TIDMSAZ
RNS Number : 5470W
Sappi Ld
30 July 2009
Sappi
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
Financial summary
- Net cash generated US$106 million
- Good progress on debt refinancing
- Global economy remains weak
- Production curtailed in all regions to match supply to
demand
- Stronger Rand impacts SA margins unfavourably
- Basic loss per share 12 US cents
- Acquisition synergies on track
+-----------------------------------------+------------+----------+----------+----------+----------+
| | Quarter ended | Nine months ended |
+-----------------------------------------+----------------------------------+---------------------+
| | June 2009 | Mar 2009 | June | June | June |
| | | | 2008 | 2009 | 2008 |
+-----------------------------------------+------------+----------+----------+----------+----------+
| Key figures: (US$ million) | | | | | |
+-----------------------------------------+------------+----------+----------+----------+----------+
| Sales | 1,316 | 1,313 | 1,494 | 3,816 | 4,344 |
+-----------------------------------------+------------+----------+----------+----------+----------+
| Operating (loss) profit | (7) | 6 | (23) | 56 | 289 |
+-----------------------------------------+------------+----------+----------+----------+----------+
| Special items - (gains) losses * | (6) | (23) | 111 | (61) | (12) |
+-----------------------------------------+------------+----------+----------+----------+----------+
| Operating (loss) profit excluding | | | | | |
+-----------------------------------------+------------+----------+----------+----------+----------+
| special items | (13) | (17) | 88 | (5) | 277 |
+-----------------------------------------+------------+----------+----------+----------+----------+
| EBITDA excluding special items ** | 93 | 82 | 182 | 281 | 560 |
+-----------------------------------------+------------+----------+----------+----------+----------+
| Basic (loss) earnings per share | | | | | |
+-----------------------------------------+------------+----------+----------+----------+----------+
| (US cents) *** | (12) | (7) | (17) | (16) | 37 |
+-----------------------------------------+------------+----------+----------+----------+----------+
| Net debt **** | 2,770 | 2,735 | 2,667 | 2,770 | 2,667 |
+-----------------------------------------+------------+----------+----------+----------+----------+
| Key ratios: (%) | | | | | |
+-----------------------------------------+------------+----------+----------+----------+----------+
| Operating (loss) profit to sales | (0.5) | 0.5 | (1.5) | 1.5 | 6.7 |
+-----------------------------------------+------------+----------+----------+----------+----------+
| Operating (loss) profit excluding | | | | | |
+-----------------------------------------+------------+----------+----------+----------+----------+
| special items to sales | (1.0) | (1.3) | 5.9 | (0.1) | 6.4 |
+-----------------------------------------+------------+----------+----------+----------+----------+
| Operating (loss) profit excluding | | | | | |
+-----------------------------------------+------------+----------+----------+----------+----------+
| special items to Capital Employed | | | | | |
+-----------------------------------------+------------+----------+----------+----------+----------+
| (ROCE) ** | (1.1) | (1.6) | 8.1 | (0.2) | 8.8 |
+-----------------------------------------+------------+----------+----------+----------+----------+
| EBITDA excluding special items to sales | 7.1 | 6.2 | 12.2 | 7.4 | 12.9 |
+-----------------------------------------+------------+----------+----------+----------+----------+
| Return on average equity (ROE) **** | (12.7) | (7.5) | (15.1) | (5.4) | 10.3 |
+-----------------------------------------+------------+----------+----------+----------+----------+
| Net debt to total capitalisation **** | 57.5 | 59.4 | 61.5 | 57.5 | 61.5 |
+-----------------------------------------+------------+----------+----------+----------+----------+
* Refer to details on special items.
** Refer to Supplemental Information for the reconciliation of EBITDA
excluding special items to (loss) profit for the period.
*** Comparative figures have been revised in accordance with IAS 33 to
reflect the impact of the rights offer.
**** Refer to Supplemental Information for the definition of the term.
The table above has not been audited or reviewed.
Commentary
Strong cash generation was a feature of our results for the quarter and
benefited from management's actions to reduce working capital and limit capital
expenditure to essential items. Net cash generated of US$106 million for the
quarter included cash of US$55 million from unwinding fixed-to-floating
interest rate swaps.
Global economic conditions remained depressed in the quarter resulting in
continued weak conditions in most of our coated paper markets. There are
indications that the reduction of inventories in the customer supply chain has
run its course, resulting in improved order inflows in many markets towards the
end of the quarter.
Conditions in pulp markets, including the chemical cellulose markets, improved
significantly in terms of both demand and US Dollar prices, late in the
quarter.
Sales volumes for the quarter were slightly up on the prior quarter but 3% down
on the equivalent quarter last year despite the additional capacity from our
European acquisition earlier in the year.
Average prices realised by the group for the quarter were approximately 9% lower
than average prices realised a year ago.
We continued to match our supply to demand and manage our inventory levels by
curtailing production during the quarter. Our finished goods inventories
declined a further 5% in volume terms compared to March 2009.
Prices of our inputs continued to reduce and had a favourable effect on variable
costs during the quarter, in most regions. Our actions to manage raw
material usage had a further favourable effect.
Management of fixed costs remains a focus area in all our businesses. During the
quarter we announced that we were entering discussions with labour
representatives on the permanent reduction of 90 positions at Kirkniemi Mill and
49 positions at Biberist Mill.
The integration of the coated graphics paper business from M-real continued to
progress well. During the quarter M-real ceased production of coated graphic
paper at Hallein and Gohrsmuhle mills, reducing industry capacity by 640,000
tons or approximately 7%. We have proceeded to transfer the order books from
these mills to our own mills which we expect to improve our volumes and margins
going forward. Achievement of the synergies from the acquisition are on track
and we expect to achieve approximately EUR60 million of synergies in the nine
months to September 2009 and to achieve the previously announced level of
synergies of EUR120 million per annum within three years.
During the quarter we initiated alternative fuel tax credit claims in North
America and reported a benefit of US$37 million for the period, which is
treated as a special item and included in operating profit. We expect to receive
the cash proceeds during the fourth financial quarter. Under current US
legislation these credits expire on 31 December 2009. There can be no assurance
that they will not expire sooner. In connection with the refinancings currently
in progress, it has been agreed that the alternative fuel tax credit will be
added to EBITDA excluding special items for covenant purposes.
Operating loss excluding special items was US$13 million for the quarter, an
improvement on the loss of US$17 million in the prior quarter and compares with
a profit of US$88 million a year ago. Our European business returned to
profitability, excluding special items, as a result of the ramp up of synergy
achievement and cost reduction, despite poor operating levels. The North
American business improved its performance and its run rate by the end of the
quarter had returned to operating profitability excluding special items. The
Southern African business was impacted by the strengthening of the Rand relative
to the US Dollar, weak domestic demand and low pulp prices in the quarter,
resulting in an operating loss excluding special items.
Special items for the quarter largely comprise an unfavourable fair value
adjustment on plantations of US$25 million and the favourable alternative fuel
tax credit of US$37 million. The operating loss of US$7 million for the quarter
compares with a profit of US$6 million in the prior quarter and a loss of US$23
million a year ago.
Net finance costs for the quarter were US$70 million, up from US$40 million in
the prior quarter, largely as a result of an unfavourable non-cash change in the
value of financial instruments of US$27 million. This includes an upfront
unfavourable non-cash change in the fair value of the previously mentioned
interest rate swaps which were unwound in the quarter of US$20 million. This
will be more than offset by the positive amortisation of the underlying
borrowings over the next three years in the amount of US$46 million.
The effective tax rate for the quarter was 19%. The group did not benefit from
the tax relief on reported losses as a result of the losses in certain regions
where a deferred tax asset has not been raised.
The basic loss per share for the quarter was 12 US cents compared to a loss of
17 US cents in the equivalent quarter a year ago.
Cash flow and debt
Net cash generated of US$106 million for the quarter largely comprised cash
generated by operations of US$77 million and cash released from working capital
reduction of US$93 million less capital expenditure of US$54 million. Net
finance costs in terms of cash flow were negligible in the quarter as a result
of the US$55 million benefit of unwinding fixed-to-floating interest rate swaps
which offset the cash finance costs.
Net debt was unfavourably impacted by currency movements of US$142 million as a
result of the strengthening of the Euro and Rand relative to the US Dollar, our
reporting currency, and therefore increased by US$35 million to US$2.8 billion
during the quarter, although in local currency debt reduced by the equivalent of
US$106 million.
For the nine months to June, net cash generated (excluding cash invested in the
acquisition from M-real) was US$62 million.
Refinancing update
Sappi has made good progress with its refinancing, which is aimed to extend the
maturity of its debt. We have raised approximately US$800 million of senior
secured notes due in 2014 in two tranches: EUR350 million (US$497 million) and
US$300 million, with coupons of 11.75% and 12% and yields of 13.125% and 13.375%
respectively. The proceeds have been paid into escrow pending the finalisation
of the replacement revolving credit facility (RCF) of approximately EUR200
million and OeKB term loan of EUR400 million as well as documentation of
security for the respective lenders, all of which we expect to have completed by
the end of the September quarter.
We intend to use the net proceeds from this offering to repay debt. We expect to
repay a portion of our short term debt and may elect to repay other debt. We
also intend to repay all or part of the EUR220 million vendor loan notes issued
to M-real at a discount.
US$60 million was also raised in the South African bond market and will be used
to repay short term debt.
The successful completion of our refinancing will take care of our liquidity and
significant debt maturities for at least the next three years; however as a
result of interest rates available in current financial market conditions, our
refinancings will lead to a substantial increase in finance costs.
+----------------------------------------+------------+-----------+-----------+-----------+
| Operating Review for the Quarter | |
+----------------------------------------+------------------------------------------------+
| Sappi Fine Paper | |
+----------------------------------------+------------------------------------------------+
| | Quarter | Quarter | | Quarter |
+----------------------------------------+------------+-----------+-----------+-----------+
| | ended | ended | | ended |
+----------------------------------------+------------+-----------+-----------+-----------+
| | June 2009 | June 2008 | % | March |
| | | | | 2009 |
+----------------------------------------+------------+-----------+-----------+-----------+
| | US$ | US$ | change | US$ |
| | million | million | | million |
+----------------------------------------+------------+-----------+-----------+-----------+
| Sales | 1,098 | 1,224 | (10.3) | 1,112 |
+----------------------------------------+------------+-----------+-----------+-----------+
| Operating profit (loss) | 19 | 36 | (47.2) | (43) |
+----------------------------------------+------------+-----------+-----------+-----------+
| Operating profit (loss) to sales (%) | 1.7 | 2.9 | - | (3.9) |
+----------------------------------------+------------+-----------+-----------+-----------+
| Special items - (gains) losses | (32) | - | - | 8 |
+----------------------------------------+------------+-----------+-----------+-----------+
| Operating (loss) profit excluding | | | | |
+----------------------------------------+------------+-----------+-----------+-----------+
| special items | (13) | 36 | - | (35) |
+----------------------------------------+------------+-----------+-----------+-----------+
| Operating (loss) profit excluding | | | | |
| special | | | | |
+----------------------------------------+------------+-----------+-----------+-----------+
| items to sales (%) | (1.2) | 2.9 | - | (3.1) |
+----------------------------------------+------------+-----------+-----------+-----------+
| EBITDA excluding special items | 74 | 113 | (34.5) | 48 |
+----------------------------------------+------------+-----------+-----------+-----------+
| EBITDA excluding special items | | | | |
+----------------------------------------+------------+-----------+-----------+-----------+
| to sales (%) | 6.7 | 9.2 | - | 4.3 |
+----------------------------------------+------------+-----------+-----------+-----------+
| RONOA pa (%) | (1.4) | 4.4 | - | (4.3) |
+----------------------------------------+------------+-----------+-----------+-----------+
There was a US$22 million improvement in the operating result excluding special
items of the fine paper business compared to the prior quarter as a result of
the favourable turnaround in the European business and improvement in the result
of the North American business. However, the much lower operating rates in
Europe and North America resulting from weak global market conditions resulted
in a substantial decline in operating profit excluding special items, compared
to a year earlier.
+------------------------------+----------+-----------+--------+--------+------------+
| Europe | | | | | |
+------------------------------+----------+-----------+--------+--------+------------+
| | Quarter | Quarter | | | Quarter |
+------------------------------+----------+-----------+--------+--------+------------+
| | ended | ended | % | % | ended |
+------------------------------+----------+-----------+--------+--------+------------+
| | June | June 2008 | change | change | March 2009 |
| | 2009 | | | | |
+------------------------------+----------+-----------+--------+--------+------------+
| | US$ | US$ | (US$) | (Euro) | US$ |
| | million | million | | | million |
+------------------------------+----------+-----------+--------+--------+------------+
| Sales | 729 | 705 | 3.4 | 19.3 | 737 |
+------------------------------+----------+-----------+--------+--------+------------+
| Operating profit (loss) | 0 | 10 | - | - | (21) |
+------------------------------+----------+-----------+--------+--------+------------+
| Operating profit (loss) to | 0 | 1.4 | - | - | (2.8) |
| sales (%) | | | | | |
+------------------------------+----------+-----------+--------+--------+------------+
| Special items - losses | 4 | 0 | - | - | 0 |
+------------------------------+----------+-----------+--------+--------+------------+
| Operating profit (loss) | | | | | |
| excluding | | | | | |
+------------------------------+----------+-----------+--------+--------+------------+
| special items | 4 | 10 | (60.0) | (52.8) | (21) |
+------------------------------+----------+-----------+--------+--------+------------+
| Operating profit (loss) | | | | | |
| excluding | | | | | |
+------------------------------+----------+-----------+--------+--------+------------+
| special items to sales (%) | 0.5 | 1.4 | - | - | (2.8) |
+------------------------------+----------+-----------+--------+--------+------------+
| EBITDA excluding special | 62 | 55 | 12.7 | 28.8 | 34 |
| items | | | | | |
+------------------------------+----------+-----------+--------+--------+------------+
| EBITDA excluding special | | | | | |
| items | | | | | |
+------------------------------+----------+-----------+--------+--------+------------+
| to sales (%) | 8.5 | 7.8 | - | - | 4.6 |
+------------------------------+----------+-----------+--------+--------+------------+
| RONOA pa (%) | 0.7 | 1.9 | - | - | (4.2) |
+------------------------------+----------+-----------+--------+--------+------------+
The European business returned to operating profit excluding special items in
the quarter as a result of synergy achievement, lower input prices and fixed
cost reductions. Operating rates were approximately 75% as we continued to
curtail production to match demand.
Sales volumes were similar to the prior quarter.
Average prices achieved within Europe were stable in the quarter. There were
some improvements in export prices. The average prices achieved for the business
in Euro terms were slightly lower compared to the prior quarter as a result of
an increased proportion of exports and reels in the overall sales mix for the
period.
The achievement of synergies progressed well and in the 6 months we have owned
the business we have achieved approximately
EUR38 million of synergies. We
expect to achieve approximately EUR60 million in the nine months to September
2009 and the previously announced level of EUR120 million per annum within 3
years. The rate of synergy realisation will accelerate following the cessation
of coated graphic paper production at M-real's Hallein and Gohrsmühle mills and
the transfer of their order books to our mills.
+---------------------------------+--------------------+-----------+--------+-----------+
| North America | | | | |
+---------------------------------+--------------------+-----------+--------+-----------+
| | Quarter | Quarter | | Quarter |
+---------------------------------+--------------------+-----------+--------+-----------+
| | ended | ended | | ended |
+---------------------------------+--------------------+-----------+--------+-----------+
| | June 2009 | June 2008 | % | March |
| | | | | 2009 |
+---------------------------------+--------------------+-----------+--------+-----------+
| | US$ million | US$ | change | US$ |
| | | million | | million |
+---------------------------------+--------------------+-----------+--------+-----------+
| Sales | 291 | 424 | (31.4) | 301 |
+---------------------------------+--------------------+-----------+--------+-----------+
| Operating profit (loss) | 24 | 25 | (4.0) | (24) |
+---------------------------------+--------------------+-----------+--------+-----------+
| Operating profit (loss) to | 8.2 | 5.9 | - | (8.0) |
| sales (%) | | | | |
+---------------------------------+--------------------+-----------+--------+-----------+
| Special items - (gains) losses | (37) | - | - | 8 |
+---------------------------------+--------------------+-----------+--------+-----------+
| Operating (loss) profit | | | | |
| excluding | | | | |
+---------------------------------+--------------------+-----------+--------+-----------+
| special items | (13) | 25 | - | (16) |
+---------------------------------+--------------------+-----------+--------+-----------+
| Operating (loss) profit | | | | |
| excluding | | | | |
+---------------------------------+--------------------+-----------+--------+-----------+
| special items to sales (%) | (4.5) | 5.9 | - | (5.3) |
+---------------------------------+--------------------+-----------+--------+-----------+
| EBITDA excluding special items | 13 | 53 | (75.5) | 8 |
+---------------------------------+--------------------+-----------+--------+-----------+
| EBITDA excluding special | | | | |
+---------------------------------+--------------------+-----------+--------+-----------+
| items to sales (%) | 4.5 | 12.5 | - | 2.7 |
+---------------------------------+--------------------+-----------+--------+-----------+
| RONOA pa (%) | (4.9) | 9.2 | - | (5.9) |
+---------------------------------+--------------------+-----------+--------+-----------+
Sales volumes improved slightly in the quarter compared to the prior quarter but
were 23% lower than a year ago. Average prices realised declined in the quarter
compared to the prior quarter and were 11% down compared to a year ago. Prices
achieved for pulp started improving during the quarter after sharp declines in
the previous two quarters.
Action taken by management to reduce costs including suspending operations at
Muskegon Mill, reducing the sales and administrative overheads and reducing unit
consumption of raw materials, has helped offset poor market conditions and
improve the result of the business to an operating profit excluding special
items in the month of June.
The alternative fuel tax credit of US$37 million for the quarter is included in
operating profit and treated as a special item.
+------------------------------+-----------+-----------+--------+--------+------------+
| Fine Paper South Africa | | | | | |
+------------------------------+-----------+-----------+--------+--------+------------+
| | Quarter | Quarter | | | Quarter |
+------------------------------+-----------+-----------+--------+--------+------------+
| | ended | ended | % | % | ended |
+------------------------------+-----------+-----------+--------+--------+------------+
| | June 2009 | June 2008 | change | change | March 2009 |
+------------------------------+-----------+-----------+--------+--------+------------+
| | US$ | US$ | (US$) | (Rand) | US$ |
| | million | million | | | million |
+------------------------------+-----------+-----------+--------+--------+------------+
| Sales | 78 | 95 | (17.9) | (9.8) | 74 |
+------------------------------+-----------+-----------+--------+--------+------------+
| Operating (loss) profit | (5) | 1 | - | - | 2 |
+------------------------------+-----------+-----------+--------+--------+------------+
| Operating (loss) profit to | (6.4) | 1.1 | - | - | 2.7 |
| sales (%) | | | | | |
+------------------------------+-----------+-----------+--------+--------+------------+
| Special items - losses | 1 | - | - | - | - |
+------------------------------+-----------+-----------+--------+--------+------------+
| Operating (loss) profit | | | | | |
| excluding | | | | | |
+------------------------------+-----------+-----------+--------+--------+------------+
| special items | (4) | 1 | - | - | 2 |
+------------------------------+-----------+-----------+--------+--------+------------+
| Operating (loss) profit | | | | | |
| excluding | | | | | |
+------------------------------+-----------+-----------+--------+--------+------------+
| special items to sales (%) | (5.1) | 1.1 | - | - | 2.7 |
+------------------------------+-----------+-----------+--------+--------+------------+
| EBITDA excluding special | (1) | 5 | - | - | 6 |
| items | | | | | |
+------------------------------+-----------+-----------+--------+--------+------------+
| EBITDA excluding special | | | | | |
+------------------------------+-----------+-----------+--------+--------+------------+
| items to sales (%) | (1.3) | 5.3 | - | - | 8.1 |
+------------------------------+-----------+-----------+--------+--------+------------+
| RONOA pa (%) | (8.3) | 3.2 | - | - | 4.6 |
+------------------------------+-----------+-----------+--------+--------+------------+
Demand levels were weak in the quarter and prices were under downward pressure
as a result of the strength of the Rand compared to the US Dollar.
The business recorded an operating loss for the quarter despite reducing
operating costs.
+------------------------------------+-----------+----------+--------+--------+-----------+
| Forest Products | | | | | |
+------------------------------------+-----------+----------+--------+--------+-----------+
| | Quarter | Quarter | | | Quarter |
+------------------------------------+-----------+----------+--------+--------+-----------+
| | ended | ended | % | % | ended |
+------------------------------------+-----------+----------+--------+--------+-----------+
| | June 2009 | June | change | change | March |
| | | 2008 | | | 2009 |
+------------------------------------+-----------+----------+--------+--------+-----------+
| | US$ | US$ | (US$) | (Rand) | US$ |
| | million | million | | | million |
+------------------------------------+-----------+----------+--------+--------+-----------+
| Sales | 218 | 270 | (19.3) | (11.2) | 201 |
+------------------------------------+-----------+----------+--------+--------+-----------+
| Operating (loss) profit | (26) | (60) | - | - | 48 |
+------------------------------------+-----------+----------+--------+--------+-----------+
| Operating (loss) profit to sales | (11.9) | (22.2) | - | - | 23.9 |
| (%) | | | | | |
+------------------------------------+-----------+----------+--------+--------+-----------+
| Special items - losses (gains) | 19 | 111 | - | - | (31) |
+------------------------------------+-----------+----------+--------+--------+-----------+
| Operating profit (loss) excluding | | | | | |
+------------------------------------+-----------+----------+--------+--------+-----------+
| special items | (7) | 51 | - | - | 17 |
+------------------------------------+-----------+----------+--------+--------+-----------+
| Operating (loss) profit excluding | | | | | |
+------------------------------------+-----------+----------+--------+--------+-----------+
| special items to sales (%) | (3.2) | 18.9 | - | - | 8.5 |
+------------------------------------+-----------+----------+--------+--------+-----------+
| EBITDA excluding special items | 12 | 68 | (84.4) | (80.7) | 32 |
+------------------------------------+-----------+----------+--------+--------+-----------+
| EBITDA excluding special | | | | | |
+------------------------------------+-----------+----------+--------+--------+-----------+
| items to sales (%) | 5.5 | 25.2 | - | - | 15.9 |
+------------------------------------+-----------+----------+--------+--------+-----------+
| RONOA pa (%) | (1.7) | 12.0 | - | - | 4.6 |
+------------------------------------+-----------+----------+--------+--------+-----------+
The Forest Products business was impacted by weak domestic volumes and downward
pressure on local prices in the quarter, which was partly offset by lower costs.
Demand for chemical cellulose strengthened in the quarter, allowing us to
recommence the ramp up of the Saiccor expanded capacity. Utilisation of the
additional capacity remained low in the quarter resulting in unabsorbed fixed
costs and depreciation related to the expansion, which will be eliminated as the
mill approaches full capacity by the end of September 2009. Prices for chemical
cellulose started to recover during the quarter, in line with NBSK pulp which
increased from a low of US$577 per ton in March 2009 to US$644 per ton in July,
still US$260 per ton below the peak in 2008.
The sharp strengthening of the Rand relative to the US Dollar had a severe
direct impact on export revenue received in Rands and on domestic prices as a
result of import competition.
The unfavourable special items of US$19 million for the region in the quarter
relate to an unfavourable plantation fair value adjustment partly offset by an
insurance payout from our captive insurance company to Forest Products. The
insurance payment has no net effect on group special items.
Outlook
Although global economic conditions remain weak we have seen improvement in pulp
markets and some of our coated graphic paper export markets. In addition,
inventory reduction in the coated graphic paper supply chain has largely run its
course and we have started seeing order levels closer to end use demand levels.
We also expect demand, particularly for reels, to strengthen during the next
quarter which is historically the seasonally strongest quarter, and for our
operating rates to improve in Europe and North America.
The chemical cellulose market improved markedly during our third financial
quarter in terms of both demand and pricing. Sappi Saiccor Mill is responding by
ramping up its production following the 30% capacity expansion commissioned last
September, and expects to achieve close to full capacity by our financial year
end and improve sales volumes during the next quarter as production increases.
Other factors which are expected to improve results are the achievement of
further alternative fuel tax credits in North America of approximately US$40
million which will be reported as a special item, subject to continued
availability under US law, accelerated synergy achievement in respect of the
European acquisition integration, the benefits of fixed and variable cost
reduction action and potential for some further input price reduction
realisation.
Against this background, we expect to return to operating profitability
excluding special items during the next quarter. Cash generation is expected to
be positive for the quarter.
We will continue to focus on cash generation and debt reduction. We expect
capital expenditure for the full year to be less than US$200 million and to
continue to carefully manage capex at that level in order to prioritise debt
reduction.
The successful completion of our refinancing will take care of our liquidity and
significant debt maturities for at least the next three years. With our
well structured business and decisive management action, we are strongly placed
to ride out the current economic downturn and take full advantage of our leading
market positions and efficient asset base when conditions improve.
On behalf of the board
+--------------------+----------------------+-------------+
| R J Boettger | M R Thompson | |
+--------------------+----------------------+-------------+
| Director | Director | 30 July |
| | | 2009 |
+--------------------+----------------------+-------------+
sappi limited
(Registration number 1936/008963/06)
Issuer Code: SAVVI
JSE Code: SAP
ISIN: ZAE000006284
Other information (this information has not been reviewed)
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.
Special items, excluding interest and tax effects, for the relevant periods are:
+---------------------------------------+--------------+-----------+------------+-----------+
| | Quarter | Quarter | Nine | Nine |
| | | | months | months |
+---------------------------------------+--------------+-----------+------------+-----------+
| | ended | ended | ended | ended |
+---------------------------------------+--------------+-----------+------------+-----------+
| | June 2009 | June 2008 | June 2009 | June 2008 |
+---------------------------------------+--------------+-----------+------------+-----------+
| | US$ million | US$ | US$ | US$ |
| | | million | million | million |
+---------------------------------------+--------------+-----------+------------+-----------+
| Plantation price fair value | 25 | 105 | (44) | (12) |
| adjustment | | | | |
+---------------------------------------+--------------+-----------+------------+-----------+
| Restructuring provisions raised | 2 | - | 10 | (3) |
| (released) | | | | |
+---------------------------------------+--------------+-----------+------------+-----------+
| Profit on disposal of property, | | | | |
+---------------------------------------+--------------+-----------+------------+-----------+
| plant and equipment | - | (1) | (1) | (5) |
+---------------------------------------+--------------+-----------+------------+-----------+
| Asset impairments | 1 | 1 | 6 | 3 |
+---------------------------------------+--------------+-----------+------------+-----------+
| Fuel tax credit | (37) | - | (37) | - |
+---------------------------------------+--------------+-----------+------------+-----------+
| Integration costs | 3 | - | 3 | - |
+---------------------------------------+--------------+-----------+------------+-----------+
| Fire, flood, storm and related events | - | 6 | 2 | 5 |
+---------------------------------------+--------------+-----------+------------+-----------+
| | (6) | 111 | (61) | (12) |
+---------------------------------------+--------------+-----------+------------+-----------+
| key regional figures | | | | |
+---------------------------------------+--------------+-----------+------------+-----------+
| | Quarter | Quarter | Nine | Nine |
| | | | months | months |
+---------------------------------------+--------------+-----------+------------+-----------+
| | ended | ended | ended | ended |
+---------------------------------------+--------------+-----------+------------+-----------+
| | June 2009 | June 2008 | June 2009 | June 2008 |
+---------------------------------------+--------------+-----------+------------+-----------+
| | Metric tons | Metric | Metric | Metric |
| | | tons | tons | tons |
+---------------------------------------+--------------+-----------+------------+-----------+
| | (000's) | (000's) | (000's) | (000's) |
+---------------------------------------+--------------+-----------+------------+-----------+
| Sales volume | | | | |
+---------------------------------------+--------------+-----------+------------+-----------+
| Fine Paper - North America | 300 | 389 | 919 | 1,164 |
+---------------------------------------+--------------+-----------+------------+-----------+
| Europe | 746 | 637 | 2,061 | 1,918 |
+---------------------------------------+--------------+-----------+------------+-----------+
| Southern Africa | 70 | 87 | 222 | 246 |
+---------------------------------------+--------------+-----------+------------+-----------+
| Total | 1,116 | 1,113 | 3,202 | 3,328 |
+---------------------------------------+--------------+-----------+------------+-----------+
| Forest Products - Pulp and paper | 355 | 347 | 968 | 1,039 |
| operations | | | | |
+---------------------------------------+--------------+-----------+------------+-----------+
| Forestry operations | 218 | 279 | 649 | 726 |
+---------------------------------------+--------------+-----------+------------+-----------+
| Total | 1,689 | 1,739 | 4,819 | 5,093 |
+---------------------------------------+--------------+-----------+------------+-----------+
| | US$ million | US$ | US$ | US$ |
| | | million | million | million |
+---------------------------------------+--------------+-----------+------------+-----------+
| Sales | | | | |
+---------------------------------------+--------------+-----------+------------+-----------+
| Fine Paper - North America | 291 | 424 | 955 | 1,231 |
+---------------------------------------+--------------+-----------+------------+-----------+
| Europe | 729 | 705 | 2,027 | 2,040 |
+---------------------------------------+--------------+-----------+------------+-----------+
| Southern Africa | 78 | 95 | 226 | 271 |
+---------------------------------------+--------------+-----------+------------+-----------+
| Total | 1,098 | 1,224 | 3,208 | 3,542 |
+---------------------------------------+--------------+-----------+------------+-----------+
| Forest Products - Pulp and paper | 204 | 249 | 567 | 747 |
| operations | | | | |
+---------------------------------------+--------------+-----------+------------+-----------+
| Forestry operations | 14 | 21 | 41 | 55 |
+---------------------------------------+--------------+-----------+------------+-----------+
| Total | 1,316 | 1,494 | 3,816 | 4,344 |
+---------------------------------------+--------------+-----------+------------+-----------+
+---------------------------------------+-----------+----------+---------+---------+
| Other information (this information | | | | |
| has not been reviewed) | | | | |
+---------------------------------------+-----------+----------+---------+---------+
| | US$ | US$ | US$ | US$ |
| | million | million | million | million |
+---------------------------------------+-----------+----------+---------+---------+
| Operating (loss) profit | | | | |
+---------------------------------------+-----------+----------+---------+---------+
| Fine Paper - North America | 24 | 25 | (7) | 62 |
+---------------------------------------+-----------+----------+---------+---------+
| Europe | - | 10 | (8) | 47 |
+---------------------------------------+-----------+----------+---------+---------+
| Southern Africa | (5) | 1 | (1) | 5 |
+---------------------------------------+-----------+----------+---------+---------+
| Total | 19 | 36 | (16) | 114 |
+---------------------------------------+-----------+----------+---------+---------+
| Forest Products | (26) | (60) | 71 | 167 |
+---------------------------------------+-----------+----------+---------+---------+
| Corporate and other | - | 1 | 1 | 8 |
+---------------------------------------+-----------+----------+---------+---------+
| Total | (7) | (23) | 56 | 289 |
+---------------------------------------+-----------+----------+---------+---------+
| Special items - (gains) losses | | | | |
+---------------------------------------+-----------+----------+---------+---------+
| Fine Paper - North America | (37) | - | (29) | 2 |
+---------------------------------------+-----------+----------+---------+---------+
| Europe | 4 | - | 4 | (4) |
+---------------------------------------+-----------+----------+---------+---------+
| Southern Africa | 1 | - | 1 | - |
+---------------------------------------+-----------+----------+---------+---------+
| Total | (32) | - | (24) | (2) |
+---------------------------------------+-----------+----------+---------+---------+
| Forest Products | 19 | 111 | (44) | (10) |
+---------------------------------------+-----------+----------+---------+---------+
| Corporate and other | 7 | - | 7 | - |
+---------------------------------------+-----------+----------+---------+---------+
| Total | (6) | 111 | (61) | (12) |
+---------------------------------------+-----------+----------+---------+---------+
| Operating (loss) profit excluding | | | | |
+---------------------------------------+-----------+----------+---------+---------+
| special items | | | | |
+---------------------------------------+-----------+----------+---------+---------+
| Fine Paper - North America | (13) | 25 | (36) | 64 |
+---------------------------------------+-----------+----------+---------+---------+
| Europe | 4 | 10 | (4) | 43 |
+---------------------------------------+-----------+----------+---------+---------+
| Southern Africa | (4) | 1 | - | 5 |
+---------------------------------------+-----------+----------+---------+---------+
| Total | (13) | 36 | (40) | 112 |
+---------------------------------------+-----------+----------+---------+---------+
| Forest Products | (7) | 51 | 27 | 157 |
+---------------------------------------+-----------+----------+---------+---------+
| Corporate and other | 7 | 1 | 8 | 8 |
+---------------------------------------+-----------+----------+---------+---------+
| Total | (13) | 88 | (5) | 277 |
+---------------------------------------+-----------+----------+---------+---------+
| EBITDA excluding special items | | | | |
+---------------------------------------+-----------+----------+---------+---------+
| Fine Paper - North America | 13 | 53 | 40 | 144 |
+---------------------------------------+-----------+----------+---------+---------+
| Europe | 62 | 55 | 146 | 178 |
+---------------------------------------+-----------+----------+---------+---------+
| Southern Africa | (1) | 5 | 10 | 17 |
+---------------------------------------+-----------+----------+---------+---------+
| Total | 74 | 113 | 196 | 339 |
+---------------------------------------+-----------+----------+---------+---------+
| Forest Products | 12 | 68 | 76 | 212 |
+---------------------------------------+-----------+----------+---------+---------+
| Corporate and other | 7 | 1 | 9 | 9 |
+---------------------------------------+-----------+----------+---------+---------+
| Total | 93 | 182 | 281 | 560 |
+---------------------------------------+-----------+----------+---------+---------+
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. 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 impact of the global economic downturn, the risk that the
European Acquisition will not be integrated successfully or such integration may
be more difficult, time-consuming or costly than expected, expected revenue
synergies and cost savings from the acquisition may not be fully realized or
realized within the expected time frame, revenues following the acquisition may
be lower than expected, any anticipated benefits from the consolidation of the
European paper business may not be achieved, 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), adverse changes in the
markets for the group's products, consequences of substantial leverage,
including as a result of adverse changes in credit markets that affect our
ability to raise capital when needed, changing regulatory requirements, possible
early termination of alternative fuel tax credits, unanticipated production
disruptions (including as a result of planned or unexpected power outages),
economic and political conditions in international markets, the impact of
investments, acquisitions and dispositions (including related financing), any
delays, unexpected costs or other problems experienced with integrating
acquisitions and achieving expected savings and synergies 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.
We have included in this announcement an estimate of total synergies from the
acquisition of M-real's coated graphic paper business and the integration of the
acquired business into our existing business. The estimate of synergies that we
expect to achieve following the completion of the acquisition is based on
assumptions which in the view of our management were prepared on a reasonable
basis, reflect the best currently available estimates and judgments, and
present, to the best of our management's knowledge and belief, the expected
course of action and the expected future financial impact on our performance due
to the acquisition. However, the assumptions about these expected synergies are
inherently uncertain and, though considered reasonable by management as of the
date of preparation, are subject to a wide variety of significant business,
economic and competitive risks and uncertainties that could cause actual results
to differ materially from those contained in this estimate of synergies. There
can be no assurance that we will be able to successfully implement the strategic
or operational initiatives that are intended, or realise the estimated
synergies. This synergy estimate is not a profit forecast or a profit estimate
and should not be treated as such or relied on by shareholders or prospective
investors to calculate the likely level of profits or losses for Sappi for
fiscal 2009 or beyond.
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Group income statement | | | | | | | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| | | Reviewed | Reviewed | | Reviewed | Reviewed | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| | | Quarter | Quarter | | Nine | Nine | |
| | | | | | months | months | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| | | ended | ended | | ended | ended | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| | | June | June | % | June 2009 | June 2008 | % |
| | | 2009 | 2008 | | | | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| | Notes | US$ | US$ | change | US$ | US$ | change |
| | | million | million | | million | million | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Sales | | 1,316 | 1,494 | (12) | 3,816 | 4,344 | (12) |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Cost of sales | | 1,272 | 1,428 | | 3,510 | 3,782 | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Gross profit | | 44 | 66 | (33) | 306 | 562 | (46) |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Selling, general and | | | | | | | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| administrative expenses | | 90 | 95 | | 273 | 294 | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Other operating income | | (31) | - | | (17) | (6) | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Share of profit from | | | | | | | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| associates and joint | | (8) | (6) | | (6) | (15) | |
| ventures | | | | | | | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Operating (loss) profit | 3 | (7) | (23) | - | 56 | 289 | (81) |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Net finance costs | | 70 | 45 | | 131 | 100 | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Net interest | | 44 | 43 | | 116 | 106 | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Finance cost capitalised | | - | (1) | | - | (16) | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Net foreign exchange | | | | | | | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| (gains) losses | | (1) | 2 | | (12) | (3) | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Net fair value loss on | | | | | | | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| financial instruments | | 27 | 1 | | 27 | 13 | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| (Loss) profit before | | (77) | (68) | - | (75) | 189 | - |
| taxation | | | | | | | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Taxation | | (15) | (5) | | (1) | 55 | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Current | | 3 | 7 | | 7 | 11 | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Deferred | | (18) | (12) | | (8) | 44 | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| (Loss) profit for the | | (62) | (63) | - | (74) | 134 | - |
| period | | | | | | | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Basic (loss) earnings | | | | | | | |
| per | | | | | | | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| share (US cents) | 1 | (12) | (17) | | (16) | 37 | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Weighted average number | | | | | | | |
| of | | | | | | | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| shares in issue | 1 | 515.8 | 362.2 | | 471.5 | 362.0 | |
| (millions) | | | | | | | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Diluted basic (loss) | | | | | | | |
| earnings | | | | | | | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| per share (US cents) | 1 | (12) | (17) | | (16) | 37 | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| Weighted average number | | | | | | | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| of shares on fully | | | | | | | |
| diluted | | | | | | | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
| basis (millions) | 1 | 517.9 | 366.0 | | 473.7 | 365.5 | |
+--------------------------+-------+----------+----------+--------+-----------+-----------+--------+
+-----------------------------------------------------+-----------------+--------------+
| Group balance sheet | | |
+-----------------------------------------------------+-----------------+--------------+
| | Reviewed | Reviewed |
+-----------------------------------------------------+-----------------+--------------+
| | June 2009 | Sept 2008 |
+-----------------------------------------------------+-----------------+--------------+
| | US$ million | US$ million |
+-----------------------------------------------------+-----------------+--------------+
| ASSETS | | |
+-----------------------------------------------------+-----------------+--------------+
| Non-current assets | 5,004 | 4,408 |
+-----------------------------------------------------+-----------------+--------------+
| Property, plant and equipment | 3,927 | 3,361 |
+-----------------------------------------------------+-----------------+--------------+
| Plantations | 702 | 631 |
+-----------------------------------------------------+-----------------+--------------+
| Deferred taxation | 38 | 41 |
+-----------------------------------------------------+-----------------+--------------+
| Other non-current assets | 337 | 375 |
+-----------------------------------------------------+-----------------+--------------+
| Current assets | 2,482 | 1,701 |
+-----------------------------------------------------+-----------------+--------------+
| Inventories | 831 | 725 |
+-----------------------------------------------------+-----------------+--------------+
| Trade and other receivables | 855 | 702 |
+-----------------------------------------------------+-----------------+--------------+
| Cash and cash equivalents | 796 | 274 |
+-----------------------------------------------------+-----------------+--------------+
| Total assets | 7,486 | 6,109 |
+-----------------------------------------------------+-----------------+--------------+
| EQUITY AND LIABILITIES | | |
+-----------------------------------------------------+-----------------+--------------+
| Shareholders' equity | | |
+-----------------------------------------------------+-----------------+--------------+
| Ordinary shareholders' interest | 2,049 | 1,605 |
+-----------------------------------------------------+-----------------+--------------+
| Non-current liabilities | 3,050 | 2,578 |
+-----------------------------------------------------+-----------------+--------------+
| Interest-bearing borrowings | 2,254 | 1,832 |
+-----------------------------------------------------+-----------------+--------------+
| Deferred taxation | 392 | 399 |
+-----------------------------------------------------+-----------------+--------------+
| Other non-current liabilities | 404 | 347 |
+-----------------------------------------------------+-----------------+--------------+
| Current liabilities | 2,387 | 1,926 |
+-----------------------------------------------------+-----------------+--------------+
| Interest-bearing borrowings | 1,293 | 821 |
+-----------------------------------------------------+-----------------+--------------+
| Bank overdraft | 19 | 26 |
+-----------------------------------------------------+-----------------+--------------+
| Other current liabilities | 1,017 | 1,025 |
+-----------------------------------------------------+-----------------+--------------+
| Taxation payable | 58 | 54 |
+-----------------------------------------------------+-----------------+--------------+
| Total equity and liabilities | 7,486 | 6,109 |
+-----------------------------------------------------+-----------------+--------------+
| Number of shares in issue at balance sheet date | 515.8 | 229.2 |
| (millions) | | |
+-----------------------------------------------------+-----------------+--------------+
+------------------------------------------------+-----------+-----------+------------+------------+
| Group cash flow statement | | | | |
+------------------------------------------------+-----------+-----------+------------+------------+
| | Reviewed | Reviewed | Reviewed | Reviewed |
+------------------------------------------------+-----------+-----------+------------+------------+
| | Quarter | Quarter | Nine | Nine |
| | | | months | months |
+------------------------------------------------+-----------+-----------+------------+------------+
| | ended | ended | ended | ended |
+------------------------------------------------+-----------+-----------+------------+------------+
| | June 2009 | June 2008 | June 2009 | June 2008 |
+------------------------------------------------+-----------+-----------+------------+------------+
| | US$ | US$ | US$ | US$ |
| | million | million | million | million |
+------------------------------------------------+-----------+-----------+------------+------------+
| (Loss) profit for the period | (62) | (63) | (74) | 134 |
+------------------------------------------------+-----------+-----------+------------+------------+
| Adjustment for: | | | | |
+------------------------------------------------+-----------+-----------+------------+------------+
| Depreciation, fellings and amortisation | 125 | 115 | 336 | 344 |
+------------------------------------------------+-----------+-----------+------------+------------+
| Taxation | (15) | (5) | (1) | 55 |
+------------------------------------------------+-----------+-----------+------------+------------+
| Net finance costs | 70 | 45 | 131 | 100 |
+------------------------------------------------+-----------+-----------+------------+------------+
| Post employment benefits | (13) | (12) | (32) | (65) |
+------------------------------------------------+-----------+-----------+------------+------------+
| Other non-cash items | (28) | 76 | (89) | (81) |
+------------------------------------------------+-----------+-----------+------------+------------+
| Cash generated from operations | 77 | 156 | 271 | 487 |
+------------------------------------------------+-----------+-----------+------------+------------+
| Movement in working capital | 93 | 29 | 25 | (134) |
+------------------------------------------------+-----------+-----------+------------+------------+
| Net finance costs | - | (83) | (54) | (150) |
+------------------------------------------------+-----------+-----------+------------+------------+
| Taxation paid | (3) | (40) | (5) | (56) |
+------------------------------------------------+-----------+-----------+------------+------------+
| Dividends paid * | - | - | (37) | (73) |
+------------------------------------------------+-----------+-----------+------------+------------+
| Cash retained from operating activities | 167 | 62 | 200 | 74 |
+------------------------------------------------+-----------+-----------+------------+------------+
| Cash utilised in investing activities | (61) | (98) | (726) | (351) |
+------------------------------------------------+-----------+-----------+------------+------------+
| Capital expenditure and other | | | | |
+------------------------------------------------+-----------+-----------+------------+------------+
| non-current assets | (59) | (98) | (138) | (351) |
+------------------------------------------------+-----------+-----------+------------+------------+
| Acquisition of M-real | (2) | - | (588) | - |
+------------------------------------------------+-----------+-----------+------------+------------+
| | 106 | (36) | (526) | (277) |
+------------------------------------------------+-----------+-----------+------------+------------+
| Cash effects of financing activities | (57) | 56 | 979 | 161 |
+------------------------------------------------+-----------+-----------+------------+------------+
| Net movement in cash and | | | | |
+------------------------------------------------+-----------+-----------+------------+------------+
| cash equivalents | 49 | 20 | 453 | (116) |
+------------------------------------------------+-----------+-----------+------------+------------+
| * Dividend no 85: 16 US cents per share paid | | | | |
| on 28 November 2008 | | | | |
+------------------------------------------------+-----------+-----------+------------+------------+
Group statement of recognised income and expense
+--------------------------------+------------+-----------+------------+-----------+
| | Reviewed | Reviewed | Reviewed | Reviewed |
+--------------------------------+------------+-----------+------------+-----------+
| | Quarter | Quarter | Nine | Nine |
| | | | months | months |
+--------------------------------+------------+-----------+------------+-----------+
| | ended | ended | ended | ended |
+--------------------------------+------------+-----------+------------+-----------+
| | June 2009 | June 2008 | June 2009 | June 2008 |
+--------------------------------+------------+-----------+------------+-----------+
| | US$ | US$ | US$ | US$ |
| | million | million | million | million |
+--------------------------------+------------+-----------+------------+-----------+
| Exchange differences on | | | | |
| translation of | | | | |
+--------------------------------+------------+-----------+------------+-----------+
| foreign operations | 243 | 50 | (44) | (222) |
+--------------------------------+------------+-----------+------------+-----------+
| Sundry other movements in | 1 | (1) | 1 | 1 |
| equity | | | | |
+--------------------------------+------------+-----------+------------+-----------+
| Net income (expense) recorded | | | | |
| directly | | | | |
+--------------------------------+------------+-----------+------------+-----------+
| in equity | 244 | 49 | (43) | (221) |
+--------------------------------+------------+-----------+------------+-----------+
| (Loss) profit for the period | (62) | (63) | (74) | 134 |
+--------------------------------+------------+-----------+------------+-----------+
| Total recognised profit | | | | |
| (expense) for | | | | |
+--------------------------------+------------+-----------+------------+-----------+
| the period | 182 | (14) | (117) | (87) |
+--------------------------------+------------+-----------+------------+-----------+
Notes to the group results
1. Basis of preparation
1.
2.
3.
4. The condensed financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. The accounting policies and methods of computation used in the preparation of the results are consistent, in all material respects, with those used in the annual financial statements for September 2008 which are compliant with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.The preliminary results for the nine month period and quarter ended June 2009 have been reviewed in terms of the International Standard on Review Engagements 2410 by the group's auditors, Deloitte & Touche. Their unmodified review report is available for inspection at the company's registered offices.In November and December 2008, Sappi conducted a renounceable rights offer of 286,886,270 new ordinary shares of ZAR1.00 each to qualifying Sappi shareholders recorded in the shareholders register at the close of business on Friday 21 November 2008, at a subscription price of ZAR20.27 per rights offer share in the ratio of 6 rights offer shares for every 5 Sappi shares held. The rights offer was fully subscribed and the shareholders received their shares on 15 December 2008. The rights offer raised ZAR5,8 billion which was used to partly finance the acquisition of the coated graphic paper business of M-real and the related costs.In
accordance with IAS 33, prior period basic, headline and diluted earnings per share have been restated to take into account the bonus element of the rights offer. The prior period weighted average number of shares has been adjusted by a factor of 1.58 (the adjustment factor). Please refer to Supplemental Information for a summary of this calculation.
2. Reconciliation of movement in shareholders' equity
+--------------------------------------------------+--------------------+------------+
| | Reviewed | Reviewed |
+--------------------------------------------------+--------------------+------------+
| | Nine months | Nine |
| | | months |
+--------------------------------------------------+--------------------+------------+
| | ended | ended |
+--------------------------------------------------+--------------------+------------+
| | June 2009 | June 2008 |
+--------------------------------------------------+--------------------+------------+
| | US$ million | US$ |
| | | million |
+--------------------------------------------------+--------------------+------------+
| Balance - beginning of period | 1,605 | 1,816 |
+--------------------------------------------------+--------------------+------------+
| Total recognised expense for the period | (117) | (87) |
+--------------------------------------------------+--------------------+------------+
| Dividends paid | (37) | (73) |
+--------------------------------------------------+--------------------+------------+
| Rights offer | 575 | - |
+--------------------------------------------------+--------------------+------------+
| Costs directly attributable to the rights offer | (31) | - |
+--------------------------------------------------+--------------------+------------+
| Issue of new shares to M-real | 45 | - |
+--------------------------------------------------+--------------------+------------+
| Transfers to participants of the share purchase | 2 | 6 |
| trust | | |
+--------------------------------------------------+--------------------+------------+
| Share based payment reserve | 7 | 7 |
+--------------------------------------------------+--------------------+------------+
| Balance - end of period | 2,049 | 1,669 |
+--------------------------------------------------+--------------------+------------+
+----------------------------------+----------+----------+------------+-----------+
| 3. Operating (loss) profit | | | | |
+----------------------------------+----------+----------+------------+-----------+
| | Reviewed | Reviewed | Reviewed | Reviewed |
+----------------------------------+----------+----------+------------+-----------+
| | Quarter | Quarter | Nine | Nine |
| | | | months | months |
+----------------------------------+----------+----------+------------+-----------+
| | ended | ended | ended | ended |
+----------------------------------+----------+----------+------------+-----------+
| | June | June | June 2009 | June 2008 |
| | 2009 | 2008 | | |
+----------------------------------+----------+----------+------------+-----------+
| | US$ | US$ | US$ | US$ |
| | million | million | million | million |
+----------------------------------+----------+----------+------------+-----------+
| Included in operating (loss) | | | | |
| profit are the | | | | |
+----------------------------------+----------+----------+------------+-----------+
| following non-cash items: | | | | |
+----------------------------------+----------+----------+------------+-----------+
| Depreciation and amortisation | 106 | 94 | 286 | 283 |
+----------------------------------+----------+----------+------------+-----------+
| Fair value adjustment on | | | | |
| plantations | | | | |
+----------------------------------+----------+----------+------------+-----------+
| (included in cost of sales) | | | | |
+----------------------------------+----------+----------+------------+-----------+
| Changes in volume | | | | |
+----------------------------------+----------+----------+------------+-----------+
| Fellings | 19 | 21 | 50 | 61 |
+----------------------------------+----------+----------+------------+-----------+
| Growth | (20) | (20) | (52) | (55) |
+----------------------------------+----------+----------+------------+-----------+
| | (1) | 1 | (2) | 6 |
+----------------------------------+----------+----------+------------+-----------+
| Plantation price fair value | | | | |
+----------------------------------+----------+----------+------------+-----------+
| adjustment | 25 | 105 | (44) | (12) |
+----------------------------------+----------+----------+------------+-----------+
| | 24 | 106 | (46) | (6) |
+----------------------------------+----------+----------+------------+-----------+
| Included in other operating | | | | |
| income | | | | |
+----------------------------------+----------+----------+------------+-----------+
| are the following: | | | | |
+----------------------------------+----------+----------+------------+-----------+
| Asset impairments | 1 | 1 | 6 | 3 |
+----------------------------------+----------+----------+------------+-----------+
| Profit on disposal of property, | | | | |
+----------------------------------+----------+----------+------------+-----------+
| plant and equipment | - | (1) | (1) | (5) |
+----------------------------------+----------+----------+------------+-----------+
| Restructuring provisions | | | | |
+----------------------------------+----------+----------+------------+-----------+
| raised (released) | 2 | - | 10 | (3) |
+----------------------------------+----------+----------+------------+-----------+
| Integration costs | 3 | - | 3 | - |
+----------------------------------+----------+----------+------------+-----------+
| Fuel tax credit | (37) | - | (37) | - |
+----------------------------------+----------+----------+------------+-----------+
| 4. Headline earnings per share * | | | | |
+----------------------------------+----------+----------+------------+-----------+
| Headline earnings per share (US | (12) | (17) | (15) | 37 |
| cents) ** | | | | |
+----------------------------------+----------+----------+------------+-----------+
| Weighted average number of | | | | |
| shares in | | | | |
+----------------------------------+----------+----------+------------+-----------+
| issue (millions) ** | 515.8 | 362.2 | 471.5 | 362.0 |
+----------------------------------+----------+----------+------------+-----------+
| Diluted headline earnings per | | | | |
+----------------------------------+----------+----------+------------+-----------+
| share (US cents) ** | (12) | (17) | (15) | 36 |
+----------------------------------+----------+----------+------------+-----------+
| Weighted average number of | | | | |
| shares on | | | | |
+----------------------------------+----------+----------+------------+-----------+
| fully diluted basis (millions) | 517.9 | 366.0 | 473.7 | 365.5 |
| ** | | | | |
+----------------------------------+----------+----------+------------+-----------+
| Calculation of Headline earnings | | | | |
| * | | | | |
+----------------------------------+----------+----------+------------+-----------+
| (Loss) profit for the period | (62) | (63) | (74) | 134 |
+----------------------------------+----------+----------+------------+-----------+
| Asset impairments | 1 | 1 | 6 | 3 |
+----------------------------------+----------+----------+------------+-----------+
| Profit on disposal of property, | | | | |
+----------------------------------+----------+----------+------------+-----------+
| plant and equipment | - | (1) | (1) | (5) |
+----------------------------------+----------+----------+------------+-----------+
| Tax effect of above items | - | 1 | - | 1 |
+----------------------------------+----------+----------+------------+-----------+
| Headline (loss) earnings | (61) | (62) | (69) | 133 |
+----------------------------------+----------+----------+------------+-----------+
* Headline earnings disclosure is required by the JSE Limited.
** Prior period headline earnings per share has been restated for the bonus
element of the rights offer in accordance with IAS 33.
Please refer to Supplemental Information for a summary of this calculation.
+----------------------------------+----------+----------+------------+-----------+
| 5. Capital expenditure | | | | |
+----------------------------------+----------+----------+------------+-----------+
| Property, plant and equipment | 54 | 103 | 147 | 377 |
+----------------------------------+----------+----------+------------+-----------+
+--------------------------------------------------------------+------------+-----------+
| | | |
+--------------------------------------------------------------+------------+-----------+
| | June 2009 | Sept 2008 |
+--------------------------------------------------------------+------------+-----------+
| 6. Capital commitments | US$ | US$ |
| | million | million |
+--------------------------------------------------------------+------------+-----------+
| | | |
+--------------------------------------------------------------+------------+-----------+
| Contracted | 71 | 76 |
+--------------------------------------------------------------+------------+-----------+
| Approved but not contracted | 157 | 130 |
+--------------------------------------------------------------+------------+-----------+
| | 228 | 206 |
+--------------------------------------------------------------+------------+-----------+
+--------------------------------------------------------------+------------+-----------+
| | | |
+--------------------------------------------------------------+------------+-----------+
| | June 2009 | Sept 2008 |
+--------------------------------------------------------------+------------+-----------+
| | US$ | US$ |
| | million | million |
+--------------------------------------------------------------+------------+-----------+
| 7. Contingent liabilities | | |
+--------------------------------------------------------------+------------+-----------+
| Guarantees and suretyships | 45 | 38 |
+--------------------------------------------------------------+------------+-----------+
| Other contingent liabilities | 7 | 7 |
+--------------------------------------------------------------+------------+-----------+
| | 52 | 45 |
+--------------------------------------------------------------+------------+-----------+
8. Material balance sheet movements
1.
2.
3.
4.
5. Acquisition of M-real's coated graphic paper businessSee note 9 for details of how the acquisition is recorded in the balance sheet.Interest-bearing borrowings and cash and cash equivalentsIncluded in long term borrowings is the EUR220 million (US$309 million) vendor loan note and the assumed interest-bearing debt both used to partly finance the acquisition of M-real's coated graphic paper business.During the nine months ended June 2009, the group also drew down EUR200 million (US$281 million) of its committed facilities and raised a further US$63 million in long-term bank loans. All of this is currently held in cash.
9. Acquisition
1.
2.
3.
4. On 31 December 2008, Sappi acquired M-real's coated graphic paper business for EUR750 million (US$1.1 billion). The transaction includes M-real's coated graphic paper business (excluding M-real's South African business), including brands and company knowledge, as well as four coated graphic mills.The acquisition was financed through a combination of equity, assumed debt, the cash proceeds from a rights offering and a vendor loan note.The acquired business contributed revenues of US$522 million, a net operating profit of US$8 million and a net loss of US$4 million to the group for the period from acquisition to 28 June 2009.Details of net assets acquired and goodwill are as follows:
+-----------------------------------------------+------------+-------------+------------+-------------+
| | | | EURO | US$ |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Purchase consideration: | | | | |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Cash consideration | | | 400 | 563 |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Shares issued * | | | 32 | 45 |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Vendor loan note | | | 220 | 308 |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Adjustments to working capital | | | (4) | (6) |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Gain on forward exchange contract covering | | | (24) | (32) |
| purchase consideration | | | | |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Direct costs relating to the acquisition | | | 23 | 32 |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Total purchase consideration | | | 647 | 910 |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Provisional fair value of net identifiable | | | 647 | 910 |
| assets acquired (see below) | | | | |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Provisional goodwill ** | | | - | - |
+-----------------------------------------------+------------+-------------+------------+-------------+
| The assets and liabilities arising from the | | | | |
| acquisition are as follows: | | | | |
+-----------------------------------------------+------------+-------------+------------+-------------+
| | EURO | EURO | US$ | US$ |
+-----------------------------------------------+------------+-------------+------------+-------------+
| | Acquiree's | Provisional | Acquiree's | Provisional |
+-----------------------------------------------+------------+-------------+------------+-------------+
| | carrying | fair | carrying | fair |
+-----------------------------------------------+------------+-------------+------------+-------------+
| | amount | value | amount | value |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Property, plant and equipment | 634 | 531 | 892 | 747 |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Information technology related intangibles | 2 | 2 | 3 | 3 |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Brand names | - | 18 | - | 25 |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Inventories | 118 | 115 | 166 | 162 |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Trade receivables | 200 | 193 | 281 | 272 |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Prepayments and other debit balances | 15 | 18 | 21 | 25 |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Cash and cash equivalents | 5 | 5 | 7 | 7 |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Trade payables | (85) | (85) | (120) | (120) |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Pension liabilities | (37) | (40) | (52) | (56) |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Borrowings | (46) | (42) | (65) | (59) |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Provisions | (4) | (4) | (6) | (6) |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Other payables and accruals | (60) | (65) | (84) | (91) |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Net deferred tax (liabilities) assets | (11) | 1 | (15) | 1 |
+-----------------------------------------------+------------+-------------+------------+-------------+
| Net identifiable assets acquired | 731 | 647 | 1,028 | 910 |
+-----------------------------------------------+------------+-------------+------------+-------------+
+-------------------------------------------------------+------------+-----------+
| Outflow of cash to acquire business, net of cash | | |
| acquired: | | |
+-------------------------------------------------------+------------+-----------+
| | EURO | US$ |
+-------------------------------------------------------+------------+-----------+
| Cash consideration | 400 | 563 |
+-------------------------------------------------------+------------+-----------+
| Direct costs relating to acquisition | 23 | 32 |
+-------------------------------------------------------+------------+-----------+
| Cash and cash equivalents in subsidiary acquired | (5) | (7) |
+-------------------------------------------------------+------------+-----------+
| Net cash outflow on acquisition | 418 | 588 |
+-------------------------------------------------------+------------+-----------+
The provisional values determined as at March 2009 have been adjusted as follows
to arrive at the provisional values as at June 2009
+-------------------------------------------------+-------------+------------+-----------+----------+
| | EURO | US$ |
+-------------------------------------------------+--------------------------+----------------------+
| | | Provisional fair | |
| | | values ** | |
+-------------------------------------------------+-------------+------------------------+----------+
| | | | | |
+-------------------------------------------------+-------------+------------+-----------+----------+
| | March 2009 | June 2009 | March | June |
| | | | 2009 | 2009 |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Property, plant and equipment | 494 | 531 | 695 | 747 |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Information technology related intangibles | 2 | 2 | 3 | 3 |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Brand names | 18 | 18 | 25 | 25 |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Inventories | 116 | 115 | 163 | 162 |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Trade receivables | 200 | 193 | 281 | 272 |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Prepayments and other debit balances | 21 | 18 | 30 | 25 |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Cash and cash equivalents | 5 | 5 | 7 | 7 |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Trade payables | (86) | (85) | (121) | (120) |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Pension liabilities | (40) | (40) | (56) | (56) |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Borrowings | (47) | (42) | (66) | (59) |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Provisions | (4) | (4) | (6) | (6) |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Other payables and accruals | (64) | (65) | (89) | (91) |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Net deferred tax (liabilities) assets | 13 | 1 | 18 | 1 |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Net identifiable assets acquired | 628 | 647 | 884 | 910 |
+-------------------------------------------------+-------------+------------+-----------+----------+
| | | | EURO | US$ |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Provisional goodwill at March 2009 ** | | | 27 | 38 |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Increase in fair values of net identifiable | | | (19) | (26) |
| assets | | | | |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Change in adjustments to working capital | | | (10) | (14) |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Increase in direct costs relating to | | | 2 | 2 |
| acquisition | | | | |
+-------------------------------------------------+-------------+------------+-----------+----------+
| Provisional goodwill at June 2009 ** | | | 0 | 0 |
+-------------------------------------------------+-------------+------------+-----------+----------+
* 11,159,702 Sappi shares were issued to M-real as partial payment of the
acquisition price. The fair value of US$45 million (EUR32 million) was
determined using
Sappi's published market price at the date of
exchange.
** The initial accounting for the business combination has been determined
provisionally as at the end of the third quarter ended June 2009 because the
group is still in
the process of finalising the fair values of the
identifiable assets and liabilites of the acquired business of M-real. The
changes in provisional values from March
2009 to June 2009 are due to
the group having access to more information that enabled us to update our
initial determination of fair values and the purchase
consideration.
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Notes to the group results | | | | | | |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| | Reviewed | Reviewed | | Reviewed | Reviewed | |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| | Quarter | Quarter | | Nine | Nine | |
| | | | | months | months | |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| | ended | ended | | ended | ended | |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| | June 2009 | June | % | June 2009 | June 2008 | % |
| | | 2008 | | | | |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| | US$ | US$ | change | US$ | US$ | change |
| | million | million | | million | million | |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| 10. Regional information | | | | | | |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Sales | | | | | | |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Fine Paper - North America | 291 | 424 | (31) | 955 | 1,231 | (22) |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Europe | 729 | 705 | 3 | 2,027 | 2,040 | (1) |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Southern Africa | 78 | 95 | (18) | 226 | 271 | (17) |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Total | 1,098 | 1,224 | (10) | 3,208 | 3,542 | (9) |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Forest Products - Pulp and | | | | | | |
| paper | | | | | | |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| operations | 204 | 249 | (18) | 567 | 747 | (24) |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Forestry operations | 14 | 21 | (33) | 41 | 55 | (25) |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Total | 1,316 | 1,494 | (12) | 3,816 | 4,344 | (12) |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Operating profit | | | | | | |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Fine Paper - North America | 24 | 25 | (4) | (7) | 62 | - |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Europe | - | 10 | (100) | (8) | 47 | - |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Southern Africa | (5) | 1 | - | (1) | 5 | - |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Total | 19 | 36 | (47) | (16) | 114 | - |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Forest Products | (26) | (60) | - | 71 | 167 | (57) |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Corporate and other | - | 1 | (100) | 1 | 8 | 100 |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Total | (7) | (23) | - | 56 | 289 | (81) |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Net operating assets | | | | | | |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Fine Paper - North America | 1,035 | 1,064 | (3) | 1,035 | 1,064 | (3) |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Europe | 2,475 | 2,098 | 18 | 2,475 | 2,098 | 18 |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Southern Africa | 205 | 124 | 65 | 205 | 124 | 65 |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Total | 3,715 | 3,286 | 13 | 3,715 | 3,286 | 13 |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Forest Products | 1,790 | 1,714 | 4 | 1,790 | 1,714 | 4 |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Corporate and other | 72 | 27 | 167 | 72 | 27 | 167 |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Total | 5,577 | 5,027 | 11 | 5,577 | 5,027 | 11 |
+------------------------------+-----------+----------+--------+-----------+-----------+--------+
Supplemental Information (this information has not been reviewed)
general definitions
Average - averages are calculated as the sum of the opening and closing balances
for the relevant period divided by two
Fellings - the amount charged against the income statement representing the
standing value of the plantations harvested
NBSK - Northern Bleached Softwood Kraft pulp. One of the main varieties of
market pulp, mainly produced from spruce trees in Scandinavia, Canada and north
eastern USA. The NBSK is a benchmark widely used in the pulp and paper industry
for comparative purposes
SG&A - selling, general and administrative expenses
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
Acquisition - the acquisition of M-real's coated graphic paper business on 31
December 2008
Adjustment factor - This is calculated using the pre-announcement share price
divided by the theoretical ex-rights price (TERP). TERP is the [(Number of new
shares multiplied by the Subscription price) plus the (Number of shares held
multiplied by the Ex-dividend share price)] all divided by the (Number of new
shares plus the number of shares held prior to the rights offer)
Capital employed - shareholders' equity plus net debt
EBITDA excluding special items - earnings before interest (net finance costs),
taxation, depreciation, amortisation and special items
Headline earnings - as defined in circular 8/2007 issued by the South African
Institute of Chartered Accountants, separates from earnings all separately
identifiable re-measurements. It is not necessarily a measure of sustainable
earnings. It is a listing requirement of the JSE Limited to disclose headline
earnings per share
Net debt - current and non-current interest-bearing borrowings, and bank
overdraft (net of cash, cash equivalents and short-term deposits)
Net debt to total capitalisation - net debt divided by capital employed
Net operating assets - total assets (excluding deferred taxation and cash and
cash equivalents) less current liabilities (excluding interest-bearing
borrowings and bank overdraft)
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
ROCE - return on average capital employed. Operating profit excluding special
items divided by average capital employed
ROE - return on average equity. Profit for the period divided by average
shareholders' equity
RONOA - return on average net operating assets. Operating profit excluding
special items divided by average net operating assets
Special items - special items cover those items which management believe are
material by nature or amount to the operating results and require separate
disclosure. Such items would generally include profit or loss on disposal of
property, investments and businesses, asset impairments, restructuring charges,
non-recurring integration costs related to acquisitions, financial impacts of
natural disasters, non-cash gains or losses on the price fair value adjustment
of plantations and alternative fuel tax credits receivable in cash
The above financial measures are presented to assist our shareholders and the
investment community in interpreting our financial results. These financial
measures are regularly used and compared between companies in our industry
Supplemental Information (this information has not been reviewed)
+---------------------------------------+----------+----------+-----------+----------+
| EBITDA excluding special items | | | | |
+---------------------------------------+----------+----------+-----------+----------+
| | Quarter | Quarter | Nine | Nine |
| | | | months | months |
+---------------------------------------+----------+----------+-----------+----------+
| | ended | ended | ended | ended |
+---------------------------------------+----------+----------+-----------+----------+
| | June | June | June 2009 | June |
| | 2009 | 2008 | | 2008 |
+---------------------------------------+----------+----------+-----------+----------+
| | US$ | US$ | US$ | US$ |
| | million | million | million | million |
+---------------------------------------+----------+----------+-----------+----------+
| Reconciliation of (loss) profit for | | | | |
| the period to | | | | |
+---------------------------------------+----------+----------+-----------+----------+
| EBITDA excluding special items (1) | | | | |
+---------------------------------------+----------+----------+-----------+----------+
| (Loss) profit for the period | (62) | (63) | (74) | 134 |
+---------------------------------------+----------+----------+-----------+----------+
| Net finance costs | 70 | 45 | 131 | 100 |
+---------------------------------------+----------+----------+-----------+----------+
| Taxation | (15) | (5) | (1) | 55 |
+---------------------------------------+----------+----------+-----------+----------+
| Special items - (gains) losses | (6) | 111 | (61) | (12) |
+---------------------------------------+----------+----------+-----------+----------+
| Operating (loss) profit excluding | (13) | 88 | (5) | 277 |
| special items | | | | |
+---------------------------------------+----------+----------+-----------+----------+
| Depreciation and amortisation | 106 | 94 | 286 | 283 |
+---------------------------------------+----------+----------+-----------+----------+
| EBITDA excluding special items (1) | 93 | 182 | 281 | 560 |
+---------------------------------------+----------+----------+-----------+----------+
| | | | June 2009 | Sept |
| | | | | 2008 |
+---------------------------------------+----------+----------+-----------+----------+
| | | | US$ | US$ |
| | | | million | million |
+---------------------------------------+----------+----------+-----------+----------+
| Net debt (US$ million) (2) | | | 2,770 | 2,405 |
+---------------------------------------+----------+----------+-----------+----------+
| Net debt to total capitalisation (%) | | | 57.5 | 60.0 |
| (2) | | | | |
+---------------------------------------+----------+----------+-----------+----------+
| Net asset value per share (US$) (2) | | | 3.97 | 7.00 |
+---------------------------------------+----------+----------+-----------+----------+
1. In connection with the U.S. Securities Exchange Commission ("SEC") rules
relating to "Conditions for Use of Non-GAAP Financial Measures", we have
reconciled EBITDA excluding special items to net profit rather than operating
profit. As a result our definition retains minority interest as part of EBITDA
excluding special items.
1. Operating profit excluding special items represents earnings before interest
(net finance costs), taxation and special items. Net finance costs includes:
gross interest paid; interest received; interest capitalised; net foreign
exchange gains; and net fair value adjustments on interest rate financial
instruments. See the group income statement for an explanation of the
computation of net finance costs. 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 and 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
2. EBITDA excluding special items represents operating profit before depreciation,
amortisation and special items.
3. We use both operating profit excluding special items and EBITDA excluding
special items as internal measures of performance to benchmark and compare
performance, both between our own operations and as against other companies.
Operating profit excluding special items and EBITDA excluding special items are
measures used by the group, together with measures of performance under IFRS, to
compare the relative performance of operations in planning, budgeting and
reviewing the performances of various businesses. We believe they are useful and
commonly used measures of financial performance in addition to net profit,
operating profit and other profitability measures under IFRS because they
facilitate operating performance comparisons from period to period and company
to company. By eliminating potential differences in results of operations
between periods or companies caused by factors such as depreciation and
amortisation methods, historic cost and age of assets, financing and capital
structures and taxation positions or regimes, we believe both operating profit
excluding special items and EBITDA excluding special items can provide a useful
additional basis for comparing the current performance of the operations being
evaluated. For these reasons, we believe operating profit excluding special
items and EBITDA excluding special items and similar measures are regularly used
by the investment community as a means of comparison of companies in our
industry. Different companies and analysts may calculate operating profit
excluding special items and EBITDA excluding special items differently, so
making comparisons among companies on this basis should be done very carefully.
Operating profit excluding special items and EBITDA excluding special items are
not measures of performance under IFRS and should not be considered in isolation
or construed as a substitute for operating profit or net profit as indicators of
the company's operations in accordance with IFRS.(2) Refer to Supplemental
Information for the definition of the term.
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Supplemental Information (this information has not been reviewed) |
+--------------------------------------------------------------------------------------------------------+
| summary rand convenience translation |
+--------------------------------------------------------------------------------------------------------+
| | Quarter | Quarter | | Nine | Nine | |
| | | | | months | months | |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| | ended | ended | % | ended | ended | % |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| | June 2009 | June | change | June 2009 | June 2008 | change |
| | | 2008 | | | | |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Key figures: (ZAR million) | | | | | | |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Sales | 11,344 | 11,711 | (3) | 35,949 | 31,814 | 13 |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Operating (loss) profit | (60) | (180) | - | 528 | 2,117 | (75) |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Special items - (gains) losses * | (52) | 870 | - | (575) | (88) | - |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Operating (loss) profit excluding | | | | | | |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| special items | (112) | 690 | - | (47) | 2,029 | - |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| EBITDA excluding special items * | 802 | 1,427 | (44) | 2,647 | 4,101 | (35) |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Basic (loss) earnings per | | | | | | |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| share (SA cents) | (103) | (133) | - | (151) | 271 | - |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Net debt * | 21,880 | 21,108 | 4 | 21,880 | 21,108 | 4 |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Key ratios: (%) | | | | | | |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Operating (loss) profit to sales | (0.5) | (1.5) | | 1.5 | 6.7 | |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Operating (loss) profit excluding | | | | | | |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| special items to sales | (1.0) | 5.9 | | (0.1) | 6.4 | |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Operating (loss) profit excluding | | | | | | |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| special items to Capital | | | | | | |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Employed (ROCE) * | (1.1) | 7.9 | | (0.2) | 8.7 | |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| EBITDA excluding special items | | | | | | |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| to sales | 7.1 | 12.2 | | 7.4 | 12.9 | |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Return on average equity (ROE) | (12.5) | (14.7) | | (6.4) | 10.2 | |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
| Net debt to total capitalisation * | 57.5 | 61.5 | | 57.5 | 61.5 | |
+---------------------------------------+-----------+----------+--------+-----------+-----------+--------+
* Refer to Supplemental Information for the definition of the term.
The above financial results have been translated into ZAR from US Dollars 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 | | | | | |
+------------------------------------+------------+----------+----------+----------+--------+
| | June | Mar | Dec | Sept | June |
+------------------------------------+------------+----------+----------+----------+--------+
| | 2009 | 2009 | 2008 | 2008 | 2008 |
+------------------------------------+------------+----------+----------+----------+--------+
| Exchange rates: | | | | | |
+------------------------------------+------------+----------+----------+----------+--------+
| Period end rate: US$1 = ZAR | 7.8990 | 9.5849 | 9.7148 | 8.0751 | 7.9145 |
+------------------------------------+------------+----------+----------+----------+--------+
| Average rate for the Quarter: US$1 | 8.6197 | 9.8979 | 9.8584 | 7.8150 | 7.8385 |
| = ZAR | | | | | |
+------------------------------------+------------+----------+----------+----------+--------+
| Average rate for the YTD: US$1 = | 9.4205 | 9.9015 | 9.8584 | 7.4294 | 7.3236 |
| ZAR | | | | | |
+------------------------------------+------------+----------+----------+----------+--------+
| Period end rate: EUR 1 = US$ | 1.4054 | 1.3301 | 1.4064 | 1.4615 | 1.5795 |
+------------------------------------+------------+----------+----------+----------+--------+
| Average rate for the Quarter: EUR | 1.3651 | 1.3300 | 1.3471 | 1.5228 | 1.5747 |
| 1 = US$ | | | | | |
+------------------------------------+------------+----------+----------+----------+--------+
| Average rate for the YTD: EUR 1 = | 1.3432 | 1.3288 | 1.3471 | 1.5064 | 1.5071 |
| US$ | | | | | |
+------------------------------------+------------+----------+----------+----------+--------+
The financial results of entities with reporting currencies other than the US
Dollar are translated into US Dollars as follows:
* Assets and liabilities at rates of exchange ruling at period end; and
* Income, expenditure and cash flow items at average exchange rates.
Other interested parties can obtain printed copies of this report from:
+-----------------------------+----------------------------+------------------------------------+
| South Africa: | United States: | Channel Islands: |
+-----------------------------+----------------------------+------------------------------------+
| Computershare Investor | ADR Depositary: | Capita Registrars |
+-----------------------------+----------------------------+------------------------------------+
| Services (Proprietary) | The Bank of New York | (Jersey) Limited |
| Limited | Mellon | |
+-----------------------------+----------------------------+------------------------------------+
| 70 Marshall Street | Investor Relations | 12 Castle Street |
+-----------------------------+----------------------------+------------------------------------+
| Johannesburg 2001 | PO Box 11258 | St Helier |
+-----------------------------+----------------------------+------------------------------------+
| PO Box 61051 | Church Street Station | Jersey |
+-----------------------------+----------------------------+------------------------------------+
| Marshalltown 2107 | New York, NY 10286-1258 | JE2 3 RT |
+-----------------------------+----------------------------+------------------------------------+
| Tel +27 (0)11 370 5000 | Tel +1 610 382 7836 | Tel + 44 (0)208 639 3399 |
+-----------------------------+----------------------------+------------------------------------+
this report is available on the Sappi website
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END
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