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.
SAPPI LIMITED
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10 November 2003
RESULTS FOR THE FOURTH QUARTER
ENDED SEPTEMBER 2003
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Sappi, the world's leading producer of coated fine paper, today announced
results for the fourth quarter to September 2003.
Highlights
o Markets remained weak
o Significant reduction in prices in all major markets
o Fourth quarter sales up 6.7% from prior year
o Operating costs well controlled
o Cash generated by operations up 28% from prior quarter to US$159
million
o Headline EPS of 11 US cents for quarter; 71 US cents for year
o EPS of 4 US cents for quarter; 65 US cents for year
o After tax charge in quarter of 8 US cents in relation to US machine
closure
o Dividend of 29 US cents
Commenting on the results, Sappi CEO Jonathan Leslie, said, "Our results were
achieved in an environment of continued weak demand for coated fine paper,
contrary to the customary seasonal pick up in this quarter, and lower prices
in all regions. Our fine paper businesses were unfavourably affected by weak
pricing in Europe and North America and in South Africa by more competitive
imports and reduced export margins due to the weaker US Dollar.
"Forest Products experienced firm demand in the South African markets for
packaging paper and internationally for dissolving pulp. The weaker US Dollar
continued to impact prices realised in local currency.
"We have embarked on a number of actions to improve the supply demand balance
and to offset rising costs in these tough markets.
"At Westbrook in the US we will close our highest cost paper machine and
transfer the production of coated fine paper to other mills. The mill will in
future focus on our Ultracast(R) and casting release paper
business.
"We have stopped operations at our Clan sawmill in South Africa. The sawmill
was non-core, relied on old technology and had an uncompetitive log supply.
"I have also decided to restructure the Fine Paper division. Wolfgang Pfarl
and Kathy Walters, CEOs of Sappi Fine Paper Europe and North America
respectively, will report directly to me and as a consequence the Fine Paper
office in London will be closed.
"As the position of CEO of Sappi Fine Paper will no longer exist, we have
agreed that Bill Sheffield will leave the group on 14 November 2003.
"In addition we plan to reduce our staffing levels by a further 100 people in
North America and by 150 people in Europe in 2004."
Looking forward, Leslie continued: "We will continue to curtail fine paper
production in Europe and North America during the current quarter including
scheduling major maintenance shuts at all the North American mills.
"It appears as if any pick up in markets will be delayed beyond our first
quarter. As a result of poor market conditions and low prices we expect
earnings to be weaker than the prior quarter, before the charges related to
closures and staff reductions and the impact of the maintenance shuts, in the
first quarter.
In conclusion, he said:
"We are, however, seeing early signs of improvement in Europe. The order
intake of coated fine paper has improved and announcements of price increases
for coated groundwood paper, in Europe and the United States, and coated fine
paper reels, in Europe, have been made.
"With this background we expect earnings to improve for the balance of the
year, resulting in an overall improvement, before the closure and staff
reduction charges, compared to 2003."
The full results announcement is available at www.sappi.com
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.
SAPPI
The word for fine paper
[Globe Graphic]
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RESULTS FOR THE FOURTH QUARTER AND
YEAR ENDED SEPTEMBER 2003
-----------------------------------------
FOURTH QUARTER
2003
Sappi is the world's leading
producer of coated fine paper
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SALES BY PRODUCT GROUP*
[Pie Chart] Coated fine paper 64%
Uncoated fine paper 6%
Coated specialities 9%
Pulp 12%
Commodity paper 8%
Other 1%
SALES: WHERE PRODUCT IS SOLD*
[Pie Chart] North America 35%
Europe 41%
Asia and other 11%
Southern Africa 13%
SALES: WHERE PRODUCT IS MANUFACTURED*
[Pie Chart] North America 32%
Europe 44%
Southern Africa 24%
GEOGRAPHIC OWNERSHIP**
[Pie Chart] Europe and ROW+ 12%
Southern Africa 43%
North America 45%
* for the year ended September 2003
** as at 30 September 2003
+ Rest of the world
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o Headline EPS 11 US cents for the quarter;
71 US cents for the year
o EPS 4 US cents for the quarter; 65 US cents
for the year
o After tax charge of 8 US cents for the quarter in
respect of machine closure
o Dividend 29 US cents
o Difficult market conditions
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SUMMARY
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QUARTER QUARTER QUARTER YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
SEPT JUNE SEPT SEPT SEPT
2003 2003 2002 2003 2002
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Sales (US$ million) 1,123 1,062 1,052 4,299 3,729
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Operating profit (US$ million) 46 46 122 286 389
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EBITDA * (US$ million)** 120*** 149 221 654 724
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Operating profit to sales (%) 4.1 4.3 11.6 6.7 10.4
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EBITDA to sales (%) * 10.7 14.0 21.0 15.2 19.4
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Operating profit to average
net assets (%) * 4.1 4.3 13.0 7.0 11.3
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Headline EPS (US cents) * 11 12 32 71 101
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EPS (US cents) 4 13 32 65 95
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Return on average equity (%) * 2.0 6.1 18.6 8.4 14.2
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Net debt (US$ million) * 1,491 1,571 1,419 1,491 1,419
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Net debt to total capitalisation (%)* 30.8 33.2 36.1 30.8 36.1
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* Refer to page 17, 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 18, Supplemental Information for
further details.
*** EBITDA for the quarter ended September 2003 reduced by US$31.5 million in
respect of machine closure.
SAPPI 1
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COMMENT
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Markets for coated fine paper in the USA and Europe did not show the customary
strong seasonal pick up in the quarter. In particular the catalogue season in
America was weaker than last year. Apparent consumption for the quarter was
down 6% in the USA compared to a year ago whereas there was some improvement
in Europe. Advertising pages in the US were down 2.9% for the quarter compared
to a year earlier.
The price increase announced in July for web products in the USA was not
implemented and prices remain weak. In Europe prices remained under pressure;
however the rapid decline in the previous quarter appears to have been
stabilised, as order intake improved in recent weeks.
The NBSK pulp price index has picked up in recent weeks to US$546 per ton from
a recent low of US$510 per ton.
Net profit for the quarter was US$10 million after a post-tax charge of
approximately US$19 million (US$31.5 million pre-tax) in respect of the
planned closure of Westbrook's paper machine 14 and associated inventory (see
'Closure of operations'). Headline earnings were US$26 million. The charge in
respect of Westbrook inventory reduced Headline earnings by approximately US$2
million (1 US cent per share).
Headline earnings per share were 11 US cents, after the 1 US cent per share
charge for the Westbrook inventory, 8.3% below the prior quarter and 65.6%
below a year earlier. After the balance of the Westbrook charge earnings per
share were 4 US cents.
Operating profit for the quarter was US$46 million, 62% below last year,
reflecting the poor trading conditions.
Operating costs have generally been well controlled; however, higher employee
benefit, wood and energy costs have reduced our margins. Selling, General and
Administrative expenses for the quarter were US$45 million higher than last
year. Approximately US$35 million of the difference relates to reversals of
litigation and insurance costs last year and currency movements.
Net finance costs for the quarter were US$18 million compared to US$29 million
a year earlier reflecting lower interest rates and the benefit of swapping
US$750 million of debt from fixed rate to floating.
The tax credit for the quarter was a result of the credit in respect of the
impairment charge and a reduction in the effective tax rate for the year.
2 SAPPI
We expect the effective tax rate for next year to be approximately 20%.
However, this will depend on profitability and regional performance.
For the full year sales were US$4.3 billion, 15.3% higher than last year. A
significant portion of this was related to currency translation. Operating
profit, however, was 26.5% lower at US$286 million, which reflects the
significant reduction of prices in our major markets. In Europe prices
realised in local currency declined approximately 9% compared to the prior
year, the Forest Products division's pulp and paper prices declined 4% and
North America prices declined 3% year on year.
Net profit for the full year was US$149 million (65 US cents) after the US$19
million charge in respect of the machine closure. Headline earnings were
US$163 million (71 US cents).
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CASH FLOW AND NET DEBT
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Cash generated by operations was US$159 million for the quarter, 28% higher
than the June quarter but 30% lower than a year earlier. Working capital
declined by US$104 million compared to the previous quarter due to reduced
inventory and increased payables.
We spent US$126 million on fixed assets in the quarter, which was
significantly higher than the previous quarter as a number of major projects
were commissioned in the period. As a result of market conditions we cut back
our capital expenditure for the full year to US$296 million, representing
approximately 84% of depreciation, from a planned level of approximately 100%
of depreciation.
We repurchased 2.2 million shares in the quarter at a cost of approximately
US$29 million.
Net debt at the end of September was 5% lower than June at US$1,491 million.
Net debt to total capitalisation reduced from 33.2% to 30.8%. Over the full
year net debt increased by US$72 million as a result of currency translation.
Total interest bearing borrowings increased by US$403 million to US$2,075
million and cash and cash equivalents increased by US$331 million to US$584
million.
SAPPI 3
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OPERATING REVIEW FOR THE QUARTER
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SAPPI FINE PAPER
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QUARTER ENDED QUARTER ENDED
SEPT 2003 SEPT 2002 %
US$ MILLION US$ MILLION CHANGE
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Sales 917 905 1.3
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Operating profit 31 78 (60.3)
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Operating profit to sales (%) 3.4 8.6 -
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EBITDA * 81 157 (48.4)
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EBITDA to sales (%) 8.8 17.3 -
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RONOA pa (%) 3.8 10.4 -
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* EBITDA for the quarter ended September 2003 reduced by US$31.5 million in
respect of machine closure
The performance of our fine paper businesses was unfavourably affected by weak
pricing in Europe, continued weak pricing and the lack of a significant
seasonal pick-up of demand for coated fine paper in North America this year
and lower prices in South Africa as the relatively stronger Rand made imports
more competitive and reduced margins on our exports.
EUROPE
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QUARTER ENDED QUARTER ENDED%
SEPT 2003 SEPT 2002 % CHANGE % CHANGE
US$ MILLION US$ MILLION (US$) (EURO)
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Sales 485 459 5.7 (8.1)
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Operating profit 20 53 (62.3) (67.2)
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Operating profit to sales (%) 4.1 11.5 - -
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EBITDA 66 98 (32.7) (41.4)
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EBITDA to sales (%) 13.6 21.4 - -
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RONOA pa (%) 4.9 14.6 - -
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4 SAPPI
Price pressure continued in the quarter particularly in Spain and Italy, and
in export markets where the weakness of the US Dollar compounded the effect on
average prices realised in Euros. Average prices realised in Euros for the
quarter were 10% lower than a year earlier.
Our sales volume increased 2% compared to a year earlier, much of which was to
offshore markets. We recovered our market share in the region in the quarter.
NORTH AMERICA
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QUARTER ENDED QUARTER ENDED
SEPT 2003 SEPT 2002 %
US$ MILLION US$ MILLION CHANGE
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Sales 358 388 (7.7)
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Operating profit 5 15 (66.7)
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Operating profit to sales (%) 1.4 3.9 -
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EBITDA * 6 46 (87.0)
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EBITDA to sales (%) 1.7 11.9 -
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RONOA pa (%) 1.4 4.2 -
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* EBITDA for the quarter ended September 2003 reduced by US$31.5 million in
respect of machine closure
Sales volumes improved significantly compared to the June quarter but were 7%
below the equivalent quarter last year in line with the decline in apparent
consumption. The catalogue season for coated fine paper web products was less
marked than last year.
Average prices realised declined in the quarter to marginally below a year
earlier reflecting weak markets and continued imports from Asia and Europe.
Operating costs continue to be influenced by increasing costs of employee
benefits and an increase in energy and wood costs in the quarter.
See the section 'Closure of operations'.
SAPPI 5
FINE PAPER SOUTH AFRICA
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QUARTER ENDED QUARTER ENDED
SEPT 2003 SEPT 2002 % CHANGE % CHANGE
US$ MILLION US$ MILLION (US$) (RANDS)
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Sales 74 58 27.6 (10.1)
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Operating profit 6 10 (40.0) (57.7)
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Operating profit
to sales (%) 8.1 17.2 - -
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EBITDA 9 13 (30.8) (51.2)
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EBITDA to sales (%) 12.2 22.4 - -
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RONOA pa (%) 18.4 46.0 - -
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Our South African business produced reasonable results considering the
pressure on margins resulting from the increased competition from imports. We
continue to find ways to minimise the margin squeeze, including finding
alternative markets and innovative product and service offerings.
FOREST PRODUCTS
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QUARTER ENDED QUARTER ENDED
SEPT 2003 SEPT 2002 % CHANGE % CHANGE
US$ MILLION US$ MILLION (US$) (RANDS)
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Sales 206 147 40.1 (1.2)
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Operating profit 22 38 (42.1) (59.2)
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Operating profit
to sales (%) 10.7 25.8 - -
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EBITDA 46 58 (20.7) (44.1)
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EBITDA to sales (%) 22.3 39.5 - -
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RONOA pa (%) 8.4 21.3 - -
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We experienced firm demand in the South African market for our packaging
paper, however, average prices realised were lower as a result of pressure
from imports following the weakening of the US Dollar relative to the Rand.
Demand for dissolving pulp remained firm in the quarter and Saiccor mill ran
at full capacity for the third consecutive quarter. Dollar prices increased in
line with paper pulp prices. Unfortunately the improved Dollar price was more
than offset by the weaker Dollar relative to the Rand. We sold approximately
100,000 tons more dissolving pulp in the year ended September than in the
prior year.
6 SAPPI
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CLOSURE OF OPERATIONS
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We have decided on a number of actions to offset rising costs, which include
taking out capacity to improve the supply demand balance in the US and a range
of other initiatives to reduce fixed costs in all regions.
At Westbrook (Maine, USA) we will close Number 14 paper line, which is our
highest cost paper machine. It has an annual capacity of 85,000 tons and will
be closed in the next few months. The brands produced on this machine will be
transferred to other Sappi mills and we will not only maintain service levels
but also improve the product characteristics by producing on more modern
facilities. We will be communicating with customers immediately about the
benefits of this change for them. Westbrook mill will in future focus on our
Ultracast(R) and casting release paper business.
We have written off the asset and related inventory in the quarter and taken a
charge of US$19 million after tax (US$31.5 million pre-tax). We will take a
further charge of US$15 million pre-tax next quarter in respect of the closure
costs.
We expect expense savings before tax of approximately US$18 million in a full
year once the paper line has been closed. The net impact on operating income
is expected to be favourable from the March quarter.
We stopped operations at Clan sawmill (South Africa) in the quarter and expect
to close the mill before December 2003. The mill, with a log intake of
80,000m(3), uses old technology and does not have a competitive log supply. The
closure will not have a material impact on Sappi's results.
Unfortunately, these closures will result in the loss of approximately 170
jobs at Westbrook and 300 jobs at Clan.
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RESTRUCTURING
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We are restructuring the Fine Paper division. Wofgang Pfarl and Kathy Walters,
CEOs of Sappi Fine Paper Europe and North America respectively, will report
directly to Jonathan Leslie, CEO of Sappi Limited and as a consequence the
Fine Paper office in London will be closed.
As the position of CEO Sappi Fine Paper will no longer exist, we have agreed
that Bill Sheffield will leave the group on 14 November 2003.
In addition, in order to counteract the effect of rapidly increasing benefit
costs, we also expect to reduce our staffing levels by a further 100 people in
North America and 150 people in Europe during 2004.
We expect to take a pre-tax charge of US$13 million in the first quarter in
respect of this restructuring.
SAPPI 7
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NEW ACCOUNTING STANDARD
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Accounting standard AGRICULTURE - AC137 (IAS41) becomes effective for Sappi
from the beginning of the 2004 financial year. The key requirement of the
standard is that agricultural assets (plantations) should be valued at fair
value. This requires changes to the way we account for our plantations. In
future we will not capitalise silvicultural expenses and finance costs to
plantations nor will we amortise plantations to the income statement.
Movements in the fair value of plantations will impact operating profit.
This change will lead to increased volatility in profit going forward.
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DIVIDEND
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The board has declared a dividend of 29 US cents for the year ended September
2003. A dividend of 28 US cents was paid in the previous year.
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OUTLOOK
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As we start our new year under these difficult market conditions for coated
fine paper, we will continue to curtail production during the next quarter; in
addition to the permanent closure of the Westbrook paper machine we plan to
increase commercial downtime and schedule major maintenance shuts at all the
North American mills, including total mill shutdowns, which occur every 5
years, at Somerset and Muskegon. We expect these shuts to reduce operating
income by approximately US$15 - 17 million in the December quarter compared to
last year.
Our investment programme will be focused on maintaining the health of our
business and on improving our cost efficiency. We expect capital expenditure
in 2004 to be similar to 2003.
It appears as if any pick up in markets will be delayed beyond our first
quarter. As a result of poor market conditions and low prices we expect
earnings in the first quarter to be weaker than the prior quarter, before the
charges related to closure and staff reduction and the impact of the
maintenance shuts. We are, however, seeing early signs of improvement in
Europe. The order intake of coated fine paper has improved and announcements
of price increases for coated groundwood paper (in Europe and the US) and
coated fine paper reels (in Europe) have been made. With this background we
expect earnings to improve for the balance of the year, resulting in an
overall improvement, before the closure and staff reduction charges, compared
to 2003.
On behalf of the Board
J C A LESLIE D G WILSON
Director Director 10 November 2003
SAPPI LIMITED
(Registration number 1936/008963/06)
JSE CODE: SAP
ISIN CODE: ZAE 000006284
8 SAPPI
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DIVIDEND ANNOUNCEMENT
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The directors have declared a dividend (number 80) of 29 US cents per share
for the year ended September 2003.
In compliance with the requirements of STRATE, the JSE Securities Exchange's
electronic settlement system which is applicable to Sappi, the salient dates
in respect of the dividend will be as follows:
Last day to trade to qualify for dividend Friday, 2 January 2004
Date on which shares commence trading ex-dividend Monday, 5 January 2004
Record date Friday, 9 January 2004
Payment date Monday, 12 January 2004
Dividends payable from the Johannesburg transfer office will be paid in South
African Rands except that dividends paid to nominee shareholders in respect of
shares which they hold on behalf of non-residents of the Republic of South
Africa will be paid in United States Dollars.
Dividends payable from the London transfer office will be paid in British
Pounds Sterling or in the case of shareholders with registered addresses in
the USA, in United States Dollars. Dividends payable other than in United
States Dollars will be calculated at the respective rates of exchange ruling
on Tuesday, 23 December 2003.
There will not be any dematerialisation nor rematerialisation of Sappi Limited
share certificates from 5 January to 9 January 2004, both days inclusive.
SAPPI MANAGEMENT SERVICES (PTY) LIMITED
Secretaries
Per D J O'Connor
10 November 2003
SAPPI 9
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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.
10 SAPPI
[GLOBE GRAPHIC]
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FINANCIAL RESULTS FOR THE
FOURTH QUARTER AND YEAR ENDED SEPTEMBER 2003
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SAPPI 11
GROUP INCOME STATEMENT
REVIEWED REVIEWED REVIEWED AUDITED
QUARTER QUARTER YEAR YEAR
ENDED ENDED ENDED ENDED
SEPT 2003 SEPT 2002 SEPT 2003 SEPT 2002
US$ MILLION US$ MILLION % CHANGE US$ MILLION US$ MILLION % CHANGE
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SALES 1,123 1,052 6.7 4,299 3,729 15.3
Cost of sales* 984 882 3,675 3,079
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Gross profit 139 170 (18.2) 624 650 (4.0)
Selling, general & administrative
expenses* 93 48 338 261
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OPERATING PROFIT 46 122 (62.3) 286 389 (26.5)
Non-trading loss (profit) 31 (2) 27 17
Net finance costs 18 29 90 74
---------- ---------- ---------- ----------
Net paid | 27 | | 30 | | 120 | | 96 |
Capitalised | (3) | | (6) | | (23) | | (29) |
Net foreign exchange | | | | | | | |
(gains) losses | (3) | | 1 | | (1) | | (4) |
Change in fair value of | | | | | | | |
financial instruments | (3) | | 4 | | (6) | | 11 |
---------- ---------- ---------- ----------
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(LOSS) PROFIT BEFORE TAX (3) 95 - 169 298 (43.3)
Taxation - current (6) 28 30 52
- deferred (7) (6) (10) 26
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NET PROFIT 10 73 (86.3) 149 220 (32.3)
====================================================================================
EARNINGS PER SHARE (US CENTS) 4 32 65 95
HEADLINE EARNINGS PER SHARE
(US CENTS)** 11 32 71 101
Weighted average number of
shares in issue (millions) 227.7 230.2 229.1 230.2
Diluted earnings per share
(US cents) 4 31 64 94
Diluted headline earnings
per share (US cents) ** 11 31 70 100
Weighted average number
of shares on fully diluted
basis (millions) 230.0 233.4 231.5 233.4
CALCULATION OF HEADLINE
EARNINGS **
Net profit 10 73 149 220
Loss (profit) on disposal of
business and fixed assets 2 (1) (1) 1
Mill closure costs and asset
impairments 14 1 15 6
Debt restructuring costs - - - 6
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Headline earnings 26 73 163 233
====================================================================================
* Reallocation of delivery charges. Refer to note 3 for further details.
** Headline earnings disclosure is required by the JSE Securities Exchange
South Africa.
12 SAPPI
GROUP BALANCE SHEET
REVIEWED AUDITED
SEPT 2003 SEPT 2002
US$ MILLION US$ MILLION
----------------------------------------------------------------------------
ASSETS
NON-CURRENT ASSETS 4,260 3,639
-------- --------
Property, plant and equipment | 3,554| | 3,189|
Plantations | 450| | 298|
Deferred taxation | 41| | 6|
Other non-current assets | 215| | 146|
-------- --------
CURRENT ASSETS 1,575 1,094
-------- --------
Cash and cash equivalents | 584| | 253|
Trade and other receivables | 289| | 282|
Prepaid income taxes | 1| | 38|
Inventories | 701| | 521|
-------- --------
------------------------------
TOTAL ASSETS 5,835 4,733
==============================
EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Ordinary shareholders' interest 1,958 1,601
MINORITY INTEREST - 2
NON-CURRENT LIABILITIES 2,546 2,110
-------- --------
Interest-bearing borrowings | 1,742| | 1,455|
Deferred taxation | 522| | 399|
Other non-current liabilities | 282| | 256|
-------- --------
CURRENT LIABILITIES 1,331 1,020
-------- --------
Interest-bearing borrowings and | | | |
bank overdraft | 333| | 217|
Taxation payable | 82| | 48|
Other current liabilities | 916| | 755|
-------- --------
------------------------------
TOTAL EQUITY AND LIABILITIES 5,835 4,733
==============================
Number of shares in issue at
balance sheet date (millions) 226.9 230.2
SAPPI 13
GROUP CASH FLOW STATEMENT
REVIEWED REVIEWED REVIEWED AUDITED
QUARTER QUARTER YEAR YEAR
ENDED ENDED ENDED ENDED
SEPT 2003 SEPT 2002 SEPT 2003 SEPT 2002
US$ MILLION US$ MILLION US$ MILLION US$ MILLION
-------------------------------------------------------------------------------------
CASH GENERATED BY
OPERATIONS 159 226 675 744
Movement in working capital 104 50 (79) (42)
Net finance costs (21) (35) (113) (103)
Taxation recovered (paid) 2 (26) 33 (89)
Dividends paid - - (65) (60)
--------------------------------------------------------
CASH RETAINED FROM OPERATING
ACTIVITIES 244 215 451 450
Cash effects of investing
activities (140) (60) (340) (701)
--------------------------------------------------------
Normal investing activities | (140) (65) (340) (218) |
Acquisition of net assets | - 5 - (483) |
--------------------------------------------------------
--------------------------------------------------------
104 155 111 (251)
Cash effects of financing
activities 6 (143) 147 13
--------------------------------------------------------
NET MOVEMENT IN CASH AND
CASH EQUIVALENTS 110 12 258 (238)
========================================================
GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
REVIEWED AUDITED
YEAR YEAR
ENDED ENDED
SEPT 2003 SEPT 2002
US$ MILLION US$ MILLION
-------------------------------------------------------------------------------------
Balance - beginning of year 1,601 1,503
Net profit 149 220
Foreign currency translation reserve 335 (62)
Revaluation of derivative instruments (14) 3
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 (48) (3)
------------------------------
Balance - end of year 1,958 1,601
==============================
14 SAPPI
NOTES TO THE GROUP RESULTS
1. BASIS OF PREPARATION
The financial statements are prepared in conformity with South African
Statements of Generally Accepted Accounting Practice (SA GAAP). The
preliminary results have been prepared in compliance with AC 127
(Interim financial reporting) and are based on accounting policies which
are consistent with those used in the annual financial statements. 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 preliminary results for the quarter have been
reviewed by the group's auditors, Deloitte & Touche. Their unqualified
review 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 calculating headline earnings is that there
are no longer any adjustments for movements in restructuring provisions.
The impact on previously reported headline earnings was an increase of 2
US cents to 32 US cents for the quarter ended September 2002 and an
increase of 3 US cents to 101 US cents for the year ended September
2002.
Similarly the impact on previously reported diluted headline earnings
per share was an increase of 1 US cent to 31 US cents for the quarter
ended September 2002 and an increase of 3 US cents to 100 US cents for
the year ended September 2002.
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$24 million for the quarter (June 2003:
US$22 million; Sept 2002: US$21 million) and US$87 million for the year
(Sept 2002: US$71 million).
4. COMPARATIVE FIGURES
Comparative figures have been regrouped or reclassed where necessary to
give a more appropriate comparison. There has been no impact on
previously reported net income.
SAPPI 15
NOTES TO THE GROUP RESULTS (CONTINUED)
REVIEWED REVIEWED REVIEWED AUDITED
QUARTER QUARTER YEAR YEAR
ENDED ENDED ENDED ENDED
SEPT 2003 SEPT 2002 SEPT 2003 SEPT 2002
US$ MILLION US$ MILLION US$ MILLION US$ MILLION
-----------------------------------------------------------------------------
5. OPERATING PROFIT
Included in operating
profit are:
Depreciation 93 85 352 310
Fellings 7 7 21 26
Amortisation 5 5 22 16
-----------------------------------------------------------------------------
105 97 395 352
=============================================================================
6. CAPITAL EXPENDITURE
Property, plant and
equipment 126 49 296 180
Plantations 10 6 31 25
-----------------------------------------------------------------------------
136 55 327 205
=============================================================================
REVIEWED AUDITED
SEPT 2003 SEPT 2002
US$ MILLION US$ MILLION
-----------------------------------------------------------------------------
7. CAPITAL COMMITMENTS
Contracted but not provided 86 55
Approved but not contracted 193 173
-----------------------------------------------------------------------------
279 228
=============================================================================
8. CONTINGENT LIABILITIES
Guarantees and suretyships 47 66
Other contingent liabilities 24 14
=============================================================================
16 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 interest, tax, depreciation and amortisation
(including fellings)
*EBITDA TO SALES - EBITDA divided by sales
FELLINGS - the amount charged against the income statement representing
the standing cost of 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 between companies in our industry.
SAPPI 17
SUPPLEMENTAL INFORMATION
-------------------------------------------------------------------------------
ADDITIONAL INFORMATION
-------------------------------------------------------------------------------
REVIEWED REVIEWED REVIEWED AUDITED
QUARTER QUARTER YEAR YEAR
ENDED ENDED ENDED ENDED
SEPT 2003 SEPT 2002 SEPT 2003 SEPT 2002
US$ MILLION US$ MILLION US$ MILLION US$ MILLION
-----------------------------------------------------------------------------------------
NET PROFIT TO
EBITDA* RECONCILIATION
Net profit per the
Group Income Statement 10 73 149 220
Net finance costs 18 29 90 74
Taxation - current (6) 28 30 52
- deferred (7) (6) (10) 26
Depreciation 93 85 352 310
Amortisation (including fellings) 12 12 43 42
-----------------------------------------------------------------------------------------
EBITDA* 120 221 654 724
-----------------------------------------------------------------------------------------
REVIEWED AUDITED
SEPT 2003 SEPT 2002
US$ MILLION US$ MILLION
-----------------------------------------------------------------------------------------
Net debt (US$ million)** 1,491 1,419
Net debt to total capitalization (%)** 30.8 36.1
Net asset value per share (US$)** 10.75 8.66
* In connection with the U.S. Securities Exchange Commission ("SEC") rules
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 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 on EBITDA in the current quarter for the amended definition was a
decrease of EBITDA by US$31 million to US$120 million (June 2003:
increase of US$3 million to US$149 million; September 2002: increase of
US$2 million to US$221 million). The effect of the amended EBITDA
definition was a decrease of US$27 million for the year ended September
2003 to US$654 million (September 2002: decrease of US$17 million to
US$724 million).
** Refer to page 17, Supplemental Information for the definition of the
term.
18 SAPPI
SUPPLEMENTAL INFORMATION
-------------------------------------------------------------------------------
REGIONAL INFORMATION
-------------------------------------------------------------------------------
REVIEWED REVIEWED REVIEWED AUDITED
QUARTER QUARTER YEAR YEAR
ENDED ENDED ENDED ENDED
SEPT 2003 SEPT 2002 SEPT 2003 SEPT 2002
METRIC TONS METRIC TONS METRIC TONS METRIC TONS
(000'S) (000'S) % CHANGE (000'S) (000'S) % CHANGE
-------------------------------------------------------------------------------------------------------------------------
SALES
Fine Paper - North America 371 398 (6.8) 1,383 1,163 18.9
Europe 570 560 1.8 2,233 2,180 2.4
Southern Africa 79 76 3.9 300 310 (3.2)
-------------------------------------------------------------------------------------------------------------------------
Total 1,020 1,034 (1.4) 3,916 3,653 7.2
Forest Products - Pulp and paper operations 394 339 16.2 1,474 1,391 6.0
Forestry operations 355 266 33.5 1,285 1,043 23.2
-------------------------------------------------------------------------------------------------------------------------
Total 1,769 1,639 7.9 6,675 6,087 9.7
=========================================================================================================================
REVIEWED REVIEWED REVIEWED AUDITED
QUARTER QUARTER YEAR YEAR
ENDED ENDED ENDED ENDED
SEPT 2003 SEPT 2002 SEPT 2003 SEPT 2002
US$ MILLION US$ MILLION % CHANGE US$ MILLION US$ MILLION % CHANGE
-------------------------------------------------------------------------------------------------------------------------
SALES
Fine Paper - North America 358 388 (7.7) 1,384 1,197 15.6
Europe 485 459 5.7 1,903 1,744 9.1
Southern Africa 74 58 27.6 270 215 25.6
-------------------------------------------------------------------------------------------------------------------------
Total 917 905 1.3 3,557 3,156 12.7
Forest Products - Pulp and paper operations 192 136 41.2 689 534 29.0
Forestry operations 14 11 27.3 53 39 35.9
-------------------------------------------------------------------------------------------------------------------------
Total 1,123 1,052 6.7 4,299 3,729 15.3
=========================================================================================================================
OPERATING PROFIT
Fine Paper - North America 5 15 66.7) 43 (21) -
Europe 20 53 (62.3) 112 217 (48.4)
Southern Africa 6 10 (40.0) 35 34 2.9
-------------------------------------------------------------------------------------------------------------------------
Total 31 78 (60.3) 190 230 (17.4)
Forest Products 22 38 (42.1) 101 141 (28.4)
Corporate (7) 6 - (5) 18 -
-------------------------------------------------------------------------------------------------------------------------
Total 46 122 (62.3) 286 389 (26.5)
=========================================================================================================================
EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTISATION CHARGES
Fine Paper - North America 6 46 (87.0) 137 87 57.5
Europe 66 98 (32.7) 289 367 (21.3)
Southern Africa 9 13 (30.8) 45 42 7.1
-------------------------------------------------------------------------------------------------------------------------
Total 81 157 (48.4) 471 496 (5.0)
Forest Products 46 58 (20.7) 187 210 (11.0)
Corporate (7) 6 - (4) 18 -
-------------------------------------------------------------------------------------------------------------------------
Total 120 221 (45.7) 654 724 (9.7)
=========================================================================================================================
NET OPERATING ASSETS
Fine Paper - North America 1,438 1,483 (3.0) 1,438 1,483 (3.0)
Europe 1,617 1,420 13.9 1,617 1,420 13.9
Southern Africa 131 90 45.6 131 90 45.6
-------------------------------------------------------------------------------------------------------------------------
Total 3,186 2,993 6.4 3,186 2,993 6.4
Forest Products 1,066 714 49.3 1,066 714 49.3
Corporate (40) (36) 11.1 (40) (36) 11.1
-------------------------------------------------------------------------------------------------------------------------
Total 4,212 3,671 14.7 4,212 3,671 14.7
=========================================================================================================================
* EBITDA for the quarter ended September 2003 reduced by US$31.5 million in
respect of machine closure
SAPPI 19
SUPPLEMENTAL INFORMATION
-------------------------------------------------------------------------------
SUMMARY RAND CONVENIENCE TRANSLATION
-------------------------------------------------------------------------------
REVIEWED REVIEWED REVIEWED REVIEWED
QUARTER QUARTER YEAR YEAR
ENDED ENDED ENDED ENDED
SEPT 2003 SEPT 2002 % CHANGE SEPT 2003 SEPT 2002 % CHANGE
-------------------------------------------------------------------------------------------------------------------------
Sales (ZAR million) 8,295 11,027 (24.8) 35,811 39,301 (8.9)
Operating profit (ZAR million) 340 1,279 (73.4) 2,382 4,100 (41.9)
Net Profit (ZAR million) 74 765 (90.3) 1,241 2,319 (46.5)
EBITDA* (ZAR million)** 886 2,316 (61.7) 5,448 7,630 (28.6)
Operating profit to sales (%) 4.1 11.6 6.7 10.4
EBITDA * to sales (%) 10.7 21.0 15.2 19.4
Operating profit to average
net assets (%) 4.2 13.1 6.7 12.2
EPS (SA cents) 30 335 (91.0) 541 1,001 (46.0)
Headline EPS (SA cents) * 81 335 (75.8) 591 1,064 (44.5)
Net debt (ZAR million) 10,629 14,956 (28.9)
Net debt to total capitalisation (%)* 30.8 36.1
Cash generated by operations
(ZAR million) 1,174 2,369 (50.4) 5,623 7,841 (28.3)
Cash retained from operating
activities (ZAR million) 1,802 2,254 3,757 4,743
Net movement in cash and
cash equivalents (ZAR million) 813 126 2,149 (2,508)
* Refer to page 17, 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 18, Supplemental Information for
further details.
-------------------------------------------------------------------------------
EXCHANGE RATES
-------------------------------------------------------------------------------
SEPT JUNE MARCH DEC SEPT
2003 2003 2003 2002 2002
---------------------------------------------------------------------------------------
Exchange rates:
Period end rate: US$1 = ZAR 7.1288 7.4300 7.9550 8.7200 10.5400
Average rate for the Quarter
US$1 = ZAR 7.3866 7.6305 8.3550 9.7265 10.4818
Average rate for the YTD:
US$1 = ZAR 8.3300 8.6173 9.0866 9.7265 10.5393
Period end rate: EUR1 = US$ 1.1475 1.1417 1.0729 1.0387 0.9789
Average rate for the Quarter
EUR1 = US$ 1.1328 1.1236 1.0686 0.9995 0.9850
Average rate for the YTD:EUR1 = US$ 1.0804 1.0655 1.0334 0.9995 0.9188
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.
20 SAPPI
----------------------------------------------------------------------------------------
SAPPI ORDINARY SHARES
----------------------------------------------------------------------------------------
ZAR
160-
140-
120- [CHART GRAPHING]
100-
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 1 Jul 31 Oct
2001 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- [CHART GRAPHING]
10-
8-
6-
4-
2-
0-
-------------------------------------------------------------------------------------
1 Jan 1 Apr 1 Jul 1 Oct 1 Jan 1 Apr 1 Jul 1 Oct 1 Jan 1 Apr 1 Jul 31 Oct
2001 2001 2001 2001 2002 2002 2002 2002 2003 2003 2003 2003
SAPPI 21
ISSUED BY:
Brunswick South Africa on behalf of Sappi Limited
Tel + 27 (0)11 268 5750
Fax + 27 (0)11 268 5747
FOR MORE INFORMATION CONTACT:
Robert Hope
Director Strategic Development
Sappi Limited
Tel +27 (0)11 407 8492
Robert.Hope@sappi.com
Andre F Oberholzer
Corporate Affairs and Communication Manager
Sappi Limited
Tel +27 (0)11 407 8044
Mobile +27 (0)82 906 0638
Andre.Oberholzer@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: November 17, 2003