The condensed consolidated interim financial statements for the quarter ended December 2023 are prepared in accordance with the International Financial Reporting Standards, IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council and the requirements of the Companies Act of South Africa. The accounting policies applied in the preparation of these interim financial statements are in terms of International Financial Reporting Standards as issued by the IASB and are consistent with those applied in the previous annual financial statements.
The preparation of these condensed consolidated financial statements was supervised by the Chief Financial Officer, GT Pearce, CA(SA) and were authorised for issue on 7 February 2024.
The results are unaudited.
| Quarter ended | ||
| Metric tons (000’s) | Dec 2023 | Dec 2022 |
| Sales volume | ||
| North America | 320 | 378 |
| Europe | 494 | 568 |
| South Africa – Pulp and paper | 357 | 381 |
| Forestry | 235 | 341 |
| Total | 1,406 | 1,668 |
| Which consists of: | ||
| Pulp | 335 | 357 |
| Packaging and speciality papers | 285 | 332 |
| Graphic papers | 551 | 638 |
| Forestry | 235 | 341 |
| Quarter ended | ||
| US$ million | Dec 2023 | Dec 2022 |
| Sales | ||
| North America | 398 | 526 |
| Europe | 575 | 800 |
| South Africa – Pulp and paper | 307 | 355 |
| Forestry | 14 | 20 |
| Delivery costs revenue adjustment(1) | (22) | (41) |
| Total | 1,272 | 1,660 |
| Which consists of: | ||
| Pulp | 268 | 343 |
| Packaging and speciality papers | 369 | 479 |
| Graphic papers | 643 | 859 |
| Forestry | 14 | 20 |
| Delivery costs revenue adjustment(1) | (22) | (41) |
| Operating profit (loss) excluding special items(3) | ||
| North America | 23 | 91 |
| Europe | 2 | 75 |
| South Africa | 60 | 63 |
| Unallocated and eliminations(2) | 1 | (4) |
| Total | 86 | 225 |
| Which consists of: | ||
| Pulp | 35 | 58 |
| Packaging and speciality papers | 11 | 64 |
| Graphic papers | 39 | 106 |
| Unallocated and eliminations(2) | 1 | (3) |
| Special items – (gains) losses(3) | ||
| North America | – | 1 |
| Europe | 176 | 1 |
| South Africa | 3 | (5) |
| Unallocated and eliminations(2) | – | (3) |
| Total | 179 | (6) |
| Operating profit (loss) by segment | ||
| North America | 23 | 90 |
| Europe | (174) | 74 |
| South Africa | 57 | 68 |
| Unallocated and eliminations(2) | 1 | (1) |
| Total | (93) | 231 |
| EBITDA excluding special items(3) | ||
| North America | 46 | 114 |
| Europe | 28 | 93 |
| South Africa | 81 | 86 |
| Unallocated and eliminations(2) | 1 | (3) |
| Total | 156 | 290 |
| Which consists of: | ||
| Pulp | 53 | 76 |
| Packaging and speciality papers | 34 | 88 |
| Graphic papers | 68 | 129 |
| Unallocated and eliminations(2) | 1 | (3) |
| (1) | Relates to delivery costs netted off against revenue. |
| (2) | Includes the group's treasury operations and insurance captive. |
| (3) | The definition of special items has been amended from fiscal 2024 to exclude the price fair value adjustment of plantations which was previously included as part of special items. The price fair value adjustment of plantations is therefore included in the current year's EBITDA excluding special items and operating profit (loss) excluding special items. The prior year comparatives for special items continue to include the price fair value adjustment of plantations. |
Reconciliation of EBITDA excluding special items to profit for the period and operating profit excluding special items to operating profit
Special items cover those items which management believes are material by nature or amount to the operating results and require separate disclosure.
| Quarter ended | |||
| US$ million | Note | Dec 2023 | Dec 2022 |
| EBITDA excluding special items(3) | 156 | 290 | |
|---|---|---|---|
| Depreciation and amortisation | (70) | (65) | |
| Operating profit excluding special items(3) | 86 | 225 | |
| Special items – gains (losses) | (179) | 6 | |
| Plantation price fair value adjustment(3) | – | 6 | |
| Net restructuring provisions | 8 | (136) | – |
| Profit (Loss) on disposal and written-off assets | 1 | – | |
| Asset impairments | (2) | – | |
| Profit (Loss) on disposal of held-for-sale assets | – | (1) | |
| Insurance recoveries | 4 | 3 | |
| Fire, flood, storm and other events | 8 | (46) | (2) |
| Operating profit (loss) | (93) | 231 | |
| Net finance costs | (14) | – | |
| Profit (Loss) before taxation | (107) | 231 | |
| Taxation | (19) | (41) | |
| Profit (Loss) for the period | (126) | 190 | |
| Net operating assets | |||
| North America | 1,364 | 1,333 | |
| Europe | 964 | 1,321 | |
| South Africa | 1,809 | 1,793 | |
| Unallocated and eliminations(2) | (66) | (69) | |
| Total | 4,071 | 4,378 | |
| Reconciliation of net operating assets to total assets | |||
| Segment assets | 4,071 | 4,378 | |
| Deferred tax assets | 79 | 51 | |
| Cash and cash equivalents | 533 | 593 | |
| Trade and other payables | 910 | 796 | |
| Provisions | 185 | 2 | |
| Derivative financial instruments | 8 | 7 | |
| Taxation payable | 36 | 55 | |
| Shareholders for dividend | 85 | – | |
| Liabilities associated with assets held for sale | – | 262 | |
| Total assets | 5,907 | 6,144 | |
| (2) | Includes the group's treasury operations and insurance captive. |
| (3) | The definition of special items has been amended from fiscal 2024 to exclude the price fair value adjustment of plantations which was previously included as part of special items. The price fair value adjustment of plantations is therefore included in the current year's EBITDA excluding special items and operating profit (loss) excluding special items. The prior year comparatives for special items continue to include the price fair value adjustment of plantations. |
| Quarter ended | |||
| US$ million | Note | Dec 2023 | Dec 2022 |
| Included in operating profit are the following items: | |||
| Depreciation and amortisation | 70 | 65 | |
| Fair value adjustment on plantations (included in cost of sales) | |||
| Fellings | 17 | 15 | |
| Growth | (22) | (18) | |
| Price | (26) | (6) | |
| (31) | (9) | ||
| Net restructuring provisions | 8 | 136 | – |
| (Profit) Loss on disposal and written-off assets | (1) | – | |
| Asset impairments | 2 | – | |
| (Profit) Loss on disposal of held-for-sale assets | – | 1 | |
| Insurance recoveries | (4) | (3) | |
| Quarter ended | ||
| US$ million | Dec 2023 | Dec 2022 |
| Basic earnings per share (US cents) | (23) | 34 |
|---|---|---|
| Headline earnings per share (US cents) | (22) | 34 |
| EPS excluding special items (US cents) | 8 | 30 |
| Weighted average number of shares in issue (millions) | 559.3 | 566.2 |
| Diluted earnings per share (US cents) | (23) | 32 |
| Diluted headline earnings per share (US cents) | (22) | 32 |
| Weighted average number of shares on fully diluted basis (millions) | 605.7 | 602.7 |
| Calculation of headline earnings | ||
| Profit (Loss) for the period | (126) | 190 |
| (Profit) Loss on disposal and write off of property, plant and equipment | (1) | – |
| Asset impairments | 2 | – |
| (Profit) Loss on disposal of held-for-sale assets | – | 1 |
| Tax effect of above items | – | (1) |
| Headline earnings | (125) | 190 |
| Calculation of earnings excluding special items | ||
| Profit (Loss) for the period | (126) | 190 |
| Special items after tax | 177 | (6) |
| Special items | 179 | (6) |
| Tax effect | (2) | – |
| Finance costs | – | (15) |
| Tax special items | (5) | – |
| Earnings excluding special items | 46 | 169 |
The group's financial instruments that are measured at fair value on a recurring basis consist of derivative financial instruments and investment funds. These have been categorised in terms of the fair value measurement hierarchy as established by IFRS 13 Fair Value Measurement per the table below.
| Fair value(1) | ||||
| US$ million | Classification | Fair value hierarchy | Dec 2023 | Reviewed Sept 2023 |
| Investment funds(2) | FV through OCI | Level 1 | 5 | 4 |
|---|---|---|---|---|
| Derivative financial assets | FV through PL | Level 2 | 6 | 14 |
| Derivative financial liabilities | FV through PL | Level 2 | 8 | 3 |
| (1) | The fair value of the financial instruments are equal to their carrying value. |
| (2) | Included in other non-current assets. |
There have been no transfers of financial assets or financial liabilities between the categories of the fair value hierarchy.
The fair value of all external over-the-counter derivatives is calculated based on the discount rate adjustment technique. The discount rate used is derived from observable rates of return for comparable assets or liabilities traded in the market. The credit risk of the external counterparty is incorporated into the calculation of fair values of financial assets and own credit risk is incorporated in the measurement of financial liabilities. The change in fair value is therefore impacted by the following inputs, the movement of the interest rate curves, by the volatility of the applied credit spreads, and by any changes to the credit profile of the involved parties.
There are no financial assets and liabilities that have been remeasured to fair value on a non-recurring basis.
The carrying amounts of other financial instruments which include cash and cash equivalents, trade and other receivables, certain investments, trade and other payables and current interest-bearing borrowings approximate their fair values.
| US$ million | Dec 2023 | Reviewed Sept 2023 |
| Contracted | 225 | 269 |
|---|---|---|
| Approved but not contracted | 353 | 320 |
| 578 | 589 |
| US$ million | Dec 2023 | Reviewed Sept 2023 |
| Non-current and current interest-bearing borrowings | 1,658 | 1,595 |
|---|---|---|
| Non-current and current lease liabilities | 91 | 91 |
| Less: Cash and cash equivalents | (533) | (601) |
| Net debt | 1,216 | 1,085 |
| As at December 2023 the group was in compliance with its debt covenants: | ||
| Covenant leverage ratio | 1.9 | 1.4 |
| Interest cover | 9.8 | 11.2 |
Since the 2023 financial year-end, the Euro and the ZAR have strengthened by approximately 4.4% and 3.3% respectively against the US Dollar, the group's presentation currency. This has resulted in an increase of the group's European and South African assets and liabilities, which are held in the aforementioned functional currency, on translation to the presentation currency at period-end.
Provisions
Closure and restructuring costs of US$34 million (€32 million) and US$135 million (€125 million) respectively were raised during the quarter for the closure of Lanaken Mill within our European segment.
There has been no material change, by nature or amount, in transactions with related parties since the 2023 financial year-end.
Notification was issued in January 2024 for the early redemption of the residual ZAR1,164,690,000 5.25% Convertible Bonds issued by Sappi's wholly owned subsidiary, Sappi Southern Africa Limited, on 25 November 2020. Bond investors may request a conversion of the bonds to equity before 5 March 2024. In the event that all outstanding bonds are redeemed prior to 11 March 2024 (at the effective conversion price of ZAR29.4621), up to 39.5 million Sappi Limited ordinary shares could be issued before that date.
There has been no significant change to management's estimates in respect of new accounting standards, amendments and interpretations to existing standards that have been published which are not yet effective and which have not yet been adopted by the group.