RNS Number:1266D
Sappi Ld
4 May 2001
Johannesburg, 4th May 2001
Sappi second quarter headline earnings match last year's.
Sappi, the world's leading producer of coated fine paper, today announced
results for the second quarter 2001.
Results - Highlights
* Earnings per share before exceptional items in dollar terms match last
year despite difficult trading conditions in North American and European
markets.
* Earnings per share before exceptional items in Rand terms up 27% (up 42%
for the half year)
* Operating profit down but net profit up 7%
* Fine Paper South Africa performs well
* Forest Products continues its strong performance
* Inventory levels held through curtailed production
* Cash flows remain strong
* Share buy back successful
* Mobile Mill to close
The geographic diversity of Sappi's operations has helped the group during a
tough second quarter. In addition, the strong underlying operating
fundamentals of Sappi's businesses are reflected in the Group's above average
performance during the quarter.
Results for the Quarter
The group's net profit for the quarter increased 7% compared to the same
quarter last year to $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, but 27% up in Rand terms (half year up
42%).
Operating profit however was down 27% to $121 million because of the tough
trading conditions, particularly in North America. However, net finance costs
for the quarter were $16 million, compared to $43 million last year, which
included a $17 million charge relating to refinancing.
Taxation for the quarter was $28 million, an effective tax rate of 27 %, lower
than the prior quarter as a result of the regional mix of profit
Sales volumes of continuing operations 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 were significantly higher.
The group continued to generate a strong cash-flow (EBITDA $210 million) in
the quarter. Over 30 % of this, approximately $66 million, was used to
repurchase shares.
Capital expenditure of $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 $60 million was paid to shareholders in the form of the year 2000
dividend.
Net debt was stable during the quarter at $1 277 million and the debt to total
capitalisation ratio was 33.8%.
Operational Review
Fine Paper
Overall the performance of Sappi Fine Paper was affected by weaker demand in
Sappi's major markets combined with a decline in paper prices, resulting in
reduced margins and returns. Fine Paper continued to control inventories and
during the quarter idled more than 10 % of its coated woodfree capacity.
Fine Paper Europe experienced reduced order inflows and subsequently cut back
production levels to match customer requirements and hold inventory levels.
Although prices achieved increased 9% in Euros they were slightly lower in
dollar terms and this combined with lower volumes resulted in reduced
operating income. Fixed costs were tightly managed.
Fine Paper North America experienced particularly tough market conditions with
pressure on coated fine paper volumes and prices and high pulp and energy
costs. Sales volume was 6% down which although disappointing, still reflected
an increase in market share.
The continued drain of the uncoated fine paper business' operating loss, which
amounted to approximately $10 million, further depressed the overall North
American operating performance. The Mobile mill, where these products are
made, was acquired through the SD Warren acquisition, and is located on a
multi-user site. The energy supplier filed for bankruptcy after closure of a
pulp mill on the site, resulting in dramatically increased energy costs. Sappi
cannot invest in this site without a better overall cost structure and has
therefore decided to close the facility subject to the completion of a final
review.
Although closure of Mobile would result in a restructuring charge of
approximately $120 million after tax in the third quarter, it would result in
a positive cash generation of approximately $30 million. Assuming the mill had
been closed in December 2000, the second quarter operating profit in North
America would have increased more than 75 % to $23 million and group earnings
would have increased by 2.5 US cents per share for the quarter.
The South African fine paper business experienced a good quarter. Operating
income increased 80% to $9 million, albeit off a depressed performance in the
previous year. Operating margin increased to 16% and return on net operating
assets increased to 36%.
Forest Products
Sappi Forest Products had a strong quarter with good demand from the domestic
market and better prices due to the strong dollar. Although sales volumes were
down 5% due to the exclusion of Novobord and Mining Timber, operating profit
increased by 25% as the cost per ton of goods sold declined by 14% in dollar
terms, because of excellent cost control and the strength of the US dollar.
Share buy back
Commenting on the share buy back Finance Director, Don Wilson said that the
group had received very positive feedback from the market. Since the
commencement of the share repurchase in December 2000, Sappi repurchased 10.1
million shares at an average price of R55.84 with a low of R48.10 and a high
of R67.50.
He said that there had been strong foreign buying of Sappi shares and the
spread of shareholders is now wider than ever. When Sappi listed on the New
York stock exchange, the target was to attain 65% foreign shareholding in the
company to reflect more or less the spread of the group's assets. At the end
of April the foreign shareholding has risen to about 61%.
Prospects
Conditions in Sappi's main markets worsened in the past two months, although
inventories in the coated paper pipeline are stable and demand on producers
should rebound once economic prospects in the USA improve.
Weakening pulp prices will lower the cost structure of the fine paper business
but will have an unfavourable impact on the 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 rate amounts to approximately $40 million
per annum in after tax profit.
Commenting on Sappi's outlook Eugene van As said;
"Overall the paper and pulp sector is facing very tough macro conditions.
Whilst Sappi's fundamentals are strong and the group remains very well
positioned in all its markets, if the difficult market and currency conditions
persist, group earnings before exceptional items for the second half are
unlikely to match the first half".
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. For further information:
Robert Hope
Director Strategic Development
Sappi Limited
Tel: +27 (0) 11 407 8492
Fax: +27 (0) 11 403 1493
robho@za.sappi.com
Johan van Wyk
Corporate Affairs Manager
Sappi Limited
Tel: +27 (0) 11 407 8044
Fax: +27 (0) 11 403 8236
johanvw@za.sappi.com
SAPPI LIMITED
Summary March 2001
Quarter ended Half-year ended
March December 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 13.6 15.8 16.2 14.7 15.2
net assets (%)
Basic EPS before exceptional 32 34 32 66 58
items (Headline) (US cents)
Basic EPS (US cents) 32 34 29 66 58
EBITDA per share (US cents) 91 99 110 190 208
Net Debt (US$ million) 1,277 1,269 1,621* 1,277 1,621*
Return on Equity (%) 18.6 20.1 17.9 19.6 18.2
* Restated for reclassification of minority interest to debt
SAPPI LIMITED
Group income statements
Unaudited Unaudited
Quarter ended Half-year ended
-------- ------- ------- -------- --------
March March March March
2001 2000 2001 2000
-------- ------- ------- -------- --------
US$ US$ % US$ US$ %
million million change million million change
-------- ------- ------ -------- -------- -------
Sales 1,104 1,187 (7.0) 2,219 2,302 (3.6)
Cost of sales 891 922 1,773 1,820
-------- ------- -------- --------
Gross profit 213 265 (19.6) 446 482 (7.5)
Selling, general & 92 100 182 190
administrative expenses
-------- ------- -------- --------
Operating profit 121 165 (26.7) 264 292 (9.6)
Non-trading profit (loss) (2) (1) (3) 4
Net finance costs 16 43 40 70
-------- ------- -------- --------
Net paid 26 53 58 89
Capitalised (10) (10) (18) (19)
-------- ------- -------- --------
-------- ------- -------- --------
Profit before tax 103 121 221 226
Taxation - current 20 24 43 36
- deferred 8 23 21 47
-------- ------- -------- --------
Profit after tax 75 74 1.4 157 143 9.8
Income attributable to - 4 - 7
minority interests
-------- ------- -------- --------
Net profit 75 70 7.1 157 136 15.4
======== ======= ======== ========
EBITDA 210 262 (19.9) 447 489 (8.6)
======== ======= ======== ========
Basic earnings per share 32 29 66 58
(US cents)
Basic earnings before
exceptional items
(Headline earnings) per 32 32 66 58
share (US cents)
Weighted average number of 231.7 239.1 235.4 234.8
shares in issue (millions)
Diluted earnings per share 32 29 66 57
(US cents)
Diluted earnings before
exceptional items
(Headline earnings) per 31 31 65 57
share (US cents)
Weighted average number of
shares on fully
diluted basis (millions) 237.0 244.8 240.6 240.4
Calculation of Earnings
before exceptional items
(Headline) net of tax
Net profit 75 70 157 136
Profit on disposal of 1 1 1 (2)
business and fixed assets
Accelerated cost of early - 11 - 11
buy back of loan notes
Decrease in other (2) (6) (3) (9)
provisions
-------- ------- -------- --------
Earnings before 74 76 155 136
exceptional items
(Headline)
-------- ------- -------- --------
SAPPI LIMITED
Group balance sheet
Unaudited Audited
March 2001 September 2000
---------------------- -------------------------
US$ million US$ million
---------------------- -------------------------
ASSETS
Non-current assets 3,481 3,600
---------------------- -------------------------
Property, plant and 3,017 3,095
equipment
Plantations 350 372
Deferred taxation 35 37
Other non-current assets 79 96
---------------------- -------------------------
Current assets 1,116 1,168
---------------------- -------------------------
Cash and cash equivalents 190 294
Trade and other receivables 333 319
Inventories 593 555
---------------------- -------------------------
---------------------- -------------------------
Total assets 4,597 4,768
====================== =========================
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders' 1,584 1,618
interest
Minority interest 4 53
Non-current liabilities 1,935 1,996
---------------------- -------------------------
Long-term borrowings 1,207 1,278
Deferred taxation 506 500
Other long-term liabilities 222 218
---------------------- -------------------------
Current liabilities 1,074 1,101
---------------------- -------------------------
Interest bearing 243 162
liabilities
Bank overdraft 17 76
Other current liabilities 814 863
---------------------- -------------------------
---------------------- -------------------------
Total equity and 4,597 4,768
liabilities
====================== =========================
Number of shares in issue 230.6 239.1
(millions)
Net Debt (US$ million) 1,277 1,270 *
Net Debt to Total 33.8 32.5 *
Capitalisation (%)
Net asset value per share 891 870
(US cents)
* - Restated for reclassification of minority interest to debt in March
2001, as if processed in September 2000.
SAPPI LIMITED
Group cash flow statement
Unaudited Unaudited
Half-year ended Half-year ended
March 2001 March 2000
---------------------- -------------------------
US$ million US$ million
---------------------- -------------------------
Cash generated by 433 498
operations
Movement in working capital (123) (56)
Net finance costs (58) (89)
Taxation paid (9) (8)
Dividends paid (60) (44)
---------------------- -------------------------
Cash retained from 183 301
operating activities
Cash effects of investing (137) 4
activities
---------------------- -------------------------
46 305
Cash effects of financing (148) (156)
activities
---------------------- -------------------------
Net movement in cash and (102) 149
cash equivalents
====================== =========================
SAPPI LIMITED
Group statement of changes in shareholders' equity
Unaudited Unaudited
Half-year ended Half-year ended
March 2001 March 2000
---------------------- -------------------------
US$ million US$ million
---------------------- -------------------------
Balance - beginning of year 1,618 1,463
Changes in accounting 8 (27)
policies
---------------------- -------------------------
Balance - beginning of year 1,626 1,436
restated
Net profit 157 136
Foreign currency (72) (92)
translation reserve
Dividends declared - US$ (60) (45)
0.25 (2000: US$ 0.19) per
share
Goodwill written off to - (1)
equity
(Share buybacks) / Issuance (62) 114
of ordinary shares
Loss on transfer of shares (5) -
to Share Purchase Trust
---------------------- -------------------------
Balance - end of year 1,584 1,548
====================== =========================
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 2000, except for new or revised accounting
standards adopted in the first quarter of the current year.
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 Unaudited
Quarter ended Half-year ended
------------ ------------ ------------- -----------
March 2001 March 2000 March 2001 March 2000
----------- ------------ ------------- -----------
US$ million US$ million US$ million US$ million
----------- ----------- ------------- -----------
2.Cost of sales
Included in cost of sales are:
Depreciation 76 84 156 167
Fellings 8 8 16 19
------------ ------------ ------------- --------------
84 92 172 186
------------ ------------ ------------- --------------
3. Capital expenditure
Fixed assets 137 72
Plantations 14 16
------------- --------------
151 88
------------- --------------
Unaudited Audited
Half-year Year ended
ended
------------- -------------
March 2001 September 2000
------------- -------------
US$ million US$ million
------------- -------------
4. Capital Commitments
Contracted but not provided 116 73
Approved but not contracted 162 150
------------- --------------
278 223
------------- --------------
5. Contingent liabilities
Guarantees and suretyships 53 80
Other contingent liabilities 61 46
--------------- ------ ------------ ------------ ------------- --------------
SAPPI LIMITED
Regional Information
Unaudited Unaudited
Quarter ended Half-year ended
-------- -------- ------- -------- ---------- -------
March March March March 2000
2001 2000 2001
-------- -------- ------- -------- ---------- -------
US$ US$ % US$ US$ %
million million change million million change
-------- -------- ------- -------- --------- -------
Sales - Metric tons (000's)
Fine Paper
North America 326 346 (5.8) 654 669 (2.2)
Europe 557 580 (4.0) 1,120 1,148 (2.4)
Southern Africa 67 62 8.1 138 132 4.5
-------- -------- -------- ----------
Total 950 988 (3.8) 1,912 1,949 (1.9)
Forest Products 609 712 (14.5) 1,230 1,361 (9.6)
-------- -------- -------- ----------
Total 1,559 1,700 (8.3) 3,142 3,310 (5.1)
-------- -------- -------- ----------
Sales
Fine Paper
North America 384 408 (5.9) 779 88 (1.1)
Europe 470 497 (5.4) 936 971 (3.6)
Southern Africa 55 56 (1.8) 112 115 (2.6)
-------- -------- -------- ----------
Total 909 961 (5.4) 1,827 1,874 (2.5)
-------- -------- -------- ----------
Forest Products 195 226 (13.7) 392 428 (8.4)
-------- -------- -------- ----------
Total 1,104 1,187 (7.0) 2,219 2,302 (3.6)
-------- -------- -------- ----------
Operating profit
Fine Paper
North America 13 43 (69.8) 31 81 (61.7)
Europe 40 66 (39.4) 94 119 (21.0)
Southern Africa 9 5 80.0 15 10 50.0
-------- -------- -------- ----------
Total 62 114 (45.6) 140 210 (33.3)
Forest Products 60 48 25.0 122 81 50.6
Corporate (1) 3 (133.3) 2 1 100.0
-------- -------- -------- ----------
Total 121 165 (26.7) 264 292 (9.6)
-------- -------- -------- ----------
Earnings before interest, tax, depreciation and amortisation charges **
Fine Paper
North America 43 69 (37.7) 89 134 (33.6)
Europe 78 107 (27.1) 170 202 (15.8)
Southern Africa 10 7 42.9 19 14 35.7
-------- -------- -------- ---------
Total 131 183 (28.4) 278 350 (20.6)
Forest Products 80 75 6.7 167 137 21.9
Corporate (1) 4 (125.0) 2 2 -
-------- -------- -------- ----------
Total 210 262 (19.8) 447 489 (8.6)
-------- -------- -------- ----------
Net
operating assets
Fine Paper
North America 1,252 1,188 5.4 1,252 1,188 5.4
Europe 1,362 1,535 (11.3) 1,362 1,535 (11.3)
Southern Africa 97 129 (24.8) 97 129 (24.8)
-------- -------- -------- ----------
Total 2,711 2,852 (4.9) 2,711 2,852 (4.9)
Forest Products 860 1,084 (20.7) 860 1,084 (20.7)
Corporate (13) (13) - (13) (13) -
-------- -------- -------- ----------
Total 3,558 3,923 (9.3) 3,558 3,923 (9.3)
-------- -------- -------- ----------
**'before non trading profit (loss)
SAPPI LIMITED
Summary Rand Convenience Translation March 2001
Unaudited Unaudited
Quarter ended Half-year ended
March March % March March %
2001 2000 change 2001 2000 change
Sales (ZAR million) 8,636 7,442 16.0 17,103 14,254 20.0
Operating profit 947 1,028 (8.0) 2,035 1,808 12.5
(ZAR million)
Profit after 587 459 27.9 1,210 883 37.0
taxation
(ZAR million)
EBITDA 1,643 1,642 0.1 3,445 3,027 13.8
(ZAR million)
Operating profit to 11.0 13.9 11.9 12.7
sales (%)
EBITDA to sales (%) 19 22.1 20.1 21.3
Operating profit to 13.7 16.1 14.9 15.0
average net assets
(%)
Basic EPS before 250 197 26.7 508 356 42.5
exceptional items
(Headline)
(SA cents)
Basic EPS 253 181 39.8 506 356 42.1
(SA cents)
EBITDA per share
(SA cents) 709 687 3.2 1,464 1,290 13.5
Net debt 10,226 10,504* (2.7) 10,226 10,504* (2.7)
(ZAR million)
Net debt to total 33.8 37.4* 33.8 37.4*
capitalisation (%)
Cash generated by 3,337 3,083 8.2
operations
(ZAR million)
Cash retained from 1,410 1,864
operating
activities
(ZAR million)
Net movement in (786) 923
cash and cash
equivalents
(ZAR million)
Exchange rates :
Period end rate: 8.0075 6.4800 8.0075 6.4800
US $1 = R
Average rate: 7.8224 6.2690 7.7076 6.1917
US $1 = R
Period end rate: 1.1348 1.0358 1.1348 1.0358
US $1 = EURO
Average rate: 1.0968 1.0044 1.1295 0.9820
US $1 = EURO
* Restated for reclassification of minority interest to debt
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