2007 Annual Report - Sappi

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 ••.
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