Business News

Sappi Limited Results for the Fourth Quarter and Year End September 2009

Monday 09. November 2009 - -- Net cash generated US$225 million -- Refinancing completed; improved liquidity and extended maturities -- Saiccor Mill ramp up near full capacity at quarter end -- Stronger Rand impacted SA business unfavourably -- Return to operating profit excluding special items -- Basic loss per share 20 US cents (unfavourably impacted by 18 US cents special items) -- Acquisition synergies exceed target

Commenting on the results, Sappi (NYSE:SPP) chief executive officer Ralph Boettger said:
“As economic conditions remained weak in our major markets we have taken decisive action in all our businesses, resulting in a return to operating profit excluding special items in our North American and European businesses in the quarter and progress towards a return to operating profit excluding special items in Southern Africa. The group met its expectation of a return to operating profit excluding special items for the quarter.
We are also pleased that cash flow for the group was again strong for the quarter with net cash generated of US$225 million.
The integration of the Acquisition progressed well. Achievement of synergies to September 2009 was 73 million euro (annualised rate of 97 million euro), which exceeded our nine month target of 60 million euro, and we remain on track to achieve the previously announced 120 million euro of annual synergies within three years.
Operating profit excluding special items was US$38 million compared to US$89 million in the equivalent quarter last year. This represents a significant turnaround from the previous quarter’s operating loss excluding special items of US$13 million. The North American and European businesses, which had improved volumes and lower costs, were key to the turnaround. The Southern African businesses recorded a loss as a result of weak domestic demand, a stronger Rand/US Dollar exchange rate which resulted in both lower export revenue and downward pressure on domestic prices as a result of increased competition from imports. In addition, operations were interrupted for two weeks, particularly at the Saiccor Mill, as a result of an industry-wide strike over wages. EPS for the quarter was a loss of 20 US cents (including a loss of 18 US cents of special items including financing items) compared to a loss of 9 US cents in the equivalent quarter last year (including a loss of 23 US cents of special items).
For the full year operating profit excluding special items was US$33 million compared to US$366 million last year. EPS for the year was a loss of 37 US cents (including a loss of 13 US cents of unfavourable special items including financing items) compared with last year’s earnings of 28 US cents (including a loss of 23 US cents of special items).”
Outlook
Looking forward, Boettger commented:

“Although global economic conditions remain unpredictable and growth expectations vary considerably among commentators, we expect demand to continue to grow for our major products in most markets compared to our financial 2009.
For coated woodfree paper, we expect demand in North America and Europe to continue the gradual improvement seen in recent months. We also expect some improvement in demand for coated mechanical paper from the current low base. The supply/demand balance in Europe is, however, expected to remain weak unless there are further closures of operations. We continue to review our operations to ensure that we optimise our capacity footprint and provide a high quality service to our customers.
New coated woodfree paper capacity is expected to start up over the next year in China, which is likely to unfavourably impact the global supply/demand balance; however, much of this should be absorbed by the rapid growth of Asian markets.
We acted decisively to take advantage of improved demand conditions and to improve the competitiveness of our businesses. We have devoted resources at all levels of the business to improving our understanding of customer needs and developing products and services to meet them. In particular, we have expanded our chemical cellulose business, we have increased our market position in Europe and enhanced the breadth of our product and service offerings, and in North America we have adapted our product line to match changing market needs and economics.
In addition to temporary production curtailment over the past year, we have closed or announced the possible closure of two mills and one paper machine in Europe, one paper mill in North America, a pulp mill in Southern Africa, and further measures to reduce fixed costs in each region. We expect all of these measures to continue to improve operating performance over the next year.
Following our refinancing we have an improved liquidity position with cash of US$770 million available at the end of September and we have no major debt maturities before 2012. We are of the opinion that it is prudent to maintain an increased cash balance as a cushion in times of economic uncertainty. Our finance costs have increased significantly and at current interest rates we expect our net finance costs for 2010 to increase to US$250 million. In order to continue reducing our net debt we will focus on cash generation and will manage our capital expenditures tightly but at a level which ensures we maintain our assets in good condition.
The first financial quarter is typically a seasonally weak quarter as a result of the holiday period in December. Nevertheless we expect demand to remain firm until then and price levels for coated paper to stabilise, and for pulp prices to improve. We have taken major annual maintenance shuts at two of our North American mills during the current quarter which will impact output and maintenance expenses. We expect alternative fuel tax credits to remain available through December 2009 although the credits could expire earlier.
Despite our first quarter historically being a seasonally weaker quarter, given current market conditions we expect to remain profitable at operating level excluding special items. We expect the full year’s performance to be better than financial 2009 based on a gradual recovery in world economic conditions and the decisive actions we have taken to improve our business.”