2012 Integrated report - Sappi

improvement
Operating profit excluding special items
Our operating profit, excluding special items, of US$403 million
in 2012 was in line with the US$404 million achieved in 2011.
This was achieved despite the more difficult trading conditions.
The tables below show the operating profit excluding special
items of our businesses for both 2012 and 2011 and the
operating margin of each.
by region (US$ million) 2012 2011
Europe 133 68
North America 94 129
Southern Africa 178 199
Corporate and other (2) 8
Sappi group 403 404
Percentage 2012 2011
Europe 4.0% 1.7%
North America 6.5% 8.5%
Southern Africa 11.4% 11.0%
Sappi group 6.3% 5.5%
by product category (US$ million) 2012 2011
Specialised cellulose (dissolving wood pulp) 200 250
Paper 205 146
Other (2) 8
Operating profit excluding special items 403 404
Macro-economic uncertainty combined with overcapacity
in key segments and increased competition in export markets
created difficult trading conditions for our European business.
Demand for coated paper, in particular mechanical coated reels,
was down significantly. Against this background we are pleased
the initiatives taken over the past year to reduce costs and
improve efficiency have been successful. The upshot was an
operating profit excluding special items of US$133 million,
almost double that of last year while operating margin increased
from 1.7% to 4.0%.
North America’s markets were also characterised by weak
demand, albeit not to the extent of the downward pressure
experienced by Europe. Despite this, the coated business sales
were strong and we gained market share while the pulp business
and release business saw their performance negatively
impacted by the weak global economy. As a result, operating
profit excluding special items reduced to US$94 million from
US$129 million and operating margin decreased from
8.5% to 6.5%.
The Southern African business benefited from another good year
from specialised cellulose. Unfortunately, profitability towards the
end of the year was affected by lower NBSK prices which
influence the pricing for our dissolving wood pulp. If these lower
prices persist, they would reduce profits going forward. However,
this impact is being offset, to some extent, by the weaker Rand
against the US Dollar. The sensitivity to the currency and pulp
prices in the Southern African business can be assessed from
the ‘Major Sensitivities’ section below. Efforts to lower costs in
the paper operations continue but that business did incur a loss
in 2012. Conditions were challenging for both containerboard,
graphic paper and pulp sales, with the threat of imports adding
to price pressure as the Rand remained strong. Despite this
productivity improvements and cost savings allowed the region
to increase operating margin from 11.0% to 11.4%.
For the overall group, operating margin improved from 5.5% in
financial year 2011 to 6.3% this year, a significant achievement
considering the lower sales volumes and prices.
Reconciliation of operating profit excluding
special items: 2012 compared with 2011
As can be observed from the graph on page 54, the exchange
rate movement had a significant impact on both revenue and
costs. The lost revenue from lower sales volumes and price
decreases was largely offset by savings in variable and
fixed costs.
Key operating targets
Our financial targets and performance against them are dealt
with in some detail in the Letter to Shareholders on page 8.
Special items
Special items consist of those items which management believe
are material, by nature or amount, to the results for the year and
require separate disclosure. A breakdown of special items for
2012 and 2011 is reflected in the table below:
Special items gain (charge):
US$ million 2012 2011
Plantation price fair value adjustment (15) (16)
Restructuring provisions released (raised) 2 (135)
Asset and investment impairments (10) (167)
Fire, flood and related events (19) (6)
Black Economic Empowerment charge (3) (5)
Profit on disposal of property, plant
and equipment 63 1
Insurance recoveries – 10
Total 18 (318)
sappi Integrated Report 2012 53