Our performance in 2009 - Sappi

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Finance costs Details of net finance costs are set out below: Net interest paid (interest paid less interest earned) in fiscal 2009 was US$137 million compared to US$143 million in 2008. While interest rates remained low in all our borrowing currencies, net interest paid was unusually low in fiscal 2009 because of the US$41 million discount obtained on repaying the r220 million M-real vendor loan notes in the last quarter of our financial year. The finance costs capitalised in fiscal 2008 relate to the Saiccor Mill expansion project in South Africa. The net fair value financial instrument loss includes an amount of US$20 million arising from our unwinding fixed to variable swaps with a notional value of US$857 million. The unwinding of these swaps resulted in a positive cash inflow of US$55 million. In view of the refinancing transactions completed in the last quarter of our financial year, and as outlined in more detail below, the net interest paid will increase substantially in future years as interest margins on the new financing reflect current market conditions and the current Sappi credit rating. The group’s policy is to identify foreign exchange transaction risks when they arise and to cover these risks to the functional currency of the division where the risk lies. The majority of the group’s foreign exchange exposures are covered centrally by the group treasury which nets the internal exposures and hedges the residual exposure with third party banks. Taxation 2009 annual report 53 US$ million 2009 2008 Net interest paid 137 143 Finance costs capitalised – (16) Net foreign exchange gains (17) (8) Net fair value loss on financial instruments 25 7 Net finance costs 145 126 US$ million 2009 2008 (Loss) profit before taxation (218) 188 Expected taxation (benefit) charge (60) 38 Tax rate reductions Net effect of losses with no tax relief and (3) (9) permanent differences 18 35 Secondary Tax on Companies 4 7 Other – 15 Taxation (benefit) charge (41) 86 Effective tax rate 19% 46% With a loss before taxation of US$218 million, the total taxation relief to the income statement of US$41 million resulted in a tax rate of 19%. The expected taxation relief of US$60 million was reduced due to no tax relief being taken on the losses of certain loss-making entities because, in our judgement, these losses may not be recoverable in the near future. In addition, certain of the group’s profit is not taxed as a result of losses carried forward or favourable permanent differences. Earnings per share The loss per share for fiscal 2009 was 37 US cents. As required by IFRS, prior period earnings per share figures have been restated to take into account the bonus element of the rights issue concluded in December 2008 by adjusting the weighted average number of shares in each prior year by a factor of 1.58. Please refer to note 7 to the annual financial statements for an explanation of how this adjustment factor is calculated. our performance
54 Chief financial officer’s report continued A Listing Requirement of the JSE Securities Exchange in South Africa is to disclose ‘headline earnings per share’. The computation of headline earnings per share is disclosed in note 7 to the group annual financial statements. Earnings per share and headline earnings per share over the past five years are depicted in the bar chart alongside. In fiscal 2009, earnings per share was adversely impacted by certain major items classified as special items (discussed above). Excluding these special items after the impact of tax, earnings per share for fiscal 2009 would have been negative 24 US cents. On the same basis, earnings per share, excluding special items (after the impact of tax) for fiscal 2008 would have been 46 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 investment 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 our businesses. The component parts of our working capital at the financial year end for the past two years are shown in the table below, as is the net working capital to sales percentage: US$ million 2009 2008 Inventories 792 725 Receivables 858 698 Payables (1,151) (1,001) Net working capital 499 422 Net working capital to sales 9.3% 7.2% As part of the acquisition at the end of the first quarter of fiscal 2009, we acquired r232 million (US$326 million) of additional working capital – which amount was included in the purchase price. In the three quarters following the acquisition, great efforts were made by our European division to reduce net working capital to be more in line with the lower levels of business following the global economic crises. These efforts are reflected in the large (US$152 million) release of cash from working capital shown in the cash flow analysis section further on. Nevertheless, net working capital as a percentage of sales was higher (9.3%) in fiscal 2009 compared to 7.2% in 2008. As part of our measures to address current challenging market conditions we have intensified our efforts to minimise investment in working capital by setting tight working capital targets for fiscal 2010.
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SAPPI GROUP (Sappi Limited) ANNUAL
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• the impact of future investment
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Our reporting strategy As a leading
Page 7 and 8: 1 2 North America 2 4 1 San Francis
Page 9 and 10: 4 Our performance in 2009 Financial
Page 11 and 12: 6 Our performance against financial
Page 13 and 14: 8 Our performance against sustainab
Page 15 and 16: 10 Our performance against sustaina
Page 17 and 18: 12 Our performance against sustaina
Page 19 and 20: 14 Our sustainable business cycle T
Page 21 and 22: 16 Our products 1 2 3 Coated paper
Page 23 and 24: Our objectives for 2010 Improve pro
Page 25 and 26: 20 Letter to shareholders continued
Page 27 and 28: 22 Letter to shareholders continued
Page 29 and 30: 24 Interview with Ralph Boëttger,
Page 31 and 32: 26 Our leadership Independent non-e
Page 33 and 34: 28 Our leadership continued Indepen
Page 35 and 36: 30 Review of operations Sappi Fine
Page 37 and 38: 32 Review of operations | Sappi Fin
Page 39 and 40: 34 Review of operations | Sappi Fin
Page 41 and 42: 36 Review of operations Sappi Fores
Page 43 and 44: 38 Review of operations | Sappi For
Page 45 and 46: 40 Value added statement for the ye
Page 47 and 48: 42 Chief financial officer’s repo
Page 57: 52 Chief financial officer’s repo
Page 67 and 68: 62 Five-year review for the year en
Page 69 and 70: 64 Share statistics at September 20
Page 72 and 73: Risk management Global economic con
Page 74 and 75: Risk philosophy The Sappi Limited b
Page 76 and 77: Independence Accountability Given t
Page 78 and 79: Fairness Social responsibility Lege
Page 80 and 81: 2009 annual report 75 Induction and
Page 82 and 83: 2009 annual report 77 employment of
Page 84 and 85: 2009 annual report 79 board to esta
Page 86 and 87: As part of continuous improvement t
Page 88 and 89: Compensation report In 2009, the co
Page 90 and 91: Balance between fixed and variable
Page 92 and 93: Executive directors (1) Details of
Page 94 and 95: 2009 annual report 89 R J Boëttger
Page 96 and 97: 2009 annual report 91 Board Committ
Page 98 and 99: Auditor’s report Independent audi
Page 100 and 101: Audit committee report The legal re
Page 102 and 103: Directors’ report for the year en
Page 104 and 105: Litigation We become involved from
Page 106 and 107: Group balance sheet at September 20
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Group statement of changes in equit
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Group balance sheet in Rands conven
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Notes to the group annual financial
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• Financial assets and financial
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2.2.10 Non-current assets held for
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(iii) Dividends Dividends are recog
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uyer and seller) multiple used in o
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2.4 Adoption of accounting standard
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Corporate and eliminations Group 20
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2009 annual report US$ million 2009
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6. Taxation (benefit) charge contin
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7. Earnings per share and headline
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2009 annual report 9. Property, pla
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US$ million 2009 annual report 2009
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13. Joint ventures and associates*
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16. Trade and other receivables con
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2009 annual report 17. Ordinary sha
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20. Interest-bearing borrowings con
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2009 annual report 20. Interest-bea
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22. Provisions continued September
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27. Post-employment benefits - pens
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27. Post-employment benefits - pens
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2009 annual report 2009 2008 27. Po
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2009 annual report 28. Post-employm
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28. Post-employment benefits - othe
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29. Share-based payments continued
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2009 annual report 29. Share-based
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2009 annual report 29. Share-based
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30. Financial instruments continued
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2009 annual report 30. Financial in
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2009 annual report 31. Related-part
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2009 annual report 33. Environmenta
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Company auditor’s report for the
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Condensed Sappi Limited company bal
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2009 annual report Notes to the con
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Glossary General definitions bleach
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not be comparable with similarly ti
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No issue and/or sale of these share
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Notes Confirmation of appointment o
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Proxy form for annual general meeti
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forward-looking statements Certain
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Our performance in 2009 - Sappi

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