Sappi Ld - 2nd Quarter & Interim Results
08 Maio 2000 - 2:52PM
UK Regulatory
RNS Number:1623K
Sappi Ld
8 May 2000
NOT FOR RELEASE IN THE UNITED STATES OF AMERICA
REPORT FOR THE QUARTER ENDED 31 MARCH 2000 IN US DOLLARS
HIGHLIGHTS
* Quarterly performance year on year
* Operating income up 65%
* Earnings Per Share up 88%
* RONA exceeds 15%
* Balance sheet continues to strengthen
* Debt down $485 million since
September 1999
* Debt to total capitalisation - 35.3%
* US Dollar reporting adopted
Summary
Quarter ended Half year ended
31 March 31 Dec 31 March 31 March 31 March
2000 1999 1999 2000 1999
Sales (US$ million) 1 187 1 116 1 087 2 302 2 108
Operating income (US$ million) 165 128 100 292 178
EBITDA (US$ million) 262 227 197 489 372
Operating income to sales (%) 13.9 11.5 9.2 12.7 9.4
EBITDA to sales (%) 22.1 20.3 18.1 21.2 17.7
Operating income to average
net assets (%) 15.8 12.7 9.1 14.8 8.0
EPS before exceptional items
(Headline)(US cents) 32 26 17 58 30
EPS (US cents) 29 29 11 58 22
Net assets (US$ million) 4 091 4 267 3 967 4 091 3 967
Net Debt (US$ million) 1 553 1 856 2 429 1 553 2 429
Basis of Preparation
This interim report has been prepared in conformity with South African
Statements of Generally Accepted Accounting Practice. The same accounting
policies have been followed in this Interim Report, as were used in the
September 1999 annual financial statements.
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.
Sappi has prepared this financial report in US Dollars. The majority of the
group's sales are in US Dollars and the US Dollar is the major trading currency
of the pulp and paper industry. The directors therefore believe that the change
to US Dollar reporting will further facilitate understanding of the results.
Comment Markets
Markets for pulp and paper products have continued to improve through the
quarter.
Coated woodfree paper price increases of approximately 6% were implemented in
January and February in the USA. Much of the latter increase will only affect
results from April because of quarterly contract pricing. The upward price
trend will thus continue beyond the end of the March quarter and a further
increase of approximately 6% was implemented in Europe in April. Strong order
inflow for the industry is supported by the underlying strength in the major
economies. Inventories remain at normal levels.
NBSK pulp prices started the calendar year at $630 per ton and have increased to
$670 to $680 per ton in April for contract tonnages. Prices for spot tonnages
are significantly higher than this and reflect the tighter supply to demand
balance and the low North American/Scandinavian pulp inventory levels. The
Sappi Group is largely insulated from these pulp price increases as a result of
its pulp sales almost matching its pulp purchases.
Operating review for the three months to 31 March 2000
The group's headline earnings per share for the quarter improved significantly
compared to the equivalent quarter last year and the prior quarter reflecting
strong demand, improved prices and efficiencies.
A brief review of Sappi's businesses and regional performances follows:
Fine Paper business
Europe
Quarter ended % change
31 March 31 March
2000 1999
US$ million US$ million
Sales 477 463 3.0
Operating income 64 32 100.0
Operating margin (%) 13.4 6.9 -
EBITDA 106 77 37.7
EBITDA Margin (%) 22.2 16.6 -
RONOA p.a. (%) 17.0 7.1 -
The sales increase of 3% was made up of a sales volume increase of approximately
3% and flat prices in Dollars. Prices increased by 13% in Euro but this was
offset by the decline of the Euro against the Dollar. Despite the increase in
pulp prices, variable costs per ton in Dollars were contained to same level as
the equivalent quarter last year. The business continues to exceed the original
cost savings identified at the time of acquisition of KNP Leykam.
As a result of all these factors, operating income has doubled. The operating
margin increased to 13% and the return on net operating assets increased to 17%.
North America
Quarter ended % change
31 March 31 March
2000 1999
US$ million US$ million
Sales 426 387 10.1
Operating income 43 32 34.4
Operating margin (%) 10.1 8.3 -
EBITDA 70 66 6.1
EBITDA Margin (%) 16.4 17.1 -
RONOA p.a. (%) 14.5 10.2 -
The sales increase of 10% comprised a sales volume increase of 7% and an
increase in prices of 3%. Costs were tightly controlled so that despite pulp
price increases the cost of goods sold per ton remained unchanged from the year
earlier period.
The result was a 34% increase in operating income. The operating margin
increased to 10% and the return on net operating assets increased to 15%.
South Africa
Quarter ended % change
31 March 31 March
2000 1999
US$ million US$ million
Sales 58 56 3.6
Operating income 4 8 (50.0)
Operating margin (%) 6.9 14.3 -
EBITDA 7 11 (36.4)
EBITDA Margin (%) 12.1 19.6 -
RONOA p.a. (%) 9.8 20.8
The sales increase of 4% comprised a marginal sales volume increase and a 3%
price increase in Dollars. Prices were up 6% in Rand Terms.
The operating performance was below expectation partially as a result of
non-recurring costs, but are expected to improve in the second half. The
operating margin declined to 7% but should increase in the second half.
Forest Products business
Quarter ended % change
31 March 31 March
2000 1999
US$ million US$ million
Sales 226 181 24.9
Operating income 44 19 131.6
Operating margin (%) 19.5 10.5 -
EBITDA 71 38 86.8
EBITDA Margin (%) 31.4 21.0 -
RONOA p.a. (%) 15.1 6.1 -
The 25% sales increase comprised an increase in sales volume on 13% and price
increases of about 10% in Dollar terms, reflecting stronger local demand and
improved exports to Asia.
Performance has improved significantly as a result of tight cost control,
improved productivity, together with rising prices for the business' major
products and improving markets for dissolving pulp.
This led to a 131% increase in operating income. The operating margin increased
to 19% and return on net operating assets increased to 15%.
Group Results for the quarter to 31 March 2000
Consolidated sales for the quarter were US$1.2 billion, a 9.2% increase on the
same quarter last year. The increase comprised a 7.5% improvement in volumes
but only a 1.5% improvement in dollar prices in spite of significant increases
in local currency prices.
Operating income was up 65% to US$165 million as a result of improved sales and
lower costs per ton sold. The Forest Products business and Fine Paper Europe
reported very significant improvements in operating performance.
Net finance costs after capitalisation of interest were down 40% to US$26
million for the quarter, before inclusion of a once-off charge of US$17 million
relating to the refinancing of the North American 12% high yield debt. As a
result of refinancing, net finance costs will drop by a further US$3 million per
quarter.
The effective tax rate for the quarter was marginally higher than normal as a
result of the regional composition of income and certain specific provisions in
the quarter. The low deferred tax rate in the comparative period last year was
mainly a result of a decrease in South African tax rates. The effective rate
for the full current year is, however, expected to normalise.
Earnings before exceptional items were US$76 million for the quarter, more than
double in the same quarter last year and 25% up on the first quarter of the
current financial year.
Earnings before exceptional items per share of 32 US cents per share for the
quarter were 88% up on the same quarter last year and 23% up on the prior
quarter.
Capital Structure
The group continued to generate strong internal cash flows and the net debt
declined by a further US$303 million for the quarter without any asset
disposals. The decline was helped by limited capital expenditure and the impact
of the translation benefit resulting from the decline of the Euro against the US
Dollar.
This resulted in net debt to total capitalisation declining to 35.3% down from
44.3% in September 1999.
In March 2000 Sappi refinanced the $232 million balance of the North American
12% high yield debt at an effective interest rate of approximately 7%.
Acquisition of Minorities
The acquisition of the minorities in Leykam Murztaler was approved by Leykam
Murztaler shareholders on 9 March 2000 and should be completed during May. We
expect to complete the acquisition of the Usutu minorities during this financial
year.
Outlook
Consensus among economists is that economic growth in our major markets is
expected to remain strong for the rest of this year and 2001, and Asian growth
has recovered and is expected to be sustained.
In this industry worldwide capacity expansion remains at a low level-driven by
the focus on creating shareholder value. The supply/demand balance should
therefore continue to tighten which should lead to further improvements in
shareholder returns. Growth in demand should absorb any additional capacity
which may result from the conversion of existing machines to other grades.
E-Commerce
Sappi continues to focus on improving competitive advantage in the market.
During May 2000, we will start rolling out an integrated electronic order
management, production planning and logistics system which will implement
globally over the coming year. This system of SAP AG, for which Sappi was the
industry development partner, will enable us to give superior customer service
and to interface seamlessly with our customers through any future electronic
market place.
The momentum achieved in the first half of this year should continue in the
second half and we therefore expect earnings per share for the second half year
to be materially better than the first half. Cash generation will continue to
be strong and we expect the balance sheet to improve further.
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), currency fluctuations and the consequences of
Year 2000 non-compliance and introduction of the euro. 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.
Summary Statistics - US Dollar
31 March 2000
Quarter ended Half year ended
31 March 31 Dec 31 March 31 March 31 March
2000 1999 1999 2000 1999
Sales (US$ million) 1,187 1,116 1,087 2,302 2,108
Operating income
(US$ million) 165 128 100 292 178
EBITDA (US$ million) 262 227 197 489 372
Operating income to sales
(%) 13.9 11.5 9.2 12.7 8.4
EBITDA to sales (%) 22.1 20.3 18.1 21.2 17.7
Operating income to average
net assets (%) 15.8 12.7 9.1 14.8 8.0
EPS before exceptional items
(Headline)(US cents) 32 26 17 58 30
EPS (US cents) 29 29 11 56 22
Net assets (US$ million) 4,091 4,267 3,967 4,091 3,967
Net Debt (US$ million) 1,553 1,856 2,429 1,563 2,429
Interim Results - Three and Six months ended 31 March 2000
Consolidated Income Statement - US Dollar
Unaudited Half year
Quarter ended ended
31 Mar 00 31 Mar 99 % 31 Mar 00 31 Mar 99 %
US$million US$million change US$million US$million change
Sales 1,187 1,087 9.2 2,302 2,108 9.2
Cost of goods sold 838 823 1,653 1,589
Gross profit 349 264 32.2 649 519 25.1
Depreciation 84 86 167 170
Selling, general &
administrative
expenses 100 78 190 171
Operating income 165 100 65.0 292 178 64.0
Non-trading income
(loss) (1) (14) 4 (22)
Net finance costs 43 43 70 85
Paid 63 53 89 110
Capitalised (10) (10) (19) (25)
Income before
taxation 121 43 181.4 226 71 218.3
Taxation - current 24 16 36 31
- deferred 23 (1) 47 (15)
Income after
taxation 74 28 164.3 143 55 160.0
Income attributable
to minority
interests 4 2 7 5
Net income 70 26 169.2 136 50 172.0
EBITDA 262 197 33.0 489 372 31.5
Basic earnings per
share (cents) 29 11 58 22
Earnings before
exceptional items
(Headline earnings)
per share (cents) 32 17 58 30
Weighted average
number of shares in
issue (millions) 239.1 223.8 234.8 223.8
Diluted earnings per
share (cents) 29 11 57 22
Diluted earnings before
exceptional items
(Headline earnings)
per share (cents) 31 16 67 29
Weighted average number
of shares on fully
diluted basis
(millions) 244.8 230.3 240.4 230.1
Calculation of Earnings
before exceptional
items (Headline)
net of tax
Net income 70 26 136 50
(Profit)loss on
disposal of business
and fixed assets 1 - (2) 3
Accelerated cost of
early buy back of loan
notes 11 - 11 -
(Decrease)increase in
other provisions (6) 11 (9) 13
Earnings before
exceptional items
(Headlines) 76 37 136 66
Interim Results - Three and Six months ended 31 March 2000
Consolidated Balance Sheet - US Dollar
Unaudited at Audited at
31 March 2000 30 September 1999
US$million US$million
Funds employed
Ordinary shareholders' interest 1,698 1,559
Minority interests 141 155
Long-term borrowings 1,541 1,376
Other long-term liabilities 237 245
Deferred taxation 474 454
4,091 3,789
Employment of funds
Fixed assets 3,376 3,665
Plantations and Timberlands 389 406
Deferred taxation 64 69
Other non-current assets 193 184
Current assets 1,190 1,154
Bank balances and deposits 291 154
Collateral deposits - 104
Other current assets 899 896
Total assets 5,212 5,478
Current Liabilities 1,121 1,689
Interest bearing liabilities 136 698
Bank overdraft 167 118
Other current liabilities 818 873
4,091 3,789
Number of shares in issue (millions) 239.1 224.6
Net Debt (US$ million) 1,553 2,038
Net Debt to Total Capitalisation (%) 35.3 44.3
Net asset value per share (cents) 882 866
Interim Results - Six months ended 31 March 2000
Consolidated Cash Flow Statement - US Dollar
Unaudited
Half year ended
31 March 2000 31 March 1999
US$ million US$ million
Cash generated by operations 498 320
Movement in working capital (56) (143)
Net finance cost (89) (110)
Taxation (8) (28)
Dividends paid (44) (38)
Cash retained from operating
vehicles 301 1
Cash effects of investing activities 4 62
305 63
Cash effects of financing activities (156) (371)
Net movement in cash and cash
equivalents 149 (308)
Interim Results - Three and Six months ended 31 March 2000
Consolidated Statement of Changes in Shareholders' Equity - US Dollar
Unaudited Unaudited
31 March 2000 31 March 1999
Total Total
US$ million US$ million
Balance at 1 October 1,559 1,597
Income before minority interests 143 55
Income attributable to minority
interests (7) (5)
Foreign currency translation reserve (112) (160)
Issuance of ordinary shares 116 -
Goodwill written off to equity (1) (6)
Balance at 31 March 1,698 1,481
Results - Three and Six months ended 31 March 2000
Regional Information - US Dollar
Unaudited
Quarter ended Half year ended
31 Mar 00 31 Mar 99 % 31 Mar 00 31 Mar 99 %
US$million US$million change US$million US$million change
Sales - tons
Fine paper
North America 359 334 7.3 701 642 9.2
Europe 566 552 2.5 1,113 1,034 7.7
Southern Africa 64 64 0.2 135 126 7.4
Total 988 950 4.0 1,950 1,802 8.2
Forest Products 712 631 12.8 1,361 1,208 12.6
Total 1,700 1,582 7.5 3,310 3,010 10.0
Sales
Fine Paper
North America 426 387 10.1 826 755 9.4
Europe 477 463 3.0 929 898 3.5
Southern Africa 58 56 3.6 119 111 7.2
Total 961 906 6.1 1,874 1,764 6.2
Forest Products 226 181 24.9 428 344 24.5
Total 1,187 1,087 9.2 2,302 2,108 9.2
Operating income
Fine Paper
North America 43 32 34.4 80 66 21.2
Europe 64 32 100.0 117 57 105.3
Southern Africa 4 8 (50.0) 9 15 (40.0)
Total 111 72 54.2 206 138 49.3
Forest Products 44 19 131.6 74 28 164.3
Sappi Trading &
Corporate 10 9 14.1 12 12 -
Total 165 100 65.5 292 178 64.0
Earnings before interest tax, depreciation and amortisation charges**
Fine Paper
North America 70 66 6.1 133 117 13.7
Europe 106 77 37.7 200 150 33.3
Southern Africa 7 11 (36.4) 13 19 (31.6)
Total 183 154 18.8 346 286 21.0
Forest Products 71 38 86.8 130 74 75.7
Sappi Trading &
Corporate 8 5 60.0 13 12 8.3
Total 262 197 33.0 489 372 31.5
Net operating assets
Fine Paper
North America 1,183 1,251 (5.4) 1,183 1,251 (5.4)
Europe 1,503 1,796 (16.3) 1,503 1,796 (16.3)
Southern Africa 163 154 5.8 163 154 5.8
Total 2,849 3,201 (11.0) 2,849 3,201 (11.0)
Forest Products 1,162 1,236 (6.0) 1,162 1,236 (6.0)
Sappi Trading &
Corporate 28 271 (89.7) 28 271 (90.0)
Total 4,039 4,708 (14.2) 4,039 4,708 (14.2)
** before non trading income/loss
END
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