RNS Number:6663H
Sappi Ld
30 July 2001
30/07/2001
Press Release
Johannesburg,
Strong fundamentals help Sappi withstand tough third quarter
Sappi, the world's leading producer of coated woodfree paper, today announced
results for the third quarter 2001.
Results - Highlights
* Headline earnings per share in dollar terms down on previous quarter but
ahead of market expectations.
* One-off after-tax restructuring charge of US$120 million for Mobile
closure impacts EPS
* Fine Paper North America delivers operating profits despite difficult
market conditions and continuing Mobile losses
* Cash flows remain strong
* Finance costs continue to decline
* Share buy back to continue
Commenting on the results, Eugene van As, Executive Chairman of Sappi said
that given the difficult macro environment, the group had delivered a solid
performance.
"The sector as a whole is experiencing extremely tough trading conditions" he
said. "Within the context of this environment Sappi has stood up well, thanks
to its strong fundamentals. The group continues to focus on extracting
optimal operational efficiencies, has maintained a tight control on costs and
has held its market shares".
Results for the Quarter
The group's net profit before exceptional items for the quarter was US$55
million, 41% below last year. Sales volumes of continuing operations were 6%
lower than a year ago. This reduction was in the fine paper business
reflecting slower economic activity in Europe and North America and inventory
reduction by merchants and printers. Prices were 7% lower than a year
earlier in dollar terms mainly as a result of currency translation because of
the 11% surge in the US dollar against the Euro.
Operating margins were impacted by the lower shipments and price erosion.
Operating profit was down 50% to US$91 million. Finance costs after currency
adjustments and capitalised interest were US$16 million, which were US$15
million (48%) lower than the equivalent quarter last year.
The decision to close Mobile mill in Alabama, USA, resulted in a one-off
charge of US$120 million after tax. The closure will be cash flow positive as
a result of the liquidation of current assets and tax credits. The full
profit improvement resulting from the closure will be achieved from the
beginning of the next calendar year.
Earnings per share before exceptional items were 24 US cents, down 38% from a
year ago. Earnings per share after the one-time restructuring charge were (27)
US cents.
The group continued to generate strong cash flows of US$175 million for the
quarter (EBITDA). Capital expenditure was in line with the first half year at
US$74 million for the quarter.
Net debt was marginally lower at US$1,250 million and the debt to total
capitalisation ratio was 34.5%, slightly up on the prior quarter as a result
of the Mobile write down.
Sappi recently announced a E900 million (US$770 million) finance facility,
which comprises two tranches, one of which will be used for general corporate
purposes and the other to refinance existing high cost debt in the United
States. The margin of 0.55% reflects the strong credit standing of the group
This new facility will further reduce Sappi's pre-tax finance cost in the USA
by approximately US$13 million in a full year.
Operational Review
Fine Paper
The Fine Paper business experienced tough trading conditions throughout the
quarter with reduced demand and some decline in paper prices particularly in
the group's export markets such as Asia and South America. This was partly
offset by lower pulp prices, which dropped to US$510 per ton in June from
US$710 in January and the group's continued focus on cost control.
In Europe, weak demand for coated woodfree paper resulted in a 15% reduction
in sales volume and this combined with prices dropping 3% in dollar terms (2%
up in local currency) resulted in operating income being less than half a
year earlier at US$26 million. Sappi took approximately one week a month of
production curtailment across all of its coated woodfree paper machines to
match output to market requirements. The rapid drop in pulp prices had a
favourable impact on variable costs and fixed costs were tightly controlled.
The North American business continued to feel the negative impact of the
slowing US economy and the strong US dollar. Overall consumption of coated
woodfree paper reduced considerably and imports from Asia and Europe have
continued to impact negatively on the domestic producers' share of the
market. Sales volume was 9% down and prices were 6% below a year ago.
Operating income was US$9 million for the quarter, impacted heavily by
continuing losses at Mobile.
Bill Sheffield, CEO of Sappi Fine Paper said that the closure of Mobile would
have a very favourable impact on the profitability of the North American fine
paper business going forward.
"The full improvement will be achieved from the beginning of the next
calendar year," he said.
The South African fine paper business performed well. Sales volumes were
slightly above a year earlier. Prices in domestic currency were 13% higher
and in dollar terms prices were 4% lower. Costs were tightly controlled.
Operating income increased to US$8 million, resulting in a 13% operating
margin and 33% return on net operating assets.
Forest Products
Sappi's international markets have been affected by weakening prices, except
for Newsprint, which has remained firm. Dissolving pulp production was
curtailed during the quarter to match demand and manage inventories.
Domestic demand, particularly for packaging paper in the South African
market has remained firm.
Sales volume of continuing business was at the same level as a year earlier.
Average prices for paper increased strongly in local currencies but were flat
in dollar terms. Pulp prices, however, were approximately 5% lower in dollar
terms. Costs continue to be well controlled and were significantly lower
than a year earlier.
Commenting John Job, CEO of Sappi Forest Products, said;
"As our costs are rand based and our revenues largely dollar influenced, the
weakening rand had a favourable impact, reducing the effect of lower prices
on our dollar earnings".
Outlook
Although there has not yet been any improvement in Sappi's markets, industry
inventories are generally at low levels and any improvement in economic
outlook should result in a turnaround in pulp and paper markets. Pulp prices
are now below the production cost levels of many manufacturers, particularly
in North America, which is not sustainable for an extended period.
The continued strength of the US Dollar exposes the USA coated paper market
to imports from Asia and Europe and puts pressure on the domestic currency
costs of our European business to the extent that they are dollar based.
Commenting on the group's prospects van As said that Sappi had strong
fundamentals and market shares and was well positioned to take advantage of
any improvement in market conditions when they occurred.
"The sector has experienced a severe down cycle, particularly in the United
States and all operators have been severely adversely affected. Sappi's
geographic diversity has stood it in good stead and protected it to an extent
against currency movements. The outlook is somewhat uncertain for the next
six months, but if current conditions persist, Sappi would expect similar
earnings before exceptional items per share in the final quarter as in the
third quarter."
FORWARD-LOOKING STATEMENTS
Certain statements in this report 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
events, trends, plans or objectives. Undue reliance should not be placed on
such statements because, by their nature, they are subject to known and
unknown risks and uncertainties and can be affected by other factors, that
could cause actual results and company plans and objectives to differ
materially from those expressed or implied in the forward-looking statements
(or from past results). Such risks, uncertainties and factors 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 and pricing), adverse changes in the
markets for the group's products, consequences of substantial leverage,
changing regulatory requirements, unanticipated production disruptions,
economic and political conditions in international markets, the impact of
investments, acquisitions and dispositions (including related financing) and
currency fluctuations. The company undertakes 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.
Released on behalf of Sappi by Brunswick. For further information:
Robert Hope
Director Strategic Development
Sappi Limited
Tel: +27 (0) 11 407 8492
Fax: +27 (0) 11 403 1493
robho@za.sappi.com
Summary
June 2001
Quarter ended Nine months ended
June March June June June
2001 2001 2000 2001 2000
Sales (US$ million) 967 1,104 1,170 3,186 3,472
Operating profit (US$ 91 121 181 355 473
million)
EBITDA (US$ million) 175 210 278 622 767
Operating profit to sales 9.4 11.0 15.5 11.1 13.6
(%)
EBITDA to sales (%) 18.1 19.0 23.8 19.5 22.1
Operating profit to 10.5 13.6 18.0 13.4 16.2
average net assets (%)
Basic EPS before 24 32 39 90 97
exceptional items
(Headline) (US cents)
Basic EPS (US cents) (27) 32 41 39 99
Return on equity (%)** 14.1** 18.6 25.1 18.2** 20.7
Net Debt (US$ million) 1,250 1,277 1562* 1,250 1562*
* Restated for reclassification of minority interest to debt
** Before Mobile restructuring change
Group Income Statements
Unaudited Unaudited
Quarter ended Nine months ended
June June June June
2001 2000 2001 2000
US$ US$ % US$ US$ %
million million change million million change
-------- ------- ------- -------- ------- ------
Sales 967 1,170 (17.4) 3,186 3,472 (8.2)
Cost of sales 786 889 2,559 2,709
-------- ------- ------- -------- ------- ------
Gross profit 181 281 (35.6) 627 763 (17.8)
Selling, general & 90 100 272 290
administrative
expenses
-------- ------- ------- -------- ------- ------
Operating profit 91 181 (49.7) 355 473 (24.9)
Non-trading (loss) (201) (2) (204) 2
profit
Net finance costs 16 31 56 101
-------- ------- -------- -------
Net paid 25 39 83 128
Capitalised (9) (8) (27) (27)
-------- ------- -------- -------
-------- ------- -------- -------
Profit / (loss) (126) 148 95 374
before tax
Taxation (2) 10 41 46
- current
- deferred (58) 39 (37) 86
-------- ------- ------- -------- ------- ------
Profit / (loss) after (66) 99 91 242 (62.4)
tax
Income attributable - 1 - 8
to minority interests
-------- ------- ------- -------- ------- ------
Net profit / (loss) (66) 98 91 234 (61.1)
-------- ------- ------- -------- ------- ------
EBITDA 175 278 (37.1) 622 767 (18.9)
-------- ------- ------- -------- ------- ------
Basic earnings / (27) 41 39 99
(loss) per share (US
cents)
Basic earnings 24 39 90 97
before exceptional
items (Headline
earnings) per share
(US cents)
Weighted average 230.7 239.1 233.8 236.2
number of shares in
issue (millions)
Diluted earnings / (27) 40 39 97
(loss) per share (US
cents)
Diluted earnings 24 38 89 96
before exceptional
items (Headline
earnings) per share
(US cents)
Weighted average 230.7 247.9 236.1 244.7
number of shares on
fully diluted basis
(millions)
Calculation of Earnings before exceptional items (Headline) net of tax
Net profit / (loss) (66) 98 91 234
Profit/loss on (1) 1 - (1)
disposal of business
and fixed assets
Mill closure costs 120 - 120 -
Accelerated cost of - - - 11
early buy back of
loan notes
Increase / decrease 2 (5) (1) (14)
in other provisions
------- ------- ------- ------- ------- -----
Earnings before 55 94 210 230
exceptional items
(Headline)
------- ------ ------- ------ ------ ----
Group balance sheet
Unaudited Audited
June 2001 September
2000
US$ million US$ million
Assets
Non-current assets 3,349 3,600
------------- ------------
Property, plant and equipment 2,844 3,095
Plantations 355 372
Deferred taxation 33 37
Other non-current assets 117 96
------------- ------------
Current assets 1,078 1,168
------------- ------------
Cash and cash equivalents 219 294
Trade and other receivables 269 319
Inventories 590 555
------------- ------------
Total assets 4,427 4,768
------------- ------------
Equity and Liabilities
Capital Reserves
Ordinary shareholders' interest 1,475 1,618
Minority interest 2 53
Non-current liabilities 1,927 1,996
------------- ------------
Long-term borrowings 1,245 1,278
Deferred taxation 436 500
Other long-term liabilities 246 218
------------- ------------
Current liabilities 1,023 1,101
------------- ------------
Interest bearing liabilities 224 162
Bank overdraft - 76
Other current liabilities 799 863
------------- ------------
Total equity and liabilities 4,427 4,768
------------- ------------
Number of shares in issue (millions) 229.9 239.1
Net Debt (US$ million) 1,250 1,270*
Net debt to Total Capitalisation (%) 34.5 32.5*
Net asset value per share (US cents) 817 870
* Restated for reclassification of minority interest to debt in June
2001, as if processed in September 2000.
Group cash flow statement
Unaudited Unaudited
Nine months Nine months
ended June ended June
2001 2000
US$ million US$ million
-------------- -------------
Cash generated by operations 607 784
Movement in working capital (126) (115)
Net finance costs (83) (128)
Taxation paid (53) (16)
Dividends paid (60) (45)
-------------- -------------
Cash retained from operating activities 285 480
Cash effects of investing activities (222) (54)
-------------- -------------
63 426
Cash effects of financing activities (130) (168)
-------------- -------------
Net movement in cash and cash (67) 258
equivalents
-------------- -------------
Group statement of changes in shareholder's equity
Unaudited Unaudited
Nine months ended Nine months ended
June 2001 June 2000
US$ million US$ million
------------------- ---------------
Balance - beginning of year 1,618 1,436
restated
Net Profit 91 234
Foreign currency translation (97) (152)
reserve
Dividends declared - US$ 0.25 (60) (45)
(2000: US$0.19) per share
Goodwill written off to equity - (11)
(Share buybacks and issues to (77) 114
Share Purchase Trust) /
Issuance of ordinary shares
------------------- -------------------
Balance - end of period 1,475 1,576
------------------- -------------------
Notes to the group results
1. Basis of Preparation
The group results have been prepared in conformity with South African
Statements of Generally Accepted Accounting Practice. The same accounting
policies have been followed as in the annual financial statements for
September 2000, except for new or revised accounting standards adopted in the
first quarter of the current year.
The financial results for the quarter have been reviewed by the group's
auditors, Deloitte & Touche.
Their report is available for inspection at the company's registered offices.
Unaudited Unaudited
Quarter ended Nine months ended
June 2001 June June June 2000
2000 2001
US$ US$ US$ US$
million million million million
2. Operating Profit
Included in operating profit are:
Depreciation 71 83 227 250
Fellings 8 9 24 28
Amortisation 5 5 16 16
--------- -------- -------- ---------
84 97 267 294
--------- -------- -------- ---------
3. Capital expenditure
Fixed assets 203 122
Plantations 22 25
-------- ---------
225 147
-------- ---------
Unaudited Audited
Nine Year
months ended
ended
June September
2001 2000
US$ US$
million million
4. Capital Commitments
Contracted but not provided 112 73
Approved but not contracted 122 150
--------- ---------
234 223
--------- ---------
5. Contingent liabilities
Guarantees and suretyships 42 80
Other contingent liabilities 62 46
--------- ---------
Regional Information
Unaudited Unaudited
Quarter ended Nine months ended
June 2001 June June June 2000
2000 2001
US$ US$ % US$ US$ %
million million change million million change
Sales - Metric tons (000's)
Fine Paper -
North America 297 327 (9.2) 951 996 (4.5)
Europe 497 581 (14.5) 1,617 1,729 (6.5)
Southern 72 71 1.4 210 203 3.4
Africa
--------- -------- ------ -------- --------- -------
Total 866 979 (11.5) 2,778 2,928 (5.1)
Forest Products 597 669 (10.8) 1,827 2,030 (10.0)
--------- -------- ------ -------- --------- -------
Total 1,463 1,648 (11.2) 4,605 4,958 (7.1)
--------- -------- ------ -------- --------- -------
Sales
Fine Paper -
North America 340 400 (15.0) 1,119 1,189 (5.9)
Europe 401 489 (18.0) 1,337 1,459 (8.4)
Southern 58 59 (1.7) 170 174 (2.3)
Africa
--------- -------- ------ -------- --------- -------
Total 799 948 (15.7) 2,626 2,822 (6.9)
Forest Products 168 222 (24.3) 560 650 (13.8)
--------- -------- ------ -------- --------- -------
Total 967 1,170 (17.4) 3,186 3,472 (8.2)
--------- -------- ------ -------- --------- -------
Operating
profit
Fine Paper -
North America 9 46 (80.4) 40 127 (68.5)
Europe 26 66 (60.6) 120 185 (35.1)
Southern 8 5 60.0 23 15 53.3
Africa
--------- -------- ------ -------- --------- -------
Total 43 117 (63.2) 183 327 (44.0)
Forest Products 41 65 (36.9) 163 146 11.6
Corporate 7 (1) 9 -
--------- -------- ------ -------- --------- -------
Total 91 181 (49.7) 355 473 (24.9)
--------- -------- ------ -------- --------- -------
Earnings before interest, tax, depreciation and amortisation charges **
Fine Paper -
North America 35 73 (52.1) 124 207 (40.1)
Europe 61 109 (44.0) 231 311 (25.7)
Southern Africa 9 7 28.6 28 21 33.3
--------- -------- ------ -------- --------- -------
Total 105 189 (44.4) 383 539 (28.9)
Forest Products 63 91 (30.8) 230 228 0.9
Corporate 7 (2) 9 -
--------- -------- ------ -------- --------- -------
Total 175 278 (37.1) 622 767 (18.9)
--------- -------- ------ -------- --------- -------
Net operating assets
Fine Paper -
North America 1,081 1,205 (10.3) 1,081 1,205 (10.3)
Europe 1,336 1,484 (10.0) 1,336 1,484 (10.0)
Southern Africa 98 139 (29.5) 98 139 (29.5)
--------- -------- ------ -------- --------- -------
Total 2,515 2,828 (11.1) 2,515 2,828 (11.1)
Forest Products 899 1,019 (11.8) 899 1,019 (11.8)
Corporate (38) (11) 245.5 (38) (11) 245.5
--------- -------- ------ -------- --------- -------
Total 3,376 3,836 (12.0) 3,376 3,836 (12.0)
--------- -------- ------ -------- --------- -------
**before non trading profit (loss)
Summary Rand Convenience Translation
June 20001
Unaudited Unaudited
Quarter ended Nine months ended
June June % June June %
2001 2000 change 2001 2000 change
Sales (ZAR million) 7,739 7,927 (2.4) 24,839 22,207 11.8
Operating profit (ZAR 728 1,226 (40.6) 2,768 3,025 (8.5)
million)
Profit / (loss) after (528) 671 709 1,548 (54.2)
taxation (ZAR million)
EBITDA (ZAR million) 1,401 1,881 (25.5) 4,849 4,903 (1.1)
Operating profit to 9.4 15.5 11.1 13.6
sales (%)
EBITDA to sales (%) 18.1 23.7 19.5 22.1
Operating profit to 10.8 18.8 13.7 16.1
average net assets (%)
Basic EPS before 191 266 (28.4) 700 623 12.4
exceptional items
(Headline) (SA cents)
Basic EPS (SA cents) (216) 278(177.7) 303 634 (52.2)
EBITDA per share (SA 607 787 (22.9) 2,074 2,076 (0.1)
cents)
Net debt (ZAR million) 10,081 10,676* (5.6) 10,081 10,676* (5.6)
Net debt to total 34.5 36.3* 34.5 36.3*
capitalisation (%)
Cash generated by 4,732 5,015 (5.6)
operations (ZAR
million)
Cash retained from 2,222 3,070
operating activities
(ZAR million)
Net movement in cash (522) 1,650
and cash equivalents
(ZAR million)
Exchange rates:
Period end rate: US $1=R 8.0650 6.8350 8.0650 6.8350
Average rate: US $1= R 8.0033 6.7750 7.7963 6.3962
Period end rate:
US $1= EURO 1.1788 1.0628 1.1788 1.0628
Average rate:
US $1 = EURO 1.1508 1.0646 1.1358 1.0080
* Restated for reclassification of minority interest to debt
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