Business News
Sappi Results for the Third Quarter Ended June 2009
Thursday 30. July 2009 - -- Net cash generated US$106 million -- Good progress on debt refinancing -- Global economy remains weak -- Production curtailed in all regions to match supply to demand -- Stronger Rand impacts SA margins unfavourably -- Basic loss per share 12 US cents -- Acquisition synergies on track
Summary
Quarter ended Nine months ended
————- —————–
June March June June June
2009 2009 2008 2009 2008
Key figures: (US$million)
Sales 1,316 1,313 1,494 3,816 4,344
Operating (loss) profit (7) 6 (23) 56 289
Special items – (gains)
losses * (6) (23) 111 (61) (12)
Operating (loss) profit
excluding special items (13) (17) 88 (5) 277
EBITDA excluding special
items ** 93 82 182 281 560
Basic (loss) Earnings Per
Share (US cents)*** (12) (7) (17) (16) 37
Net debt **** 2,770 2,735 2,667 2,770 2,667
Key ratios (%)
Operating (loss) profit
to sales (0.5) 0.5 (1.5) 1.5 6.7
Operating (loss) profit
excluding special items
to sales (1.0) (1.3) 5.9 (0.1) 6.4
Operating (loss) profit
excluding special items
to Capital (1.1) (1.6) 8.1 (0.2) 8.8
Employed (ROCE)**
EBITDA excluding special
items to sales 7.1 6.2 12.2 7.4 12.9
Return on average equity
(ROE) (%) **** (12.7) (7.5) (15.1) (5.4) 10.3
Net debt to total
capitalisation **** 57.5 59.4 61.5 57.5 61.5
— *Refer to information in the published results regarding more details
on special items
— **Refer to Supplemental Information in the published results for the
definition of the term and reconciliation of profit/ loss for the
period to EBITDA
— ***Comparative figures have been revised in accordance with IAS33 to
reflect the impact of the rights offer
— ****Refer to Supplemental Information in the published results for the
definition of the term
— The table above has not been audited or reviewed.
The quarter under review
Commenting on the results, Sappi (NYSE:SPP) chief executive Ralph Boettger said:
“Strong cash generation of US$106 million was a feature of our results for the quarter and benefited from management’s actions to reduce working capital and limit capital expenditure to essential items.
Global economic conditions remained depressed in the quarter resulting in continued weak conditions in most of our coated paper markets. Conditions in pulp markets, including the chemical cellulose markets, improved significantly in terms of both demand and US Dollar prices, late in the quarter.
Globally our sales increased marginally on the prior quarter but were 3% down on the equivalent quarter last year, despite the additional capacity from our European acquisition earlier in the year. Average selling prices realised by the group for the quarter were approximately 9% lower than average prices realised a year ago. We continued to match our supply to demand and manage our inventory levels by curtailing production during the quarter.
Prices of our inputs continued to reduce and had a favourable effect on variable costs during the quarter, in most regions. Our actions to manage raw material usage had a further favourable effect.
Operating loss excluding special items was US$13 million for the quarter, an improvement on the loss of US$17 million in the prior quarter and compares with a profit of US$88 million a year ago. Our European business returned to profitability, excluding special items, as a result of the ramp up of synergy achievement and cost reduction, despite poor operating levels. The North American business improved its performance and its run rate by the end of the quarter had returned to operating profitability excluding special items. The Southern African business was impacted by the strengthening of the Rand relative to the US Dollar, weak domestic demand and low pulp prices in the quarter, resulting in an operating loss excluding special items.
The basic loss per share for the quarter was 12 US cents compared to a loss of 17 US cents in the equivalent quarter a year ago.”
Looking forward, Boettger commented:
“Although global economic conditions remain weak we have seen improvement in pulp markets and some of our coated graphic paper export markets. In addition, inventory reduction in the coated graphic paper supply chain has largely run its course and we have started seeing order levels closer to end use demand levels. We also expect demand, particularly for reels, to strengthen during the next quarter which is historically the seasonally strongest quarter, and for our operating rates to improve in Europe and North America.
The chemical cellulose market improved markedly during our third financial quarter in terms of both demand and pricing. Sappi Saiccor Mill is responding by ramping up its production following the 30% capacity expansion commissioned last September, and expects to achieve close to full capacity by our financial year end and improve sales volumes during the next quarter as production increases.
Other factors which are expected to improve results are the achievement of further alternative fuel tax credits in North America of approximately US$40 million which will be reported as a special item, subject to continued availability under US law, accelerated synergy achievement in respect of the European acquisition integration, the benefits of fixed and variable cost reduction action and potential for some further input price reduction realisation.
Against this background, we expect to return to operating profitability excluding special items during the next quarter. Cash generation is expected to be positive for the quarter.
We will continue to focus on cash generation and debt reduction. We expect capital expenditure for the full year to be less than US$200 million and to continue to carefully manage capex at that level in order to prioritise debt reduction.
The successful completion of our refinancing will take care of our liquidity and significant debt maturities for at least the next three years. With our well structured business and decisive management action, we are strongly placed to ride out the current economic downturn and take full advantage of our leading market positions and efficient asset base when conditions improve.”