Our performance in 2009 - Sappi

98 Directors’ report continued
Muskegon, Michigan, North America. Further details can be
found in note 9 of the group annual financial statements
• On 28 August 2009, Sappi announced the successful
completion of a series of refinancing transactions undertaken
to improve the group’s debt maturity profile and to strengthen
its balance sheet. Further details can be found in note 20
of the group annual financial statements and in the Chief
Financial Officer’s report
• On 31 August 2009, Sappi announced the commencement
of a consultation process with employees and trade unions
at its South African Kraft and Fine Paper mills regarding cost
reduction and efficiency improvement initiatives
• On 02 October 2009, Sappi informed shareholders that it
had decided to delist from the London Stock Exchange. The
cancellation of the UK listing came into effect on Monday
02 November 2009
• On 22 October 2009, Sappi announced that it would enter
into a consultation process with employee representatives
at the Kangas Mill in Finland. The aim of this process is to
identify the best way of improving company profitability, which
may include a full closure of the mill
• On 30 October 2009, Sappi announced the intended closure
of Sappi Usutu Pulp Mill and the restructuring of the forestry
business in Swaziland in response to market conditions and
forest fire damage.
Financing
During the second half of fiscal 2009, the net proceeds of the
€350 million and US$300 million of senior notes due in 2014
were released from escrow and we completed the refinancing
of the €400 million (US$570 million) OeKB loan with a five-year
amortising maturity. We repaid in full all amounts outstanding
under our previous revolving credit facility (RCF) and replaced
it with a new RCF in an amount of €209 million (US$307 million),
all of which remains undrawn. We repaid the entire €220 million
of vendor loan notes (entered into earlier in the year to finance
part of the acquisition of M-real’s coated graphic paper business)
at a discount of 13.5% (approximately €30 million/US$41 million).
During fiscal 2009, Sappi Manufacturing (Pty) Ltd raised
ZAR1 billion (US$135 million) in a combination of long-term
bank and public debt.
Following the refinancing, the group has good liquidity with cash
exceeding the amount of short-term debt and the undrawn RCF
and has no major debt maturities before the US$500 million
2012 bonds become due in 2012.
Covenants of all international term debt are similar and are
detailed in the Chief Financial Officer’s report. All long-term debt
is supported, amongst others, by a Sappi Limited guarantee.
At the end of the 2009 financial year, Sappi’s net debt had an
average time to maturity of 4.8 years.
Borrowing facilities
The group’s net debt at September 2009 amounted to
US$2.6 billion (September 2008: US$2.4 billion). Details of the
non-current borrowings are set out in note 20 of the group
annual financial statements.
Dividends
In light of the group’s performance, the priority is to reduce
indebtedness and preserve liquidity. The board has therefore
decided not to declare a dividend for the current financial year
ended September 2009. Refer to the CFO’s report for details
on the restrictions limiting the payment of cash dividends.
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 7.95% of the
shares then 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. Subsequent to the
rights offering mentioned above, this number has been adjusted
to 42,700,870 shares (still equivalent to 7.95% of the shares
currently in issue), in accordance with the rules of the Scheme
and of the Plan.
In connection with the rights offering, adjustments were 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. Full details of this are set out in note
29 of the group’s current financial statements.
Insurance
The group has an active programme of risk management in
each of its geographical operating regions to address and
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 ongoing and aims to
lower the risk of incurring losses from uncontrolled incidents.
Property, plant and equipment
The major changes in the nature of the property, plant and
equipment relate mainly to the acquisition of M-real’s coated
graphic paper business. Particulars are set out under notes 9
and 34 of the group annual financial statements. There were no
changes to the group’s policy relating to the use of property,
plant and equipment.