Johannesburg - Financial Summary for the quarter
- Operating profit US$129 million (excluding special items); Q4 2009 US$38 million (excluding special items)
- EPS 16 US cents; Q4 2009 loss per share of 20 US cents
- EPS 9 US cents (excluding special items); Q4 2009 loss per share 2 US cents (excluding special items)
- Net cash generated US$238 million; Q4 2009 US$225 million
- Coated paper prices increasing; pulp prices high
- Strong Demand
- Strong Liquidity
Commenting on the results, Sappi chief executive officer Ralph Boettger said:
"The group had a much improved performance for the quarter and for the full year, achieving the highest quarterly operating profit excluding special items for a number of years and net cash generated of US$238 million. The performance of each of the businesses improved, particularly those of North America and Southern Africa which are net sellers of pulp and therefore benefited from high pulp prices.
"Demand conditions continued to improve gradually and almost all our mills ran at full capacity for the quarter. In Europe we implemented a price increase during September (the third since March) which has started to offset the effect of the substantial increase in pulp input costs experienced over the past year and to restore reasonable margins.
"Sales increased to US$1.8 billion, a 14% increase on sales in the equivalent quarter last year as a result of increased sales volumes and prices. For the full year sales were 22% higher than the prior year as a result of improved demand, favourable currency movements and the inclusion of the coated paper businesses acquired from M-real for the full year in 2010 compared to 9 months in 2009.
"Operating profit excluding special items was US$129 million for the quarter, a substantial improvement compared to US$38 million in the equivalent quarter last year and compared to US$75 million in the June 2010 quarter. Including special items, operating profit was US$158 million compared to a loss of US$129 million in the equivalent quarter last year. For the full year operating profit excluding special items was US$339 million compared to US$33 million in the prior year. While special items had an impact on quarterly results through the year the net effect for the full year was only US$2 million. Accordingly, operating profit including special items for the year was therefore similar at US$341 million compared to a loss of US$73 million last year.
"Earnings per share for the quarter were 16 US cents (including a gain of 7 US cents in respect of special items including financing items), compared to a loss of 20 US cents in the equivalent quarter last year (which included a loss of 18 US cents in respect of special items including financing items). For the full year the group generated a net profit of US$66 million and earnings per share of 13 US cents (favourably impacted by 4 US cents of special items including financing items) compared to a net loss of US$177 million and a loss per share of 37 US cents (including a loss of 13 US cents of special items including financing items) last year."
Looking forward, Boettger commented:
"We expect continued gradual improvement in global economic conditions during the year ahead; however we remain cautious as a result of factors such as the volatility of exchange rates which could dampen growth.
"Against that background we expect demand for coated paper in our major markets to recover further during the year. We believe that input costs are likely to rise. We intend to reduce our costs where possible and to grow revenue through sales volume, mix and higher price levels to achieve acceptable margins across the businesses.
"We expect continued strong demand and good price levels for chemical cellulose in the year ahead. The reorganisation of the paper business in Southern Africa is expected to help improve margins; however, the Rand is currently strong relative to the US dollar and remains volatile. A strengthening Rand would be unfavourable for the performance of the Southern African business.
"The extended outage at Somerset pulp mill in October 2010 will reduce the potential profitability of our North American business for the quarter but we expect the pulp mill to start ramping up production in early November and for energy costs to be reduced once the rebuilt energy complex reaches optimum efficiencies.
"With the expected improvement in the performance of our businesses and reduced uncertainty in financial markets we will gradually reduce our cash on hand with further repayment of debt. This, together with our targeted continued reduction in net debt, will help reduce finance costs in the year ahead.
"In our first financial quarter we expect the group's operating profit (excluding special items) to continue the improving trend relative to the equivalent quarter last year."