Sappi Limited Reports Quarterly Results for the Second Quarter Ended March 2001.Business Editors JOHANNESBURG, South Africa--(BUSINESS WIRE)--May 4, 2001 Sappi Limited (NYSE NYSE See: New York Stock Exchange : SPP (1) (Scalable Parallel Processor) A multiprocessing computer that can be upgraded by adding more CPUs. (2) (Standard Parallel Port) The Centronics parallel port that was used on the first PCs. ), the world's largest producer of coated fine paper, announced results for the second quarter ended March 2001. - EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. matches last year - ROE 18.6% - Operating Profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. down 27 % - Production curtailed substantially - Mobile mill closure Summary
Quarter ended 6 months ended
------------- --------------
March Dec March March March
2001 2000 2000 2001 2000
-------------------------- ------ ----------- ----------- -----------
Sales (US$ million) 1,104 1,115 1,187 2,219 2,302
Operating profit
(US$ million) 121 143 165 264 292
EBITDA (US$ million) 210 237 262 447 489
Operating profit to
sales (%) 11.0 12.8 13.9 11.9 12.7
EBITDA to sales (%) 19.0 21.3 22.1 20.1 21.3
Operating profit to
average net
assets 13.6 15.8 16.2 14.7 15.2
(%) 32 34 32 66 58
EPS before
exceptional items 32 34 29 66 58
(Headline)(US cents) 18.6 20.1 17.9 19.6 18.2
EPS (US cents) 1,277 1,269 1,621(a) 1,277 1,621(a)
Return on equity (%)
Net debt (US$ million)
----------------------------------------------------------------------
Restated for reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. of minority interest to debt Comment Earnings met expectations during the quarter, however, trading conditions were difficult resulting in squeezed margins and lower operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. than a year earlier. Earnings were boosted by lower finance costs and a lower effective tax rate. Sales were 7% below the same quarter last year, reflecting lower demand for coated woodfree paper and the sale of Novobord last year. We continued to manage our inventories and during the quarter we idled more than 10% of coated woodfree capacity and in total curtailed more than 70,000 tons of paper production. Group results The group's net profit for the quarter increased 7% compared to the same quarter last year, to US$75 million. Earnings per share were 32 US cents, up 10% compared to a year ago but earnings before exceptional items (Headline) of 32 US cents were the same as last year. Sales volumes of continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the declined by 4% but market shares generally improved and prices were slightly above a year earlier in dollar terms, although in local currency terms the prices in Europe and Southern Africa
Operating profit however was down 27% to US$121 million because of the tough trading conditions, particularly in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. . However, net finance costs for the quarter were US$16 million compared to US$43 million last year which included a US$17 million charge relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc refinancing Refinancing An extension and/or increase in amount of existing debt. . Taxation for the quarter was US$28 million, an effective tax rate of 27%, which was lower than the prior quarter as a result of the regional mix of profit. Cash flow and debt The group continued to generate strong cash flow (EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become US$210 million) in the quarter. Over 30% of this, approximately US$66 million, was used to repurchase shares. Capital expenditure of US$58 million was lower than the previous quarter. Expenditure in the first two quarters is in line with the plan for the year. A further US$60 million was paid to shareholders in the form of the year 2000 dividend. Net debt was stable during the quarter at US$1,277 million and the debt to total capitalisation ratio was 33.8%.
Sappi Fine Paper
Quarter ended
-------------------------- ------------ ------------- ----------------
March 2001 March 2000 %
US$ million US$ million change
-------------------------- ------------ ------------- ----------------
Sales 909 961 ( 5)
-------------------------- ------------ ------------- ----------------
Operating profit 62 114 (46)
-------------------------- ------------ ------------- ----------------
Operating margin (%) 6.8 11.8 -
-------------------------- ------------ ------------- ----------------
EBITDA 131 183 (28)
-------------------------- ------------ ------------- ----------------
EBITDA Margin (%) 14.4 19.0 -
-------------------------- ------------ ------------- ----------------
RONOA p.a. (%) 9 16 -
-------------------------- ------------ ------------- ----------------
The performance of Sappi Fine Paper was affected by weaker demand in the major markets with some decline in paper prices, which resulted in reduced margins and returns. Europe We experienced lower order inflow in·flow n. 1. The act or process of flowing in or into: an inflow of water; an inflow of information. 2. and cut back our production in the quarter to match output to customer requirements and hold inventory levels. Although prices achieved were 9% higher in Euros than a year earlier, they were slightly lower in dollar terms and lower volumes, down 4%, resulting in a lower operating income. The strong dollar added pressure on pulp, energy and latex latex, emulsion of a polymer (e.g., rubber) in water (see colloid). Natural latexes are produced by a number of plants, are usually white in color, and often contain, in addition to rubber, various gums, oils, and waxes. costs in Euro terms. Fixed costs fixed costs, n.pl the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation). continued to be tightly managed and remained at approximately last year's level in Euros.
Quarter ended
-------------------- ----------- ------------ ------------ -----------
March 2001 March 2000 % change % change
US$ million US$ million (US$) (Euros)
-------------------- ----------- ------------ ------------ -----------
Sales 470 497 ( 5) 3
-------------------- ----------- ------------ ------------ -----------
Operating profit 40 66 (39) (34)
-------------------- ----------- ------------ ------------ -----------
Operating margin (%) 9 13 - -
-------------------- ----------- ------------ ------------ -----------
EBITDA 78 107 (27) (21)
-------------------- ----------- ------------ ------------ -----------
EBITDA Margin (%) 17 22 - -
-------------------- ----------- ------------ ------------ -----------
RONOA p.a. (%) 11 17 - -
-------------------- ----------- ------------ ------------ -----------
In addition to commercial shuts during the quarter, the Gratkorn PM11 was shut for an extended period for upgrades to further enhance paper quality. The upgrade will add capacity but this will not be utilised until market conditions are suitable. North America Trading conditions in North America were particularly difficult in the quarter with pressure on coated woodfree paper volume and prices and high energy costs. The continued drain of the uncoated paper business' operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. which amounted to approximately US$10 million in the quarter further depressed the operating performance. Sales volume from our North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. mills was 6% below a year earlier and average prices achieved were at the same level but lower than the prior quarter.
Quarter ended
-------------------- ------------------ ------------- ----------------
March 2001 March 2000 %
US$ million US$ million change
-------------------- ------------------ ------------- ----------------
Sales 384 408 ( 6)
-------------------- ------------------ ------------- ----------------
Operating profit 13 43 (70)
-------------------- ------------------ ------------- ----------------
Operating margin (%) 3 11 -
-------------------- ------------------ ------------- ----------------
EBITDA 43 69 (38)
-------------------- ------------------ ------------- ----------------
EBITDA Margin (%) 11 17 -
-------------------- ------------------ ------------- ----------------
RONOA p.a. (%) 4 14 -
-------------------- ------------------ ------------- ----------------
The operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: and return on net operating assets Operating Assets Another term for working capital. were disappointing, driven by higher pulp, energy and other raw material costs. This compounded by some one-time productivity issues at Muskegon where the start-up costs, after two capital projects, were higher than expected. The prospects for the North American business' performance should be improved by lower pulp prices and the elimination of the operating problems at Muskegon mill. South Africa South Africa, Afrikaans Suid-Afrika, officially Republic of South Africa, republic (2005 est. pop. 44,344,000), 471,442 sq mi (1,221,037 sq km), S Africa. The South African fine paper business had a good quarter. Sales volumes were 8% higher than a year earlier and prices, although 10% lower in dollar terms, were higher in rands. Control of fixed costs resulted in a significant decrease of costs per ton even in nominal terms. Operating income increased 80%, compared to last year (which was very depressed), to US$9 million, increasing the operating margin to 16% and the return on net operating assets to 36%. Sappi Forest Products This division had a strong quarter. Demand in the domestic market was firm and domestic prices strengthened because of the strength of the dollar. Newsprint newsprint low grade paper used for newspapers. Old newspapers are fed to cattle as an alternative roughage and may occasionally be ingested by dogs. Significant amounts of lead are accumulated in tissues; no cases of poisoning have been recorded in cattle, though it has been prices strengthened in export markets, but pulp prices started softening in the quarter. The sales volume of continuing operations (excluding Novobord and Mining Timber) was 5% below last year and average prices were only slightly higher in dollars. Costs continued to be tightly controlled and in dollar terms the cost per ton of goods sold declined by 14%.
Quarter ended
-------------------- ------------ -------------- --------- -----------
March 2001 March 2000(a) % change % change
US$ million US$ million (US$) (Rands)
-------------------- ------------ -------------- --------- -----------
Sales 195 226 (14) 7
-------------------- ------------ -------------- --------- -----------
Operating profit 60 48 25 56
-------------------- ------------ -------------- --------- -----------
Operating margin (%) 31 21 - -
-------------------- ------------ -------------- --------- -----------
EBITDA 80 75 7 33
-------------------- ------------ -------------- --------- -----------
EBITDA Margin (%) 41 33 - -
-------------------- ------------ -------------- --------- -----------
RONOA p.a. (%) 27 17 - -
-------------------- ------------ -------------- --------- -----------
(a) Includes discontinued businesses
The improvement in operating margin and return on assets Return on assets (ROA) Indicator of profitability. Determined by dividing net income for the past 12 months by total average assets. Result is shown as a percentage. ROA can be decomposed into return on sales (net income/sales) multiplied by asset utilization (sales/assets). resulted from good cost control and the benefits of producing in a low cost country. Share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. Since the commencement of the share repurchase in December 2000, we have repurchased 10.1 million shares at an average price of R55.84 with a low of R48.10 and a high of R67.50. In accordance with JSE JSE See: Johannesburg Stock Exchange Securities Exchange rules on share buy-backs we have not purchased shares since early March. There has been strong foreign buying of Sappi shares and the spread of our shareholders is now wider than ever. When we listed on the New York stock exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. , we stated that our target was to attain 65% foreign shareholding in the company to reflect more or less the spread of our assets. At the end of April the foreign shareholding had risen to about 61%. Mobile mill The Sappi Fine Paper North America mill at Mobile, Alabama was acquired when the group bought the SD Warren Company from Scott Paper. The mill has a capacity of approximately 300,000 short tons per annum Per annum Yearly. of which 80,000 tons is coated and the balance uncoated paper. At the time of the acquisition it was intended to rebuild the mill into a coated facility when the market opportunity arose. Mobile is located on a multi-user site. The energy complex which supplies the Sappi mill and another mill is in the hands of a company which filed for chapter 11 bankruptcy protection 29 months ago after the closure of a pulp mill A pulp mill is a manufacturing facility that converts wood chips or other plant fiber source into a thick fiber board which can be shipped to a paper mill for further processing. on the site which provided fuel for the complex. As a result energy costs soared as the energy complex increased reliance on fossil fuel fossil fuel: see energy, sources of; fuel. fossil fuel Any of a class of materials of biologic origin occurring within the Earth's crust that can be used as a source of energy. Fossil fuels include coal, petroleum, and natural gas. . We cannot invest in the site without a better overall cost structure and the group has, therefore, decided to close the facility subject to the completion of a final review. Closure of Mobile would lead to a re-structuring charge of approximately US$120 million after tax in the third quarter. The restructuring charge restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. and the closure would not impact earnings before exceptional items this year. The closure would result in a positive cash generation of approximately US$30 million. Assuming that the mill had been closed in December 2000, the second quarter operating profit in North America would have increased by more than 75% to US$23 million and Sappi group earnings would have increased by 2.5 US cents a share for the quarter. Effect on customers The closure of Mobile would result in the phase-out of the production of uncoated products including the Spectratech range, which would be done in a manner to minimize the impact on customers. We intend to move the Lusterprint range of coated products to other Sappi facilities. We will be communicating with customers immediately regarding the potential effect on their business. Effect on employees Regrettably this closure would result in the loss of more than 480 jobs. The company is sensitive to the effect of such a closure on employees and will treat them accordingly. Outlook Conditions in our markets worsened in recent weeks. However, inventories in the coated paper Coated paper is paper which has been coated by an inorganic compound to impart certain qualities to the paper, including weight and surface gloss, smoothness or ink absorbency. Kaolinite is the compound most often used for coating papers used in commercial printing. pipeline are stable and demand on producers should rebound once economic prospects in the USA improve. Weakening pulp prices (NBSK NBSK Northern-Bleached Softwood Kraft has dropped to approximately US$600 per ton at the time of writing, from US$710 per ton in January) will lower the cost structure of our fine paper business but have an unfavourable impact on our forest products business, the reverse of what happened last year as pulp prices increased. The Euro/Dollar exchange rate has moved sharply recently. The strong dollar is likely to have a favourable impact on the South African business' dollar profit as prices are largely determined in dollars and costs are predominantly in rands. In Europe, however, the strong dollar has a net negative effect both on costs and the translation of profit to dollars. The sensitivity to a move of 10 US cents in the Euro/Dollar rate amounts to approximately US$40 million per annum in after tax profit. If current market and particularly currency conditions persist, earnings before exceptional items for the second half are likely to be modestly below those for the first half. Sappi ordinary shares trade on the Johannesburg Stock Exchange Johannesburg Stock Exchange (JSE) Established in 1886, the Johannesburg Stock Exchange is the only stock exchange in South Africa. Gold and mining stocks form the majority of shares listed. 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 Ticker Symbol An arrangement of characters (usually letters) representing a particular security listed on an exchange or otherwise traded publicly. When a company issues securities to the public marketplace, it selects an available ticker symbol for its securities which investors SPP (each ADR ADR - Astra Digital Radio is equal to one ordinary share). Sappi shares are also traded in London and Frankfurt. (For tabular tab·u·lar adj. 1. Having a plane surface; flat. 2. Organized as a table or list. 3. Calculated by means of a table. tabular resembling a table. information please contact Taylor Rafferty) |
|
||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion