Geographic Spread Helps Sappi in Difficult First Quarter.Business Editors JOHANNESBURG, South Africa--(BUSINESS WIRE)--Jan. 28, 2002 Sappi Ltd (NYSE: SPP), the world's leading producer of coated fine paper, today announced results for the first quarter 2002. Highlights - Impact of September 11th felt in quarter, but group holds up well - Weak performance by North American operations partly offset by robust performances from Europe and South Africa - Performance dented by one off maintenance shuts of major profit contributing mills - Strong balance sheet maintained Commenting on the results, Sappi Executive Chairman, Eugene van As, said: "As anticipated, the Group continued to experience difficult market conditions during the first quarter, but held up well overall. Much of the impact of September 11th was felt in this quarter with the North American market particularly weak. The results were further impacted on by the fact that two of our largest operations took their 30-month maintenance shuts in the period. This impact, which would previously have been spread over 30 months, was reflected in the quarter as per the new International Accounting Standard (IAS) guideline. However, we benefited from the geographic spread of our assets as both Europe and South Africa continued to perform well despite challenging trading conditions in their markets, this offsetting some of the difficulties in North America." Results for the Quarter These difficult conditions lead to sales volumes which were 10% below the same quarter last year, excluding Mobile (which was closed at the end of last year). Average prices in US$ were 14% lower than a year ago. This reflects in part the change in other currencies vs. the US$ and in part real price reductions. However, manufacturing costs continued to be well controlled. In this environment the group did well to achieve an EBITDA margin of 17% which lead to net profit before exceptional items of US$31 million, although this was 62% below last year. Earnings per share before exceptional items were 14 US cents. After one-time adjustments for refinancing the North American 14% debentures and the closure of Transcript Mill, net profit was US$22 million and basic earnings per share were 10 US cents. Despite these adverse market conditions, the group generated a robust cash flow (EBITDA) for the quarter of US$148 million. Capital expenditure continued to be below depreciation and amounted to US$67 million. The group continues to maintain a strong balance sheet, although net debt increased slightly in September from US$1,128 million to US$1,156 million. The net debt to total capitalisation ratio was affected by the US$ value of our Euro and Rand assets, but is an acceptable 35%. This ratio will vary from time to time with currency changes. Net finance costs for the quarter were US$25 million, which included the cost of marking foreign exchange contracts to market and other foreign exchange losses of US$7 million. The group declared a dividend of 26 US cents per share for the year ended September 2001, which was paid to shareholders on 14 January 2002. Whilst the dividend increase in US$ terms was modest, the dividend showed the excellent Rand hedge quality for South African shareholders as it increased in Rand terms by approximately 65%. Fine Paper Commenting on the fine paper division's overall performance, Bill Sheffield, Fine Paper CEO said: "Market conditions for Sappi Fine Paper were difficult in the quarter. In addition to the general global economic slowdown, the recession in the US and the additional adverse impact of 11 September had a strong detrimental effect on our business. These conditions resulted in a 24% fall in sales compared to last year. Despite this, the division's operating margin fell only 3.3 percentage points. We continued to curtail production in Europe and North America to balance supply with demand". "Against very tough market conditions the division held up well. The North American business was particularly affected, but our ability to supply part of the US market with high quality European paper at good margins once again proves the benefits of our strategy to have well-invested assets in each major global market". The closure of the Transcript Mill is progressing well, with a complete exit from the carbonless business expected by March 2002. He went on to say: "The outlook for our European and South African businesses is stable. In North America we believe the situation has bottomed. In both Europe and North America, consumer inventories are extremely low and we are well positioned to benefit from the upturn in demand when it comes". Forest Products John Job, Forest Products CEO commented: "Our southern African markets were stable during the quarter and both our forest products and global fine paper businesses remain strong Rand hedges for the group. Local costs were driven down in US$ terms and local selling prices now lag those of imported competitors. Sales volumes dropped 10% on last year, but the operating margin at 16% and return on net operating assets at 11.9% were both good under the adverse market conditions. South African demand for pulp and paper products had been reasonably strong during the quarter, however export markets continued to be depressed. Dissolving pulp markets remained soft and were characterised by high customer inventories and low prices. There had been some firming in international unbleached kraft pulp markets recently but generally, prices remained steady, albeit at low levels. Referring to efforts to secure the future of Sappi's Usutu pulp mill in Swaziland, Job indicated that agreement had been reached with the labour union and the restructuring would follow in the next quarter. "We are confident that completion of this restructuring will secure Usutu's position as a competitive and profitable mill," he said. Job confirmed that the outlook for the Forest Products business is better for the balance of the year. Any improvement in world economic conditions will have an immediate impact. In the short term, the benefit of the weaker Rand will improve margins and enable the division to maintain its planned US$ earnings. Outlook Sappi expects order levels to improve as the year progresses. The US economy has bottomed and may rebound. Evidence exists that end-user consumption of coated woodfree paper has declined much less over the past year than shipments and that much of the decline in apparent demand stemmed from a reduction of inventory in the supply chain. Shipments are expected to rise modestly to match consumption and there is the potential for a significant rebound in demand if merchants and end-users start to bring their inventories back up to normal levels. Commenting on the outlook, Eugene van As said: "We operate in a challenging environment, but the geographic spread of our assets will continue to allow us to take advantage of strong markets and weak currencies, and reduce the impact of fluctuations in regional demand on our business. "We are cautiously optimistic" van As indicated. "Barring further deterioration of the global economic outlook, we expect earnings per share for the rest of the year to improve and reach a similar level to those seen in the last financial quarter of our 2001 year." Sappi Limited is the largest producer of coated free sheet paper in the world and produces fine papers in South Africa, the United Kingdom, Austria, Belgium, The Netherlands, Germany and in the United States. Sappi's net operating assets of approximately R29 billion are located mainly in Europe (41%), North America (31%) and Southern Africa (28%). Sappi ordinary shares trade on the Johannesburg Stock Exchange and may be accessed on Bloomberg under the symbol SAP SJ, and on the Reuters Equities 2000 Service under SAPJ.J. In the US its ADRs trade on the New York Stock Exchange under the ticker symbol SPP (each ADR is equal to one ordinary share). Sappi shares are also traded in London and Frankfurt. FORWARD-LOOKING STATEMENTS Certain statements in this report that are neither reported financial results nor other historical information, are forward-looking statements, including, but not limited to statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors, that could cause actual results and company plans and objectives to differ materially from those expressed or implied in the forward-looking statements (or from past results). Such risks, uncertainties and factors include, but are not limited to the highly cyclical nature of the pulp and paper industry (and the factors that contribute to such cyclicality, such as levels of demand, production capacity, production and pricing), adverse changes in the markets for the group's products, consequences of substantial leverage, changing regulatory requirements, unanticipated production disruptions, economic and political conditions in international markets, the impact of investments, acquisitions and dispositions (including related financing) and currency fluctuations. The company undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information or future events or circumstances or otherwise.
SAPPI LIMITED
Summary
December 2001
----------------------------------------------------------------------
Quarter ended
December September December
2001 2001 2000
----------------------------------------------------------------------
Sales (US$ million) 832 998 1,115
Operating profit
(US$ million) 65 91 143
EBITDA (US$ million) 148 175 237
Operating profit
to sales (%) 7.8 9.1 12.8
EBITDA to sales (%) 17.8 17.5 21.3
Operating profit to
average net assets (%) 8.8 11.1 15.8
EPS before exceptional
items (Headline) (US cents) 14 23 34
Basic EPS (US cents) 10 20 34
Return on equity (%) 6.3 9.9(a) 20.1
Net Debt (US$ million) 1,156 1,128 1,269
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(a) Before Mobile closure costs
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SAPPI LIMITED
Group income statement
Unaudited
Quarter ended
US$ million December 2001 December 2000 % change
----------------------------------------------------------------------
Sales 832 1,115 (25.4)
Cost of sales 689 882
----------------------------------------------
Gross profit 143 233 (38.6)
Selling, general &
administrative expenses 78 90
----------------------------------------------
Operating profit 65 143 (54.5)
Non-trading loss 12 1
Net finance costs 25 24
Net paid (a) 32 32
Capitalised (7) (8)
----------------------------------------------
Profit before tax 28 118
Taxation - current (9) 23
- deferred 15 13
----------------------------------------------
Net profit 22 82
==============================================
EBITDA 148 237 (37.7)
==============================================
Basic earnings per
share (US cents) 10 34
Earnings before
exceptional items
(Headline earnings) per
share (US cents) 14 34
Weighted average number
of shares in
issue (millions) 229.7 238.9
Diluted earnings per
share (US cents) 9 34
Diluted earnings before
exceptional items
(Headline earnings) per
share (US cents) 13 34
Weighted average number of
shares on fully diluted
basis (millions) 233.2 245.0
Calculation of Earnings before
exceptional items
(Headline) net of tax
Net profit 22 82
Mill closure costs 4 -
Debt restructuring costs 6 -
Decrease in provisions (1) (1)
----------------------------------------------
Earnings before
exceptional items
(Headline) 31 81
==============================================
(a) Includes foreign exchange losses of US$ 7 million (December
2000: US$ 1m)
SAPPI LIMITED
Group balance sheet
Unaudited Audited
US$ million December 2001 September 2001
ASSETS
Non-current assets 3,076 3,346
-------------------------------
Property, plant and equipment 2,693 2,890
Plantations 247 324
Deferred taxation - 4
Other non-current assets 136 128
--------------------------------
Current assets 1,010 1,160
--------------------------------
Cash and cash equivalents 245 445
Trade and other receivables 263 202
Inventories 502 513
-------------------------------
Total assets 4,086 4,506
===============================
EQUITY AND LIABILITIES
Shareholders' equity
Ordinary shareholders' interest 1,287 1,503
Minority interest 2 3
Non-current liabilities 1,502 1,640
-------------------------------
Interest-bearing borrowings 912 1,014
Deferred taxation 355 385
Other non-current liabilities 235 241
-------------------------------
Current liabilities 1,295 1,360
-------------------------------
Interest-bearing borrowings
and bank overdraft 489 559
Other current liabilities 806 801
-------------------------------
-------------------------------
Total equity and liabilities 4,086 4,506
=============================
Number of shares in issue (millions) 229.7 229.5
Net debt (US$ million) 1,156 1,128
Net debt to total capitalisation (%) 35.2 30.4
Net asset value per share (US cents) 715 821
SAPPI LIMITED
Group cash flow statement
Unaudited
Quarter ended
US$ million December 2001 December 2000
Cash generated by operations 130 231
Movement in working capital (100) (80)
Net finance costs (32) (32)
Taxation paid (1) (1)
----------------------------------
Cash retained from
operating activities (3) 118
Cash effects of
investing activities (63) (94)
----------------------------------
(66) 24
Cash effects of
financing activities (115) (109)
----------------------------------
Net movement in cash
and cash equivalents (181) (85)
----------------------------------
SAPPI LIMITED
Group statement of changes in shareholders' equity
Unaudited
Quarter ended
US$ million December 2001 December 2000
Balance - beginning of year 1,503 1,618
Net profit 22 82
Foreign currency
translation reserve (193) 17
Revaluation of
derivative instruments 14 -
Dividends declared - US$ 0.26
(2001: US$ 0.25) per share (60) (60)
Net transfers to share
purchase trust (share buybacks) 1 (8)
----------------------------------
Balance - end of period 1,287 1,649
----------------------------------
SAPPI LIMITED
Notes to the group results
1. Basis of preparation
The group results have been prepared in conformity with South African
Statements of Generally Accepted Accounting Practice. The same
accounting policies have been followed as in the annual financial
statements for September 2001.
The financial results for the quarter have been reviewed by the
group's auditors, Deloitte & Touche.
Their report is available for inspection at the company's registered
offices.
----------------------------------------------------------------------
Unaudited
Quarter ended
US$ million December 2001 December 2000
----------------------------------------------------------------------
2. Operating profit
Included in operating profit are:
Depreciation 72 80
Fellings 7 8
Amortisation 4 6
----------------------------------------------------------------------
83 94
======================================================================
3. Capital expenditure
Fixed assets 62 86
Plantations 5 7
----------------------------------------------------------------------
67 93
======================================================================
Unaudited Audited
December 2001 September 2001
US$ million
----------------------------------------------------------------------
4. Capital commitments
Contracted but not provided 48 78
Approved but not contracted 97 109
----------------------------------------------------------------------
145 187
======================================================================
5. Contingent liabilities
Guarantees and suretyships 73 79
Other contingent liabilities 20 27
----------------------------------------------------------------------
SAPPI LIMITED
Regional Information
Unaudited
Quarter ended
US$ million December December % change
2001 2000
----------------------------------------------------------------------
Sales - Metric tons (000's)
Fine Paper - North America 218 328 (33.5)
Europe 518 563 (8.0)
Southern Africa 73 71 2.8
--------------------------------------
Total 809 962 (15.9)
Forest Products 560 621 (9.8)
--------------------------------------
Total 1,369 1,583 (13.5)
======================================
Sales
Fine Paper - North America 239 395 (39.5)
Europe 410 466 (12.0)
Southern Africa 48 57 (15.8)
--------------------------------------
Total 697 918 (24.1)
Forest Products 135 197 (31.5)
--------------------------------------
Total 832 1,115 (25.4)
======================================
Operating profit
Fine Paper - North America (10) 18 -
Europe 39 54 (27.8)
Southern Africa 7 6 16.7
--------------------------------------
Total 36 78 (53.8)
Forest Products 22 62 (64.5)
Corporate 7 3 133.3
--------------------------------------
Total 65 143 (54.5)
======================================
Earnings before interest, tax,
depreciation and amortisation
charges (a)
Fine Paper - North America 15 46 (67.4)
Europe 77 92 (16.3)
Southern Africa 9 9 -
--------------------------------------
Total 101 147 (31.3)
Forest Products 40 87 (54.0)
Corporate 7 3 133.3
--------------------------------------
Total 148 237 (37.6)
======================================
Net operating assets
Fine Paper - North America 1,085 1,238 (12.4)
Europe 1,299 1,428 (9.0)
Southern Africa 80 102 (21.6)
--------------------------------------
Total 2,464 2,768 (11.0)
Forest Products 657 940 (30.1)
Corporate (86) (80) -
--------------------------------------
Total 3,035 3,628 (16.3)
======================================
(a) before non-trading loss
SAPPI LIMITED
Summary rand convenience translation
----------------------------------------------------------------------
Unaudited
Quarter ended
December December %
2001 2000 change
----------------------------------------------------------------------
Sales (ZAR million) 8,364 8,425 (0.7)
Operating profit (ZAR million) 653 1,081 (39.5)
Profit after taxation (ZAR million) 221 620
EBITDA (ZAR million) 1,488 1,791 (16.9)
Operating profit to sales (%) 7.8 12.8
EBITDA to sales (%) 17.8 21.3
Operating profit to
average net assets (%) 8.5 16.1
EPS before exceptional
items (Headline) (SA cents) 141 257 (45.3)
Basic EPS (SA cents) 101 257
EBITDA per share (SA cents) 648 750 (13.6)
Net debt (ZAR million) 13,768 9,594 43.5
Net debt to total capitalisation (%) 35.2 32.8
Cash generated by
operations (ZAR million) 1,307 1,745
Cash retained from
operating activities (ZAR million) (30) 892
Net movement in cash and
cash equivalents (ZAR million) (1,820) (642)
Exchange rates :
Period end rate: US $1 = ZAR 11.9100 7.5600
Average rate: US $1 = ZAR 10.0530 7.5560
Period end rate: US $1 = EUR 1.1321 1.0730
Average rate: US $1 = EUR 1.1192 1.1486
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