Sappi
The word for fine paper
(Registration number 1936/008963/06)
JSE Code: SAP
ISIN Code: ZAE 000006284
Results for the quarter ended December 2002
first quarter
2003
* Headline EPS 23 US cents up 64%
* Sales up 22%
* Pockets of improvement in markets
summary
+------------------------------------------------+----------+----------+----------+
| | Quarter| Quarter| Quarter|
+------------------------------------------------+----------+----------+----------+
| | ended| ended| ended|
+------------------------------------------------+----------+----------+----------+
| | Dec.| Sept.| Dec.|
+------------------------------------------------+----------+----------+----------+
| | 2002| 2002| 2001|
+------------------------------------------------+----------+----------+----------+
|Sales (US$ million) | 1,019| 1,052| 832|
+------------------------------------------------+----------+----------+----------+
|Operating profit (US$ million) | 92| 122| 65|
+------------------------------------------------+----------+----------+----------+
|EBITDA (US$ million) | 190| 219| 148|
+------------------------------------------------+----------+----------+----------+
|Operating profit to sales (%) | 9.0| 11.6| 7.8|
+------------------------------------------------+----------+----------+----------+
|EBITDA to sales (%) | 18.6| 20.8| 17.8|
+------------------------------------------------+----------+----------+----------+
|Operating profit to average net assets RONA (%) | 9.6| 13.0| 8.8|
+------------------------------------------------+----------+----------+----------+
|EPS before exceptional items (Headline)* (US | 23| 32| 14|
|cents) | | | |
+------------------------------------------------+----------+----------+----------+
|EPS (US cents) | 23| 32| 10|
+------------------------------------------------+----------+----------+----------+
|Return on equity (%) | 12.5| 18.6| 6.3|
+------------------------------------------------+----------+----------+----------+
|Net debt (US$ million) | 1,525| 1,419| 1,156|
+------------------------------------------------+----------+----------+----------+
* EPS before exceptional items (Headline) has been restated as required by the new JSE Securities Exchange South Africa
Listing Requirements. Refer to note 2 of the financial results for further details.
comment
Market conditions remained difficult with sluggish economies in our major markets. Prices for coated fine paper
remained under pressure in Europe. In North America a price increase of US$40 per short ton on web products, announced
for October 2002, was realised as prior delivery commitments expired and was in place in January 2003.
A second increase of US$40 per short ton on web and on most sheet products was announced for January 2003 and is being
implemented. Even when the increases have been fully implemented, less than half of the recent price erosion will be
recovered.
Pulp prices softened further in the quarter but now appear to have turned upwards with increases announced by major
producers in January 2003 and the price of futures also moving up.
The December quarter is typically seasonally quiet in most of our businesses as reflected by the 3% reduction in sales
relative to the September quarter. However, group sales increased 22% compared to a year earlier which would have been
10% if we had had the Potlatch fine paper business in the earlier period.
The equivalent quarter last year was impacted by the shock of
11 September and included an extraordinary cluster of maintenance shuts at our mills and is therefore a low base.
Net profit before exceptional items increased by 63% to US$52 million compared to a year earlier. Earnings per share
before exceptional items was 23 US cents up from 14 US cents in the equivalent quarter last year. Basic earnings per
share was 23 US cents.
SG&A expenses were US$81 million, up US$19 million, the largest component of which was the inclusion of the Potlatch
acquisition. It was also affected by translation to a weaker US dollar and higher insurance costs.
In the previous results announcement, we indicated that annual pension accruals would increase. This increase has been
absorbed in cost of goods sold and SG&A. We expect the impact to be approximately 1.25 US cents per quarter after tax.
Group operating profit increased 42% to US$92 million and the operating profit margin increased to 9.0% from 7.8% a
year ago.
As a result of refinancings, net finance costs of US$24 million were 4% below the equivalent quarter last year despite
increased debt following the Potlatch acquisition.
The effective tax rate for the quarter was 23.5% which is in line with our expectation for the full year.
cash flow and debt
Despite adverse market conditions, EBITDA for the quarter was a solid US$190 million, 28% higher than last year.
However, net working capital rose significantly which it usually does in the first quarter as a result of slow
deliveries during the last two weeks of December. Inventories, which rose by US$65 million, were also influenced by
deferring commercial production shuts from December to early January. Working capital was increased further by a
decrease in payables, annual pre-payment of insurance and quarterly and half-yearly interest payments.
Capital expenditure for the quarter was US$44 million, less than half of depreciation, amortisation and fellings,
however, capital commitments increased by US$27 million to US$255 million and if the business outlook improves as
anticipated, we expect capital expenditure for the full year to approach the level of depreciation. We continue to
apply our rigorous evaluation criteria to all new capital expenditure projects.
Net debt increased by US$106 million of which half was a result of translating Euro and Rand debt into US dollars at
the much weaker exchange rate of the Dollar. The translation effect of the weaker US dollar, however, increased the net
asset value of the group in US dollar terms and consequently, in spite of debt increasing, the ratio of net debt to
total capitalisation improved slightly to 36.7% compared to 37.0% in September 2002.
operating review for the quarter
sappi fine paper
+--------------------------+-----------------+-----------------+----------+
| | Quarter ended| Quarter ended| |
+--------------------------+-----------------+-----------------+----------+
| | Dec. 2002| Dec. 2001| %|
+--------------------------+-----------------+-----------------+----------+
| | US$ million| US$ million| change|
+--------------------------+-----------------+-----------------+----------+
|Sales | 862| 697| 23.7|
+--------------------------+-----------------+-----------------+----------+
|Operating profit | 57| 36| 58.3|
+--------------------------+-----------------+-----------------+----------+
|Operating margin (%) | 6.6| 5.2| -|
+--------------------------+-----------------+-----------------+----------+
|EBITDA | 133| 101| 31.7|
+--------------------------+-----------------+-----------------+----------+
|EBITDA margin (%) | 15.4| 14.5| -|
+--------------------------+-----------------+-----------------+----------+
|RONOA p.a. (%) | 7.5| 5.9| -|
+--------------------------+-----------------+-----------------+----------+
There has been some improvement in advertising spending in the major markets and this is starting to filter through to
the print media particularly in the USA.
Demand for coated fine paper was marginally higher in Europe but grew substantially in North America off the low base a
year earlier. Prices remain low relative to those prevailing two years ago.
As capacity continues to exceed demand, we have continued to curtail production to match our output to demand.
Against this background, the business improved its operating profit by 58% to US$57 million for the quarter but returns
for the business are still well below our target levels.
Europe
Demand for coated fine paper increased by 0.7% compared to a year earlier and prices remain under pressure. Our average
prices achieved in Euros for the quarter were approximately 1.5% below the September quarter reflecting lower prices in
Southern Europe and in overseas markets. Sales volumes decreased by approximately 5% compared to a year earlier.
The stronger Euro relative to the Dollar had a positive impact on the performance of the business which purchases much
of its pulp in Dollars. It also had a favourable impact on the translation of the results to Dollars.
The operating profit of US$39 million was the same as the equivalent quarter last year. The return on net operating
assets was 10.7%.
+----------------------+--------------+--------------+---------+---------+
| | Quarter ended| Quarter ended| | |
+----------------------+--------------+--------------+---------+---------+
| | Dec. 2002| Dec. 2001| % change| % change|
+----------------------+--------------+--------------+---------+---------+
| | US$ million| US$ million| (US$)| (Euro)|
+----------------------+--------------+--------------+---------+---------+
|Sales | 403| 410| (1.7)| (12.2)|
+----------------------+--------------+--------------+---------+---------+
|Operating profit | 39| 39| -| (11.4)|
+----------------------+--------------+--------------+---------+---------+
|Operating margin (%) | 9.7| 9.5| -| -|
+----------------------+--------------+--------------+---------+---------+
|EBITDA | 82| 77| 6.5| (4.7)|
+----------------------+--------------+--------------+---------+---------+
|EBITDA margin (%) | 20.3| 18.8| -| -|
+----------------------+--------------+--------------+---------+---------+
|RONOA p.a. (%) | 10.7| 11.9| -| -|
+----------------------+--------------+--------------+---------+---------+
North America
The North American business has reported a modest operating profit but returns are still disappointing.
Price realisation was slower than expected, however, sales volumes improved and on a pro forma basis, including the
Potlatch fine paper business in the comparative figure, were 21% above a year earlier.
Costs were impacted by higher wood costs, an increase in energy costs and higher accruals for post retirement costs.
The business continues to achieve the synergies of the Potlatch fine paper acquisition and we are confident of
achieving the identified benefits during this year.
+--------------------------+-----------------+-----------------+----------+
| | Quarter ended| Quarter ended| |
+--------------------------+-----------------+-----------------+----------+
| | Dec. 2002| Dec. 2001| %|
+--------------------------+-----------------+-----------------+----------+
| | US$ million| US$ million| change|
+--------------------------+-----------------+-----------------+----------+
|Sales | 400| 239| 67.4|
+--------------------------+-----------------+-----------------+----------+
|Operating profit | 9| (10)| -|
+--------------------------+-----------------+-----------------+----------+
|Operating margin (%) | 2.3| (4.2)| -|
+--------------------------+-----------------+-----------------+----------+
|EBITDA | 40| 15| 166.7|
+--------------------------+-----------------+-----------------+----------+
|EBITDA margin (%) | 10.0| 6.3| -|
+--------------------------+-----------------+-----------------+----------+
|RONOA p.a. (%) | 2.4| (3.8)| -|
+--------------------------+-----------------+-----------------+----------+
Fine Paper SA
The Southern African business experienced strong demand for the quarter. The strengthening of the Rand relative to
major competitor's currencies has increased competitor activity in the local market and put pressure on prices.
Operating profit increased 28.6% to
US$9 million and the return on net operating assets increased to 36%.
+--------------------------+-----------------+-----------------+----------+
| | Quarter ended| Quarter ended| |
+--------------------------+-----------------+-----------------+----------+
| | Dec. 2002| Dec. 2001| %|
+--------------------------+-----------------+-----------------+----------+
| | US$ million| US$ million| change|
+--------------------------+-----------------+-----------------+----------+
|Sales | 59| 48| 22.9|
+--------------------------+-----------------+-----------------+----------+
|Operating profit | 9| 7| 28.6|
+--------------------------+-----------------+-----------------+----------+
|Operating margin (%) | 15.3| 14.6| -|
+--------------------------+-----------------+-----------------+----------+
|EBITDA | 11| 9| 22.2|
+--------------------------+-----------------+-----------------+----------+
|EBITDA margin (%) | 18.6| 18.8| -|
+--------------------------+-----------------+-----------------+----------+
|RONOA p.a. (%) | 36.0| 31.1| -|
+--------------------------+-----------------+-----------------+----------+
forest products
Local demand for Kraft products was firm, driven by strong activity in export fruit packaging but global demand and
pricing was weak. In the dissolving pulp market, excess capacity and aggressive competitors' pricing drove prices down.
However, demand in the non-woven textile sector is strong and most viscose staple fibre plants are running at full
capacity. Demand for unbleached Kraft pulp softened further in the quarter and prices were below expectation.
The operating profit increased by 54.5% to US$34 million in the quarter representing a 16.9% return on net operating
assets.
+----------------------+--------------+--------------+---------+---------+
| | Quarter ended| Quarter ended| | |
+----------------------+--------------+--------------+---------+---------+
| | Dec. 2002| Dec. 2001| % change| % change|
+----------------------+--------------+--------------+---------+---------+
| | US$ million| US$ million| (US$)| (Rand)|
+----------------------+--------------+--------------+---------+---------+
|Sales | 157| 135| 16.3| 12.5|
+----------------------+--------------+--------------+---------+---------+
|Operating profit | 34| 22| 54.5| 49.8|
+----------------------+--------------+--------------+---------+---------+
|Operating margin (%) | 21.7| 16.3| -| -|
+----------------------+--------------+--------------+---------+---------+
|EBITDA | 56| 40| 40.0| 35.6|
+----------------------+--------------+--------------+---------+---------+
|EBITDA Margin (%) | 35.7| 29.6| -| -|
+----------------------+--------------+--------------+---------+---------+
|RONOA p.a. (%) | 16.9| 11.9| -| -|
+----------------------+--------------+--------------+---------+---------+
outlook
The outlook for the world economy for the balance of this year remains uncertain.
It looks as if the pulp price cycle has passed through a trough and first price increases have been implemented from 1
February by major producers. Pulp prices translated to non-Dollar currencies dropped much more because of the weakness
of the US dollar increasing pressure on non-Dollar producers. With consumer and producer pulp inventories in December
2002 at low levels, there should therefore be scope for further increases. The announced closure of a major dissolving
pulp mill in the USA is expected to tighten the supply demand balance in that sector which will benefit our business.
An improvement in demand for coated fine paper depends on a sustained increase in advertising in the print media. There
are some signs that this process may have started. Advertising has started to increase in the USA with an approximately
9% increase in advertising pages reported for November and December compared to a year earlier after a slight decline
in October. In Europe the return to growth is expected to be slower.
We expect the performance of our North American business to continue to improve as the benefits of the acquisition are
achieved and the announced price increases are implemented. A stronger Euro will help our European business which is
expected to experience sluggish markets. Although our Southern African businesses remain very competitive, the current
weakness of the US dollar will have some impact on their margins.
In the second quarter, we expect market conditions to be slow and we will incur the costs of extended shuts to rebuild
a machine at Somerset. Earnings per share for the quarter are therefore expected to be similar to the first quarter. We
still expect earnings for the full year to show some improvement over last year.
On behalf of the Board
E van As
Director
D G Wilson
Director
31 January 2003
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 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), 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.
definitions
Debt/total capitalisation - current and non-current interest-bearing borrowings, and bank overdrafts (net of cash, cash
equivalents and short-term deposits), divided by shareholders' equity plus minority interest, non-current liabilities,
current interest-bearing borrowings and overdraft
EBITDA - earnings before interest, tax, depreciation, amortisation and fellings (before non-trading profit/loss)
EBITDA Margin - EBITDA divided by sales
Fellings - the amount charged against the income statement representing the standing cost of the plantations harvested
Headline earnings - as defined in circular 7/2002 issued by South African Institute of Chartered Accountants, separates
from earnings all items of a capital nature. It is not neccessarily a measure of sustainable earnings. It is a listing
requirement of the JSE Securities Exchange South Africa to disclose headline earnings per share
Net asset value - shareholders' equity plus net deferred tax
Net assets - total assets less current liabilities
NOPAT - net operating profit after current tax
ROE - return on average equity. Net profit divided by average shareholders' equity
RONA - operating profit divided by average net assets
RONOA - operating profit divided by average net operating assets, which are total assets (excluding deferred taxation
and cash) less current liabilities (excluding interest-bearing borrowings and bank overdraft)
Financial results for the
quarter ended December 2002
group income statement
+--------------------------------------+---------------+---------------+------------+
| | Reviewed| Reviewed| |
+--------------------------------------+---------------+---------------+------------+
| | Quarter| Quarter| |
+--------------------------------------+---------------+---------------+------------+
| | ended| ended| |
+--------------------------------------+---------------+---------------+------------+
| | Dec. 2002| Dec. 2001| |
+--------------------------------------+---------------+---------------+------------+
| | US$ million| US$ million| % change|
+--------------------------------------+---------------+---------------+------------+
|Sales | 1,019| 832| 22.5|
+--------------------------------------+---------------+---------------+------------+
|Cost of sales * | 846| 705| |
+--------------------------------------+---------------+---------------+------------+
|Gross profit | 173| 127| 36.2|
+--------------------------------------+---------------+---------------+------------+
|Selling, general and administrative | 81| 62| |
|expenses * | | | |
+--------------------------------------+---------------+---------------+------------+
|Operating profit | 92| 65| 41.5|
+--------------------------------------+---------------+---------------+------------+
|Non-trading loss | - | 12| |
+--------------------------------------+---------------+---------------+------------+
|Net finance costs | 24| 25| |
+--------------------------------------+---------------+---------------+------------+
|Net paid | 25| 25| |
+--------------------------------------+---------------+---------------+------------+
|Capitalised | (6)| (7)| |
+--------------------------------------+---------------+---------------+------------+
|Net foreign exchange losses | 5| 7| |
+--------------------------------------+---------------+---------------+------------+
|Mark-to-market of financial | - | - | |
|instruments | | | |
+--------------------------------------+---------------+---------------+------------+
|Profit before tax | 68| 28| |
+--------------------------------------+---------------+---------------+------------+
|Taxation - current | 14| (9)| |
+--------------------------------------+---------------+---------------+------------+
| - deferred | 2| 15| |
+--------------------------------------+---------------+---------------+------------+
|Net profit | 52| 22| 136.4|
+--------------------------------------+---------------+---------------+------------+
|EBITDA | 190| 148| 28.4|
+--------------------------------------+---------------+---------------+------------+
|Basic earnings per share | 23| 10| |
|(US cents) | | | |
+--------------------------------------+---------------+---------------+------------+
|Earnings before exceptional items | 23| 14| |
|(Headline earnings) per share (US | | | |
|cents) ** | | | |
+--------------------------------------+---------------+---------------+------------+
|Weighted average number of | | | |
+--------------------------------------+---------------+---------------+------------+
|shares in issue (millions) | 230.1| 229.7| |
+--------------------------------------+---------------+---------------+------------+
|Diluted earnings per share | 22| 9| |
|(US cents) | | | |
+--------------------------------------+---------------+---------------+------------+
|Diluted earnings before exceptional | | | |
|items | | | |
+--------------------------------------+---------------+---------------+------------+
|(Headline earnings) per share (US | 22| 14| |
|cents) ** | | | |
+--------------------------------------+---------------+---------------+------------+
+--------------------------------------+---------------+---------------+------------+
|Weighted average number of shares on | 233.1| 233.2| |
|fully diluted basis (millions) | | | |
+--------------------------------------+---------------+---------------+------------+
|Calculation of Earnings before | | | |
+--------------------------------------+---------------+---------------+------------+
|exceptional items (Headline) net of | | | |
|tax ** | | | |
+--------------------------------------+---------------+---------------+------------+
|Net profit | 52| 22| |
+--------------------------------------+---------------+---------------+------------+
|Mill closure costs | - | 4| |
+--------------------------------------+---------------+---------------+------------+
|Debt restructuring costs | - | 6| |
+--------------------------------------+---------------+---------------+------------+
|Earnings before exceptional items | 52| 32| |
|(Headline) | | | |
+--------------------------------------+---------------+---------------+------------+
* Reallocation of delivery charges. Refer to note 3 for further details.
** Earnings before exceptional items (Headline) has been restated as required by the new JSE Securities Exchange South
Africa Listing Requirements. Refer to note 2 for further details.
group balance sheet
+---------------------------------------------+---------------+---------------+
| | Reviewed| Audited|
+---------------------------------------------+---------------+---------------+
| | Dec. 2002| Sept. 2002|
+---------------------------------------------+---------------+---------------+
| | US$ million| US$ million|
+---------------------------------------------+---------------+---------------+
|ASSETS | | |
+---------------------------------------------+---------------+---------------+
|Non-current assets | 3,826| 3,639|
+---------------------------------------------+---------------+---------------+
|Property, plant and equipment | 3,317| 3,189|
+---------------------------------------------+---------------+---------------+
|Plantations | 364| 298|
+---------------------------------------------+---------------+---------------+
|Deferred taxation | 6| 6|
+---------------------------------------------+---------------+---------------+
|Other non-current assets | 139| 146|
+---------------------------------------------+---------------+---------------+
|Current assets | 1,219| 1,002|
+---------------------------------------------+---------------+---------------+
|Cash and cash equivalents | 186| 161|
+---------------------------------------------+---------------+---------------+
|Trade and other receivables | 411| 320|
+---------------------------------------------+---------------+---------------+
|Inventories | 622| 521|
+---------------------------------------------+---------------+---------------+
|Total assets | 5,045| 4,641|
+---------------------------------------------+---------------+---------------+
|EQUITY AND LIABILITIES | | |
+---------------------------------------------+---------------+---------------+
|Shareholders' equity | | |
+---------------------------------------------+---------------+---------------+
|Ordinary shareholders' interest | 1,726| 1,601|
+---------------------------------------------+---------------+---------------+
|Minority interest | 2| 2|
+---------------------------------------------+---------------+---------------+
|Non-current liabilities | 2,208| 2,110|
+---------------------------------------------+---------------+---------------+
|Interest-bearing borrowings | 1,493| 1,455|
+---------------------------------------------+---------------+---------------+
|Deferred taxation | 441| 399|
+---------------------------------------------+---------------+---------------+
|Other non-current liabilities | 274| 256|
+---------------------------------------------+---------------+---------------+
|Current liabilities | 1,109| 928|
+---------------------------------------------+---------------+---------------+
|Interest-bearing borrowings and bank | 218| 125|
|overdraft | | |
+---------------------------------------------+---------------+---------------+
|Other current liabilities | 891| 803|
+---------------------------------------------+---------------+---------------+
|Total equity and liabilities | 5,045| 4,641|
+---------------------------------------------+---------------+---------------+
|Number of shares in issue at balance sheet | 229.9| 230.2|
|date (millions) | | |
+---------------------------------------------+---------------+---------------+
|Net debt (US$ million) | 1,525| 1,419|
+---------------------------------------------+---------------+---------------+
|Net debt to total capitalisation (%) | 36.7| 37.0|
+---------------------------------------------+---------------+---------------+
|Net asset value per share (US$) | 9.40| 8.66|
+---------------------------------------------+---------------+---------------+
group cash flow statement
+--------------------------------------------------+---------------+---------------+
| | Reviewed| Reviewed|
+--------------------------------------------------+---------------+---------------+
| | Quarter| Quarter|
+--------------------------------------------------+---------------+---------------+
| | ended| ended|
+--------------------------------------------------+---------------+---------------+
| | Dec. 2002| Dec. 2001|
+--------------------------------------------------+---------------+---------------+
| | US$ million| US$ million|
+--------------------------------------------------+---------------+---------------+
|Cash generated by operations | 176| 130|
+--------------------------------------------------+---------------+---------------+
|Movement in working capital | (142)| (100)|
+--------------------------------------------------+---------------+---------------+
|Net finance costs | (30)| (32)|
+--------------------------------------------------+---------------+---------------+
|Taxation paid | (5)| (1)|
+--------------------------------------------------+---------------+---------------+
|Cash utilised by operating activities | (1)| (3)|
+--------------------------------------------------+---------------+---------------+
|Cash effects of investing activities | (40)| (63)|
+--------------------------------------------------+---------------+---------------+
| | (41)| (66)|
+--------------------------------------------------+---------------+---------------+
|Cash effects of financing activities | 56| (115)|
+--------------------------------------------------+---------------+---------------+
|Net movement in cash and cash equivalents | 15| (181)|
+--------------------------------------------------+---------------+---------------+
group statement of changes in shareholders' equity
+----------------------------------------------+---------------+---------------+
| | Reviewed| Reviewed|
+----------------------------------------------+---------------+---------------+
| | Quarter| Quarter|
+----------------------------------------------+---------------+---------------+
| | ended| ended|
+----------------------------------------------+---------------+---------------+
| | Dec. 2002| Dec. 2001|
+----------------------------------------------+---------------+---------------+
| | US$ million| US$ million|
+----------------------------------------------+---------------+---------------+
|Balance - beginning of year | 1,601| 1,503|
+----------------------------------------------+---------------+---------------+
|Net profit | 52| 22|
+----------------------------------------------+---------------+---------------+
|Foreign currency translation reserve | 154| (193)|
+----------------------------------------------+---------------+---------------+
|Revaluation of derivative instruments | (11)| 14|
+----------------------------------------------+---------------+---------------+
|Dividends declared - US$0.28 | | |
+----------------------------------------------+---------------+---------------+
| (2002: US$0.26) per share | (65)| (60)|
+----------------------------------------------+---------------+---------------+
|(Share buybacks) net transfers | | |
+----------------------------------------------+---------------+---------------+
| to share purchase trust | (5)| 1|
+----------------------------------------------+---------------+---------------+
|Balance - end of period | 1,726| 1,287|
+----------------------------------------------+---------------+---------------+
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 2002.
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.
2. Headline Earnings per share calculation
The headline earnings per share calculation has been restated as required by the new JSE Securities Exchange South
Africa Listing Requirements. These require that all companies comply with circular 7/2002 issued by the South African
Institute of Chartered Accountants.
For Sappi the only change in the headline earnings calculation is that there are no longer any adjustments for the
movement in restructuring provisions. Headline earnings are still adjusted for the movement in provisions relating to
the closure of a business.
The impact for this quarter is negligible (September 2002: increased by 2 US cents to 32 US cents; December 2001:
impact was negligible) for headline earnings per share. Similarly the impact for this quarter for diluted headline
earnings per share was negligible (September 2002: increased by 3 US cents to 33 US cents; December 2001: increased by
1 US cents to 14 US cents).
3. Reallocation of costs
In prior years, a portion of delivery charges was included in selling, general and administrative expenses. It is now
considered more appropriate to reflect all delivery charges under cost of sales. The effect is to increase cost of
sales and decrease selling, general and administrative expenses by US$20 million for the quarter (September quarter
2002: US$21 million; December quarter 2001:
US$16 million).
notes to the group results
+-----------------------------------------+---------------+---------------+
| | Reviewed| Reviewed|
+-----------------------------------------+---------------+---------------+
| | Quarter| Quarter|
+-----------------------------------------+---------------+---------------+
| | ended| ended|
+-----------------------------------------+---------------+---------------+
| | Dec. 2002| Dec. 2001|
+-----------------------------------------+---------------+---------------+
| | US$ million| US$ million|
+-----------------------------------------+---------------+---------------+
|4. Operating profit | | |
+-----------------------------------------+---------------+---------------+
|Included in operating profit are: | | |
+-----------------------------------------+---------------+---------------+
|Depreciation | 85| 72|
+-----------------------------------------+---------------+---------------+
|Fellings | 8| 7|
+-----------------------------------------+---------------+---------------+
|Amortisation | 5| 4|
+-----------------------------------------+---------------+---------------+
| | 98| 83|
+-----------------------------------------+---------------+---------------+
|5. Capital expenditure | | |
+-----------------------------------------+---------------+---------------+
|Property, plant and equipment | 38| 62|
+-----------------------------------------+---------------+---------------+
|Plantations | 6| 5|
+-----------------------------------------+---------------+---------------+
| | 44| 67|
+-----------------------------------------+---------------+---------------+
| | Reviewed| Audited|
+-----------------------------------------+---------------+---------------+
| | Dec. 2002| Sept. 2002|
+-----------------------------------------+---------------+---------------+
| | US$ million| US$ million|
+-----------------------------------------+---------------+---------------+
|6. Capital commitments | | |
+-----------------------------------------+---------------+---------------+
|Contracted but not provided | 95| 55|
+-----------------------------------------+---------------+---------------+
|Approved but not contracted | 160| 173|
+-----------------------------------------+---------------+---------------+
| | 255| 228|
+-----------------------------------------+---------------+---------------+
|7. Contingent liabilities | | |
+-----------------------------------------+---------------+---------------+
|Guarantees and suretyships | 69| 66|
+-----------------------------------------+---------------+---------------+
|Other contingent liabilities | 12| 14|
+-----------------------------------------+---------------+---------------+
regional information
+-----------------------------+---------------------------+------------+------------+---------+
| | | Reviewed| Reviewed| |
+-----------------------------+---------------------------+------------+------------+---------+
| | | Quarter| Quarter| |
+-----------------------------+---------------------------+------------+------------+---------+
| | | ended| ended| |
+-----------------------------+---------------------------+------------+------------+---------+
| | | Dec. 2002| Dec. 2001| |
+-----------------------------+---------------------------+------------+------------+---------+
| | | US$ million| US$ million| % change|
+-----------------------------+---------------------------+------------+------------+---------+
|Sales - Metric tons (000's) | | | | |
+-----------------------------+---------------------------+------------+------------+---------+
|Fine Paper - |North America | 400| 218| 83.5|
+-----------------------------+---------------------------+------------+------------+---------+
| |Europe | 493| 518| (4.8)|
+-----------------------------+---------------------------+------------+------------+---------+
| |Southern Africa | 74| 73| 1.4|
+-----------------------------+---------------------------+------------+------------+---------+
| |Total | 967| 809| 19.5|
+-----------------------------+---------------------------+------------+------------+---------+
|Forest Products - |Pulp and paper operations | 337| 326| 3.4|
+-----------------------------+---------------------------+------------+------------+---------+
| |Forestry operations | 298| 234| 27.4|
+-----------------------------+---------------------------+------------+------------+---------+
|Total | | 1,602| 1,369| 17.0|
+-----------------------------+---------------------------+------------+------------+---------+
|Sales | | | | |
+-----------------------------+---------------------------+------------+------------+---------+
|Fine Paper - |North America | 400| 239| 67.4|
+-----------------------------+---------------------------+------------+------------+---------+
| |Europe | 403| 410| (1.7)|
+-----------------------------+---------------------------+------------+------------+---------+
| |Southern Africa | 59| 48| 22.9|
+-----------------------------+---------------------------+------------+------------+---------+
| |Total | 862| 697| 23.7|
+-----------------------------+---------------------------+------------+------------+---------+
|Forest Products - |Pulp and paper operations | 145| 126| 15.1|
+-----------------------------+---------------------------+------------+------------+---------+
| |Forestry operations | 12| 9| 33.3|
+-----------------------------+---------------------------+------------+------------+---------+
|Total | | 1,019| 832| 22.5|
+-----------------------------+---------------------------+------------+------------+---------+
|Operating profit | | | | |
+-----------------------------+---------------------------+------------+------------+---------+
|Fine Paper - |North America | 9| (10)| -|
+-----------------------------+---------------------------+------------+------------+---------+
| |Europe | 39| 39| -|
+-----------------------------+---------------------------+------------+------------+---------+
| |Southern Africa | 9| 7| 28.6|
+-----------------------------+---------------------------+------------+------------+---------+
| |Total | 57| 36| 58.3|
+-----------------------------+---------------------------+------------+------------+---------+
+------------------------------------------------------------------------+----------------+-------+-------+-------+
|Forest Products | | 34| 22| 54.5|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
|Corporate | | 1| 7| (85.7)|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
|Total | | 92| 65| 41.5|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
|Earnings before interest, tax, depreciation and amortisation charges * | | | | |
+------------------------------------------------------------------------+----------------+-------+-------+-------+
|Fine Paper - |North America | 40| 15| 166.7|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
| |Europe | 82| 77| 6.5|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
| |Southern Africa | 11| 9| 22.2|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
| |Total | 133| 101| 31.7|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
|Forest Products | | 56| 40| 40.0|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
|Corporate | | 1| 7| (85.7)|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
|Total | | 190| 148| 28.4|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
|Net operating assets | | | | |
+------------------------------------------------------------------------+----------------+-------+-------+-------+
|Fine Paper - |North America | 1,496| 1,085| 37.9|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
| |Europe | 1,507 | 1,299| 16.0|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
| |Southern Africa | 110| 80| 37.5|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
| |Total |3,113 | 2,464| 26.3|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
|Forest Products | | 895| 657| 36.2|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
|Corporate | | (46)| (86)| -|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
|Total | | 3,962 | 3,035| 30.5|
+------------------------------------------------------------------------+----------------+-------+-------+-------+
* before non-trading loss
summary rand convenience translation
+------------------------------------+--------------+--------------+-------------+
| | Unaudited| Unaudited| |
+------------------------------------+--------------+--------------+-------------+
| | Quarter| Quarter| |
+------------------------------------+--------------+--------------+-------------+
| | ended| ended| %|
+------------------------------------+--------------+--------------+-------------+
| | Dec. 2002| Dec. 2001| change|
+------------------------------------+--------------+--------------+-------------+
|Sales (ZAR million) | 9,911| 8,364| 18.5|
+------------------------------------+--------------+--------------+-------------+
|Operating profit (ZAR million) | 895| 653| 37.1|
+------------------------------------+--------------+--------------+-------------+
|Profit after taxation (ZAR million) | 506| 221| 129.0|
+------------------------------------+--------------+--------------+-------------+
|EBITDA (ZAR million) | 1,848| 1,488| 24.2|
+------------------------------------+--------------+--------------+-------------+
|Operating profit to sales (%) | 9.0| 7.8| |
+------------------------------------+--------------+--------------+-------------+
|EBITDA to sales (%) | 18.6| 17.8| |
+------------------------------------+--------------+--------------+-------------+
|Operating profit to average net | 9.7| 8.5| |
|assets (%) | | | |
+------------------------------------+--------------+--------------+-------------+
|EPS before exceptional items | | | |
+------------------------------------+--------------+--------------+-------------+
|(Headline) (SA cents) * | 224| 141| 58.9|
+------------------------------------+--------------+--------------+-------------+
|Basic EPS (SA cents) | 224| 101| 121.8|
+------------------------------------+--------------+--------------+-------------+
|EBITDA per share (SA cents) | 803| 648| 23.9|
+------------------------------------+--------------+--------------+-------------+
|Net debt (ZAR million) | 13,298| 13,768| (3.4)|
+------------------------------------+--------------+--------------+-------------+
|Net debt to total capitalisation (%)| 36.7| 35.2| |
+------------------------------------+--------------+--------------+-------------+
|Cash generated by operations | | | |
+------------------------------------+--------------+--------------+-------------+
|(ZAR million) | 1,712| 1,307| 31.0|
+------------------------------------+--------------+--------------+-------------+
|Cash utilised by operating | | | |
|activities | | | |
+------------------------------------+--------------+--------------+-------------+
|(ZAR million) | (10)| (30)| |
+------------------------------------+--------------+--------------+-------------+
|Net movement in cash and cash | | | |
|equivalents | | | |
+------------------------------------+--------------+--------------+-------------+
|(ZAR million) | 146| (1,820)| |
+------------------------------------+--------------+--------------+-------------+
|Exchange rates: | | | |
+------------------------------------+--------------+--------------+-------------+
|Period end rate: US$1 = ZAR | 8.7200| 11.9100| |
+------------------------------------+--------------+--------------+-------------+
|Average rate: US$1 = ZAR | 9.7265| 10.0530| |
+------------------------------------+--------------+--------------+-------------+
|Period end rate: EUR1 = US$ | 1.0387| 0.8833| |
+------------------------------------+--------------+--------------+-------------+
|Average rate: EUR1 = US$ | 0.9995| 0.8935| |
+------------------------------------+--------------+--------------+-------------+
* EPS before exceptional items (Headline) has been restated as required by the new JSE Securities Exchange South Africa
Listing Requirements. Refer to note 2 for further details.
This report is available on the Sappi website - www.sappi.com
Other interested parties can obtain printed copies of this report from:
South Africa:
Computershare Investor Services Limited
70 Marshall Street
Johannesburg 2001
P.O. Box 61051
Marshalltown 2107
Tel +27 (0)11 370-5000
United States
ADR Depositary:
Bank of New York
ADR Department
101 Barclay Street
New York, NY 10286
Tel +1 212 815-580
United Kingdom:
Capita IRG plc
Bourne House
34 Beckenham Road
Beckenham, Kent
BR3 4TU, DX 91750, Beckenham West
Tel +44 (0)208 639-2157
www.sappi.com
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