Our performance in 2009 - Sappi

Mark Thompson
Chief financial officer’s report
Introduction
2009 annual report 41
The group reports its financial results in US Dollars and the main exchange rates used in
preparing the group financial statements were:
Income statement Balance sheet
average rates closing rates
2009 2008 2009 2008
Euro (EUR)(r)/US Dollar (US$) 1.3657 1.5064 1.4688 1.4615
US Dollar (US$)/Rand (ZAR) 9.0135 7.4294 7.4112 8.0751
The objective of this discussion and analysis is to provide additional insight into the operating
performance and financial position of the group. This report should be read in conjunction with
the operational reviews on pages 30 to 39 and the group annual financial statements beginning
on page 92.
In summary, fiscal 2009 was a busy but challenging year for our group. In December 2008, we
concluded a rights issue of r450 million and the proceeds of this rights issue were used to
finance in part the acquisition of four mills and the graphics paper business of M-real for an
enterprise value of r750 million (the acquisition). The acquisition, which is described in more
detail in note 34 of the annual financial statements, was completed on 31 December 2008.
In July/August 2009, we completed a major refinancing of our debt. We refinanced well in
advance of its maturity a r400 million syndicated bank loan (which was due for repayment in
December 2010) with a r400 million five-year amortising loan and we put in place a new threeyear
revolving credit facility of r209 million, which remains undrawn. In August 2009 we raised
two five-year bonds with a face value of US$300 million (for the US Dollar tranche) and r350 million
(for the Euro tranche). The proceeds of the bonds together with some of our cash holdings were
used to repay the drawings under our previous revolving credit facility, the vendor loan notes
(issued to M-real in part payment of the acquisition) at a discount and other short-term debt. The
refinancing has significantly improved our liquidity position and positively affected our debt
maturities as well. In addition, we now have solid cash resources – US$770 million as at the end
of our financial year. More details about these refinancing activities are given later in this report.
On the operating front, our financial results were heavily impacted by the global economic crisis
which began in our first quarter. However, we took a number of actions to mitigate this and
improve our business. The acquisition was successfully integrated into our European business
and we realised synergy benefits in excess of the r60 million target we set ourselves for the nine
months to September 2009. We started up the US$500 million Saiccor expansion and this plant
is now running at close to full design capacity in order to meet demand. The Muskegon Mill in
North America was closed and post our year end we announced the possible closure of our
Kangas Mill in Finland and our Usutu Mill in Swaziland. During the year all our businesses focused
aggressively on cost reduction and will continue to do so. We believe that these actions and
others that we are considering will yield rewards in the next and following years.
our performance