2012 Integrated report - Sappi

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Chief financial officer’s report continued Section 5 – Balance sheet continued Outside South Africa we do not have any material debt maturities in the next four years apart from the securitisation facility. We expect to roll over the non-South African revolving credit facility, the securitisation structure and other bank debt as they mature. We believe that the South African debt maturing in 2013 can be refinanced at a reasonable cost due to an improvement in credit markets and the higher local credit rating of our South African subsidiary, which funds itself independently of the rest of the group. Covenants Non-South African covenants Financial covenants apply to US$175 million of our non-South African bank debt, the €350 million revolving credit facility and our securitisation borrowings. Where applicable, these financial covenants are calculated on a last-four-quarter basis and require that at the end of each quarter: > the ratio of group net debt to EBITDA be not greater than 4.5-to-1 at the end of September 2012, reducing over the term of the facility to 3.75-to-1 by March 2015; > the ratio of group EBITDA to net interest expense be not less than 2.0-to-1 at the end of September 2012, increasing over the term of the facility to 2.5-to-1 by September 2014; and > the percentage of net debt to total capitalisation until March 2016 shall not exceed 65%. The table below shows that at September 2012 we were well in compliance with these covenants. Non-South African covenants 2012 Covenant Net debt to EBITDA 2.5 < 4.50 EBITDA to net interest 3.9 > 2.00 Net debt to total capitalisation 56% < 65% In addition to the financial covenants referred to above, our bonds and certain of our bank facilities contain customary affirmative and negative covenants restricting, among other things, the granting of security, incurrence of debt, the provision of loans and guarantees, mergers and disposals and certain restricted payments, including the payment of dividends. As regards dividend payments, the group is restricted from paying cash dividends in certain circumstances, for example if the net debt to EBITDA ratio exceeds 4-to-1 or if the EBITDA to net interest is less than 2-to-1. In addition, in certain circumstances, cash dividends paid may not exceed 50% of net profit excluding special items after tax and certain other adjustments. South African covenants Separate covenants also apply to certain of the debt of our Southern African business. These covenants require that, with regard to Sappi Southern Africa (Pty) Limited and its subsidiaries: > the ratio of net debt to equity is not, at the end of any quarter, greater than 65%; and > at the year end, the ratio of EBITDA to net interest paid for the year is not less than 3-to-1. Below we show that for the year ended September 2012 the South African financial covenants were comfortably met. South African covenants 2012 Covenant Net debt to equity 23% < 65% EBITDA to net interest 9.6 > 3.00 (This covenant differs from 2011 as the covenant tightened again in 2012.) Credit ratings At the date of this annual report, our credit ratings were as follows: Fitch: South African national rating Sappi Southern Africa (Pty) Limited A/F1/Stable (March 2012) Moody’s: Sappi Corporate Credit Rating: Ba3/NP/Positive (June 2012) Secured Debt Rating Ba2 (June 2012) Unsecured Debt Rating B2 (June 2012) Standard & Poor’s: Corporate Credit Rating: BB-/B/Stable (June 2012) Secured Debt Rating BB (June 2012) Unsecured Debt Rating B (June 2012) The ratings by Moody’s and Standard & Poor’s were reviewed in June 2012 ahead of the refinancing transactions that were finalised in July 2012, including the new US$400 million and US$300 million bonds. These ratings were confirmed in updated reports published later in 2012 by both ratings agencies. Fitch confirmed the rating for Sappi Southern Africa (Pty) Limited in an updated report published in March 2012. 64
performance Section 6 Share price performance Sappi share price – 1 October 2009 to 20 November 2012 (US$ million) 50 45 40 35 150 130 110 ZAR 30 25 20 15 90 70 50 Index 10 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 102 Jul 12 Oct 12 30 – Sappi ordinary shares (ZAR) – Dow Jones Global Forestry and Paper Index (US$) Conclusion See share price performance graph above. We are pleased with our performance last year in a difficult trading environment. The cost savings initiatives and productivity improvements have enabled us to return to profitability. The paper businesses are well positioned to generate significant cash flows in the years ahead. We are also very excited about the dissolving wood pulp investments which will further strengthen our position in a high-margin growing business. The recent debt refinancing ensures we have sufficient resources and flexibility to deliver our strategic objectives. S R Binnie Chief financial officer 10 December 2012 sappi Integrated Report 2012 65
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Sappi Group (Sappi Limited) INTEGRA
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About this report Introduction Our
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2012 was a year that positioned us
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global Sales by source 2012: US$6,3
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Non-financial highlights Specific p
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performance the region as a whole.
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The restructuring of our paper oper
Page 17 and 18: Group overview continued Q&A with R
Page 19 and 20: Focus on product development Produc
Page 21 and 22: 4 electricity steam black liquor pu
Page 23 and 24: commitment Europe Our European empl
Page 25 and 26: iodiversity Sustainable fibre suppl
Page 27 and 28: Exciter value delivery was US$23.9
Page 29 and 30: market leaders > Print is particula
Page 31 and 32: Focus on innovation Knowledge, insi
Page 33 and 34: Pulp Share of sales paper pulp + di
Page 35 and 36: governance Deenadayalen (Len) Konar
Page 37 and 38: guidance Executive management Mark
Page 39 and 40: Review of operations Sappi Fine Pap
Page 41 and 42: streamlined The closure of the Bibe
Page 43 and 44: Focus on skills development Sappi c
Page 45 and 46: accelerate Capacity (’000) Divisi
Page 47 and 48: progress The year ahead The demand
Page 49 and 50: US$ million September 2012 Septembe
Page 51 and 52: Share statistics 2012 2011 2010 200
Page 53 and 54: Chief financial officer’s report
Page 55 and 56: positive Section 2 Financial perfor
Page 57 and 58: improvement Operating profit exclud
Page 59 and 60: cost reduction Taxation The tax exp
Page 61 and 62: service Sappi Fine Paper North Amer
Page 63 and 64: priority Section 4 Cash flow In the
Page 65 and 66: Defined benefit liabilities US$ mil
Page 67: Group debt profile We show the majo
Page 71 and 72: Governance and compensation Corpora
Page 73 and 74: encourage Audit committee The audit
Page 75 and 76: Group IT steering committee The Gro
Page 77 and 78: During 2012 a board committee was e
Page 79 and 80: Governance element Principle Summar
Page 81 and 82: External assurance providers Report
Page 83 and 84: Principle Chapter 7 - Internal audi
Page 85 and 86: Stakeholder engagement report Sappi
Page 87 and 88: Compensation report The two large s
Page 89 and 90: strategic The primary components of
Page 91 and 92: Component Purpose Characteristics V
Page 93 and 94: competitive The policy on fatalitie
Page 95 and 96: empower Service contracts Mr Boëtt
Page 97 and 98: The dissolving wood pulp capacity c
Page 99: Focus on local communities Our busi
Page 102 and 103: Directors’ approval The directors
Page 104 and 105: Audit committee report for the year
Page 106 and 107: Directors’ report for the year en
Page 108 and 109: Group income statements for the yea
Page 110 and 111: Group statements of cash flows for
Page 112 and 113: Group income statements in Rands (c
Page 114 and 115: Group statements of cash flows in R
Page 116 and 117: Notes to the group annual financial
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Notes to the group annual financial
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Annexure A - Investments at Septemb
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Glossary market pulp - pulp produce
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Glossary net operating assets - tot
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Notice to shareholders “Resolved
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Notice to shareholders “Resolved
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Notice to shareholders Annexure to
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Notice to shareholders The MOI prov
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Shareholder’s diary Annual genera
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Notes to proxy The form of proxy mu
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Inspired to co-create We operate wi
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2012 Integrated report - Sappi

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