2007 Annual Report - Sappi

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Our performance Our performance improved significantly in the year as a result of strong performance in our South African businesses assisted by strong demand, high pulp prices as well as the weaker Rand and a return to profitability of all the fine paper divisions. Financial highlights • Steady improvement of operating performance • Basic EPS 89 US cents: last year loss of 2 US cents • Positive cash generation after capex • Input costs continued to rise • Prices improved except for Sappi Fine Paper Europe • Dividend of 32 US cents per share declared ZAR convenience translation September September September September 2007 2006 2007 2006 US$ million US$ million ZAR million (3) ZAR million (3) Sales 5,304 4,941 38,051 32,630 Operating profit 383 125 2,748 825 Special items (gains) losses (70) (34) (502) (225) Operating profit excluding special items (1) 313 91 2,246 600 EBITDA excluding special items (1) 688 483 4,936 3,190 Profit (loss) for the year 202 (4) 1,449 (26) US cents US cents SA cents (3) SA cents (3) Basic earnings (loss) per share 89 (2) 638 (13) Dividend per share (2) 32 30 234 220 Ordinary shareholders’ interest per share 795 611 5,461 4,746 Achieved Achieved September 2007 September 2006 Operating profit to sales (%) 7.2 2.5 Operating profit excluding special items to sales (%) 5.9 1.8 EBITDA excluding special items to sales 13.0 9.8 Return on net assets (RONA) (%) 9.3 3.1 Return on equity (ROE) (%) 12.6 (0.3) Net debt to total capitalisation ratio 0.43 0.46 Cash interest cover (times) 3.8 2.9 (1) Refer to the five-year review for a reconciliation of profit (loss) for the year to operating profit excluding special items and EBITDA excluding special items. (2) The dividends for both financial years were declared subsequent to year-end. (3) The translation to South African Rand from United States Dollars has been calculated at an average rate for the year of US$1 to ZAR7.1741 (September 2006: US$1 to ZAR6.6039), except for dividends which have been translated at the rate of exchange on the date of declaration. Note: Definitions for various terms and ratios used above are included in the Glossary on page 186. 4 sappi limited | 07 | annual report
Financial targets and performance* Target Operating profit excluding special items to sales (%) • To achieve an average operating profit to sales margin of >12% for the group. Operating profit excluding special items to net assets (%) • To achieve more than our weighted average cost of capital through the cycle our RONA target is >12% Our performance Operating performance Our performance improved significantly in the year as a result of strong performance in our South African businesses assisted by strong demand, high pulp prices as well as the weaker Rand and a return to profitability of all the fine paper divisions. Margins and returns in the fine paper businesses remain well below acceptable levels largely as a result of high raw material input costs which we have not been able to fully mitigate or recover through price increases. Action plans are in place to continue the turnaround of the fine paper businesses in 2008 with a view to meeting group targets in 2009. Return on equity (%) • To provide shareholders with an after tax return that, on average, exceeds the weighted regional risk-free rate by at least 5 percentage points. Our current target is >11%. Return on equity The improvement in return on equity reflects the improved operating performance of the group, gearing of the group and the 19% effective rate of tax in the year. Debt/total capitalisation • Our target is to operate within a range of 0.3:1 to 0.55:1. This range was reviewed following the adoption of IFRS in 2005. Debt/total capitalisation The ratio improved during the year as a result of the increase in equity from profit for the period and currency movements offsetting the increase in net debt. Net debt increased from US$2,113 million to US$2,257 million; however, after adjusting for currency movement net debt was US$24 million lower. The Saiccor expansion programme which was the major capital expenditure in the year is expected to be completed in the second calendar quarter of 2008. Cash interest cover (Times) • To exceed a level of 6 x cover. Cash interest cover The group had good cash generation in the year increasing cash interest cover to 3.8 times despite increased interest costs. This falls short of the target and we expect this ratio to improve as the operating performance of the group improves. * See definitions on page ••. sappi limited | 07 | annual report 5
Page 1 and 2: annual report 2007
Page 3 and 4: Our business Sappi is a global pape
Page 5: Our top risks These risks are furth
Page 9 and 10: Our Charter commitments Examples of
Page 11 and 12: Business structure Johannesburg Asi
Page 13 and 14: Our brands and products Coated pape
Page 15 and 16: Non-executive directors continued D
Page 17 and 18: Divisional and corporate management
Page 19 and 20: In Europe we face major challenges.
Page 21 and 22: We expect to continue our improving
Page 23 and 24: Q: How will you improve delivery on
Page 25 and 26: Overview Description The main produ
Page 27 and 28: A major feature of the year has bee
Page 29 and 30: In the year ahead, we will continue
Page 31 and 32: Overview The Forest Products busine
Page 33 and 34: Value added statement for the year
Page 35 and 36: Sappi has a global insurance struct
Page 37 and 38: Sales Sales volume (in metric tons)
Page 39 and 40: Divisional contributions to operati
Page 41 and 42: The impact of these changes on oper
Page 43 and 44: Cash flow analysis In the table bel
Page 45 and 46: project and again aim to fund this,
Page 47 and 48: In 2006, both Standard & Poor’s (
Page 49 and 50: y certain of the individual direct
Page 51 and 52: Not restated for IFRS* September Se
Page 53 and 54: September September September Septe
Page 55 and 56: Element/Best practice Sappi applica
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The board of directors The basis fo
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Our compensation philosophy is base
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stakeholders with whom they interac
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Auditor’s report Independent audi
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Directors’ report for the year en
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Directors and secretaries The names
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Group balance sheet at September 20
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Group statement of recognised incom
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Group balance sheet in Rands conven
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Notes to the group annual financial
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Fair value hedge A hedge of the exp
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(ii) Associates The results and ass
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• it transfers (or it assumes an
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2.3.8 Inventories Inventories are a
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2.3.13 Plantations Plantations are
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the year that are declared after th
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Owner-occupied investment propertie
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into account, unadjusted current ma
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The group is required to record pro
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second where a share-based payment
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3. Segment information continued Sa
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US$ million 2007 2006 4.1 Operating
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US$ million 2007 2006 6. Taxation c
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7. Earnings per share and headline
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US$ million 2007 2006 10. Property,
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2007 2006 US$ million Assets Liabil
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US$ million 2007 2006 12. Deferred
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14. Joint ventures and associates c
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US$ million 2007 2006 17. Trade and
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17. Trade and other receivables con
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19. Reconciliation of changes in eq
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US$ million 2007 2006 21. Interest-
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21. Interest-bearing borrowings con
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23. Provisions continued September
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US$ million 2007 2006 24. Notes to
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US$ million 2007 2006 27. Contingen
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28. Post-employment benefits - pens
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Europe US$ million Southern Africa
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29. Post-employment benefits other
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30. Share-based payment The Sappi L
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30. Share-based payment continued T
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30. Share-based payment continued T
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31. Financial Instruments The group
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31. Financial Instruments continued
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33. Events after Balance Sheet date
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35. Summary of differences between
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36. New United States accounting st
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37. Directors’ remuneration conti
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38. Directors’ interests The foll
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M R Thompson (1) E van As Total 200
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M R Thompson (1) E van As Total 200
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Company auditor’s report Independ
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Condensed company balance sheet at
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Notes to the condensed company fina
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Investments at September 2007 Share
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Non-GAAP financial definitions The
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- the general authority shall only
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corporate governance requirements.
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Franklin Abraham Sonn (68) BA Hons,
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Proxy form for annual general meeti
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Forward looking statements Certain
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2007 Annual Report - Sappi

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