profit excluding
special items to sales (%) 5.7 4.9 6.0 5.4 6.0
EBITDA excluding special
items 71 60 64 59 63
EBITDA excluding special
items to sales (%) 10.6 9.4 10.4 10.3 10.8
RONOA pa (%) 11.3 9.3 11.7 10.6 12.2
The European business delivered a good result in a seasonally stronger quarter, with higher graphic and speciality
paper pricing, in addition to market share gains in coated paper, more than offsetting a weaker graphic paper
market and higher costs.
Graphic paper sales volumes were 3% below those of last year, with growth in coated mechanical sales not sufficient to
offset declines in coated woodfree demand. The coated mechanical market began the quarter positively due to switching
from other grades, however, demand weakened towards the end of the quarter. Coated woodfree demand was weak throughout
the period. Coated woodfree and coated mechanical prices are now 9% and 8% higher respectively than they were last year
following further price increases implemented during the quarter.
In the speciality paper business, year-on-year sales volumes and prices grew 9% and 4% respectively on a like-for-like
basis. Price increases in this segment lagged cost inflation, largely due to contract duration. The Cham integration
continues to exceed expectations, with EBITDA contribution ahead of expectations after seven months.
Variable costs increased 11% year-on-year, led by higher paper pulp and latex prices and exacerbated by the weakening
in the Euro/US Dollar exchange rate. Fixed costs increased predominantly because of the increased headcount post the
Cham acquisition.
North America
Quarter ended
US$ million Sep 2018 Jun 2018 Mar 2018 Dec 2017 Sep 2017
Sales 388 339 363 342 357
Operating profit (loss) excluding
special items 31 1 18 (1) 27
Operating profit (loss) excluding
special items to sales (%) 8.0 0.3 5.0 (0.3) 7.6
EBITDA excluding special
items 51 20 37 18 47
EBITDA excluding special
items to sales (%) 13.1 5.9 10.2 5.3 13.2
RONOA pa (%) 10.9 0.4 6.8 (0.4) 10.7
Following the completion of the Somerset PM1 conversion, profitability in the North American business improved.
Graphic paper prices increased compared to the previous quarter, however, sales volumes were affected by
historically low inventory levels at the start of the quarter.
The US coated paper market continued to be tightly supplied, and our average coated paper sales prices increased
13% year-on-year. Coated sales volumes were 9% lower than the equivalent quarter last year because of the lost
production from Somerset PM1 in the third quarter as well as the intentional shift to packaging grades.
DWP sales volumes were higher than those achieved in both the prior quarter and the equivalent quarter last year.
Average DWP sales prices improved compared to the prior year.
The packaging business, including the new paperboard grades from Somerset, nearly doubled sales volumes compared
to the prior year. Sales prices reflect the impact of start-up and qualification of the new grades. We made good
progress during the quarter with the ramp-up of first quality paperboard production.
Variable costs were reduced compared to the prior quarter as lower wood and chemical prices more than offset higher
purchased paper pulp prices.
Southern Africa
Quarter ended
ZAR million Sep 2018 Jun 2018 Mar 2018 Dec 2017 Sep 2017
Sales 5,103 4,383 4,548 4,291 4,879
Operating profit excluding
special items 1,081 553 950 940 1,106
Operating profit excluding
special items to sales (%) 21.2 12.6 20.9 21.9 22.7
EBITDA excluding special
items 1,344 742 1,168 1,144 1,344
EBITDA excluding special
items to sales (%) 26.3 16.9 25.7 26.7 27.5
RONOA pa (%) 22.4 11.9 20.9 21.3 26.0
The performance of the Southern African business was very similar to that of the equivalent quarter last year,
with higher Rand selling prices offsetting input cost pressure from timber, paper pulp, chemicals and energy.
The weaker Rand/US Dollar exchange rate impacted both export sales prices and imported input costs, however,
currency hedges on DWP sales entered into earlier in the year resulted in lower effective Rand pricing for
some of our DWP sales during the quarter.
DWP sales volumes were flat year-on-year as the late start-up of both Ngodwana and Saiccor mills following plant
upgrades in the third quarter resulted in low initial DWP inventory levels.
The paper business experienced robust demand notwithstanding a late citrus season which delayed some
containerboard sales into the next quarter. Sales price increases have offset cost price pressure resulting from
the weaker Rand and increased energy prices.
Environmental approval for the expansion of the Saiccor Mill was granted by the relevant authorities at the end of
the quarter, and construction has now commenced.
Directorate
Mr Bob DeKoch retired as independent non-executive director in August 2018 due to health reasons. Mr DeKoch was
appointed to the board in March 2013 and also served as a member of the Social, Ethics, Transformation and
Sustainability Committee.
The board is pleased to announce the appointment of Ms Zola Malinga as independent non-executive director with
effect from 1 October 2018. Ms Malinga will also serve as a member of the Sappi Audit and Risk Committee with
effect from 1 October 2018.
Dividends
On 14 November 2018, the directors approved a dividend (number 88) of 17 US cents per share which will be paid
to shareholders on 14 January 2019. This dividend was declared after year-end and was not included as a liability
at the end of the financial year.
The 2018 dividend is covered three 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
The debottlenecking of Saiccor, Ngodwana and Cloquet as well as fewer production disruptions in 2019 should lead
to increased DWP sales volumes to meet growing demand. DWP spot prices are forecast to remain range-bound at
current levels in the coming year as VSF prices are expected to be under pressure from excess VSF capacity,
while paper pulp prices which are forecast to remain at high levels should provide support.
Demand for speciality and packaging papers continues to grow, driven by increasing consumer preference for paper-based
packaging and legislative changes promoting recycling and the use of recyclable materials. The completion of the
conversion projects at Somerset and Maastricht in the past year will allow us to increase production of paperboard
grades to serve this growing market.
Industrywide conversion and closure of graphic paper machines in the US and Europe are expected to keep the markets
balanced in the coming year should demand contract at similar levels to those of the past few years. Recent European
data, however, indicates that a potential downturn may be realised in 2019. Cost control measures will be implemented
in order to support margins as we manage the price elasticity in our paper markets.
Capital expenditure in 2019 is expected to increase to US$590 million as we proceed with the Saiccor 110kt expansion
project, complete the Saiccor woodyard upgrade, convert Lanaken PM8 from coated mechanical to woodfree paper
production and upgrade the Gratkorn mill.
Having completed significant projects in 2018 to convert paper machines to higher margin and growing packaging grades,
in addition to the debottlenecking of both Saiccor and Ngodwana mills, we expect EBITDA in the first quarter of
financial year 2019, given current exchange rates, to be comfortably higher than that of 2018.
On behalf of the board
S R Binnie
Director
G T Pearce
Director
14 November 2018
Dividend announcement
The directors have resolved to declare a gross dividend (number 88) of 17 US cents per share, payable in ZAR at an
exchange rate (US$1=ZAR) of 14.43176, being ZAR245.33992 cents per share, for the year ended 30 September 2018 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 8.5 US cents per share being 50%
of the ordinary dividend so declared.
The South African dividend tax (DT) rate is 20% and the net dividend payable to shareholders who are not exempt from
DT is ZAR196.27194 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: 15 November 2018
Last day to trade to qualify for the dividend: 8 January 2019
Shares commence trading ex-dividend: 9 January 2019
Record date: 11 January 2019
Payment date: 14 January 2019
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 9 January 2019 to 11 January 2019, 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
Quarter ended Year ended
Reviewed Audited
US$ million Notes Sep 2018 Sep 2017 Sep 2018 Sep 2017
Sales 1,535 1,411 5,806 5,296
Cost of sales 1,293 1,164 4,928 4,429
Gross profit 242 247 878 867
Selling, general and administrative expenses 103 89 396 334
Other operating expenses (income) 4 8 (4) 14
Share of profit from equity investments - (1) (3) (7)
Operating profit 3 135 151 489 526
Net finance costs 14 15 68 80
Net interest expense 18 18 76 92
Interest capitalised - - (2) -
Net foreign exchange gain (4) (3) (6) (12)
Profit before taxation 121 136 421 446
Taxation 14 34 98 108
Profit for the period 107 102 323 338
Basic earnings per share (US cents) 4 20 19 60 63
Weighted average number of shares
in issue (millions) 539.1 534.9 538.1 533.9
Diluted earnings per share (US cents) 4 19 19 59 62
Weighted average number of shares on
fully diluted basis (millions) 552.1 548.9 550.0 547.4
Condensed group statement of other comprehensive income
Quarter ended Year ended
Reviewed Audited
US$ million Sep 2018 Sep 2017 Sep 2018 Sep 2017
Profit for the period 107 102 323 338
Other comprehensive income (loss), net of tax
Items that will not be reclassified
subsequently to profit or loss 19 68 - 68
Actuarial gains (losses) on post-employment
benefit funds 28 101 28 101
Tax effect resulting from above items and changes
in tax rates (9) (33) (28) (33)
Items that must be reclassified subsequently
to profit or loss (26) (53) (57) 10
Exchange differences on translation of
foreign operations (34) (53) (61) (1)
Movements in hedging reserves 13 (1) 8 10
Movement on available for sale financial assets (1) - (1) -
Tax effect of above items (4) 1 (3) 1
Total comprehensive income for the period 100 117 266 416
Condensed group balance sheet
Note Reviewed Audited
US$ million Sep 2018 Sept 2017
ASSETS
Non-current assets 3,766 3,378
Property, plant and equipment 3,010 2,681
Plantations 5 466 458
Deferred tax assets 106 123
Goodwill and intangible assets 63 39
Equity-accounted investees 33 26
Other non-current assets 88 51
Current assets 1,904 1,869
Inventories 741 636
Trade and other receivables 767 668
Derivative financial instruments 21 3
Taxation receivable 12 12
Cash and cash equivalents 363 550
Total assets 5,670 5,247
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest 1,947 1,747
Non-current liabilities 2,550 2,457
Interest-bearing borrowings 1,818 1,739
Deferred tax liabilities 335 295
Other non-current liabilities 397 423
Current liabilities 1,173 1,043
Interest-bearing borrowings 97 133
Overdrafts 16 -
Trade and other payables 1,009 858
Provisions 6 10
Derivative financial instruments 6 5
Taxation payable 39 37
Total equity and liabilities 5,670 5,247
Number of shares in issue at balance sheet date (millions) 539.3 535.0
Condensed group statement of cash flows
Quarter ended Year ended
Reviewed Audited
US$ million Sep 2018 Sep 2017 Sep 2018 Sep 2017
Profit for the period 107 102 323 338
Adjustment for:
Depreciation, fellings and amortisation 93 83 348 322
Taxation 14 34 98 108
Net finance costs 14 15 68 80
Defined post-employment benefits paid (12) (10) (45) (43)
Plantation fair value adjustments (14) (20) (96) (79)
Asset impairment reversal - - (3) -
Net restructuring provisions 3 - 1 1
(Profit) loss on disposal of property,
plant and equipment 4 2 (4) 2
Other non-cash items 3 (2) 19 19
Cash generated from operations 212 204 709 748
Movement in working capital 6 103 (79) (27)
Net finance costs paid (24) (20) (66) (81)
Taxation paid (23) (38) (73) (100)
Dividend paid - - (81) (59)
Cash generated from operating activities 171 249 410 481
Cash utilised in investing activities (145) (208) (664) (373)
Capital expenditure (146) (197) (541) (357)
Proceeds on disposal of assets - 1 11 4
Acquisition of subsidiary - (11) (132) (11)
Other movements 1 (1) (2) (9)
Net cash (utilised) generated 26 41 (254) 108
Cash effects of financing activities 21 51 68 (279)
Proceeds from interest-bearing borrowings 21 50 137 186
Repayment of interest-bearing borrowings - 1 (69) (465)
Net movement in cash and cash equivalents 47 92 (186) (171)
Cash and cash equivalents at beginning of period 317 446 550 703
Translation effects (1) 12 (1) 18
Cash and cash equivalents at end of period 363 550 363 550
Condensed group statement of changes in equity
Year ended
Reviewed Audited
US$ million Sep 2018 Sep 2017
Balance - beginning of period 1,747 1,378
Total comprehensive income for the period 266 416
Shareholders for dividend (81) (59)
Transfers from the share purchase trust 5 5
Transfers of vested share options (1) (2)
Share-based payment reserve 11 9
Balance - end of period 1,947 1,747
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 2018 have been reviewed by
KPMG Inc., who expressed an unmodified review conclusion. The auditor's report does not necessarily report
on all of the information contained in these financial results. Shareholders are therefore advised that in
order to obtain a full understanding of the nature of the auditor's engagement they should obtain a
copy of the auditor's report together with the accompanying financial information from the issuer's
registered office.
2. Segment information
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 and year ended September 2017.
Quarter ended Year ended
Metric tons (000's) Sep 2018 Sep 2017 Sep 2018 Sep 2017
Sales volume
North America 363 361 1,371 1,359
Europe 864 842 3,366 3,343
Southern Africa - Pulp and paper 441 447 1,620 1,606
Forestry 352 290 1,234 1,102
Total 2,020 1,940 7,591 7,410
Which consists of:
Dissolving wood pulp 332 325 1,198 1,184
Specialities and packaging papers 291 240 1,009 854
Printing and writing papers 1,045 1,085 4,150 4,270
Forestry 352 290 1,234 1,102
Quarter ended Year ended
Reviewed Audited
US$ million Sep 2018 Sep 2017 Sep 2018 Sep 2017
Sales
North America 388 357 1,432 1,360
Europe 782 684 2,970 2,564
Southern Africa - Pulp and paper 345 352 1,328 1,307
Forestry 20 18 76 65
Total 1,535 1,411 5,806 5,296
Which consists of:
Dissolving wood pulp 278 277 1,043 1,059
Specialities and packaging papers 310 231 1,087 833
Printing and writing papers 927 885 3,600 3,339
Forestry 20 18 76 65
Operating profit (loss) excluding
special items
North America 31 27 49 47
Europe 44 41 163 140
Southern Africa 78 84 270 337
Unallocated and eliminations(1) (5) - (2) 2
Total 148 152 480 526
Which consists of:
Dissolving wood pulp 74 80 251 334
Specialities and packaging papers 19 24 78 76
Printing and writing papers 60 48 153 114
Unallocated and eliminations(1) (5) - (2) 2
Special items - (gains) losses
North America (1) - 2 -
Europe (2) 1 (3) 4
Southern Africa 10 (1) (25) (10)
Unallocated and eliminations(1) 6 1 17 6
Total 13 1 (9) -
Segment operating profit (loss)
North America 32 27 47 47
Europe 46 40 166 136
Southern Africa 68 85 295 347
Unallocated and eliminations(1) (11) (1) (19) (4)
Total 135 151 489 526
(1) Includes the group's treasury operations and our insurance captive.
EBITDA excluding special items
North America 51 47 126 126
Europe 81 73 299 262
Southern Africa 97 102 337 396
Unallocated and eliminations(1) (5) (1) - 1
Total 224 221 762 785
Which consists of:
Dissolving wood pulp 88 95 306 386
Specialities and packaging papers 40 36 138 117
Printing and writing papers 101 91 318 281
Unallocated and eliminations(1) (5) (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 believe are material by nature or amount to the
operating results and require separate disclosure.
EBITDA excluding special items 224 221 762 785
Depreciation and amortisation (76) (69) (282) (259)
Operating profit excluding special items 148 152 480 526
Special items - gains (losses) (13) (1) 9 -
Plantation price fair value adjustment (3) 7 27 21
Acquisition costs - - (2) -
Net restructuring provisions (3) - (1) (1)
Profit (loss) on disposal and written off assets (4) (2) 4 (2)
Asset (impairment) reversal - (6) 3 (6)
Black Economic Empowerment charge - - (1) (1)
Fire, flood, storm and other events (3) - (21) (11)
Segment operating profit 135 151 489 526
Net finance costs (14) (15) (68) (80)
Profit before taxation 121 136 421 446
Taxation (14) (34) (98) (108)
Profit for the period 107 102 323 338
(1) Includes the group's treasury operations and our insurance captive.
Year ended
Reviewed Audited
US$ million Sep 2018 Sep 2017
Segment assets
North America 1,137 1,026
Europe 1,574 1,373
Southern Africa 1,392 1,263
Unallocated and eliminations(1) 38 2
Total 4,141 3,664
Reconciliation of segment assets to total assets
Segment assets 4,141 3,664
Deferred taxation 106 123
Cash and cash equivalents 363 550
Trade and other payables 1,009 858
Provisions 6 10
Derivative financial instruments 6 5
Taxation payable 39 37
Total assets 5,670 5,247
(1) Includes the group's treasury operations and our insurance captive.
3. Operating profit
Quarter ended Year ended
Reviewed Audited
US$ million Sep 2018 Sep 2017 Sep 2018 Sep 2017
Included in operating profit are
the following items:
Depreciation and amortisation 76 69 282 259
Fair value adjustment on plantations
(included in cost of sales)
Changes in volume
Fellings 17 14 66 63
Growth (17) (13) (69) (58)
- 1 (3) 5
Plantation price fair value adjustment 3 (7) (27) (21)
3 (6) (30) (16)
Net restructuring provisions 3 - 1 1
(Profit) loss on disposal and write off of assets 4 2 (4) 2
Asset impairment reversals - (2) (3) (2)
Asset impairments - 6 - 6
4. Earnings per share
Quarter ended Year ended
Reviewed Audited
US$ million Sep 2018 Sep 2017 Sep 2018 Sep 2017
Basic earnings per share (US cents) 20 19 60 63
Headline earnings per share (US cents) 20 20 59 64
EPS excluding special items (US cents) 19 19 60 64
Weighted average number of shares
in issue (millions) 539.1 534.9 538.1 533.9
Diluted earnings per share (US cents) 19 19 59 62
Diluted headline earnings per share (US cents) 20 19 58 63
Weighted average number of shares on
fully diluted basis (millions) 552.1 548.9 550.0 547.4
Calculation of headline earnings
Profit for the period 107 102 323 338
(Profit) loss on disposal and
written off assets 4 2 (4) 2
Asset impairment reversals - (2) (3) (2)
Asset impairments - 6 - 6
Tax effect of above items (1) (1) 1 (1)
Headline earnings 110 107 317 343
Calculation of earnings excluding
special items
Profit for the period 107 102 323 338
Special items after tax 13 2 (2) 2
Special items 13 1 (9) -
Tax effect - 1 7 2
Tax special items (16) - 3 -
Earnings excluding special items 104 104 324 340
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, pre-tax
discount rates, volume and growth estimations.
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. Mature timber that is to be felled in more than 12 months
from the reporting date is valued using a 12 quarter rolling historical average price. Immature timber is
valued using a discounted cash flow method taking into account the growth cycle of a plantation.
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 Audited
US$ million Sep 2018 Sep 2017
Fair value of plantations at beginning of year 458 441
Gains arising from growth 69 58
Fire, flood, storm and other events - (5)
In-field inventory 1 1
Gain arising from fair value price changes 27 21
Harvesting - agriculture produce (fellings) (66) (63)
Translation difference (23) 5
Fair value of plantations at end of period 466 458
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 Reviewed Audited
US$ million hierarchy Sep 2018 Sep 2017
Investment funds(2) Level 1 7 7
Derivative financial assets Level 2 21 3
Derivative financial liabilities Level 2 6 5
Contingent consideration liability(3) Level 3 7 13
(1) The fair value of the financial instruments is 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 weighted
average outcome has been considered. During the year the fair value of the liability was remeasured and
a gain of US$6 million was recognised.
There are no financial assets and liabilities that have been remeasured to fair value on a
non-recurring basis.
The carrying amounts of other financial instruments which include cash and cash equivalents, accounts
receivable, certain investments, accounts payable, bank overdrafts and current interest-bearing borrowings
approximate their fair values.
7. Capital commitments
Reviewed Audited
US$ million Sep 2018 Sept 2017
Contracted 293 253
Approved but not contracted 381 219
674 472
8. Material balance sheet movements
Property, plant and equipment, cash, inventories, trade and other receivables and trade and other payables
The increase in property, plant and equipment and decrease in cash is due to the major capital expansion
projects undertaken by the group as well as the acquisition of a subsidiary. The increase in inventories,
trade and other receivables and trade and other payables is largely attributable to seasonal working
capital movements as well as the acquisition of a subsidiary.
9. Acquisition
On 28 February 2018, Sappi acquired the speciality paper business of Cham Paper Group Holding AG (CPG) for
CHF132 million (US$139 million). The transaction includes all brands and know-how, the Carmignano and
Condino mills in Italy, as well as their digital imaging business and facility situated in Cham,
Switzerland. The acquisition was financed from internal resources. The acquisition increases Sappi's
relevance in specialities and packaging papers, opening up new customers and markets to Sappi's existing
products and generating economies of scale and synergies. It will improve near-term profitability and
serve as a platform for organic growth, further acquisitions and will add €183 million of annual sales
and approximately €20 million of annual EBITDA before taking into account synergies.
The fair values of assets acquired and liabilities assumed as at 28 February 2018 were as follows:
EURO US$
Property, plant and equipment 81 98
Intangible assets 32 39
Inventories 25 31
Trade receivables 28 36
Prepayments and other assets 2 3
Cash and cash equivalents 6 7
Trade payables (23) (29)
Pension liabilities (4) (5)
Provisions (1) (2)
Other payables and accruals (9) (11)
Deferred tax liabilities (15) (18)
Non-current interest-bearing borrowings (5) (7)
Current interest-bearing borrowings (5) (6)
Net asset value acquired 112 136
Goodwill 2 3
Purchase consideration 114 139
Less: Cash and cash equivalents acquired (6) (7)
Net cash outflow on acquisition 108 132
CPG earned revenues of €118 million and profit after tax of €4 million since acquisition.
10. Related parties
There has been no material change, by nature or amount, in transactions with related parties since the
2017 financial year-end other than purchases from The Boldt Company (Boldt) for construction-related
services which amounted to US$88 million for the year ended September 2018 (September 2017: US$8 million)
largely related to the rebuild at our Somerset mill. The balance outstanding as at September 2018 is
US$26 million (September 2017: US$Nil). There are ongoing disputes over amounts billed, and arbitration
has been requested by Boldt.
11. Accounting standards, interpretations and amendments to existing standards that are not yet effective
There has been no significant change to managements estimates in respect of new accounting standards,
amendments and interpretations to existing standards that have been published which are not yet effective
and which have not yet been adopted by the group. No material impact is expected in respect of the adoption
of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. Management is in the
process of completing its assessment of IFRS 16 Leases.
12. Events after balance sheet date
The directors have resolved to declare a gross dividend (number 88) out of income earned for the
financial year ended September 2018 of 17 US cents per ordinary share in issue on the record date
being 11 January 2019. The dividend is payable in ZAR at an exchange rate of ZAR14.43176, being
ZAR245.33992 cents per share. Holders of Sappi "A" ordinary unlisted shares, issued in terms of the
BBBEE scheme, are entitled to receive 8.5 US cents (ZAR122.66996 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 4/2018, issued by the South African Institute of Chartered
Accountants in April 2018, 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
Summary Rand convenience translation
Quarter ended Year ended
Sep 2018 Sep 2017 Sep 2018 Sep 2017
Key figures: (ZAR million)
Sales 21,584 18,591 75,779 70,867
Operating profit excluding special items(1) 2,081 2,003 6,265 7,039
Special items - (gains) losses(1) 183 13 (117) -
EBITDA excluding special items(1) 3,150 2,912 9,945 10,504
Profit for the period 1,505 1,344 4,216 4,523
Basic earnings per share (SA cents) 279 251 783 847
Net debt(1) 22,183 17,921 22,183 17,921
Key ratios: (%)
Operating profit excluding
special items to sales 9.6 10.8 8.3 9.9
Operating profit excluding special
items to capital employed (ROCE)(1) 17.2 20.0 13.7 17.6
EBITDA excluding special items to sales 14.6 15.7 13.1 14.8
(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
Sep Jun Mar Dec Sep
2018 2018 2018 2017 2017
Exchange rates:
Period end rate: US$1 = ZAR 14.1473 13.7275 11.8385 12.3724 13.5561
Average rate for the
quarter: US$1 = ZAR 14.0615 12.6312 11.9577 13.6220 13.1761
Average rate for the year to date: 13.0518 12.7255 12.7723 13.6220 13.3813
US$1 = ZAR
Period end rate: €1 = US$ 1.1609 1.1685 1.2323 1.1998 1.1814
Average rate for
the quarter: €1 = US$ 1.1626 1.1920 1.2286 1.1778 1.1756
Average rate for the
year to date: €1 = US$ 1.1902 1.1995 1.2032 1.1778 1.1055
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: 15/11/2018 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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