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 AUGUST, 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 Annual Report
on Form 20-F and other filings with and submissions to 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 submission 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.
2
SAPPI
THE WORD FOR FINE PAPER
[Globe Graphic]
-----------------------------------------
RESULTS FOR THE THIRD QUARTER
ENDED JUNE 2003
-----------------------------------------
THIRD QUARTER
2003
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
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SALES: WHERE THE PRODUCT IS SOLD* SALES BY PRODUCT GROUP*
[Pie Chart] North America 36% [Pie Chart] Coated fine paper 65%
Europe 41% Uncoated fine paper 6%
Asia and other 9% Coated specialities 9%
Southern Africa 14% Pulp 11%
Commodity paper 8%
Other 1%
SALES: WHERE THE PRODUCT IS GEOGRAPHICOWNERSHIP**
MANUFACTURED*
[Pie Chart] North America 32% [Pie Chart] Europe and ROW+ 12%
Europe 45% Southern Africa 47%
Southern Africa 23% North America 41%
* for the nine months ended June 2003
** at end June 2003
+ Rest of the world
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o EPS 13 US CENTS
o WEAK MARKETS
o PLANNED CAPITAL EXPENDITURE TRIMMED
o COSTS WELL CONTAINED
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SUMMARY
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QUARTER Quarter Quarter NINE MONTHS Nine months
ENDED ended ended ENDED ended
JUNE March June JUNE June
2003 2003 2002 2003 2002
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Sales (US$ million) 1,062 1,095 974 3,176 2,677
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Operating profit (US$ million) 46 102 97 240 267
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EBITDA* (US$ million) ** 149 195 188 534 503
------------------------------------------------------------------------------------------------
Operating profit to sales (%) 4.3 9.3 10.0 7.6 10.0
------------------------------------------------------------------------------------------------
EBITDA to sales (%) * 14.0 17.8 19.3 16.8 18.8
------------------------------------------------------------------------------------------------
Operating profit to average 4.3 10.3 11.8 7.8 10.3
net assets (%) *
------------------------------------------------------------------------------------------------
Headline EPS (US cents) * 12 25 29 60 69
------------------------------------------------------------------------------------------------
EPS (US cents) 13 25 29 61 64
------------------------------------------------------------------------------------------------
Return on average equity (%) * 6.1 13.0 18.2 10.4 12.9
------------------------------------------------------------------------------------------------
Net debt (US$ million) * 1,571 1,509 1,572 1,571 1,572
------------------------------------------------------------------------------------------------
Net debt to total capitalisation (%) * 33.9 35.4 39.7 33.9 39.7
------------------------------------------------------------------------------------------------
* Refer to page 15, Supplemental Information for the definition of the term.
** The comparative information has been restated to take into account the changed EBITDA definition.
Refer to page 16, Supplemental Information for further details.
sappi 1
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COMMENT
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Our markets deteriorated as the quarter progressed.
Pulp prices, which started the quarter on a rising note, ran out of steam and
by the end of June NBSK pulp prices dropped US$40 per ton from the peak of
US$560 per ton in May.
Demand for coated fine paper remained weak and our markets have become
increasingly competitive. In Europe, industry orders excluding overseas exports
were down 3% compared to a year earlier and 11% compared to the March quarter.
Including overseas exports, industry order intake was down 8% compared to the
March quarter.
Although magazine advertising expenditure in the US in the quarter was up 9%
compared to a year earlier, magazine advertising pages were 1% lower. North
American prices for web products have increased approximately US$40 per ton
since the start of our fiscal year. Prices for domestically produced sheet
products have, however, continued to decline.
The group's sales for the quarter reflected these difficult conditions and
although they increased 9% compared to a year earlier the currency effect on
translation into Dollars masked the decline in local currencies in South Africa
and Europe. The North American business' sales were flat compared to a year
earlier but included the Potlatch fine paper business for the full period this
year and only half the period last year. The group's sales were down 3%
compared to the March quarter.
Net profit of US$29 million was approximately half of the prior quarter and
56.1% below the equivalent quarter last year. Headline earnings were US$2
million lower than net profit mainly as the result of profit on the sale of
fixed assets.
Earnings per share for the quarter were 13 US cents, 52% of the prior quarter
and 55.2% below a year earlier. Headline earnings per share were 12 US cents.
Group operating profit for the quarter decreased 52.6% to US$46 million
compared to a year earlier largely as a result of weak demand and price
pressure on our coated fine paper business and the pressure on prices in our
Southern African businesses as a result of the weak US Dollar relative to the
Rand.
Operating costs were generally well managed; however, a concentration of mill
maintenance shuts in the quarter and higher inflation in South Africa led to
increased costs in the Forest Products business. The real cost performance is
distorted by translation to US Dollars.
2 SAPPI
Net interest paid included additional costs of US$10.5 million in respect of an
investment-linked financing agreement. The impact or net finance costs, after
related credits, was US$5.5 million. These costs result from the cumulative
under-performance of the investment component.
Net finance costs were US$21 million compared to US$27 million in the March
quarter.
The previous quarter's report indicated our intention to swap a further US$500
million fixed rate debt to floating rates, having entered swaps for US$250
million in that quarter. In the intervening period margins widened; however, in
July we were able to conclude these swaps at targeted levels. The interest
benefit of the swaps based on current US$ Libor rates, amounts to US$25.1
million per annum. The expected interest benefit based on current short-term
interest rates, for the last quarter of this financial year, amounts to US$5.5
million. The group's fixed to floating rate debt ratio is now 52:48.
Taxation for the quarter was a credit of US$1 million, which brings the year to
date rate into line with our estimate of the full year rate of 19.2%, which is
lower than our earlier estimate as a result of relatively lower profit
generation in higher tax jurisdictions.
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CASH FLOW AND DEBT
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Cash generated by operations was US$124 million, 39.5% lower than a year
earlier and 36.1%lower than the March quarter.
Capital expenditure for the quarter was US$70 million, approximately 80% of
depreciation. In the light of the uncertain outlook capital expenditure for the
full year, which was planned at a level of 100% of depreciation, has been cut
back to approximately 80% of depreciation.
Net debt increased by US$62 million to US$1,571 million in the quarter largely
as a result of translation of our Euro and Rand debt into our reporting
currency, the US Dollar, which has weakened during the period. Inventories
increased by US$28 million excluding currency movement in the quarter, which is
traditionally a quarter in which we build inventory in North America for a
seasonal increase in demand.
Net debt to total capitalisation decreased to 33.9% from 35.4% as the value of
the group's equity was enhanced when translated to US Dollars at stronger
period end rates.
Since our second quarter announcement we have re-purchased approximately 1.1
million shares at an average price of approximately US$12.60 per share.
SAPPI 3
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OPERATING REVIEW FOR THE QUARTER
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SAPPI FINE PAPER
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QUARTER ENDED Quarter ended
JUNE 2003 June 2002 %
US$ MILLION US$ million change
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Sales 874 820 6.6
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Operating profit 30 54 (44.4)
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Operating profit to sales (%) 3.4 6.6 -
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EBITDA 110 126 (12.7)
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EBITDA to sales (%) 12.6 15.4 -
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RONOA p.a. (%) 3.7 7.9 -
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The coated fine paper business faced weakening markets in Europe and continued
difficult markets in North America, where low priced imports from Asia and
Europe continue to depress prices, in a quarter that is typically seasonally
weak. Our Southern African business performed well despite significant price
reductions in local currency in reaction to competitive pressure from imports
and to the stronger Rand.
Margins and returns deteriorated significantly in the quarter.
EUROPE
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QUARTER ENDED Quarter ended
JUNE 2003 June 2002 % change % change
US$ MILLION US$ million (US$) (Euro)
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Sales 481 442 8.8 (10.9)
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Operating profit 11 60 (81.7) (85.0)
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Operating profit
to sales (%) 2.3 13.6 - -
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EBITDA 58 103 (43.7) (53.9)
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EBITDA to sales (%) 12.1 23.3 - -
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RONOA p.a. (%) 2.7 17.2 - -
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4 SAPPI
Our sales volume increased slightly compared to a year ago as a result of
increased overseas exports but was approximately 8% lower than the March
quarter. We are concerned at the erosion of our market share in the quarter.
Average prices realised in Euros were down 11.4% compared to a year ago and
1.4% compared to the March quarter, partly as a result of lower Euro price
realisations on exports resulting from the stronger Euro relative to the US
Dollar.
The combination of lower volumes and prices and higher pulp prices led to a
rapid deterioration in margins through the June quarter.
The market as a whole remains weak with no sign yet of a turnaround in economic
growth or advertising spending.
NORTH AMERICA
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QUARTER ENDED Quarter ended
JUNE 2003 June 2002 %
US$ MILLION US$ million change
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Sales 319 319 -
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Operating profit (loss) 9 (16)* -
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Operating profit to sales (%) 2.8 - -
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EBITDA 40 13 207.7
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EBITDA to sales (%) 12.5 4.1 -
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RONOA p.a. (%) 2.5 - -
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* Includes US$13 million of integration costs relating to the Potlatch fine
paper business acquisition.
Our sales volume for the quarter declined 3.8% compared to a year earlier;
however, average prices realised were US$40 per metric ton higher.
Our manufacturing efficiency improved towards the end of the quarter
particularly at Somerset where throughput has now returned and on occasion
exceeded normal levels, following the rebuild of number 3 paper machine earlier
in the year.
Wood and natural gas prices remain high and high pension and medical costs
continue to impact results.
We have stabilised our market share in North America and believe that as the
economy improves we will see the benefits of the rationalisation of brands and
merchant distribution effected over the past year.
Margins and returns, although reflecting a turnaround from last year, remain
well short of potential.
SAPPI 5
FINE PAPER SOUTH AFRICA
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QUARTER ENDED Quarter ended
JUNE 2003 June 2002 % change % change
US$ MILLION US$ million (US$) (Rand)
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Sales 74 59 25.4 (10.2)
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Operating profit 10 10 - (28.4)
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Operating profit
to sales (%) 13.5 16.9 - -
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EBITDA 12 10 20.0 (14.1)
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EBITDA to sales (%) 16.2 16.9 - -
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RONOA p.a. (%) 30.8 47.3 - -
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Margins have been squeezed by increased competition from imports following the
strengthening of the Rand, but our product range, access to different markets
and manufacturing flexibility have helped us to achieve acceptable results.
FOREST PRODUCTS
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QUARTER ENDED Quarter ended
JUNE 2003 June 2002 % change % change
US$ MILLION US$ million (US$) (Rand)
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Sales 188 154 22.1 (12.6)
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Operating profit 18 39 (53.8) (67.0)
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Operating profit
to sales (%) 9.6 25.3 - -
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EBITDA 40 58 (31.0) (50.6)
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EBITDA to sales (%) 21.3 37.7 - -
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RONOA p.a. (%) 7.3 22.2 - -
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Local demand for our pulp and paper products increased during the quarter,
while export demand was mixed. Average pulp prices were significantly higher in
the quarter; however, pulp prices peaked in May and have since dropped by US$40
per ton. The impact of the stronger Rand on revenues more than offset the
effect of the higher pulp prices and resulted in severe margin pressure. Demand
for dissolving pulp remained steady with most regions experiencing good demand.
The exchange rate impacted prices realised for our exports and for our domestic
sales of containerboard as imported products became more competitive.
6 SAPPI
We had a concentration of mill maintenance shuts in the quarter, which
increased maintenance costs. This is not expected to recur in the final
quarter.
The local cost base increased on the back of local inflation which has,
however, declined in recent months. This will help to contain costs going
forward.
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OUTLOOK
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Market conditions have not improved since our trading update issued in June and
are still uncertain.
Economic growth in Europe remains elusive and the improvement in the US economy
is taking longer than anticipated. Although there are some encouraging signals,
a substantial improvement is not expected before the end of the calendar year.
The strength of the Euro has almost certainly lead to more difficult market
conditions in Europe as export markets become less attractive to manufacturers.
For our Southern African businesses, a continuing strong Rand will put pressure
on revenue and margins and the indications are that pulp prices are trending
downwards.
We increased inventories during the quarter in anticipation of the usual
seasonal increase in demand in our final quarter. It is already clear that we
are likely to increase curtailment of production to maintain our long-standing
policy of matching output to customer demand. We continue to focus on improving
our competitive position through driving costs down and enhancing our quality
and complete service package in order to regain our traditional market shares.
Under current conditions it is no longer clear that earnings for the fourth
quarter will be better than for the third quarter. Earnings per share for the
full year are likely to be well below last year.
On behalf of the Board
J C A Leslie
Director
D G Wilson
Director
30 July 2003
SAPPI LIMITED
(Registration number 1936/008963/06)
JSE CODE: SAP
ISIN CODE: ZAE 000006284
SAPPI 7
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FORWARD-LOOKING STATEMENTS
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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]
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FINANCIAL RESULTS FOR THE
THIRD QUARTER ENDED JUNE 2003
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SAPPI 9
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GROUP INCOME STATEMENT
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---------------------------------------------------------------------------------------------------------------------
Reviewed Reviewed Reviewed Reviewed
Quarter Quarter Nine Months Nine Months
ended ended ended ended
June 2003 June 2002 June 2003 June 2002
US$ million US$ million % change US$ million US$ million % change
---------------------------------------------------------------------------------------------------------------------
Sales 1,062 974 9.0 3,176 2,677 18.6
Cost of sales * 933 787 2,691 2,197
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Gross profit 129 187 (31.0) 485 480 1.0
Selling, general & administrative
expenses * 83 90 245 213
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Operating profit 46 97 (52.6) 240 267 (10.1)
Non-trading (profit) loss (3) - (4) 19
Net finance costs 21 7 72 45
---------- ---------- ---------- ----------
Net interest paid | 39 | | 23 | | 93 | | 66 |
Capitalised | (9) | | (6) | | (20) | | (23) |
Net foreign exchange | | | | | | | |
(gains) losses | (6) | | (13) | | 2 | | (5) |
Change in fair value of | | | | | | | |
financial instruments | (3) | | 3 | | (3) | | 7 |
---------- ---------- ---------- ----------
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Profit before tax 28 90 (68.9) 172 203 (15.3)
Taxation - current 5 8 36 24
- deferred (6) 16 (3) 32
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NET PROFIT 29 66 (56.1) 139 147 (5.4)
====================================================================================
Earnings per share (US cents) 13 29 61 64
Headline earnings per share
(US cents) ** 12 29 60 69
Weighted average number of
shares in issue (millions) 229.1 230.4 229.5 230.2
Diluted earnings per share
(US cents) 13 28 60 63
Diluted headline earnings
per share (US cents) ** 12 29 59 69
Weighted average number
of shares on fully diluted 231.5 233.9 232.1 233.5
basis (millions)
Calculation of Headline
earnings** 29 66 139 147
Net profit
(Profit) loss on disposal of
business and fixed assets (2) 1 (3) 2
Mill closure costs - - 1 5
Debt restructuring costs - - - 6
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Headline earnings 27 67 137 160
====================================================================================
* 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
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GROUP BALANCE SHEET
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REVIEWED Audited
JUNE 2003 Sept. 2002
US$ MILLION US$ million
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ASSETS
NON-CURRENT ASSETS 4,163 3,369
----------- -----------
Property, plant and equipment | 3,503 | | 3,189 |
Plantations | 434 | | 298 |
Deferred taxation | 8 | | 6 |
Other non-current assets | 218 | | 146 |
----------- -----------
CURRENT ASSETS 1,343 1,002
----------- -----------
Cash and cash equivalents | 353 | | 161 |
Trade and other receivables | 267 | | 282 |
Prepaid income taxes | 3 | | 38 |
Inventories | 720 | | 521 |
----------- -----------
------------------------------
TOTAL ASSETS 5,506 4,641
==============================
EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Ordinary shareholders' interest 1,949 1,601
MINORITY INTEREST 2 2
NON-CURRENT LIABILITIES 2,526 2,110
----------- -----------
Interest-bearing borrowings | 1,768 | | 1,455 |
Deferred taxation | 483 | | 399 |
Other non-current liabilities | 275 | | 256 |
----------- -----------
CURRENT LIABILITIES 1,029 928
----------- -----------
Interest-bearing borrowings and | | | |
bank overdraft | 156 | | 125 |
Taxation payable | 89 | | 48 |
Other current liabilities | 784 | | 755 |
----------- -----------
------------------------------
TOTAL EQUITY AND LIABILITIES 5,506 4,641
==============================
Number of shares in issue at
balance sheet date (millions) 228.9 230.2
SAPPI 11
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GROUP CASH FLOW STATEMENT
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Reviewed Reviewed Reviewed Reviewed
Quarter Quarter Nine Months Nine Months
ended ended ended ended
June 2003 June 2002 June 2003 June 2002
US$ million US$ million US$ million US$ million
----------------------------------------------------------------------------------------------
CASH GENERATED BY
OPERATIONS 124 205 494 518
Movement in working capital (18) 39 (183) (92)
Net finance costs (31) (13) (92) (68)
Taxation recovered (paid) 6 (4) 31 (63)
Dividends paid - - (65) (60)
--------------------------------------------------------------
CASH RETAINED FROM OPERATING 81 227 185 235
ACTIVITIES
Cash effects of investing
activities (95) (535) (200) (641)
-------------------------------------------------------
Normal investing activities | (95) (47) (200) (153) |
Acquisition of net assets | - (488) - (488) |
-------------------------------------------------------
--------------------------------------------------------------
(14) (308) (15) (406)
Cash effects of financing
activities 150 365 184 160
--------------------------------------------------------------
NET MOVEMENT IN CASH AND
CASH EQUIVALENTS 136 57 169 (246)
==============================================================
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GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------
Reviewed Reviewed
Nine months Nine months
ended ended
June 2002 June 2002
US$ million US$ million
-------------------------------------------------------------------------------
Balance * beginning of year 1,601 1,503
Net profit 139 147
Foreign currency translation reserve 312 (57)
Revaluation of movement in share capital and
share premium 3 -
Revaluation of derivative instruments (17) 6
Dividends declared * US$0.28
(2002: US$0.26) per share (65) (60)
(Share buybacks) net of transfers (24) 4
to participants of the share purchase trust
------------------------------
Balance * end of period 1,949 1,543
==============================
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 and diluted 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 of this is immaterial.
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$22 million for the quarter (March 2003:
US$21 million; June 2002: US$19 million) and US$63 million for the nine
months ended (June 2002: US$50 million).
SAPPI 13
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TO THE GROUP RESULTS (CONTINUED)
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Reviewed Reviewed Reviewed Reviewed
Quarter Quarter Nine Months Nine Months
ended ended ended ended
June 2003 June 2002 June 2003 June 2002
US$ million US$ million US$ million US$ million
---------------------------------------------------------------------------------------------
4. OPERATING PROFIT
Included in operating
profit are:
Depreciation 89 81 259 225
Fellings 5 7 14 19
Amortisation 6 3 17 11
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100 91 290 255
=============================================================================================
5. CAPITAL EXPENDITURE
Property, plant and
equipment 70 32 170 131
Plantations 8 9 21 19
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78 41 191 150
=============================================================================================
REVIEWED Audited
JUNE 2003 Sept. 2002
US$ MILLION US$ million
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6. CAPITAL COMMITMENTS
Contracted but not provided 157 55
Approved but not contracted 157 173
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314 228
=============================================================================================
7. CONTINGENT LIABILITIES
Guarantees and suretyships 80 66
Other contingent liabilities 17 14
=============================================================================================
14 SAPPI
SUPPLEMENTAL INFORMATION
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DEFINITIONS
------------------------------------------------------------------------------
AVERAGE - averages are calculated as the sum of the opening and closing
balances for the relevant period divided by two
*EBITDA - earnings before interest, tax, depreciation and amortisation
(including fellings)
*EBITDA TO SALES - EBITDA divided by sales
FELLINGS - the amount amortised in 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 the 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 with companies in our industry.
SAPPI 15
SUPPLEMENTAL INFORMATION
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ADDITIONAL INFORMATION
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Reviewed Reviewed Reviewed Reviewed
Quarter Quarter Nine Months Nine Months
ended ended ended ended
June 2003 June 2002 June 2003 June 2002
US$ million US$ million US$ million US$ million
---------------------------------------------------------------------------------------------
NET PROFIT TO
EBITDA * RECONCILIATION
Net profit per the
Group Income Statement 29 66 139 147
Net finance costs 21 7 72 45
Taxation - current 5 8 36 24
- deferred (6) 16 (3) 32
Depreciation 89 81 259 225
Amortisation (including fellings) 11 10 31 30
---------------------------------------------------------------------------------------------
EBITDA * 149 188 534 503
=============================================================================================
REVIEWED Audited
JUNE 2003 Sept. 2002
---------------------------------------------------------------------------------------------
Net debt (US$ million) ** 1,571 1,419
Net debt to total capitalisation (%) ** 33.9 37.0
Net asset value per share (US$) ** 10.59 8.66
* In connection with rules recently adopted by the U.S. Securities Exchange
Commission ("SEC") relating to "Conditions for Use of Non-GAAP Financial
Measures", we have reconciled EBITDA to net profit rather than operating
profit and recalculated EBITDA to exclude only interest, taxes,
depreciation and amortisation (including fellings). As a result our
definition has been amended to retain non-trading profit/loss as part of
EBITDA. The comparative information has been restated to take this into
account. The effect of this is to increase EBIDTA by US$3 million for the
quarter to US$149 million (March 2003: increase of US$1 million to US$195
million; June 2002: no impact) and by US$4 million for the nine months
ended June 2003 to US$534 million (June 2002: decrease of US$19 million to
US$503 million).
** Refer to page 15, Supplemental Information for the definition of the term.
16 SAPPI
SUPPLEMENTAL INFORMATION
-----------------------------------------------------------------------------------------------------------
REGIONAL INFORMATION
-----------------------------------------------------------------------------------------------------------
Reviewed Reviewed Reviewed Reviewed
Quarter Quarter Nine months Nine months
ended ended ended ended
June 2003 June 2002 June 2003 June 2002
US$ million US$ million % change US$ million US$ million % change
-----------------------------------------------------------------------------------------------------------
Sales - Metric tons (000's)
Fine Paper - North America 301 313 (3.8) 1,012 765 32.3
Europe 546 543 0.6 1,663 1,620 2.7
Southern Africa 78 81 (3.7) 221 234 (5.6)
-----------------------------------------------------------------------------------------------------------
Total 925 937 (1.3) 2,896 2,619 10.6
Forest Products - Pulp and paper operations 348 380 (8.4) 1,080 1,052 2.7
Forestry operations 323 268 20.5 930 777 19.7
-----------------------------------------------------------------------------------------------------------
Total 1,596 1,585 0.7 4,906 4,448 10.3
===========================================================================================================
Sales
Fine Paper - North America 319 319 - 1,026 809 26.8
Europe 481 442 8.8 1,418 1,285 10.4
Southern Africa 74 59 25.4 196 157 24.8
-----------------------------------------------------------------------------------------------------------
Total 874 820 6.6 2,640 2,251 17.3
Forest Products - Pulp and paper operations 174 143 21.7 497 398 24.9
Forestry operations 14 11 27.3 39 28 39.3
-----------------------------------------------------------------------------------------------------------
Total 1,062 974 9.0 3,176 2,677 18.6
===========================================================================================================
Operating profit
Fine Paper - North America* 9 (16) - 38 (36) -
Europe 11 60 (81.7) 92 164 (43.9)
Southern Africa 10 10 - 29 24 20.8
-----------------------------------------------------------------------------------------------------------
Total 30 54 (44.4) 159 152 4.6
Forest Products 18 39 (53.8) 79 103 (23.3)
Corporate (2) 4 - 2 12 (83.3)
-----------------------------------------------------------------------------------------------------------
Total 46 97 (52.6) 240 267 (10.1)
===========================================================================================================
Earnings before interest, tax, depreciation
and amortisation charges**
Fine Paper - North America* 40 13 207.7 131 41 219.5
Europe 58 103 (43.7) 233 269 (17.1)
Southern Africa 12 10 20.0 36 29 24.1
-----------------------------------------------------------------------------------------------------------
Total 110 126 (12.7) 390 339 15.0
Forest Products 40 58 (31.0) 141 152 (7.2)
Corporate (1) 4 - 3 12 (75.0)
-----------------------------------------------------------------------------------------------------------
Total 149 188 (20.7) 534 503 6.2
===========================================================================================================
Net operating assets
Fine Paper - North America 1,472 1,464 0.5 1,472 41 219.5
Europe 1,665 1,476 12.8 1,665 1,476 12.8
Southern Africa 130 84 54.8 130 84 54.8
-----------------------------------------------------------------------------------------------------------
Total 3,267 3,024 8.0 3,267 3,024 8.0
Forest Products 1,026 715 43.5 1,026 715 43.5
Corporate (21) 28 - (21) 28 -
-----------------------------------------------------------------------------------------------------------
Total 4,272 3,767 13.4 4,272 3,767 13.4
===========================================================================================================
* The comparative number includes US$13 milionof integration costs relating
to the Potlatch fine paper busines acquisition.
** The comparative information has been restated to take into account the
changed EBITDA definition. Refer to page 16, Supplemental Information
forfurther informtaion.
SAPPI 17
SUPPLEMENTAL INFORMATION
-------------------------------------------------------------------------------
SUMMARY RAND CONVENIENCE TRANSLATION
-----------------------------------------------------------------------------------------------------------
Reviewed Reviewed Reviewed Reviewed
Quarter Quarter Nine months Nine months
ended ended ended ended
June 2003 June 2002 June 2003 June 2002
US$ million US$ million % change US$ million US$ million % change
-----------------------------------------------------------------------------------------------------------
Sales (ZAR million) 8,104 10,381 (21.9) 27,369 28,227 (3.0)
Operating profit (ZAR million) 351 1,034 (66.1) 2,068 2,815 (26.5)
Net profit (ZAR million) 221 703 (68.6) 1,198 1,550 (22.7)
EBITDA* (ZAR million) ** 1,137 2,004 (43.3) 4,602 5,304 (13.2)
Operating profit to sales (%) 4.3 10.0 7.6 10.0
EBITDA * to sales (%) 14.0 19.3 16.8 18.8
Operating profit to average 4.3 11.4 7.6 11.2
net assets (%)
EPS (SA cents) 99 309 (68.0) 526 675 (22.1)
Headline EPS (SA cents) * 92 309 (70.2) 517 728 (29.0)
Net debt (ZAR million) * 11,673 16,286 (28.3)
Net debt to total capitalisation (%) * 33.9 39.7
Cash generated by operations 946 2,185 (56.7) 4,257 5,462 (22.1)
(ZAR million)
Cash retained from operating 618 2,419 1,594 2,478
activities (ZAR million)
Net movement in cash and 1,038 608 1,456 (2,594)
cash equivalents (ZAR million)
* Refer to page 15, Supplemental Information for the definition of the term.
** The comparative information has been restated to take into account the
changed EBITDA definition. Refer to page 16, Supplemental Information for
further details.
-----------------------------------------------------------------------------------------------------------
EXCHANGE RATES
-----------------------------------------------------------------------------------------------------------
JUNE March December September June
2003 2003 2002 2002 2002
-----------------------------------------------------------------------------------------------------------
Exchange rates:
Period end rate: US$1 = ZAR 7.4300 7.9550 8.7200 10.5400 10.3600
Average rate for the Quarter:
US$1 = ZAR 7.6305 8.3550 9.7265 10.4818 10.6581
Average rate for the YTD:
US$1 = ZAR 8.6173 9.0866 9.7265 10.5393 0.5443
Period end rate: EUR1 = US$
Average rate for the Quarter: 1.1417 1.0729 1.0387 0.9789 0.9920
EUR1 = US$ 1.1236 1.0686 0.9995 0.9850 0.9196
Average rate for the YTD: EUR1 = US$ 1.0655 1.0334 0.9995 0.9188 0.8997
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
-----------------------------------------------------------------------------------------------------------
ZAR
160-
140-
120- [CHART GRAPHING ORDINARY SHARE PRICES IN SOUTH AFRICAN RAND
100- FROM JANUARY 1, 2001 TO JULY 28, 2003]
80-
60-
40-
20-
0-
-------------------------------------------------------------------------------------------------------
1 Jan 1 Apr 1 Jul 1 Oct 1 Jan 1 Apr 1 Jul 1 Oct 1 Jan 1 Apr 28 Jul
2001 2001 2001 2002 2002 2002 2002 2003 2003 2003 2003
-----------------------------------------------------------------------------------------------------------
ADR price (NYSE TICKER: SPP) note: (1 ADR = 1 sappi share)
-----------------------------------------------------------------------------------------------------------
US$
16-
14-
12-
10- [CHART GRAPHING ORDINARY SHARE PRICES IN U.S. DOLLARS
8- FROM JANUARY 1, 2001 TO JULY 28, 2003]
6-
4-
2-
0-
-------------------------------------------------------------------------------------------------------
1 Jan 1 Apr 1 Jul 1 Oct 1 Jan 1 Apr 1 Jul 1 Oct 1 Jan 1 Apr 28 Jul
2001 2001 2001 2002 2002 2002 2002 2003 2003 2003 2003
SAPPI 19
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20 SAPPI
THIS REPORT IS AVAILABLE ON THE SAPPI WEBSITE * WWW.SAPPI.COM
[GLOBAL 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
WWW.SAPPI.COM
Printed on Sappi HannoArt Silk 250g/m2 and 150g/m2
sappi Sappi Limited
Press Release
Johannesburg, 31 July 2003
SAPPI REPORTS THIRD QUARTER RESULTS AGAINST CONTINUED TOUGH MARKETS
Sappi, the world's leading producer of coated fine paper, today announced
results for the third quarter to June 2003.
HIGHLIGHTS
o Markets remain weak
o Increased competition in all markets
o Costs well contained
o Planned capital expenditure trimmed
o EPS of 13 US cents (Q3 2002: 29 US cents)
Commenting on the results, Sappi CEO Jonathan Leslie, said:
"Our third quarter results were achieved against a background of lower pulp
prices, weak demand for coated fine paper and increasingly competitive markets.
This has been a particularly difficult quarter for the company.
"South Africa held up well following significant Rand price reductions due to
imports and the stronger Rand. Coated fine paper markets in Europe weakened and
North America remained poor with low priced imports from Asia and Europe
continuing to depress prices in this quarter, seasonally a weak quarter for
Sappi."
1
RESULTS FOR THE QUARTER
As in the second quarter, currency movements continued to have a major
influence on results.
The group's sales for the quarter reflected the difficult conditions and
although sales increased 9% compared to the previous year, the currency effect
on translation into Dollars masked the decline in local currencies in South
Africa and Europe. The North American sales were flat compared to a year
earlier but included the Potlatch fine paper business for the full period this
year and only half the period last year. The group's sales were down 3%
compared to the March quarter.
Net profit of US$29 million was approximately half of the prior quarter and
56.1% below the equivalent quarter last year.
Earnings per share for the quarter were 13 US cents, 52% of the prior quarter
and 55.2% below a year earlier. Headline earnings per share were 12 US cents.
Group operating profit for the quarter decreased by 52.6% to US$46 million,
compared to the prior year. This was largely as a result of weak demand and
pricing pressure on the coated fine paper business and the pressure on prices
in the Southern African businesses due to the weak US Dollar relative to the
Rand.
Operating costs were generally well managed, although a concentration of mill
maintenance shuts in the quarter and higher inflation in South Africa led to
increased costs in the Forest Products business. The real cost performance was
distorted by translation to US Dollars.
Cash generated by operations was US$124 million, 39.5% lower than the previous
year.
2
Capital expenditure for the quarter was US$70 million, approximately 80% of
depreciation. In light of the uncertain outlook, capital expenditure for the
full year, which was planned at a level of 100% of depreciation, will remain at
approximately 80%.
Net debt increased by US$62 million to US$1,571 million in the quarter largely
as a result of translation of Euro and Rand debt into the group's reporting
currency, the US Dollar, which has weakened during the period.
Since the second quarter results announcement in May 2003, the group has re-
purchased approximately 1.1 million shares at an average price of approximately
US$12.60 per share.
DIVISIONAL REVIEW
FINE PAPER
Conditions in Fine Paper's main markets remained poor, with fierce competition
in all markets. Operating profit decreased by 44.4% to US$30 million.
Sales volume in Europe increased slightly compared to a year ago as a result of
increased overseas exports. Average prices realised in Euros were down 11%
compared to a year ago, partly as a result of lower Euro price realisations on
exports resulting from the stronger Euro relative to the US Dollar.
The European market as a whole remains weak, with no sign yet of a turnaround
in economic growth or advertising spending.
Sales volumes in North America declined by 3.8% compared to a year earlier,
although average prices realised were US$40 per metric ton higher. Advertising
pages in the US were 1% lower for the quarter compared to the equivalent
quarter last year due to the sluggish economy.
3
Increased competition in South Africa due to imports following the strong Rand
squeezed margins. However, the diverse product range, access to different
markets and manufacturing flexibility allowed this region to achieve acceptable
results.
Commenting on Fine Paper's overall performance, Bill Sheffield, Fine Paper CEO,
said:
"Although there is no sign of a turnaround in the European market, our South
African business remains strong and our market share in North America has now
stabilised.
"We managed to improve our manufacturing efficiencies in North America,
particularly at Somerset where throughput has now returned to normal levels.
Although our margins and returns are not close to their potential, the
rationalisation of our brands and merchant distribution over the last year has
positioned us well to benefit when the US economy improves."
FOREST PRODUCTS
South African demand for pulp and paper products increased during the quarter,
while export demand was mixed. Although average pulp prices were significantly
higher in the quarter, prices peaked in May and have since dropped by US$40 per
ton.
The impact of the stronger Rand on revenues more than offset the effect of the
higher pulp prices and resulted in severe margin pressure. Exchange rates also
impacted on prices realised for other exports and for domestic sales of
containerboard as imported products became more competitive.
4
Sales increased by 22% in US Dollar terms, although they decreased by 12.6% in
Rand terms. Operating profit declined by 53.8% in Dollar terms and 67% in Rand
terms.
Costs in the quarter increased due to a concentration of mill maintenance
shuts, which is not expected to be repeated in the next quarter.
Commenting on the performance of Forest Products, the Chairman of Sappi's South
African businesses, John Job, said:
"Demand in South Africa remains reasonable in some sectors although the slowing
economy is impacting others. Rand prices are reducing due to the exchange rate
and softening world markets. In these tough circumstances, the operating
margins achieved reflect the hardiness of the South African businesses."
OUTLOOK
Looking forward, Leslie said that market conditions had not improved since the
trading update issued by Sappi in June and remain uncertain.
Economic growth in Europe remained elusive, with the strength of the Euro
negatively impacting on conditions as export markets become less attractive to
manufacturers. Improvements in the US economy were also taking longer than
anticipated. Although there were some encouraging developments, a substantial
improvement was not expected before the end of the calendar year.
In Southern Africa, the strong Rand would continue to put pressure on revenue
and margins.
"The group increased inventories during the quarter in anticipation of the
usual seasonal increase in demand in our final quarter. It is already clear
that we are likely to increase curtailment of production to maintain our long-
standing policy of matching output to customer demand. We will continue to
focus on improving
5
our competitive position through driving costs down and enhancing our quality
and complete service package in order to regain our traditional market
shares," said Leslie.
The group said that under current conditions it was no longer clear that
earnings for the fourth quarter would be better than for the third quarter.
Earnings per share for the full year are therefore likely to be well below last
year.
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.
6
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
Andr{e'} 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
7
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: August 11, 2003