1Q2011 Financial results announcement

Supporting documents

Financial summary for the quarter 

  • EPS 7 US cents; Q1 2010 loss per share 10 US cents
  • Operating profit US$137 million (excluding special items);
    Q1 2010 US$81 million (excluding special items)
  • Improved demand and pricing for the majority of our products

Summary

*  Refer to the published results fo rmore information.
 The table above has not been audited or reviewed.

Commenting on the results, Sappi chief executive Ralph Boëttger said:

“The trend of improving performance continued in the quarter. Demand for our products remained good and prices increased gradually. Pulp prices remained high, benefiting our Southern African and North American businesses, which performed strongly. The fine paper business’ operating profit (excluding special items) improved 30% compared to the equivalent quarter last year. The performance of the European business, compared with a year earlier, showed significant improvement in sales volumes and average prices. However, as a result of input cost pressure particularly of purchased pulp, the business’ operating margins remain below expectations. Our North American business delivered a strong underlying performance, however, an extended planned outage for an upgrade in the pulp mill at Somerset mill commencing in October 2010 reduced output and profitability in the quarter. Going forward the Somerset Mill will benefit from increased pulp production while improving energy efficiency and further reducing its carbon footprint. The performance of the Southern African business improved further during the quarter. Demand for the chemical cellulose business remains strong, driven by demand for viscose fibres, particularly in Asia, and the Saiccor mill’s post expansion output and efficiency continued to improve. Our paper and paper packaging business had improved demand for containerboard, sackkraft and newsprint, but weaker demand for fine paper.

“The group achieved an annualised return on capital employed (ROCE) of 12.8% for the quarter, which was an improvement on the quarter ended September 2010 and ahead of our target minimum of 12%.

“Group sales for the quarter increased by 16% to US$1.9 billion over the equivalent quarter last year as a result of improved sales volumes and prices. Cash generated from operations was US$245 million for the quarter. Net cash utilised for the quarter was US$196 million. We expect positive cash generation for the rest of our financial year and good net cash generation for the full year.

“Operating profit for the quarter excluding special items improved to US$137 million, compared to US$81 million a year ago. Including special items, operating profit for the quarter was US$121 million compared to a profit of US$1 million for the equivalent quarter a year ago. 

“Earnings per share for the quarter were 7 US cents (which included a charge of 3 US cents in respect of special items) compared to a loss per share of 10 US cents (which included a charge of 11 US cents in respect of special items.

Looking forward, Boëttger commented:

“We are pleased with the improving trend in the group’s financial performance.  We expect demand for coated paper to remain reasonably firm in our major markets.  Prices for coated mechanical paper in Europe increased in January 2011, which we expect to help restore this product category to profitability.

“Our raw material input costs are gradually increasing as commodity prices rise. We continue to focus on more efficient procurement and use of our inputs.

“Our chemical cellulose business is performing strongly and we intend to accelerate our plans for expanding this business through investment in additional capacity.

“Although our net debt increased in the quarter as a result of working capital growth, we intend to continue to reduce net debt this year.  We also aim to reduce finance costs by, from time to time, applying a portion of our cash on hand to further debt repayment.  We have today announced a tender offer to repurchase up to US$150 million of our senior notes, which mature in June 2012.  This transaction will allow us to use a portion of our available cash on hand more efficiently and to repurchase a portion of such notes well ahead of their maturity.

In our second financial quarter we expect the group’s operating profit (excluding special items) to continue the improving trend relative to the equivalent quarter last year, but to be below that of the first financial quarter.”

ENDS

The full results announcement is available at www.sappi.com 
There will be a conference call to which investors are invited. Full details are available at www.sappi.comusing the links Investor Info; Investor Calendar; 1Q11 Financial Results

Forward-looking statements

Certain statements in this report that are neither reported financial results nor historical information, are forward-looking statements, including but not limited to statements that are predictions of or indicate future earnings, savings, synergies, events, trends, plans or objectives.

The words ‘believe’, ‘anticipate’, expect’, ‘intend’, ‘estimate’, ‘plan’, ‘assume’, ‘positioned’, ‘will’, ‘may’, ‘should’, ‘risk’ and other similar expressions, which are predictions of or indicate future events and future trends, which do not relate to historical matters, identify forward-looking statements.  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 can contribute to such cyclicality, such as levels of demand, production capacity, production, input costs including raw material, energy and employee costs and pricing);
  • the impact on our business of the global economic downturn;
  • unanticipated production disruptions (including as a result of planned or unexpected power outages);
  • changes in environmental, tax and other laws and regulations;
  • adverse changes in the markets for the group’s products;
  • consequences of substantial leverage, including as a result of adverse changes in credit markets that affect our ability to raise capital when needed;
  • adverse changes in  the political situation and economy in the countries in which we operate or the effect of government efforts to address present or future economic or social problems;
  • the impact of investments, acquisitions and dispositions (including related financing), any delays, unexpected costs or other problems experienced in connection with dispositions or integrating acquisitions and achieving expected savings and synergies; and
  • currency fluctuations.

We undertake no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information or future events or circumstances or otherwise.

Issued by: Brunswick South Africa on behalf of Sappi Limited 
Tel + 27 (0) 11 502 7300