2008 Annual report - Sappi

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Chief financial officer’s report // continued Taxation US$ million 2008 2007 2006 Profit (loss) before taxation 188 249 (5) Expected taxation charge (benefit) 38 50 (1) Tax rate reductions (9) (19) (1) Net effect of losses with no tax relief and permanent differences 35 (1) 3 Secondary Tax on Companies 7 8 9 Other 15 9 (11) Taxation charge (benefit) 86 47 (1) Effective tax rate 46% 19% 15% With a profit before taxation of US$188 million, the total taxation charge to the income statement of US$86 million results in a tax rate of 46%. The expected taxation charge of approximately 20% (US$38 million) was favourably impacted by tax rate reductions in South Africa. On the other hand, tax relief was not taken on the taxation losses of certain loss-making entities due to management’s judgement that these losses may not be recoverable in the near future and certain of the group’s profit are not taxed as a result of losses carried forward or favourable permanent differences. The Secondary Tax on Companies of US$7 million relates to South African tax on the group dividend paid during the year at a rate of 10%. Earnings per share The group has not issued significant additional shares over the five years to September 2008 and as a result earnings per share have tracked profit for the year closely. A listing requirement of the JSE Limited in South Africa is to disclose ‘headline earnings per share’ which removes items of a capital nature from the calculation – the computation of headline earnings per share is disclosed in Note 7 to the financial statements. Earnings per share and headline earnings per share over the past five years are depicted in the bar chart below left. In fiscal 2008 earnings per share was adversely impacted by certain major items classified as special items (discussed in Operating Profit on page 47). These major items being asset impairments (US$119 million), restructuring provisions (US$41 million) and fire and flood related events (US$17 million). These negative impacts were partly offset by a favourable fair value price adjustment (US$120 million). Excluding these special items after the impact of tax, earnings per share for fiscal 2008 would have been 75 US cents. On the same basis, earnings per share excluding special items for fiscal 2007 would have been 67 US cents and for fiscal 2006 negative 22 US cents. Working capital Optimising the levels of our working capital is a key management focus area. The aim is to minimise the investment in working capital to the point where it does not negatively impact profitability by more than the savings in finance costs from the lower invest - ment in working capital. We regularly compare our ratio of working capital to annual sales to those of our peers, and we believe that our working capital management compares favourably in that regard, although we have identified opportunities to improve this further. Managing the average monthly level of net working capital is a large element of the management incentive scheme for all businesses. The component parts of our working capital at the financial year end for the past three years are shown in the table below, as is the net working capital to sales percentage. US$ million 2008 2007 2006 Inventories 725 712 699 Receivables 698 653 573 Payables (1001) (970) (848) Net working capital 422 395 424 Net working capital to sales 7.2% 7.5% 8.6% 50
sappi Cash flow analysis In the table below we present the group’s cash flow statement in a summarised format. US$ million 2008 2007 2006 Cash generated by operations before post employment benefits 711 686 464 Contributions to post employment benefits (88) (101) (68) Cash generated by operations 623 585 396 Net movement in working capital 1 60 (17) Cash generated by operating activities 624 645 379 Cash spent to maintain and expand assets (505) (442) (303) Finance costs (126) (162) (138) Taxation (70) (27) (13) Other 11 78 16 Dividends to shareholders (73) (68) (68) Net cash (utilised)/generated (139) 24 (127) In line with the required accounting disclosure, we show ‘Contributions to post employment benefits’ (US$88 million and US$101 million in fiscal 2008 and fiscal 2007 respectively) as a reduction to ‘Cash generated by operations’. Approximately US$38 million in 2008 and US$49 million in 2007 of the contributions to post employment funding relate to ‘catchingup’ on deficits in certain of our funds. Assuming stock markets recover in 2009 or 2010 and that long-term discount rates remain favourable to pension schemes, we expect the ‘catchup’ element of our post retirement contribution payouts to reduce substantially in fiscal 2010 and thereafter. Over the past five years the relationship between capital expenditure and depreciation was as follows: In fiscal 2007 and fiscal 2008 cash spent to maintain and expand assets was higher than usual due to the Saiccor expansion project (US$236 million in fiscal 2008 and US$247 million in fiscal 2007) and also due to the acquisition of Paper Machine 3 at Somerset (US$75 million in fiscal 2008) after the termination of the lease over that paper machine. Due largely to the higher than usual capital expenditure, we utilised net cash of US$139 million in fiscal 2008. // 2008 Annual report 51
Page 1 and 2: annual report 2008
Page 3 and 4: sappi Our report in overview In pro
Page 5 and 6: sappi Our performance The group’s
Page 7 and 8: sappi Target Target Net debt to tot
Page 9 and 10: sappi Our score on the DJSI World D
Page 11 and 12: sappi People continued Our commitme
Page 13 and 14: sappi Our business structure Johann
Page 15 and 16: sappi Pulp Paper pulp is the main r
Page 17 and 18: sappi Ideas that matter Print remai
Page 19 and 20: sappi Objectives for 2009 Meaningf
Page 21 and 22: sappi Deenadayalen (Len) Konar // (
Page 23 and 24: sappi Divisional and corporate mana
Page 25 and 26: sappi We are of the opinion that su
Page 27 and 28: sappi input cost reductions across
Page 29 and 30: sappi Q // Will the integration of
Page 31 and 32: sappi Sappi Fine Paper Mills/ Capac
Page 33 and 34: sappi deliver excellent service and
Page 35 and 36: sappi Transaction funding overview
Page 37 and 38: sappi Sappi Forest Products Mills/
Page 39: sappi Demand and prices in the inte
Page 42 and 43: Risk management Our top risks These
Page 44 and 45: Risk management // continued Risk m
Page 46 and 47: Chief financial officer’s report
Page 60 and 61: Five year review Not restated for I
Page 62 and 63: Share statistics at September 2008
Page 64 and 65: Corporate governance We are committ
Page 66 and 67: Corporate governance // continued E
Page 68 and 69: Corporate governance // continued A
Page 70 and 71: Corporate governance // continued r
Page 72 and 73: Compensation report Compensation co
Page 74 and 75: Annual financial statements for the
Page 76 and 77: Directors’ approval The directors
Page 78 and 79: Directors’ report // continued fo
Page 80 and 81: Group income statement for the year
Page 82 and 83: Group cash flow statement for the y
Page 84 and 85: Group income statement in Rands con
Page 86 and 87: Group cash flow statement in Rands
Page 88 and 89: Notes to the group annual financial
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Notes to the group annual financial
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Condensed Sappi Limited company inc
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Condensed Sappi Limited company cas
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Notes to the condensed Sappi Limite
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Glossary General definitions bleach
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Glossary // continued Non-GAAP fina
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Notice to shareholders // continued
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Notice to shareholders // continued
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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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Notes 1. To be effective, this form
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Notes 1. To be effective, this form
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2008 Annual report - Sappi

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