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Sappi Limited results for the fourth quarter and year ended September 2012. Strategic initiatives yield solid results; good progress on debt reduction

JOHANNESBURG, Nov. 8, 2012 /PRNewswire/ --

Summary

  • Net profit US$107 million (Q4 2011 net loss US$127 million)
  • Earnings per share of 21 US cents (Q4 2011 loss per share 24 US cents)
  • Operating profit excluding special items US$118 million (Q4 2011 US$80 million)
  • Net cash generated US$203 million (Q4 2011 US$279 million)
  • Targeted net debt level reached a year early - US$1,979 million

(Logo: http://photos.prnewswire.com/prnh/20110728/MM43821LOGO

Commenting on the key financial highlights of the quarterly and year-end results, Sappi (NYSE: SPP, JSE: SAP) Chief Executive Officer Ralph Boettger said:

"Sappi posted a solid set of fourth quarter and financial year-end results. Operating profit excluding special items for the quarter was ahead of market expectations and for the full year remained at similar levels as last year. This good performance was in spite of challenging market conditions and pulp prices that were substantially lower in Dollar terms which negatively impacted on the Southern African and North American businesses.

"The European and North American paper businesses performed well during the quarter, despite tough market conditions, benefiting from our ongoing actions over the past two years to further improve customer service, reduce costs and increase efficiencies.

"Overall, the performance of the Southern African business was negatively impacted by the rescheduling of the planned maintenance shut at Saiccor Mill from the third quarter to the fourth quarter and continued weakness in the South African paper market. However, the South African paper business reduced fixed costs by 20% as a result of the restructuring initiative completed earlier in the year and improved performance compared to the same quarter last year. The business has continued to take action to position itself for improved profitability. The Chemical Cellulose (Specialised Cellulose) business performed well, generating an EBITDA excluding special items margin of 30%. Saiccor Mill also achieved record production volumes in the past year.

"I am pleased that we have achieved, a year earlier than initially indicated, our goal of reducing our net debt to below our target of US$2 billion.

"Given continued uncertainty in global financial markets, and questions around the timing of any meaningful economic recovery in our major markets, we expect trading conditions to remain challenging for the next twelve months. However, we believe that the actions we have taken in all of our paper businesses over the past two years, and the strategy of investing in higher margin, higher growth businesses such as Specialised Cellulose will enable us to continue to improve our ability to generate shareholder value in the coming year, but importantly, also position us for an acceleration of that growth in the years ahead."



Quarter ended

Year ended


Sept
2012

Sept
2011

June
2012

Sept
2012

Sept
2011

Key figures: (US$ million)






Sales

1,585

1,787

1,544

6,347

7,286

Operating profit (loss)

160

(88)

34

421

86

    Special items – (gains) losses*

(42)

168

26

(18)

318

    Operating profit excluding special items*

118

80

60

403

404

    EBITDA excluding special items*

211

183

150

772

821

    Profit (loss) for the period

107

(127)

(106)

104

(232)

Basic earnings (loss) per share (US cents)

21

(24)

(20)

20

(45)

    Net debt*

1,979

2,100

2,213

1,979

2,100







Key ratios: (%)






Operating profit (loss) to sales

10.1

(4.9)

2.2

6.6

1.2

    Operating profit excluding special items to sales

7.4

4.5

3.9

6.3

5.5

    Operating profit excluding special items to capital
    employed (ROCE)

13.0

8.1

6.4

11.4

10.5

    EBITDA excluding special items to sales

13.3

10.2

9.7

12.2

11.3

    Return on average equity (ROE)*

27.8

(30.2)

(26.5)

6.9

(13.8)

    Net debt to total capitalisation*

56.5

58.7

58.7

56.5

58.7

    Net asset value per share (US cents)

293

284

299

293

284







* Refer to the published results for details on special items, the definition of the terms and the reconciliation of EBITDA excluding special items to profit/loss for the period.


The table above has not been audited or reviewed.

The year and quarter under review

Net profit for the year amounted to US$104 million compared to a net loss of US$232 million in the prior year. The prior net loss included special item losses of US$318 million, principally related to the restructuring of the European and Southern African operations. Earnings per share were significantly better, with earnings per share of 20 US cents (including a charge of 10 US cents in respect of special items and once-off refinancing costs) compared to a loss per share of 45 US cents (including a charge of 65 US cents in respect of special items and once-off refinancing costs) in the prior year.

Operating profit excluding special items for the quarter was US$118 million, a significant improvement when compared to US$80 million in the equivalent quarter last year and US$60 million in the quarter ended June 2012. Sappi posted a net profit for the quarter of US$107 million off the back of an improved operating performance and lower interest costs as result of the refinancing undertaken in the prior quarter. Earnings per share for the quarter were 21 US cents (including a gain of 10 US cents in respect of special items) compared with a loss per share of 24 US cents (including a charge of 26 US cents in respect of special items) in the equivalent quarter last year.

During the quarter we announced the planned conversion of PM2 at the Alfeld Mill from 150,000 tons of coated fine paper to 135,000 tons of speciality paper per annum. This conversion will not only increase our capacity in a growing and higher margin specialised business, but will also improve our cost position in coated woodfree graphic paper and further reduce our graphic paper capacity in line with our strategy.

In South Africa, substantial electricity price increases from Eskom, the national electricity supplier, continued to put pressure on costs, and lower average pulp prices impacted negatively on operating performance. Post the quarter-end, we announced the decision to mothball PM4, a sackkraft and containerboard machine, at the Tugela Mill from 01 January 2013.  We are currently in a consultation process with employees at the mill regarding potential retrenchments. The asset impairment charge related to the mothballing of the machine of R76 million was taken in this quarter and is included in special items.

Net cash generated for the quarter and for the full year was lower at US$203 million (2011 US$279 million) and US$127 million (2011 US$163 million) respectively. Increased spending on the dissolving wood pulp (chemical cellulose) investments at the Ngodwana and Cloquet Mills resulted in higher capital expenditure for the quarter of US$112 million from US$103 million in equivalent quarter last year. 

Our net debt now stands at US$1,979 million compared to US$2,100 million in the equivalent quarter last year. Additionally, during the year we successfully refinanced US$700 million of debt resulting in the extension of our maturities and reduction in our finance costs. The refinancing will reduce our annual interest charge by US$45 million and our cash interest charge by US$30 million per annum. 

We have renamed the Chemical Cellulose division Sappi Specialised Cellulose to better reflect our product range and the increased importance to the group of our dissolving wood pulp business. We expect that demand will continue to grow in the coming year and beyond. The conversion of the Ngodwana and Cloquet pulp mills from hardwood kraft pulp to dissolving wood pulp continues on schedule.

Sir Nigel Rudd, who has served as a non-executive director for six years, will succeed Professor Meyer Feldberg as lead independent director on 01 January 2013, given that Professor Feldberg retires from the board at the end of December 2012, having reached the board's mandatory retirement age.

Outlook

Pulp prices, despite having recovered from their recent lows, are expected to remain lower on average in 2013 than they were in 2012. This will negatively impact our North American and Southern African businesses, which are net sellers of pulp, but will have a favourable impact on our European business which is a net buyer of pulp. 

We expect that demand for dissolving wood pulp in our Specialised Cellulose operations will continue to grow in the coming year and beyond. We believe that particularly with our additional low cost capacity, we are well positioned to take advantage of this growth. We have made further good progress in signing long-term contracts for a significant portion of our new dissolving wood pulp capacity.

We expect the first quarter results for the Southern African operations to be in line with those achieved in the fourth quarter of 2012. Operating profit in the first financial quarter of 2013 is expected to be weaker than the equivalent quarter last year as a result of lower pulp prices, slightly lower paper prices in Europe, as well as the impact of the road transport strike in South Africa. 

We expect a modest cash outflow in the important transitional year ahead due to the increase in capital expenditure on the Specialised Cellulose investments. Our finance costs will be substantially lower following the refinancing in 2012 and we expect that the net debt will end the coming year essentially flat year-on-year, barring the impact of any adverse foreign currency translations.

Additional downtime, variable costs and paper pulp purchases during the start-up phase of the Ngodwana and Cloquet projects are expected to have a negative impact of approximately US$40 million in the 2013 financial year.

Provided that there is no further deterioration in global market conditions, we expect continued profit growth, with the once-off negative operational impact of the conversion projects and the expected lower pulp prices being offset by the lower finance costs.

The full results announcement is available at www.sappi.com

There will be a conference call to which investors are invited. Full details are available at www.sappi.com using the links Investor Info; Investor Calendar; 4Q12 Financial Results

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.

The words "believe", "anticipate", "expect", "intend", "estimate", "plan", "assume", "positioned", "will", "may", "should", "risk" and other similar expressions, which are predictions of or indicate future events and future trends, which do not relate to historical matters, identify forward-looking statements. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are in some cases beyond our control and may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements (and from past results, performance or achievements). Certain factors that may cause such differences 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, input costs including raw material, energy and employee costs, and pricing);
  • the impact on our business of the global economic downturn;
  • unanticipated production disruptions (including as a result of planned or unexpected power outages);
  • changes in environmental, tax and other laws and regulations;
  • adverse changes in the markets for our products;
  • the emergence of new technologies and changes in consumer trends including increased preferences for digital media;
  • consequences of our leverage, including as a result of adverse changes in credit markets that affect our ability to raise capital when needed;
  • adverse changes in the political situation and economy in the countries in which we operate or the effect of governmental efforts to address present or future economic or social problems;
  • the impact of restructurings, investments, acquisitions, dispositions and other strategic initiatives (including related financing), any delays, unexpected costs or other problems experienced in connection with dispositions or with integrating acquisitions or implementing restructuring or strategic initiatives, and achieving expected savings and synergies; and
  • currency fluctuations.

We undertake 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.

For further information

Issued by

Andre F Oberholzer

Group Head Corporate Affairs

Sappi Limited

Tel +27 (0)11 407 8044

Mobile +27 (0)83 235 2973

[email protected]

 

Graeme Wild

Group Head Investor Relations and Sustainability

Sappi Limited

Tel +27 (0)11 407 8391

Mobile +27 (0)83 320 8624

[email protected]

 

PO Box 31560

Braamfontein

2017

South Africa

 

Tel +28 (0)11 407 8111

www.sappi.com

 

Brunswick

on behalf of Sappi Limited

Tel + 27 (0) 11 502 7300

SOURCE Sappi Limited

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