JOHANNESBURG, SOUTH AFRICA, Feb 8, 2012 - Financial Summary for the quarter
Profit for the period US$45 million; Q1 2011 US$37 million
EPS 9 US cents; Q1 2011 7 US cents
Operating profit excluding special items US$100 million; Q1 2011 US$137 million
European business performance benefits from restructuring and cost reduction actions
Southern African chemical cellulose business performed strongly
Net debt US$2,175 million, up US$75 million on seasonal working capital increase
Commenting on the results, Sappi (NYSE: SPP, JSE: SAP) Chief Executive Officer Ralph Boettger said:
"Following a year in which various actions and strategies were initiated, primarily involving extensive restructuring charges and asset impairments, the group achieved a profit for the period of US$45 million (Q1 2011 US$37 million) and EPS of 9 US cents (Q1 2011 7 US cents) in the first quarter of the 2012 financial year.
"Market conditions remained uncertain as a result of the continued negative sentiment in financial markets. Nevertheless, utilisation levels for our coated paper mills remained at high levels in North America and reasonable levels in Europe.
"Pulp prices continued to decline during the quarter but stabilised towards the end of the quarter.
"The coated paper businesses performed in line with expectations in North America and the improvement in Europe reflected the cost reduction and restructuring actions we implemented last year.
"The performance of the North American segment was unfavourably impacted by lower pulp output, declining pulp prices and weaker demand for casting release products particularly in the Chinese markets.
"The chemical cellulose business continued to perform strongly during the quarter, generating almost all of the operating profit excluding special items of the Southern African region for the quarter.
"The Southern African paper business is proceeding with the restructuring announced last year for which the charges were reported in the fourth financial quarter of 2011.
"Group operating profit (excluding special items) has improved for two consecutive quarters coming in at US$100 million but was below the US$137 million in the equivalent quarter last year, partly as a result of the additional week in the comparative period.
"There were no major special items for the quarter, which is in line with our aim to minimise once-off charges or special items during the year ahead other than possible adjustments in plantation fair value. The special item gain of US$7 million included a plantation fair value adjustment of US$3 million and profit on the sale of assets of US$5 million.
"Operating profit was therefore US$107 million compared to US$121 million in the equivalent quarter last year.
"Finance costs of US$54 million were significantly lower than the equivalent quarter last year (US$71 million) following the refinancing we concluded in the 2011 financial year and the use of cash to repay higher cost debt.
"Cash on hand was US$401 million at quarter end after debt repayments of approximately US$140 million during the quarter. Net debt at US$2,175 million is slightly higher than the previous quarter (US$2,100 million) but substantially down from US$2,432 million as at December 2010."
Looking forward, Boettger commented:
"Although market conditions remain uncertain, we are experiencing reasonable demand in our major markets. Our focus is on delivering the benefits of the restructuring and cost reduction actions announced and implemented in 2011 - in line with the group's stated strategy.
"The European business has made good progress with its US$100 million per annum cost reduction plans and has further benefited from the reduction of prices for some raw materials, including pulp. At current demand levels we expect to see further improvement in the performance of this business as the year progresses.
"We expect that the North American business' overall performance will improve as a result of increased pulp production, as well as an improvement in Chinese demand for casting release paper. There are signs that pulp prices may have reached a turning point and we could see an increasing trend over the next few months. The North American coated paper business is expected to continue performing well.
"The restructuring of the Southern African business is proceeding as planned and we expect the benefits to be realised from the second half of the financial year.
"Demand for our chemical cellulose remains relatively strong. The performance of our Southern African chemical cellulose business is sensitive to the Rand price for our sales, based on the US Dollar chemical cellulose price and the Rand/Dollar exchange rates. To date the exchange rate movement has largely offset the drop in prices, resulting in relatively stable Rand-denominated chemical cellulose prices realised and good margins for our business. The chemical cellulose expansion projects announced last year are on track.
"We are committed to managing our debt levels with a view to reducing net debt below US$2 billion as soon as the current transforming capital expenditure has been completed and thereafter to reducing gearing (e.g. Net Debt to EBITDA) to a substantially lower level. We expect net cash generation to turn positive for the full year after the increased capital expenditure and for debt levels, given constant exchange rates, to reduce by the year end.
"Provided there is no deterioration in market conditions, we expect the second quarter operating profit excluding special items to improve compared to the first quarter."
The full results announcement is available at www.sappi.com
There will be a conference call to which investors are invited. Full details are available on www.sappi.com using the links Investor Info; Investor Calendar; 01Q12 Financial Results
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