SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the month of May, 2003
Commission file number: 1-14872
SAPPI LIMITED
(Translation of registrant's name into English)
48 Ameshoff Street
Braamfontein
Johannesburg 2001
REPUBLIC OF SOUTH AFRICA
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F. Form 20-F X Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7):
Indicate by check mark whether by furnishing the information contained in this
Form, the registrant is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes No X
If "Yes" is marked, indicated below the file number assigned to the
registrant in connection with Rule 12g3-2(b):82-
FORWARD-LOOKING STATEMENTS
In order to utilize the "Safe Harbor" provisions of the United States Private
Securities Litigation Reform Act of 1995 ("the Reform Act"), Sappi Limited
(the "Company") is providing the following cautionary statement. Except for
historical information contained herein, statements contained in this Report
on Form 6-K may constitute "forward-looking statements" within the meaning of
the Reform Act. 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. In addition, this Report on Form 6-K may include
forward-looking statements relating to the Company's potential exposure to
various types of market risks, such as interest rate risk, foreign exchange
rate risk and commodity price risk. Reliance should not be placed on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors which are in some cases beyond the control of
the Company, together with its subsidiaries (the "Group"), and may cause the
actual results, performance or achievements of the Group 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;
pulp and paper production, production capacity and pricing levels in North
America, Europe, Asia and southern Africa; any major disruption in production
at the Group's key facilities; changes in environmental, tax and other laws
and regulations; adverse changes in the markets for the Group's products; any
delays, unexpected costs or other problems experienced with any business
acquired or to be acquired; consequences of the Group's leverage; adverse
changes in the South African political situation and economy or the effect of
governmental efforts to address present or future economic or social problems;
and the impact of future investments, acquisitions and dispositions (including
the financing of investments and acquisitions) and any delays, unexpected
costs or other problems experienced in connection with dispositions. These and
other risks, uncertainties and factors are discussed in the Company's
Registration Statement on Form F-1 and other filings with the Securities and
Exchange Commission, including this Report on Form 6-K. Shareholders and
prospective investors are cautioned not to place undue reliance on these
forward-looking statements. These forward-looking statements are made as of
the date of the filing of this Report on Form 6-K and are not intended to give
any assurance as to future results. 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.
www.sappi.com
SAPPI
The word for fine paper
Results for the quarter and half-year ended March 2003
Second Quarter
2003
[GLOBE GRAPHIC]
SAPPI IS THE WORLD'S LEADING
PRODUCER OF COATED FINE PAPER
Sappi is positioned for growth.
This growth will be achieved by:
o staying focused on branded coated fine paper, the fastest growing sector
in the paper industry
o growing our leading market shares in North America and Europe and
entering new areas
o providing new innovative products and services
o continuing to improve the efficiencies of our world-class assets
o supporting the coated fine paper business with a high level of pulp
integration
========================================================================================
--------- North America 36%
SALES: WHERE THE PRODUCT IS SOLD* [pie ------ Europe 41%
chart]
------ Asia and other 9%
--------- Southern Africa 14%
--------- Coated fine paper 66%
--------- Uncoated fine paper 6%
SALES BY PRODUCT GROUP* [pie ------ Coated specialties 8%
chart]
------ Pulp 11%
------ Commodity paper 8%
--------- Other 1%
--------- North America 34%
SALES: WHERE THE PRODUCT IS [pie ------ Europe 44%
MANUFACTURED* chart]
--------- South Africa 22%
--------- Europe and ROW 12%
GEOGRAPHIC OWNERSHIP** [pie ------ Southern Africa 39%
chart]
--------- North America 49%
* for the half year ended March 2003
** at end March 2003
+ Rest of the World
========================================================================================
o EPS UP ON PRIOR QUARTER
o MARKETS REMAIN TOUGH
o EURO STRENGTH BUFFERS PERFORMANCE
o RAND STRENGTH SQUEEZES SA MARGINS
SUMMARY
QUARTER Quarter Quarter HALF-YEAR Half-year
ENDED ended ended ENDED ended
MARCH Dec. March MARCH March
2003 2002 2002 2003 2002
-----------------------------------------------------------------------------------------------------------
Sales (US$ million) 1,095 1,019 871 2,114 1,703
-----------------------------------------------------------------------------------------------------------
Operating profit (US$ million) 102 92 105 194 170
-----------------------------------------------------------------------------------------------------------
EBITDA (US$ million)* 194 190 186 384 334
-----------------------------------------------------------------------------------------------------------
Operating profit to sales (%) 9.3 9.0 12.1 9.2 10.0
-----------------------------------------------------------------------------------------------------------
EBITDA * to sales (%) 17.7 18.6 21.4 18.2 19.6
-----------------------------------------------------------------------------------------------------------
Operating profit to average 10.3 9.6 15.1 10.0 11.5
net assets (%)*
-----------------------------------------------------------------------------------------------------------
Headline EPS (US cents)* 25 23 26 48 40
-----------------------------------------------------------------------------------------------------------
EPS (US cents) 25 23 25 48 35
-----------------------------------------------------------------------------------------------------------
Return on average equity (%)* 13.0 12.5 17.8 12.8 11.3
-----------------------------------------------------------------------------------------------------------
Net debt (US$ million) 1,509 1,525 1,194 1,509 1,194
-----------------------------------------------------------------------------------------------------------
Net debt to total capitalization (%) * 35.4 36.7 36.6 35.4 36.6
-----------------------------------------------------------------------------------------------------------
* Refer to page 15, supplemental information for the definition of the term.
sappi | 1
COMMENT
Global events have led to continued uncertainty in our markets.
Pulp prices increased further in the quarter. NBSK prices increased by more
than 25% or approximately US$120 per ton in Europe from January to the end of
April. These increases have been caused at least in part by interrupted wood
supply to some USA mills as a result of poor weather, low inventories and the
strong Euro relative to the US dollar.
Pricing pressure has continued for coated fine paper in our main markets. In
North America uncertainty about demand, a surge of Asian imports and active
discounting by some competitors has resulted in slower than expected
implementation of price increases. Average prices realised for US-produced
sheet products have declined since December but imported products have shown
some price improvement. In Europe price erosion has continued despite largely
successful price increases in southern Europe.
Advertising spending, which is an important driver of coated paper demand,
remains mixed. Advertising pages in the USA increased 5.3% this quarter and
9.1% in March from a low base a year earlier. In Europe there has not been any
sustained increase in advertising spending.
Total European industry shipments of coated fine paper for the quarter
improved by 5.5%, however, shipments to western Europe were only 1.5% higher
compared to a year earlier. In the USA where there was an element of trading
down and prices declined slightly, industry shipments were down 2.4%.
Against this background, the group's sales increased 7.5% compared to the
December quarter and 25.7% compared to a year earlier, but most of the growth
can be attributed to the inclusion of the Potlatch fine paper business, which
we acquired in May last year.
Currency movements have had a major influence on our results this quarter. In
general a stronger Euro favours the trading performances of our European
business and a stronger Rand is detrimental to the Southern African business.
Because we report in US dollars a stronger Euro and a stronger Rand have a
positive translation effect on the results of the European and Southern
African businesses and lead to an increase in liabilities and assets recorded
in those currencies. The net positive effect of currency movements on
shareholders equity this quarter was US$69 million.
Net profit was marginally below the same quarter last year at US$58 million
and 11.5% above the quarter ended December. Basic and Diluted earnings per
share were 25 US cents.
Costs of goods sold have been well controlled but reflect significant
increases compared to a year ago as a result of the currency translation
effect.
2 | sappi
Selling, General and Administration (SG&A) expenses were at the same level as
the December quarter but 33% higher than a year earlier mainly as a result of
the currency impact, increased insurance and higher pension costs, and the
inclusion of the Potlatch coated paper business.
Group operating profit decreased 2.9% compared to a year earlier to US$102
million and increased 11% compared to the December quarter.
During the quarter we entered swaps for US$250 million of fixed interest debt
to floating interest which will have a beneficial impact on finance costs.
Finance costs for the quarter were US$27 million, US$3 million higher than the
December quarter, largely as a result of the currency effect.
It is our intention to swap a further US$500 million to floating rates. We
have finalised a US$500 million term loan of which 80% is at a fixed rate of
approximately 4.3% and which will be used to repay existing debt.
Once these transactions have been completed floating rate debt will represent
approximately 55% of gross debt and the effect on the finance costs rate will
be a reduction of 1.5% at current market rates.
The effective tax rate of 23.5% is consistent with our expectations for the
full year.
CASH FLOW AND DEBT
Cash generated by operations was US$194 million, 6.0% higher than a year
earlier and 10.2% higher than the December quarter. Net working capital,
however, increased by US$23 million partly as a result of increased
inventories.
Capital expenditure for the half year was approximately 60% of depreciation,
amortisation and fellings. Capital commitments increased from the prior
quarter by US$51 million to US$306 million. For the full year we expect
capital expenditure to approach the level of depreciation.
Net debt declined slightly to US$1,509 million from US$1,525 million in March
after our dividend payment of US$65 million in the quarter. At constant
September 2002 exchange rates net debt at March 2003 would have been in line
with the September 2002 level of US$1,419 million. The ratio of net debt to
total capitalisation declined to 35.4% from 36.7%, well within our target
range.
During the quarter we re-purchased approximately 900,000 shares at an average
price of US$13.65 per share.
sappi | 3
OPERATING REVIEW FOR THE QUARTER
SAPPI FINE PAPER
---------------------------------------------------------------------------
QUARTER ENDED Quarter ended %
MARCH 2003 March 2002 change
US$ MILLION US$ million
---------------------------------------------------------------------------
Sales 904 734 23.2
---------------------------------------------------------------------------
Operating profit 72 62 16.1
---------------------------------------------------------------------------
Operating profit to Sales (%) 8.0 8.4 -
---------------------------------------------------------------------------
EBITDA 147 126 16.7
---------------------------------------------------------------------------
EBITDA to Sales (%) 16.3 17.2 -
---------------------------------------------------------------------------
RONOA p.a. (%) 9.2 10.1 -
---------------------------------------------------------------------------
The fine paper business grew its sales volume by 15% compared to a year
earlier, mainly as a result of the inclusion of the Potlatch fine paper
business. Our geographic spread continues to help us maintain reasonable
performance in the face of currency volatility and weak markets particularly
in the USA. We have continued to curtail production in order to manage our
output to customer demand levels.
Our first quarter report reflected 32,000 tons of European sales in the USA as
North American sales, which, in accordance with our practice of reporting
sales in the manufacturing region, should have been shown as European sales.
This has been restated and had no effect on total sales or on regional or
group profit.
EUROPE
--------------------------------------------------------------------------------
QUARTER ENDED Quarter ended % change % change
MARCH 2003 March 2002 (US$) (Euro)
US$ MILLION US$ million
--------------------------------------------------------------------------------
Sales 503 433 16.2 (4.8)
--------------------------------------------------------------------------------
Operating profit 42 65 (35.4) (47.0)
--------------------------------------------------------------------------------
Operating profit to
Sales (%) 8.3 15.0 - -
-------------------------------------------------------------------------------
EBITDA 83 101 (17.8) (32.7)
-------------------------------------------------------------------------------
EBITDA to Sales (%) 16.5 23.3 - -
-------------------------------------------------------------------------------
RONOA p.a. (%) 11.0 19.9 - -
-------------------------------------------------------------------------------
4 | sappi
Apparent consumption for coated fine paper in Europe was almost flat compared
to last year and prices remained under pressure. Our average prices achieved
in Euros were approximately 4% below the December quarter reflecting primarily
the effect of the weaker dollar on export proceeds. In addition, margins were
squeezed by higher pulp prices resulting in a 35.4% drop in operating income
to US$42 million. The stronger Euro buffered the performance of the business,
which purchases over half of its pulp requirements, much of it in US dollars
and had a favourable impact on the translation of the results to dollars.
NORTH AMERICA
--------------------------------------------------------------------------------
QUARTER ENDED Quarter ended %
MARCH 2003 March 2002 change
US$ MILLION US$ million
--------------------------------------------------------------------------------
Sales 338 251 34.7
--------------------------------------------------------------------------------
Operating profit 20 (10) -
--------------------------------------------------------------------------------
Operating profit to Sales (%) 5.9 - -
--------------------------------------------------------------------------------
EBITDA 51 15 240.0
--------------------------------------------------------------------------------
EBITDA to Sales (%) 15.1 6.0 -
--------------------------------------------------------------------------------
RONOA p.a. (%) 5.4 - -
--------------------------------------------------------------------------------
Market conditions remain difficult.
Following the acquisition of the Potlatch fine paper business, we took a
long-term view and rationalised our brands and merchant distribution, which
resulted in discontinuing certain products and merchant relationships to focus
on our strengths. In the process we had a shortterm loss of volume and market
share exacerbated by our efforts to increase prices in the face of others
discounting. Recovery is underway with momentum building. We expect to regain
the lost share and will have a stronger and better distribution network as a
result.
In spite of difficult wood sourcing conditions in Minnesota, we are still on
target to achieve synergies of at least US$80 million in the current year,
from the Potlatch acquisition.
Higher wood and energy prices had an unfavourable effect of approximately US$8
million for the quarter compared to last year and total pension and medical
costs were approximately US$4 million higher than last year adjusted for the
inclusion of the Potlach fine paper business.
Our North American business amended its early-retirement medical plans during
the quarter to reduce its liability and on-going funding cost. This resulted
in a one-off credit of approximately US$10 million in the quarter and will
have a long-term benefit and will stabilise these costs in the future.
The operating profit of US$20 million for the quarter compared to a loss of
US$10 million a year earlier is still disappointing but signals the beginning
of a profit recovery.
sappi | 5
FINE PAPER SA
-------------------------------------------------------------------------------------------------
QUARTER ENDED Quarter ended
MARCH 2003 March 2002 % change % change
US$ MILLION US$ million (US$) (Rand)
--------------------------------------------------------------------------------------------------
Sales 63 50 26.0 (8.1)
--------------------------------------------------------------------------------------------------
Operating profit 10 7 42.9 4.2
--------------------------------------------------------------------------------------------------
Operating profit to Sales (%) 15.9 14.0 - -
--------------------------------------------------------------------------------------------------
EBITDA 13 10 30.0 (5.2)
--------------------------------------------------------------------------------------------------
EBITDA to Sales (%) 20.6 20.0 - -
--------------------------------------------------------------------------------------------------
RONOA p.a. (%) 33.3 33.9 - -
--------------------------------------------------------------------------------------------------
The South African business has experienced increased competition from imports
in the domestic markets as a result of the strengthening of the Rand. It has
increased its margins slightly as a result of tight cost control and has
achieved a significant increase in operating profit as a result of the
currency translation to US dollars. However, it is under severe price pressure
and margins will not be maintained as prices are discounted to reflect the
changed currency conditions and the threat of imports.
FOREST PRODUCTS
--------------------------------------------------------------------------------------------------
Quarter ended Quarter ended
March 2003 March 2002 % change % change
US$ million US$ million (US$) (Rand)
--------------------------------------------------------------------------------------------------
Sales 191 137 39.4 1.7
--------------------------------------------------------------------------------------------------
Operating profit 27 42 (35.7) (53.1)
--------------------------------------------------------------------------------------------------
Operating profit to Sales (%) 14.1 30.7 - -
--------------------------------------------------------------------------------------------------
EBITDA 44 59 (25.4) (45.6)
--------------------------------------------------------------------------------------------------
EBITDA to Sales (%) 23.0 43.1 - -
--------------------------------------------------------------------------------------------------
RONOA p.a. (%) 11.7 24.9 - -
--------------------------------------------------------------------------------------------------
Pulp prices in dollars have continued to increase and the impact is now being
seen in dissolving pulp prices, but as most of these products are sold on
quarterly prices very little benefit was reflected in this quarter. The
strength of the Rand, up 16% against the US dollar since the previous quarter,
has depressed the business' export margins and will also affect domestic
margins in the coming quarter.
6 | sappi
The supply/demand balance for dissolving pulp has been tightened by improved
demand for textiles and the announced closure of a major dissolving pulp mill
in the USA. The Saiccor mill has returned to full production and this plus the
sharp improvement in pulp prices will have a positive impact on our
performance in the quarter ahead.
In the domestic market demand remained strong in the quarter. There is a risk,
however, that the stronger Rand will dampen economic activity and increase the
competitiveness of imported paper.
OUTLOOK
Although the market conditions remain difficult and unpredictable, the recent
boost in the US business confidence index may indicate a positive change in
the future. Pulp prices have moved up strongly since the start of the year and
consumer and producer pulp inventories remain low but, at the same time, there
is severe price pressure from imports on paper prices in the USA and downward
pressure from discounting in Europe.
The continued weakness of markets in Europe and the disruption of economic
growth in Asia, particularly in China and Hong Kong, together with the changes
in energy costs and the volatility in the currencies in which we operate make
it increasingly difficult to predict earnings accurately. It will be a
challenge to meet our earlier forecast that we expect the full year earnings
per share to exceed those of the previous year. That continues to be our aim.
While the changes in prices and currency movements have an immediate effect on
our revenue line, the benefits associated with lower input costs resulting
from a change in energy prices and currency movements tend to come through
more slowly. It is, therefore, clear that our earnings per share for the third
quarter will not match those of the immediate past quarter.
On behalf of the Board
E VAN AS
Director
D G WILSON
Director
8 May 2003
SAPPI LIMITED
(Registration number 1936/008963/06)
JSE CODE: SAP
ISIN CODE: ZAE 000006284
sappi | 7
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.
8 | sappi
[GLOBE GRAPHIC]
FINANCIAL RESULTS FOR THE
SECOND QUARTER AND HALF-YEAR ENDED MARCH 2003
sappi | 9
GROUP INCOME STATEMENT
REVIEWED Reviewed REVIEWED Reviewed
QUARTER Quarter HALF-YEAR Half-year
ENDED ended ENDED ended
MARCH 2003 March 2003 MARCH 2003 March 2003
% change US$ MILLION US$ million % change
---------------------------------------------------------------------------------------------------------------------------------
Sales 1095 871 25.7 2,114 1,703 24.1
Cost of sales* 912 705 1,758 1,410
-------------------------------------------------------------------------------------------
Gross profit 183 166 10.2 356 293 21.5
Selling, general & administrative
expenses* 81 61 162 123
-------------------------------------------------------------------------------------------
Operating profit 102 105 (2.9) 194 170 14.1
Non-trading (profit) loss (1) 7 (1) 19
Net finance costs 27 13 51 38
----------- ----------- ---------- ----------
Net paid | 29 | | 18 | | 54 | | 43 |
Capitalised | (5) | | (10) | | (11) | | (17) |
Net foreign exchange losses | 3 | | 1 | | 8 | | 8 |
Change in fair value of financial | | | | | | | |
instruments | - | | 4 | | - | | 4 |
----------- ----------- ---------- ----------
-------------------------------------------------------------------------------------------
Profit before tax 76 85 (10.6) 144 113 27.4
Taxation - current 17 25 31 16
- deferred 1 1 3 16
-------------------------------------------------------------------------------------------
Net profit 58 59 (1.7) 110 81 35.8
-------------------------------------------------------------------------------------------
Earnings per share (US cents) 25 25 48 35
Headline earnings per share
(US cents)** 25 26 48 40
Weighted average number of
shares in issue (millions) 229.4 230.6 229.8 230.2
Diluted earnings per share
(US cents) 25 25 47 35
Diluted headline earnings
per share (US cents)** 25 26 47 40
Weighted average number
of shares on fully diluted
basis (millions) 232.1 234.3 232.5 233.6
Calculation of Headline earnings
net of tax**
Net profit 58 59 110 81
(Profit) loss on disposal of
business and fixed assets (1) 1 (1) 1
Mill closure costs 1 1 1 5
Debt restructuring costs - - - 6
-------------------------------------------------------------------------------------------
Headline earnings 58 61 110 93
-------------------------------------------------------------------------------------------
* Reallocation of delivery charges. Refer to note 3 for further details.
** Headline earnings disclosure is required by the JSE Securities Exchange South
Africa.
10 | sappi
GROUP BALANCE SHEET
REVIEWED Audited
MARCH 2003 Sept. 2002
US$ MILLION US$ million
--------------------------------------------------------------------------------
ASSETS
NON-CURRENT ASSETS 3,934 3,639
------------- --------------
Property, plant and equipment | 3,388 | | 3,189 |
Plantations | 400 | | 298 |
Deferred taxation | 6 | | 6 |
Other non-current assets | 140 | | 146 |
------------- --------------
CURRENT ASSETS 1,199 1,002
------------- --------------
Cash and cash equivalents | 203 | | 161 |
Trade and other receivables | 325 | | 282 |
Prepaid income taxes | 3 | | 38 |
Inventories | 668 | | 521 |
------------- --------------
-------------------------------
TOTAL ASSETS 5,133 4,641
-------------------------------
EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Ordinary shareholders' interest 1,836 1,601
MINORITY INTEREST 2 2
NON-CURRENT LIABILITIES 2,171 2,110
------------- --------------
Interest-bearing borrowings | 1,457 | | 1,455 |
Deferred taxation | 465 | | 399 |
Other non-current liabilities | 249 | | 256 |
------------- --------------
CURRENT LIABILITIES 1,124 928
------------- --------------
Interest-bearing borrowings and | | | |
bank overdraft | 255 | | 125 |
Taxation payable | 74 | | 48 |
Other current liabilities | 795 | | 755 |
------------- --------------
TOTAL EQUITY AND LIABILITIES 5,133 4,641
-------------------------------
Number of shares in issue at
balance sheet date (millions) 229.2 230.2
sappi | 11
GROUP CASH FLOW STATEMENT
REVIEWED Reviewed REVIEWED Reviewed
QUARTER Quarter HALF-YEAR Half-year
ENDED ended ENDED ended
MARCH 2003 March 2003 MARCH 2003 March 2003
US$ MILLION US$ million US$ MILLION US$ million
----------------------------------------------------------------------------------------------------
CASH GENERATED BY
OPERATIONS 194 183 370 313
Movement in working capital (23) (31) (165) (131)
Net finance costs (31) (23) (61) (55)
Taxation recovered (paid) 30 (58) 25 (59)
Dividends paid (65) (60) (65) (60)
----------------------------------------------------------------
CASH RETAINED FROM OPERATING
ACTIVITIES 105 11 104 8
Cash effects of investing
activities (65) (43) (105) (106)
----------------------------------------------------------------
40 (32) (1) (98)
Cash effects of financing
activities (22) (90) 34 (205)
NET MOVEMENT IN CASH AND
CASH EQUIVALENTS 18 (122) 33 (303)
----------------------------------------------------------------
GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
REVIEWED Reviewed
HALF-YEAR Half-year
ENDED ended
MARCH 2003 March 2003
US$ MILLION US$ million
-----------------------------------------------------------------------------------------------------
Balance - begining of year 1,601 1,503
Net profit 110 81
Foreign currency translation reserve 223 (174)
Revaluation of movement in share capital and
share premium 3 -
Revaluation of derivative instruments (17) 11
Dividends declared - US$0.28
(2002: US$0.26) per share (65) (60)
(Share buybacks) net of transfers
to participants of the share purchase trust (19) 3
-------------------------------
Balance - end of period 1,836 1,364
-------------------------------
12 | sappi
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 (SA GAAP). Sappi has
changed its accounting policy with regard to the translation of equity
categories to conform with the requirements of AC 430 (Reporting currency
- Translation from measurement currency to presentation currency), the
effects of which are negligible. All of the other accounting policies are
the same as those in the September 2002 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.
2. HEADLINE EARNINGS PER SHARE
Headline earnings per share 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 headline earnings is that there are no
longer any adjustments for movements in restructuring provisions.
The impact on headline earnings per share and diluted headline earnings
per share is negligible for all periods except for the half-year ended
March 2002 where diluted headline earnings per share increased by 1 US
cent to 40 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$21 million for the quarter (December 2002:
US$20 million; March 2002: US$15 million) and US$41 million for the
half-year end (March 2002: US$31 million.)
sappi | 13
NOTES TO THE GROUP RESULTS (CONTINUED)
REVIEWED Reviewed REVIEWED Reviewed
QUARTER Quarter HALF-YEAR Half-year
ENDED ended ENDED ended
MARCH 2003 March 2003 MARCH 2003 March 2003
US$ MILLION US$ million US$ MILLION US$ million
-------------------------------------------------------------------------------------------------------------
4. OPERATING PROFIT
Included in operating profit are:
Depreciation 85 72 170 144
Fellings 1 5 9 12
Amortisation 6 4 11 8
---------------------------------------------------------------------------------------------------------
92 81 190 164
---------------------------------------------------------------------------------------------------------
5. CAPITAL EXPENDITURE
Property, plant and equipment 62 37 100 99
Plantations 7 5 13 10
---------------------------------------------------------------------------------------------------------
69 42 113 109
---------------------------------------------------------------------------------------------------------
REVIEWED Audited
MARCH 2003 Sept. 2002
US$ MILLION US$ million
---------------------------------------------------------------------------------------------------------
6. CAPITAL COMMITMENTS
Contracted but not provided 137 55
Approved but not contracted 169 173
---------------------------------------------------------------------------------------------------------
306 228
---------------------------------------------------------------------------------------------------------
7. CONTINGENT LIABILITIES
Guarantees and suretyships 73 66
Other contingent liabilities 14 14
---------------------------------------------------------------------------------------------------------
14 | sappi
SUPPLEMENTAL INFORMATION
DEFINITIONS
AVERAGE - averages are calculated as the sum of the opening and closing
balances for the relevant period divided by two.
*EBITDA - earnings before non-trading profit/loss and before interest, tax,
depreciation, amortisation and fellings
*EBITDA to sales - 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 the South African
Institute of Chartered Accountants, separates from earnings all items of a
capital nature. It is not necessarily a measure of sustainable earnings. It is
a listing requirement of the JSE Securities Exchange South Africa to disclose
headline earnings per share.
*NET ASSETS - total assets less current liabilities
*NET ASSET VALUE - shareholders' equity plus net deferred tax
*NET ASSET VALUE PER SHARE - net asset value divided by number of shares in
issue at balance sheet date
*NET DEBT - current and non-current interest-bearing borrowings, and bank
overdrafts (net of cash, cash equivalents and short-term deposits)
*NET DEBT TO TOTAL CAPITALISATION - Net debt divided by shareholders' equity
plus minority interest, non-current liabilities, current interest
bearing-borrowings and overdraft
*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. Net
operating assets are total assets (excluding deferred taxation and cash) less
current liabilities (excluding interest-bearing borrowings and bank overdraft)
* The above financial measures, other than headline earnings per share, are
presented to assist our shareholders and the investment community in
interpreting our financial results. These financial measures are
regularly used and compared between companies in our industry.
sappi | 15
SUPPLEMENTAL INFORMATION
ADDITIONAL INFORMATION
REVIEWED Reviewed REVIEWED Reviewed
QUARTER Quarter HALF-YEAR Half-year
ENDED ended ENDED ended
MARCH 2003 March 2003 MARCH 2003 March 2003
US$ MILLION US$ million US$ MILLION US$ million
-------------------------------------------------------------------------------------------------------------
OPERATING PROFIT TO
EBITDA* RECONCILIATION
Operating profit per the
Group Income Statement 102 105 194 170
Depreciation 85 72 170 144
Fellings 1 5 9 12
Amortisation 6 4 11 8
-------------------------------------------------------------------------------------------------------------
EBITDA* 194 186 384 334
-------------------------------------------------------------------------------------------------------------
REVIEWED Audited
MARCH 2003 Sept. 2002
US$ MILLION US$ million
------------------------------------------------------------------------------------------------------------
Net debt (US$ million)* 1,509 1,419
Net debt to total capitalisation (%)* 35.9 37.0
Net asset value per share (US$)* 10.01 8.66
* Refer to page 15, supplemental information for the definition of the term.
16 | sappi
SUPPLEMENTAL INFORMATION
REGIONAL INFORMATION
REVIEWED Reviewed REVIEWED Reviewed
QUARTER Quarter HALF-YEAR Half-year
ENDED ended ENDED ended
MARCH 2001 March 2002 MARCH 2003 March 2002
US$ MILLION US$ million % change US$ MILLION US% million % change
----------------------------------------------------------------------------------------------------------------------
SALES - METRIC TONS (000'S)
Fine Paper - North America * 343 234 46.6 711 452 57.3
Europe* 502 559 5.9 1,117 1,077 3.7
Southern Africa 69 50 (13.8) 143 153 (6.5)
----------------------------------------------------------------------------------------------------------------------
Total 1,044 873 15.0 1,971 1,682 17.2
Forest Products - Pulp and paper operations 306 346 14.2 732 672 8.9
Forestry Operations 309 275 12.4 607 509 19.3
----------------------------------------------------------------------------------------------------------------------
Total 1,708 1,494 14.3 3,310 2,863 15.6
----------------------------------------------------------------------------------------------------------------------
SALES
Fine Paper - North America* 338 251 34.7 707 490 44.3
Europe* 503 433 16.2 937 843 11.2
Southern Africa 63 50 26.0 122 98 24.5
----------------------------------------------------------------------------------------------------------------------
Total 904 734 23.2 17,766 1,431 23.4
Forest Products - Pulp and paper operations 178 129 38.0 323 256 26.7
Forestry operations 13 8 52.5 25 17 47.1
----------------------------------------------------------------------------------------------------------------------
Total 1,095 871 25.7 2,114 1,703 24.1
----------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT
Fine paper - North America 20 (10) - 29 (20) -
Europe 42 55 (35.4) 81 104 (22.1)
Southern Africa 10 7 42.9 19 14 35.7
----------------------------------------------------------------------------------------------------------------------
Total 72 62 16.1 129 98 31.6
Forest Products 27 42 (35.7) 61 54 (4.7)
Corporate 3 1 200.0 4 8 (50.0)
----------------------------------------------------------------------------------------------------------------------
Total 102 105 (29.9) 194 170 14.1
----------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST, TAX, DEPRECIATION
AND AMORTISATION CHANGES
Fine Paper - North America 51 15 240.0 91 30 203.3
Europe 83 101 (17.8) 165 178 (7.3)
Southern Africa 13 10 30.0 24 19 26.3
----------------------------------------------------------------------------------------------------------------------
Total 147 126 16.7 280 227 23.3
Forest Products 44 59 (25.4) 100 99 1.0
Corporate 3 1 200.0 4 8 (50.0)
----------------------------------------------------------------------------------------------------------------------
Total 194 186 4.3 384 334 15.0
----------------------------------------------------------------------------------------------------------------------
NET OPERATING ASSETS
Fine Paper - North America 1,458 1,042 39.9 1,458 1,042 39.9
Europe 1,500 1,312 18.9 1,560 1,312 18.9
Southern Africa 130 85 52.9 130 85 52.9
----------------------------------------------------------------------------------------------------------------------
Total 3,148 2,439 29.1 3,148 2,439 29.1
Forest Products 956 691 38.4 956 691 38.4
Corporate (49) 5 - (49) 5 -
----------------------------------------------------------------------------------------------------------------------
Total 4,055 3,135 29.3 4,055 3,135 29.3
----------------------------------------------------------------------------------------------------------------------
* Our first quarter report reflected 32,000 tons and US$31 million of
European sales in the USA as USA sales, which, in accordance with our
practice of reporting sales in the manufacturing region, should have been
shown as European sales. This has been restated and had no effect on
total sales or on regional or group profit.
sappi | 17
SUPPLEMENTAL INFORMATION
SUMMARY RAND CONVENIENCE TRANSLATION
REVIEWED Reviewed REVIEWED Reviewed
QUARTER Quarter HALF-YEAR Half-year
ENDED ended ENDED ended
MARCH 2003 March 2002 % change MARCH 2002 March 2002 % change
---------------------------------------------------------------------------------------------------------------------------------
Sales (ZAR million) 9,149 9,977 (8.3) 19,209 18,033 6.5
Operating profit (ZAR million) 852 1,203 (29.2) 1,763 1,800 (2.1)
Profit after taxation (ZAR million) 485 676 (28.3) 1,000 858 16.6
EBITDA (ZAR million)* 1,621 2,131 (23.9) 3,489 3,537 (1.4)
Operating profit to sales (%) 9.3 12.1 9.2 10.0
EBITDA * to sales (%) 17.7 21.4 18.2 19.6
Operating profit to average
net assets (%) 10.3 14.9 9.9 12.1
EPS (SA cents) 209 286 (26.9) 436 371 17.5
Headline EPS (SA cents)* 209 298 (26.9) 436 424 2.8
Net debt (ZAR million)* 12,004 13,504 (11.1)
Net debt to total capitalisation (%)* 35.4 36.6
Cash generated by operations
(ZAR million) 1,621 2,096 (22.7) 3,362 3,314 1.4
Cash retained from operating
activities (ZAR million) 877 126 945 85
Net movement in cash and
cash equivalents (ZAR million) 150 (1,397) 300 (3,208)
EXCHANGES RATES
MARCH December September June March
2003 2002 2002 2002 2002
Exchange rates:
Period end rate: US$1 = ZAR 7.9550 8.7200 10.5400 10.3600 11.3100
Average rate for the Quarter:
US$1 = ZAR 8.3550 9.7265 10.4818 10.6581 11.4547
Average rate for the YTD:
US$1 = ZAR 9.0866 9.7265 10.5393 10.5443 10.5887
Period end rate: EUR1 = US$ 1.0729 1.0387 0.9789 0.9920 0.8724
Average rate for the Quarter:
EUR1 = US$ 1.0686 0.9995 0.9850 0.9196 0.8750
Average rate for the YTD: EUR1 = US$ 1.0334 0.9995 0.9188 0.8997 0.8844
The financial results of entities with reporting currencies other than the US dollar are translated
into US dollars as follows:
- Assets and liabilities at rates of exchange ruling at period end: and
- Income, expenditure and cash flow items at average exchange rates.
18 | sappi
SAPPI ORDINARY SHARES
[CHART GRAPHING ORDINARY SHARE PRICES IN SOUTH AFRICAN RAND
FROM JANUARY 1, 2001 TO MAY 5, 2003]
[CHART GRAPHING ORDINARY SHARE PRICES IN UNITED STATES DOLLARS
FROM JANUARY 1, 2001 TO MAY 5, 2003]
19 | sappi
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20 | sappi
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| |
| THIS REPORT IS AVAILABLE ON THE SAPPI WEBSITE -- www.sappi.com |
| |
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[GLOBE GRAPHIC}
Other interested parties can obtain printed copies of this report from:
SOUTH AFRICA: UNITED STATES UNITED KINGDOM
Computershare Investor ADR DEPOSITARY: Capita IRG plc
Services Limited Bank of New York Bourne House
70 Marshall Street ADR Department 34 Beckenham Road
Johannesburg 2001 101 Barclay Street Beckenham, Kent
P.O. Box 61051 New York, NY 10286 BR3 4TU, DX 91750
Marshalltown 2107 Tel +1 212 815-5800 Beckenham West
Tel +27 (0)11 370-5000 Tel +44 (0)208 639-2157
[SAPPI LOGO]
Press Release
Johannesburg, 8 May 2003
SAPPI INCREASES EARNINGS PER SHARE IN TOUGH MARKETS
Sappi, the world's leading producer of coated fine paper, today announced
results for the second quarter to March 2003.
HIGHLIGHTS
o Markets remain tough
o EPS up 8.7% on prior quarter
o Euro strength buffers performance
o Rand strength squeezes SA margins
o Robust cash generation
Introducing the results, Sappi Chairman, Eugene van As, said that Jonathan
Leslie, the newly appointed CEO, who had joined the group a month ago, would
in future announce the company's results. He continued:
"These results were achieved in very uncertain markets. Coated fine paper
prices were under pressure in our main markets. In North America uncertainty
about demand, a surge of Asian imports and active discounting by some
competitors has resulted in slower than expected implementation of our price
increases.
"Average prices for US-produced sheet products have declined since December
but imported products have shown some price improvement. In Europe price
erosion has continued despite largely successful price increases in Southern
Europe. Advertising spending, an important driver of coated paper demand,
remained mixed, with increases in the USA off a low base, but no sustained
increase in Europe.
"Against this tough background, we managed to achieve a reasonable
performance. Our leadership position across the major markets, supported by
our excellent distribution systems and pulp integration strategy, left us
better positioned than many of our competitors."
RESULTS FOR THE QUARTER
Currency movements had a major influence on results. A stronger Euro favours
the trading performances of Sappi's European business and a stronger Rand is
detrimental to the Southern African business. As the group reports in US
dollars, a stronger Euro and a stronger Rand have a positive translation
effect on the results of the European and Southern African businesses and
leads to an increase in liabilities and assets recorded in those currencies.
The net positive effect of currency movements on shareholder equity this
quarter was US$69 million.
Net profit was marginally below the same quarter last year at US$58 million
and 11.5% above the quarter ended December. Basic and diluted earnings per
share were 25 US cents.
Costs of goods sold have been well controlled but reflect significant
increases compared to a year ago as a result of the currency translation
effect.
Selling, General and Administration (SG&A) expenses were at the same level as
the December quarter but 33% higher than a year earlier mainly as a result of
the currency impact, increased insurance and higher pension costs and the
inclusion of the Potlatch coated paper business.
Group operating profit decreased 2.9% compared to a year earlier to US$102
million, and increased 11% compared to the December quarter.
Cash generated by operations was US$194 million, 6.0% higher than a year
earlier and 10.2% higher than the December quarter. However, net working
capital increased by US$23 million partly as a result of increased
inventories.
Net debt declined slightly to US$1,509 million from US$1,525 million in March
after the dividend payment of US$65 million in the quarter. At constant
September 2002 exchange rates, net debt at March 2003 would have been in line
with the September 2002 level of US$1,419 million. The ratio of net debt to
total capitalisation declined to 35.4% from 36.7%, well within our target
range.
DIVISIONAL REVIEW
FINE PAPER
The fine paper business grew sales volume by 15%, with operating profit
increasing by 16.1% to US$72 million. The group has continued to curtail
production in order to manage output to customer demand levels.
In Europe, consumption of coated fine paper was flat and prices remained under
pressure. Margins were squeezed by higher pulp prices and lower paper prices,
resulting in a 35.4% drop in operating income to US$42 million. However, the
stronger Euro buffered the performance with dollar pulp purchases impacting
favourably on results.
In North America, market conditions remained difficult. Following the
acquisition of Potlatch, certain products and merchant relationships were
discontinued to focus on Sappi's core strengths. This resulted in a short-term
loss of volume and market share. Recovery is underway with momentum building.
We expect to regain the lost share and will have a stronger and better
distribution network as a result. The operating profit of US$20 million
compared to a previous quarter loss of US$10 million is still disappointing,
but signals the beginning of a profit recovery. In spite of difficult wood
sourcing conditions in Minnesota, we are still on target to achieve synergies
of at least US$80 million in the current year.
Competition in the South African business increased due to imports in the
domestic markets following the strong Rand. Margins increased slightly due to
tight cost control, with operating profit increasing by 42.9% as a result of
the currency translation to US dollars. However, margins will not be
maintained as prices are discounted to reflect the changed currency conditions
and the threat of imports.
Commenting on the fine paper's overall performance, Bill Sheffield, Fine Paper
CEO, said:
"We managed to increase sales volumes and operating profits in difficult
conditions, largely as a result of the inclusion of the Potlatch fine paper
business. This, plus our geographic spread, helped us maintain a reasonable
performance in the face of currency volatility and weaker markets."
FOREST PRODUCTS
Although pulp prices in dollars have continued to increase and the impact is
now being seen in dissolving pulp prices, little benefit was reflected in the
quarter as most of these products are sold on quarterly prices. The strength
of the Rand has depressed the business' export margins. The operating profit
declined 36% compared to a year ago to US$27 million.
The supply/demand balance for dissolving pulp has been tightened by improved
demand for textiles and the announced closure of a major dissolving pulp mill
in the USA. The Saiccor mill has returned to full production and together with
the sharp improvement in pulp prices will have a positive impact in the
quarter ahead.
John Job, Chairman of Sappi's South African businesses, said:
"Domestic market demand was strong. However, if the Rand maintains its
momentum, economic activity will slow and local markets will experience strong
downward pressure on prices."
OUTLOOK
Looking forward, Van As said that although market conditions remain difficult
and unpredictable, the recent boost in the US business confidence index may
indicate a positive change in the future.
"There is great uncertainty in our markets. Pulp prices have moved up strongly
since the start of the year and consumer and producer pulp inventories remain
low. At the same time, there is severe price pressure from imports on paper
prices in the USA and downward pressure from discounting in Europe."
Van As said that the continued weakness of markets in Europe and the
disruption of economic growth in Asia, particularly in China and Hong Kong,
together with the changes in energy costs and the volatility in the currencies
in which we operate, make it increasingly difficult to predict earnings
accurately. He indicated that it will be a challenge for the group to meet its
earlier forecast that full year earnings per share are expected to exceed
those of last year but that remains our aim.
"However, changes in prices and currency movements have an immediate effect on
our revenue line, while the benefits associated with lower input costs
resulting from a change in energy prices and currency movements tend to come
through more slowly. It is therefore clear that our third quarter earnings per
share will not match those of the immediate past quarter."
ends
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.
Issued by:
Brunswick South Africa on behalf of Sappi Limited
Tel + 27 (0) 11 268 5750
Fax + 27 (0) 11 268 5747
For further information contact:
Robert Hope, Director Strategic Development
Sappi Limited
Tel +27(0) 11 407 8492
Fax +27(0) 11 403 1493
ROBERT.HOPE@ZA.SAPPI.COM
Andre F Oberholzer, Corporate Affairs and Communication Manager
Sappi Limited
Tel +27(0) 11 407 8044
Fax +27(0) 11 403 8236
Mobile +27(0) 82 906 0638
ANDRE.OBERHOLZER@ZA.SAPPI.COM
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SAPPI LIMITED
by
/s/ D.G. Wilson
---------------------------------
Name: D.G. Wilson
Title: Executive Director:Finance
Date: May 14, 2003