RNS Number:5637Q
Sappi Ld
28 January 2002
Sappi
Press Release
Johannesburg, 28th January 2002
Geographic spread helps Sappi in difficult first quarter
Sappi, 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."
ends
FORWARD-LOOKING STATEMENTS
Certain statements in this report that are neither reported financial results
nor other historical information, are forward-looking statements, including,
but not limited to statements that are predictions of or indicate future
events, trends, plans or objectives. Undue reliance should not be placed on
such statements because, by their nature, they are subject to known and
unknown risks and uncertainties and can be affected by other factors, that
could cause actual results and company plans and objectives to differ
materially from those expressed or implied in the forward-looking statements
(or from past results). Such risks, uncertainties and factors include, but
are not limited to the highly cyclical nature of the pulp and paper industry
(and the factors that contribute to such cyclicality, such as levels of
demand, production capacity, production and pricing), adverse changes in the
markets for the group's products, consequences of substantial leverage,
changing regulatory requirements, unanticipated production disruptions,
economic and political conditions in international markets, the impact of
investments, acquisitions and dispositions (including related financing) and
currency fluctuations. The company undertakes no obligation to publicly
update or revise any of these forward-looking statements, whether to reflect
new information or future events or circumstances or otherwise.
Released on behalf of Sappi by Brunswick, telephone +27 (0) 11-442 8803
For further information contact:
Andre F Oberholzer, Corporate Affairs and Communication Manager
Sappi Limited
+27(0) 11-407 8044 work (direct)
+27(0) 11-403 8236 fax
+27(0) 82-906 0638 cellular
andreo@za.sappi.com
Paul Leslie-Smith, Group Investor Relations Manager
Sappi Limited
+27(0) 11-407 8391 (direct)
+27(0) 11-403 1493 fax
+27(0) 82-905 0020 cellular
paulls@za.sappi.com
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 8.8 11.1 15.8
assets (%)
EPS before exceptional items 14 23 34
(Headline) (US cents)
Basic EPS (US cents) 10 20 34
Return on equity (%) 6.3 9.9 20.1
Net Debt (US$ million) 1,156 1,128 1,269
* Before Mobile closure costs
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 & 78 90
administrative expenses
__________________________________
Operating profit 65 143 (54.5)
Non-trading loss 12 1
Net finance costs 25 24
____________________
Net paid * 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 10 34
(US cents)
Earnings before exceptional items
(Headline earnings) per share 14 34
(US cents)
Weighted average number of 229.7 238.9
shares in issue (millions)
Diluted earnings per share 9 34
(US cents)
Diluted earnings before
exceptional items
(Headline earnings) per share 13 34
(US cents)
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 31 81
items (Headline)
__________________________________
* 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
US$ million December 2001 September 2001
_____________________________________________________________________________
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
December December %
US$ million 2001 2000 change
______________________________________________________________________________
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 *
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)
______________________________________________________________________________
* 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) 141 257 (45.3)
(SA cents)
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 (30) 892
(ZAR million)
Net movement in cash and cash equivalents (1,820) (642)
(ZAR million)
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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