2012 Integrated report - Sappi

Directors’ report
for the year ended September 2012
annum. The proceeds of the new notes together with cash on
hand, via tender offer and call redemption, were used to early
redeem US$700 million of the principal amount of the senior
secured notes due 2014. As a result of the early redemption,
a once-off charge consisting of premium and other costs of
US$86 million was recorded to net finance costs for the year.
On the early redemption of the US$300 million tranche of senior
secured notes due 2014, the group simultaneously unwound
the corresponding interest rate and currency swaps resulting
in a cash inflow of US$43 million;
• In August 2012, the group entered into a €136 million
(US$170 million) five-year term loan facility with the Österreichische
Kontrollbank, the proceeds of which will be used to fund the
dissolving wood pulp conversion project in North America; and
• In September 2012, the group repaid the drawn amount of
€100 million (US$129 million) of the €350 million (US$450 million)
revolving credit facility from cash resources. At year-end, the
facility remained undrawn.
At September 2012, the group had liquidity comprising
US$645 million of cash on hand, which exceeds the amount
of short-term interest-bearing debt (including bank overdrafts)
of US$266 million, and the undrawn balance of €350 million
(US$450 million) of the committed revolving credit facility.
Substantially all non-South African long-term debt is supported
by a Sappi Limited guarantee. Net cash generated for the year
was US$127 million.
Subsequent to year-end, on 09 November 2012, Sappi announced
the commencement of an offer to repurchase the remaining
€31 million of its senior secured notes due 2014. The offer has been
accepted by 76% of the bond investors and the remaining amount
has been called for repayment in December 2012.
Covenants on certain international term debt are similar and are
detailed in the chief financial officer’s report.
Borrowings and net debt
The group’s net debt at September 2012 amounted to
US$1,979 million (2011: US$2,100 million). During the year,
the group conducted a major refinancing as described above.
The company’s existing Memorandum of Incorporation allow
net borrowings of up to US$4.6 billion. Details of the non-current
borrowings are set out in note 20 to the group annual
financial statements.
Dividends
The board has decided not to declare a dividend for the current
financial year ended September 2012.
The Sappi Limited Share Incentive Trust
(the ‘Scheme’) and The Sappi Limited
Performance Share Incentive Trust (the ‘Plan’)
Sappi has two share incentive schemes in place, namely the Scheme
and the Plan for the purpose of enabling Sappi Limited to allot
shares and grant options in respect of ordinary shares to present
employees, including executive directors, its subsidiaries and
employees seconded to joint ventures. The maximum number of
shares which may be acquired by participants under both the
Scheme and the Plan is 42,700,870 shares of which the maximum
number of shares that may be acquired by an individual is 2,200,000.
Of the 42,700,870 shares, 14,664,815 shares have already been
issued to, or transferred to the Schemes leaving a balance of up to
28,036,055 shares which could still be issued or transferred to the
Schemes. The group has 20,601,761 treasury shares at year-end,
some of which have been and will continue to be utilised to meet the
requirements of the Scheme and the Plan from time to time.
During the year, 465,940 (2011: 700,890) credit sale and combined
option/deferred sale allocations under the Scheme were cancelled in
terms of the rules of the Scheme. The allocations were made in
December 2003 and January 2004 (in respect of 213,700 shares at
a price of ZAR79.25 per share and in December 2008 in respect of
252,240 shares arising from the rights offer at a price of ZAR20.27).
The allocations would have expired on 30 December 2011 and on
14 January 2012 at an average price payable by participants for the
allocations at that time (ZAR47.08 per share) would have been well
above the market price. The board considered that it would not have
been in the best interests of the company to enforce payment by the
participants concerned. The purpose of the Scheme is to offer
participants an incentive and to have insisted that participants pay
for the allocations concerned, would have imposed a hardship on
the participants and would have served as a disincentive.
Note 28 of the group annual financial statements provides further
details regarding the Scheme and the Plan.
Insurance
The group has an active programme of risk management in each of
its geographical operating regions to address and reduce exposure
to property damage and business interruption. All production and
distribution units are subjected to regular risk assessments by
external risk engineering consultants, the results of which receive the
attention of senior management. The risk mitigation programmes
are coordinated at group level in order to achieve a standardisation
of methods. Work on improved enterprise risk management is
on-going and aims to lower the risk of incurring losses from
uncontrolled incidents.
Property, plant and equipment
In July 2012, the land and buildings of the Biberist and Adamas mills
that were closed in August 2011, the prior financial year, were sold
resulting in a profit on disposal of US$48 million. During the year, the
group had additions of US$404 million to property, plant and
equipment, which included US$190 million relating to the dissolving
wood pulp projects. Refer to note 9 to the group annual financial
statements for further details regarding the fixed assets of
Sappi Limited.
Litigation
We become involved from time to time in various claims and lawsuits
incidental to the ordinary course of our business. We are not
currently involved in any such claims or lawsuits which, individually or
in the aggregate, are expected to have a material adverse effect on
our business, assets or properties (refer to note 26 to the group
annual financial statements).
In September 2012, the Competition Commission of South Africa
notified the group that it has initiated an investigation into alleged
anti-competitive behaviour between Sappi and a competitor in the
South African pulp and paper market. We understand that the
investigation is at an early stage.
Directors and secretaries
The composition of the board of directors is provided on pages 30
to 32. During the year, Messrs J E Healey and M R Thompson
retired as directors. Mr S R Binnie was appointed to the board with
effect from 01 September 2012. In terms of the company’s exisiting
Memorandum of Incorporation, it will be necessary to confirm
Mr Binnie’s appointment at the forthcoming annual general meeting
where he will retire from the board at that meeting, and being
eligible, has offered himself for re-election.
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