2008 Annual report - Sappi

Directors’ report // continued
for the year ended September 2008
On 29 September 2008, Sappi announced the proposed
acquisition of a substantial portion of M-real’s coated graphic
paper business (the transaction) for €750 million and that the
transaction would be financed through a combination of equity,
assumed debt, the cash proceeds from a rights offering and a
vendor note.
On 3 November 2008, Sappi’s shareholders approved
the transaction and a rights offering to finance a portion of
the transaction.
Following such approvals, Sappi has commenced a rights
offering of 286,886,270 new ordinary shares at a subscription
price of ZAR20.27 per new share. New shares will be issued at
a ratio of six new shares for every five Sappi shares held. In
connection with the rights offering, Sappi has entered into an
underwriting agreement with two international banks.
Sappi has also to date obtained various regulatory approvals
for the acquisition, including the approval of the competition
authorities of the European Union. The transaction is expected
to be consummated on 31 December 2008.
Financing
During the first half of fiscal 2008, Sappi Manufacturing (Pty)
Ltd raised ZAR240 million in long term bank debt to fund a
portion of the Saiccor expansion project. The average tenure of
this debt at year end is 4.2 years.
Of the EUR600 million five-year revolving credit facility obtained
in 2005, approximately EUR400 million remains unutilised and
is considered as a strategic back-up line.
There have been no changes to the group’s other long-term
debt. Covenants on all international term debt are identical and
long-term debt is supported by a Sappi Limited guarantee.
At the end of the financial year, Sappi’s net debt had an average
time to maturity of 5.7 years.
In the financial year, Sappi concluded no further interest rate
swaps and, at year end, the ratio of gross debt at fixed and
floating interest rates was 39:61.
There are no long-term debt repayments scheduled for the
remainder of 2008 or 2009.
Dividends
The directors have declared a dividend (number 85) of
16 US cents per share (2007: 32 US cents) for the year
ended September 2008. The record date for the dividend
was 28 November 2008 and payment was made on
2 December 2008.
The Sappi Limited Share Incentive Trust
and The Sappi Limited Performance Share
Incentive Trust
Sappi has in place two share-based incentive programmes.
The first is The Sappi Limited Share Incentive Trust (the Scheme)
which was approved by shareholders in March 1997, and which
has been amended in certain respects from time to time. The
second is The Sappi Limited Performance Share Incentive Trust
(the Plan) which was approved by shareholders in 2005.
In approving the Plan, shareholders fixed the maximum number
of shares which may be allocated in aggregate to the Scheme
and the Plan at 19 million shares (equivalent to 7.9% of the
shares currently in issue), subject to adjustment in case of any
increase or reduction of Sappi’s issued share capital on any
conversion, redemptions, consolidations, sub-division and/or
any rights or capitalisation issues of shares.
In connection with the rights offering, adjustments are made
to outstanding grants to employees to address the dilution
resulting from the change in the number of shares issued as a
result of the rights offering.
Borrowing facilities
The group’s net debt at September 2008 amounted to
US$2.4 billion (September 2007: US$2.6 billion). The
company’s Articles of Association allow net borrowings of up
to US$5.85 billion. Details of the non-current borrowings are
set out in note 20 of the group annual financial statements.
Insurance
The group has an active programme of risk management in
each of its geographical operating regions to address and to
reduce exposure to property damage and business interruption.
All production and distribution units are subjected to regular
risk assessments by external risk engineering consultants, the
results of which receive the attention of senior management.
The risk mitigation programmes are co-ordinated at group level
in order to achieve a standardisation of methods. Work on
improved enterprise risk management is on-going and aims to
lower the risk of incurring losses from uncontrolled incidents.
Fixed assets
The only major changes in the nature of the fixed assets of the
group are as set out under note 9 in the group annual financial
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