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Qnb Fin 24 | LSE:79CK | London | Medium Term Loan |
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RNS Number:6663H Sappi Ld 30 July 2001 30/07/2001 Press Release Johannesburg, Strong fundamentals help Sappi withstand tough third quarter Sappi, the world's leading producer of coated woodfree paper, today announced results for the third quarter 2001. Results - Highlights * Headline earnings per share in dollar terms down on previous quarter but ahead of market expectations. * One-off after-tax restructuring charge of US$120 million for Mobile closure impacts EPS * Fine Paper North America delivers operating profits despite difficult market conditions and continuing Mobile losses * Cash flows remain strong * Finance costs continue to decline * Share buy back to continue Commenting on the results, Eugene van As, Executive Chairman of Sappi said that given the difficult macro environment, the group had delivered a solid performance. "The sector as a whole is experiencing extremely tough trading conditions" he said. "Within the context of this environment Sappi has stood up well, thanks to its strong fundamentals. The group continues to focus on extracting optimal operational efficiencies, has maintained a tight control on costs and has held its market shares". Results for the Quarter The group's net profit before exceptional items for the quarter was US$55 million, 41% below last year. Sales volumes of continuing operations were 6% lower than a year ago. This reduction was in the fine paper business reflecting slower economic activity in Europe and North America and inventory reduction by merchants and printers. Prices were 7% lower than a year earlier in dollar terms mainly as a result of currency translation because of the 11% surge in the US dollar against the Euro. Operating margins were impacted by the lower shipments and price erosion. Operating profit was down 50% to US$91 million. Finance costs after currency adjustments and capitalised interest were US$16 million, which were US$15 million (48%) lower than the equivalent quarter last year. The decision to close Mobile mill in Alabama, USA, resulted in a one-off charge of US$120 million after tax. The closure will be cash flow positive as a result of the liquidation of current assets and tax credits. The full profit improvement resulting from the closure will be achieved from the beginning of the next calendar year. Earnings per share before exceptional items were 24 US cents, down 38% from a year ago. Earnings per share after the one-time restructuring charge were (27) US cents. The group continued to generate strong cash flows of US$175 million for the quarter (EBITDA). Capital expenditure was in line with the first half year at US$74 million for the quarter. Net debt was marginally lower at US$1,250 million and the debt to total capitalisation ratio was 34.5%, slightly up on the prior quarter as a result of the Mobile write down. Sappi recently announced a E900 million (US$770 million) finance facility, which comprises two tranches, one of which will be used for general corporate purposes and the other to refinance existing high cost debt in the United States. The margin of 0.55% reflects the strong credit standing of the group This new facility will further reduce Sappi's pre-tax finance cost in the USA by approximately US$13 million in a full year. Operational Review Fine Paper The Fine Paper business experienced tough trading conditions throughout the quarter with reduced demand and some decline in paper prices particularly in the group's export markets such as Asia and South America. This was partly offset by lower pulp prices, which dropped to US$510 per ton in June from US$710 in January and the group's continued focus on cost control. In Europe, weak demand for coated woodfree paper resulted in a 15% reduction in sales volume and this combined with prices dropping 3% in dollar terms (2% up in local currency) resulted in operating income being less than half a year earlier at US$26 million. Sappi took approximately one week a month of production curtailment across all of its coated woodfree paper machines to match output to market requirements. The rapid drop in pulp prices had a favourable impact on variable costs and fixed costs were tightly controlled. The North American business continued to feel the negative impact of the slowing US economy and the strong US dollar. Overall consumption of coated woodfree paper reduced considerably and imports from Asia and Europe have continued to impact negatively on the domestic producers' share of the market. Sales volume was 9% down and prices were 6% below a year ago. Operating income was US$9 million for the quarter, impacted heavily by continuing losses at Mobile. Bill Sheffield, CEO of Sappi Fine Paper said that the closure of Mobile would have a very favourable impact on the profitability of the North American fine paper business going forward. "The full improvement will be achieved from the beginning of the next calendar year," he said. The South African fine paper business performed well. Sales volumes were slightly above a year earlier. Prices in domestic currency were 13% higher and in dollar terms prices were 4% lower. Costs were tightly controlled. Operating income increased to US$8 million, resulting in a 13% operating margin and 33% return on net operating assets. Forest Products Sappi's international markets have been affected by weakening prices, except for Newsprint, which has remained firm. Dissolving pulp production was curtailed during the quarter to match demand and manage inventories. Domestic demand, particularly for packaging paper in the South African market has remained firm. Sales volume of continuing business was at the same level as a year earlier. Average prices for paper increased strongly in local currencies but were flat in dollar terms. Pulp prices, however, were approximately 5% lower in dollar terms. Costs continue to be well controlled and were significantly lower than a year earlier. Commenting John Job, CEO of Sappi Forest Products, said; "As our costs are rand based and our revenues largely dollar influenced, the weakening rand had a favourable impact, reducing the effect of lower prices on our dollar earnings". Outlook Although there has not yet been any improvement in Sappi's markets, industry inventories are generally at low levels and any improvement in economic outlook should result in a turnaround in pulp and paper markets. Pulp prices are now below the production cost levels of many manufacturers, particularly in North America, which is not sustainable for an extended period. The continued strength of the US Dollar exposes the USA coated paper market to imports from Asia and Europe and puts pressure on the domestic currency costs of our European business to the extent that they are dollar based. Commenting on the group's prospects van As said that Sappi had strong fundamentals and market shares and was well positioned to take advantage of any improvement in market conditions when they occurred. "The sector has experienced a severe down cycle, particularly in the United States and all operators have been severely adversely affected. Sappi's geographic diversity has stood it in good stead and protected it to an extent against currency movements. The outlook is somewhat uncertain for the next six months, but if current conditions persist, Sappi would expect similar earnings before exceptional items per share in the final quarter as in the third quarter." FORWARD-LOOKING STATEMENTS Certain statements in this report 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 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) 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. Released on behalf of Sappi by Brunswick. For further information: Robert Hope Director Strategic Development Sappi Limited Tel: +27 (0) 11 407 8492 Fax: +27 (0) 11 403 1493 robho@za.sappi.com Summary June 2001 Quarter ended Nine months ended June March June June June 2001 2001 2000 2001 2000 Sales (US$ million) 967 1,104 1,170 3,186 3,472 Operating profit (US$ 91 121 181 355 473 million) EBITDA (US$ million) 175 210 278 622 767 Operating profit to sales 9.4 11.0 15.5 11.1 13.6 (%) EBITDA to sales (%) 18.1 19.0 23.8 19.5 22.1 Operating profit to 10.5 13.6 18.0 13.4 16.2 average net assets (%) Basic EPS before 24 32 39 90 97 exceptional items (Headline) (US cents) Basic EPS (US cents) (27) 32 41 39 99 Return on equity (%)** 14.1** 18.6 25.1 18.2** 20.7 Net Debt (US$ million) 1,250 1,277 1562* 1,250 1562* * Restated for reclassification of minority interest to debt ** Before Mobile restructuring change Group Income Statements Unaudited Unaudited Quarter ended Nine months ended June June June June 2001 2000 2001 2000 US$ US$ % US$ US$ % million million change million million change -------- ------- ------- -------- ------- ------ Sales 967 1,170 (17.4) 3,186 3,472 (8.2) Cost of sales 786 889 2,559 2,709 -------- ------- ------- -------- ------- ------ Gross profit 181 281 (35.6) 627 763 (17.8) Selling, general & 90 100 272 290 administrative expenses -------- ------- ------- -------- ------- ------ Operating profit 91 181 (49.7) 355 473 (24.9) Non-trading (loss) (201) (2) (204) 2 profit Net finance costs 16 31 56 101 -------- ------- -------- ------- Net paid 25 39 83 128 Capitalised (9) (8) (27) (27) -------- ------- -------- ------- -------- ------- -------- ------- Profit / (loss) (126) 148 95 374 before tax Taxation (2) 10 41 46 - current - deferred (58) 39 (37) 86 -------- ------- ------- -------- ------- ------ Profit / (loss) after (66) 99 91 242 (62.4) tax Income attributable - 1 - 8 to minority interests -------- ------- ------- -------- ------- ------ Net profit / (loss) (66) 98 91 234 (61.1) -------- ------- ------- -------- ------- ------ EBITDA 175 278 (37.1) 622 767 (18.9) -------- ------- ------- -------- ------- ------ Basic earnings / (27) 41 39 99 (loss) per share (US cents) Basic earnings 24 39 90 97 before exceptional items (Headline earnings) per share (US cents) Weighted average 230.7 239.1 233.8 236.2 number of shares in issue (millions) Diluted earnings / (27) 40 39 97 (loss) per share (US cents) Diluted earnings 24 38 89 96 before exceptional items (Headline earnings) per share (US cents) Weighted average 230.7 247.9 236.1 244.7 number of shares on fully diluted basis (millions) Calculation of Earnings before exceptional items (Headline) net of tax Net profit / (loss) (66) 98 91 234 Profit/loss on (1) 1 - (1) disposal of business and fixed assets Mill closure costs 120 - 120 - Accelerated cost of - - - 11 early buy back of loan notes Increase / decrease 2 (5) (1) (14) in other provisions ------- ------- ------- ------- ------- ----- Earnings before 55 94 210 230 exceptional items (Headline) ------- ------ ------- ------ ------ ---- Group balance sheet Unaudited Audited June 2001 September 2000 US$ million US$ million Assets Non-current assets 3,349 3,600 ------------- ------------ Property, plant and equipment 2,844 3,095 Plantations 355 372 Deferred taxation 33 37 Other non-current assets 117 96 ------------- ------------ Current assets 1,078 1,168 ------------- ------------ Cash and cash equivalents 219 294 Trade and other receivables 269 319 Inventories 590 555 ------------- ------------ Total assets 4,427 4,768 ------------- ------------ Equity and Liabilities Capital Reserves Ordinary shareholders' interest 1,475 1,618 Minority interest 2 53 Non-current liabilities 1,927 1,996 ------------- ------------ Long-term borrowings 1,245 1,278 Deferred taxation 436 500 Other long-term liabilities 246 218 ------------- ------------ Current liabilities 1,023 1,101 ------------- ------------ Interest bearing liabilities 224 162 Bank overdraft - 76 Other current liabilities 799 863 ------------- ------------ Total equity and liabilities 4,427 4,768 ------------- ------------ Number of shares in issue (millions) 229.9 239.1 Net Debt (US$ million) 1,250 1,270* Net debt to Total Capitalisation (%) 34.5 32.5* Net asset value per share (US cents) 817 870 * Restated for reclassification of minority interest to debt in June 2001, as if processed in September 2000. Group cash flow statement Unaudited Unaudited Nine months Nine months ended June ended June 2001 2000 US$ million US$ million -------------- ------------- Cash generated by operations 607 784 Movement in working capital (126) (115) Net finance costs (83) (128) Taxation paid (53) (16) Dividends paid (60) (45) -------------- ------------- Cash retained from operating activities 285 480 Cash effects of investing activities (222) (54) -------------- ------------- 63 426 Cash effects of financing activities (130) (168) -------------- ------------- Net movement in cash and cash (67) 258 equivalents -------------- ------------- Group statement of changes in shareholder's equity Unaudited Unaudited Nine months ended Nine months ended June 2001 June 2000 US$ million US$ million ------------------- --------------- Balance - beginning of year 1,618 1,436 restated Net Profit 91 234 Foreign currency translation (97) (152) reserve Dividends declared - US$ 0.25 (60) (45) (2000: US$0.19) per share Goodwill written off to equity - (11) (Share buybacks and issues to (77) 114 Share Purchase Trust) / Issuance of ordinary shares ------------------- ------------------- Balance - end of period 1,475 1,576 ------------------- ------------------- Notes to the group results 1. Basis of Preparation The group results have been prepared in conformity with South African Statements of Generally Accepted Accounting Practice. The same accounting policies have been followed as in the annual financial statements for September 2000, except for new or revised accounting standards adopted in the first quarter of the current year. The financial results for the quarter have been reviewed by the group's auditors, Deloitte & Touche. Their report is available for inspection at the company's registered offices. Unaudited Unaudited Quarter ended Nine months ended June 2001 June June June 2000 2000 2001 US$ US$ US$ US$ million million million million 2. Operating Profit Included in operating profit are: Depreciation 71 83 227 250 Fellings 8 9 24 28 Amortisation 5 5 16 16 --------- -------- -------- --------- 84 97 267 294 --------- -------- -------- --------- 3. Capital expenditure Fixed assets 203 122 Plantations 22 25 -------- --------- 225 147 -------- --------- Unaudited Audited Nine Year months ended ended June September 2001 2000 US$ US$ million million 4. Capital Commitments Contracted but not provided 112 73 Approved but not contracted 122 150 --------- --------- 234 223 --------- --------- 5. Contingent liabilities Guarantees and suretyships 42 80 Other contingent liabilities 62 46 --------- --------- Regional Information Unaudited Unaudited Quarter ended Nine months ended June 2001 June June June 2000 2000 2001 US$ US$ % US$ US$ % million million change million million change Sales - Metric tons (000's) Fine Paper - North America 297 327 (9.2) 951 996 (4.5) Europe 497 581 (14.5) 1,617 1,729 (6.5) Southern 72 71 1.4 210 203 3.4 Africa --------- -------- ------ -------- --------- ------- Total 866 979 (11.5) 2,778 2,928 (5.1) Forest Products 597 669 (10.8) 1,827 2,030 (10.0) --------- -------- ------ -------- --------- ------- Total 1,463 1,648 (11.2) 4,605 4,958 (7.1) --------- -------- ------ -------- --------- ------- Sales Fine Paper - North America 340 400 (15.0) 1,119 1,189 (5.9) Europe 401 489 (18.0) 1,337 1,459 (8.4) Southern 58 59 (1.7) 170 174 (2.3) Africa --------- -------- ------ -------- --------- ------- Total 799 948 (15.7) 2,626 2,822 (6.9) Forest Products 168 222 (24.3) 560 650 (13.8) --------- -------- ------ -------- --------- ------- Total 967 1,170 (17.4) 3,186 3,472 (8.2) --------- -------- ------ -------- --------- ------- Operating profit Fine Paper - North America 9 46 (80.4) 40 127 (68.5) Europe 26 66 (60.6) 120 185 (35.1) Southern 8 5 60.0 23 15 53.3 Africa --------- -------- ------ -------- --------- ------- Total 43 117 (63.2) 183 327 (44.0) Forest Products 41 65 (36.9) 163 146 11.6 Corporate 7 (1) 9 - --------- -------- ------ -------- --------- ------- Total 91 181 (49.7) 355 473 (24.9) --------- -------- ------ -------- --------- ------- Earnings before interest, tax, depreciation and amortisation charges ** Fine Paper - North America 35 73 (52.1) 124 207 (40.1) Europe 61 109 (44.0) 231 311 (25.7) Southern Africa 9 7 28.6 28 21 33.3 --------- -------- ------ -------- --------- ------- Total 105 189 (44.4) 383 539 (28.9) Forest Products 63 91 (30.8) 230 228 0.9 Corporate 7 (2) 9 - --------- -------- ------ -------- --------- ------- Total 175 278 (37.1) 622 767 (18.9) --------- -------- ------ -------- --------- ------- Net operating assets Fine Paper - North America 1,081 1,205 (10.3) 1,081 1,205 (10.3) Europe 1,336 1,484 (10.0) 1,336 1,484 (10.0) Southern Africa 98 139 (29.5) 98 139 (29.5) --------- -------- ------ -------- --------- ------- Total 2,515 2,828 (11.1) 2,515 2,828 (11.1) Forest Products 899 1,019 (11.8) 899 1,019 (11.8) Corporate (38) (11) 245.5 (38) (11) 245.5 --------- -------- ------ -------- --------- ------- Total 3,376 3,836 (12.0) 3,376 3,836 (12.0) --------- -------- ------ -------- --------- ------- **before non trading profit (loss) Summary Rand Convenience Translation June 20001 Unaudited Unaudited Quarter ended Nine months ended June June % June June % 2001 2000 change 2001 2000 change Sales (ZAR million) 7,739 7,927 (2.4) 24,839 22,207 11.8 Operating profit (ZAR 728 1,226 (40.6) 2,768 3,025 (8.5) million) Profit / (loss) after (528) 671 709 1,548 (54.2) taxation (ZAR million) EBITDA (ZAR million) 1,401 1,881 (25.5) 4,849 4,903 (1.1) Operating profit to 9.4 15.5 11.1 13.6 sales (%) EBITDA to sales (%) 18.1 23.7 19.5 22.1 Operating profit to 10.8 18.8 13.7 16.1 average net assets (%) Basic EPS before 191 266 (28.4) 700 623 12.4 exceptional items (Headline) (SA cents) Basic EPS (SA cents) (216) 278(177.7) 303 634 (52.2) EBITDA per share (SA 607 787 (22.9) 2,074 2,076 (0.1) cents) Net debt (ZAR million) 10,081 10,676* (5.6) 10,081 10,676* (5.6) Net debt to total 34.5 36.3* 34.5 36.3* capitalisation (%) Cash generated by 4,732 5,015 (5.6) operations (ZAR million) Cash retained from 2,222 3,070 operating activities (ZAR million) Net movement in cash (522) 1,650 and cash equivalents (ZAR million) Exchange rates: Period end rate: US $1=R 8.0650 6.8350 8.0650 6.8350 Average rate: US $1= R 8.0033 6.7750 7.7963 6.3962 Period end rate: US $1= EURO 1.1788 1.0628 1.1788 1.0628 Average rate: US $1 = EURO 1.1508 1.0646 1.1358 1.0080 * Restated for reclassification of minority interest to debt
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