The year under review was challenging in many respects, but served to reinforce our commitment to our strategic initiatives.

GT Pearce
Chief Financial Officer

Observance of the four pillars of our long-term group strategy reduced the impact of the prevailing global economic uncertainty.

Section 1
Financial highlights
(US$ million) 2019        2018 
Sales  5,746        5,806  (1)   
EBITDA excluding special items  687        762  (10)   
Operating profit excluding special items  402        480  (16)   
Profit for the year  211        323  (35)   
EBITDA excluding special items to sales (%) 12.0%        13.1%  n/a    
Operating profit excluding special items to sales (%) 7.0%        8.3%  n/a    
Operating profit excluding special items to capital employed (ROCE) (%) 11.5%        14.6%  n/a    
Net cash (utilised) generated        (254) n/a    
Net debt  1,501        1,568  (4)   
Basic earnings per share (US cents) 39        60  (35)   

Observance of the four pillars of our long-term group strategy reduced the impact of the prevailing global economic uncertainty. Volume growth in our dissolving wood pulp and packaging and speciality segments offset the majority of the 7% volume decline in our graphics segment. The continuous improvement initiatives supported by projects to improve our cost base and enhance our competitiveness yielded US$88 million savings for the year. We strengthened the balance sheet by improving our debt maturity profile and refinanced the 2022 bonds with 2026 bonds at the lower coupon of 3.125%. Although net working capital levels increased during the first half of the year, a strong focus on inventory and payment terms reduced net working capital to 7.9% of annual net sales.

Weak markets in all our segments constricted EBITDA margin by 1% to 12%. The conversion projects in North America and Europe from graphic paper to packaging and specialities gained traction towards the end of the fiscal following lengthy qualification processes. Dissolving wood pulp volumes increased by 7% following the capacity increase projects at the Cloquet and Ngodwana Mills in the previous fiscal. The reduced margins and volumes (excluding forestry volumes) resulted in EBITDA of US$687 million (LY = US$762 million).

Net finance costs increased by 24% to US$85 million as they included the 2026 bond refinancing costs of US$13 million. The average tax rate of 29% was above the average statutory rate due mainly to unutilised tax losses in Europe. Profit for the year was US$211 million (LY = US$323 million) and earnings per share excluding special items reduced from US60 cents to US44 cents. The directors have considered it prudent to temporarily halt dividends until such time as market conditions improve.

Cash generated for the year of US$1 million includes a dividend payment of US$92 million, tax payments of US$51 million and capital expenditure of US$471 million.

Segment reporting

Our reporting is based on the geographical location of our businesses, ie Europe, North America and South Africa.

The selected product line information is reviewed by our Executive Committee in addition to the geographical basis upon which the group is managed. This additional information is presented in this report to assist our stakeholders in obtaining a complete understanding of our business.

Exchange rates and their impact on the group's results

The group reports its results in US Dollar and, as such, the main foreign exchange rates used in the preparation of the financial statements were:

Income statement average rates Balance sheet closing rates
  2019     2018 2019     2018  
EUR1 = US$ 1.1282     1.1902 1.0939     1.1609  
US$1 = ZAR 14.3464     13.0518 15.1563     14.1473  

Two of our three geographic business units (Europe and Southern Africa) have home or 'functional' currencies of Euro and ZAR respectively. The results and cash flows of these two non-US Dollar units are translated into US Dollar at the average exchange rate for the reporting period in order to arrive at the consolidated US Dollar results and cash flows. When exchange rates differ from one period to the next, the impact of translation from the functional currency to reporting currency can be significant.

Section 2
Financial performance

The discussion in this section focuses on the group financial performance in 2019 compared with 2018. A detailed discussion, in local currencies, of each of our three operating regions follows in Section 3.

Income statement

Our group financial results can be summarised as follows:

(Metric tons '000) 2019        2018 
Sales volume  7,622        7,591  –    
US$ million                   
Sales revenue  5,746        5,806  (1)   
Variable manufacturing and delivery costs  (3,530)       (3,521) –    
Fixed costs  (1,711)       (1,767) –    
Sundry items(1)  (43)       (38) 13    
US$ million                   
Operating profit excluding special items  402        480  (16)   
Special items  (19)       –    
Operating profit  383        489  (22)   
Net finance costs  (85)       (68) 25    
Taxation  (87)       (98) (11)   
Net profit  211        323  (35)   
EPS excluding special items (US cents) 44        60  (27)   
(1) Sundry items include all income and costs not directly related to manufacturing operations such as debtor securitisation costs, commissions paid and received and results of equity-accounted investments.

Sales volume

In 2019, sales volume increased by 31,000 tons compared with 2018. The regional and product segment contributions to sales volume are shown below:

Sales volume (metric tons '000) 2019        2018 
North America  1,379        1,371    
Europe  3,241        3,366  (4)   
Southern Africa  3,002        2,854    
Group  7,622        7,591  –    
Graphics  3,846        4,150  (7)   
Packaging and specialities  1,129        1,009  12    
Dissolving wood pulp  1,284        1,198    
Forestry  1,363        1,234  10    

In North America, increases in the packaging and speciality papers and dissolving wood pulp sales volumes offset the reduced Graphics volumes due to the conversion of PM1 at Somerset.

European volumes decreased by 4% with lower demand in the mechanical coated and coated woodfree markets. The decrease in sales volumes was partially offset by strong growth in the packaging and speciality product segments.

Volumes in South Africa increased by 5% mainly due to growth in dissolving wood pulp and forestry volumes. Packaging and speciality volumes decreased due to lower demand in the local citrus market.

Capacity utilisation reduced to an average of 88% for the group as weak graphic markets forced us to take 268 000 tons of production downtime during the year.

Sales volume to capacity 2019
North America 82     93  
Europe 88     93  
Southern Africa 94     95  
Group 88     95  

Sales revenue

Sales revenue decreased by 1% from US$5.8 billion in 2018 to US$5.7 billion in 2019. The stronger US Dollar resulted in a negative US$188 million conversion impact which was offset by selling price and mix improvements of US$163 million. Consolidated volumes were marginally down on last year.

Variable and delivery costs

Variable and delivery costs increased by US$9 million from 2018. This is in line with sales volumes increasing marginally. There were offsetting variances amongst the different product categories which resulted in variable costs remaining stable relative to last year.

The net paper and dissolving wood pulp purchases and sales of the Sappi group are detailed in the graph below:

Sappi group pulp balance (US$ million)  

The table below reflects the breakdown of variable and delivery costs by type.

Variable manufacturing and delivery costs (US$ million) 2019        2018 
Wood  624        598    
Energy  417        411    
Chemicals  811        851  (5)   
Pulp and other  1,243        1,171    
Delivery  435        490  (11)   
Group  3,530        3,521  –    

Fixed costs

Fixed costs increased by US$4 million from fiscal 2018. This increase was mainly due to a higher depreciation charge (US$31 million) as a result of the increased capital spend offset by lower personnel cost (US$29 million). The weaker ZAR and EUR resulted in a decrease in US Dollar costs (US$77 million). Excluding the currency impact fixed costs increased by US$81 million.

Details of the make-up of fixed costs are provided in the table below:

Fixed costs (US$ million) 2019        2018 
Personnel  1,014        1,043  (3)   
Maintenance  234        235  (0)   
Depreciation  277        274    
Other  246        215  14    
Group  1,771        1,767  –    

EBITDA and operating profit excluding special items

EBITDA excluding special items decreased to US$687 million, 10% lower than the previous year. Operating profit excluding special items declined from US$480 million last year to US$402 million in 2019.

The EBITDA bridge reflected in the graph below shows the impact on profitability from higher sales volumes, higher sales prices and improved sales mix which were offset by increased variable and fixed cost.

Reconciliation of EBITDA excluding special items: 2019 compared to 2018(1) (US$ million)  
(1) All variance were calculated excluding Sappi Forestry.
(2) "Currency conversion" reflects translation and transactional effect on consolidation.

The tables below detail the EBITDA and operating profit excluding special items of the business for both 2019 and 2018 and the margins of each.

EBITDA excluding special items by region (US$ million) 2019     2018  
North America 110     126  
Europe 232     299  
Southern Africa 339     337  
Corporate and other 6      
Group 687     762  
EBITDA margin by region (%)  
EBITDA excluding special items by product category
(US$ million)
2019     2018   
Dissolving wood pulp 304     306   
Specialities and packaging papers 126     138   
Printing and writing papers 251     318   
Other 6     –   
Group 687     762   
Operating profit excluding special items by region
(US$ million)
2019     2018   
North America 27     49   
Europe 104     163   
Southern Africa 267     270   
Corporate and other 4     (2)  
Group 402     480   
Operating profit margin by region (%)  
Operating profit excluding special items by product category
(US$ million)
2019        2018    
Dissolving wood pulp  245        251    
Specialities and packaging papers  52        78    
Printing and writing papers  101        153    
Other        (2)   
Group  402        480    

The charts below illustrate that 75% of the groups' EBITDA originates from growing markets in the dissolving wood pulp and packaging and speciality segments. The Graphics segment, which contributes 37% of the EBITDA remains an important strategic component of our business.

Operating profit excluding special items by product 2019: US$402 million (%)   EBITDA excluding special items by product 2019: US$687 million (%)  

For information regarding the financial performance of the regions, please refer to Section 3 of this report.

Key operating targets

Our financial targets and performance against them are dealt with in the Letter to Shareholders section.

Special items

Special items consist of those items which management believe are material, by nature or amount, to the results for the year and require separate disclosure. A breakdown of special items for 2019 and 2018 is reflected in the table below:

Special items – gain (loss)
(US$ million)
2019        2018    
Plantation price fair value adjustment  19        27    
Acquisition costs  (2)       (2)   
Net restructuring provisions  –        (1)   
Profit (loss) on disposal and written off assets  (11)         
Net asset (impairment) reversals  (10)         
Black economic empowerment charge  –        (1)   
Fire, flood, storm and other events  (15)       (21)   
Total  (19)         

The net impact of special items in 2019 was US$19 million. The major components are described below:

  • A positive non-cash US$19 million plantation price fair value adjustment was recognised following increases to the market price of timber
  • Various assets in Sappi Southern Africa and Europe amounting to US$7 million and US$4 million were scrapped
  • A net asset impairment of US$10 million was incurred of which US$18 million related to our Westbrook Mill which was offset by impairment reversals of US$8 million at our Tugela and Stanger Mills
  • Fire, flood, storm and other events includes turbine damage at the Stockstadt Mill amounting to US$10 million, fire damaged timber of US$4 million in South Africa, integration costs of US$2 million offset by a contingent consideration release of US$7 million.

Net finance costs

(US$ million) 2019        2018    
Finance costs  98        92    
Finance income  (9)       (18)   
Net foreign exchange gains  (4)       (6)   
Total  85        68    

Finance costs include a charge of US$13 million for the cost of refinancing the 2022 bonds. Finance income reduced in the current year as a result of lower South African cash balances due to the increased capital expenditure in the region.


A regional breakdown of the tax charge is provided below:

(US$ million) Profit before  tax  Tax (charge) relief        Effective tax 
rate  % 
Europe  30  (11)       (37)   
North America  (17)       (24)   
Southern Africa  285  (80)       (28)   
Total  298  (87)       (29)   

The tax charge of US$11 million in Europe was predominantly incurred in Germany and Italy. Unutilised tax losses in Austria and Belgium increased the effective tax rate to 37%.

In North America and Southern Africa, the effective tax rate is in line with the statutory tax rates in those countries.

Net profit, earnings per share and dividends

After taking into account net finance costs and taxation, our net profit and earnings per share for 2019, with comparatives for 2018, were as follows:

(US$ million) 2019     2018  
Operating profit 383     489  
Net finance costs 85     68  
Profit before taxation 298     421  
Taxation 87     98  
Profit for the period 211     323  
Weighted average number of shares in issue (millions) 542.0     538.1  
Basic earnings per share (US cents) 39     60  

The directors have elected not to declare a dividend and temporarily halt dividends until such time as market conditions improve.

Section 3

Below we discuss the performance of the regional businesses. The discussion is based on performance in local currencies as we believe this facilitates a better understanding of the revenue and costs in the European and Southern African operations.

North America

(Metric tons '000) 2019     2018 %
Sales volume 1,379     1,379 1  

US$ per ton
    US$ per ton

Sales  1,466        1,432  1,063      1,044    
Variable manufacturing and delivery costs  (924)       (856) (670)     (624)   
Contribution  542        576  (6) 393      420  (6)   
Fixed costs  (501)       (506) (1) (363)     (369) (2)   
Sundry costs and consolidation entries  (14)       (21) (33) (10)     (15) (33)   
Operating profit excluding special items  27        49  (45) 20      36  (44)   
EBITDA excluding special items  110        126  (13) 80      92  (13)   

The conversion of PM1 at Somerset Mill to produce paperboard grades and the increased dissolving wood pulp capacity at Cloquet offset the drop in graphic sales volumes. The weak graphic markets forced the region to take 155, 000 tons of production downtime which had a negative impact on costs. Customer acceptance of the new paperboard products increased during the year, but the extended qualification runs had an adverse impact on costs during the first half of the year. As a result, EBITDA margin reduced to 8% from 9% in the previous year.

EBITDA of US$110 million was 13% lower than the previous year.


(Metric tons '000) 2019     2018
Sales volume 3,241     3,366 (4)  
  € million 
      € million 

€ per ton 
    € per ton 

Sales  2,587        2,494  798      741    
Variable manufacturing and delivery costs  (1,707)       (1,632) (527)     (485)   
Contribution  880        862  271      256    
Fixed costs  (762)       (712) (235)     (212) 11    
Sundry costs and consolidation entries  (25)       (13) 92  (7)     (3) 133    
Operating profit excluding special items  93        137  (32) 29      41  (29)   
EBITDA excluding special items  206        254  (19) 64      75  (15)   

Market conditions for graphic paper in Europe were challenging as overall demand shrunk by more than 10%. The European operations were able to reduce the impact of the demand reduction by increasing market share, but was nevertheless forced to take 113,000 tons of production downtime during the year. The extended shut at Lanaken for the conversion of PM8 further impacted profitability. Selling prices were resilient in the face of the declining demand as the region managed the effects of increasing input costs. Strong volume growth of 14% in the packaging and speciality segment provided some relief.

Variable costs per ton increased by 9% relative to last year due mainly to an increase in purchased pulp prices. The purchased pulp prices reduced during the fourth fiscal quarter, which improved margins at the contribution level but was offset by increased fixed costs per ton due to lower absorption of fixed costs on lower sales volumes. EBITDA margins reduced from 10% to 8% as a consequence.

Southern Africa

(Metric tons '000) 2019     2018 %
Sales volume* 1,639     1,620 1  

per ton 
per ton 

Sales*  19,253      17,333  11  11,747      10,699  10   
Variable manufacturing and delivery cost  (11,764)     (10,415) 13  (7,178)     (6,429) 12   
Contribution  7,489      6,918  4,569      4,270   
Fixed costs  (5,896)     (5,403) (3,597)     (3,335)  
Sundry income and consolidation entries  2,239      2,009  11  (1,366)     1,240  10   
Operating profit excluding special items  3,832      3,524  2,338      2,175   
EBITDA excluding special items  4,864      4,398  11  2,968      2,715   

* Excludes forestry. 

The debottlenecking projects at Ngodwana and Saiccor increased dissolving wood pulp sales volumes during the current year by 5%. The South African packaging and paper business came under pressure as citrus fruit exports dropped and the weak South African economy impacted other paper sales volumes. Net selling prices of dissolving wood pulp reduced in US Dollar terms, but the weaker exchange rate resulted in price increases in local currency. Variable costs per ton increased by 12% mainly due to increased wood and purchased pulp costs. The variable costs were also impacted by a ZAR20 million charge for carbon tax which was introduced during the fourth fiscal quarter. Fixed costs were mainly influenced by wage inflationary increases at 7% and the employment of additional personnel in anticipation of the increased capacity at Saiccor planned for fiscal 2020. The net result of the above is an increase in EBITDA to ZAR4,864 million with annual operating profit of ZAR3,832 million.

The region's capital expenditure focused on increasing dissolving wood pulp capacity during the year.

Major sensitivities

Some of the more important factors which impact the group's EBITDA excluding special items, based on current anticipated revenue and cost levels, are summarised in the table below:

Sensitivities  Change  Europe 
€ million 
North America 
US$ million 
Southern Africa 
ZAR million 
Translation   impact*
US$ million  
US$ million 
Net selling prices  1%  25  16  200  –   58   
Dissolving wood pulp prices  US$10  –  145  –   13   
Variable costs  1%  14  113  –   32   
Sales volume  1%  74  –   22   
Fixed costs  1%  54  –   15   
Paper pulp price  US$10  –   11   
Oil price  US$1  –  –    
ZAR/US$ (weakening) 10 cents  –  –  68  (1)   
Euro/US$ (weakening) 10 cents  (2) (4) –  (23)  (29)  

* Based on currency impact on translation of EBITDA.

The table demonstrates that EBITDA excluding special items is most sensitive to changes in the selling prices of our products.

The calculation of the impact of these sensitivities assumes all other factors remain constant and does not consider potential management interventions to mitigate negative impacts or enhance benefits.

Section 4

Cash flow

In the table below, we present the group's cash flow statement for 2019 and 2018 in a summarised format:

(US$ million) 2019      2018   
Operating profit excluding special items  402      480   
Depreciation and amortisation  285      282   
EBITDA excluding special items  687      762   
Contributions to post-employment benefits  (41)     (45)  
Other non-cash items  27      (8)  
Cash generated from operations  673      709   
Movement in working capital  (15)     (79)  
Net finance costs  (42)     (66)  
Taxation  (51)     (73)  
Dividend paid  (92)     (81)  
Capital expenditure  (471)     (541)  
Net proceeds on disposal of assets      11   
Acquisition of subsidiary  –      (132)  
Other  (4)     (2)  
Net cash generated (utilised)     (254)  

Net cash generated for the financial year was US$1 million (FY18: US$254 million utilised which includes the acquisition of Cham Paper Group for US$132 million). Lower profitability was offset by tight working capital control and lower capital expenditure of US$471 million (LY = US$541 million). The lower cash finance charge is due to the timing of the fiscal
year-end date.

Investment in fixed assets versus depreciation (US$ million)  
Section 5

Balance sheet

Summarised balance sheet

(US$ million) 2019      2018   
Property, plant and equipment  3,061      3,010   
Plantations  451      466   
Net working capital  452      493   
Other assets  291      323   
Net post-employment liabilities  (298)     (261)  
Other liabilities  (508)     (516)  
Employment of capital  3,449      3,515   
Equity  1,948      1,947   
Net debt  1,501      1,568   
Capital employed  3,449      3,515   

Sappi has 18 production facilities in eight countries, capable of producing approximately 3.7 million tons of pulp and 5.7 million tons of paper. For more information on our mills, their production capacities and products, please refer to the Where we operate section.

During 2019, capital expenditure for property, plant and equipment was US$471 million. The capacity replacement value of property, plant and equipment for insurance purposes has been assessed at approximately US$20 billion.

Property, plant and equipment

The cost and depreciation related to our property are set out in the table below:

Book value of property, plant and equipment

(US$ million) 2019     2018  
Cost 9,033     9,077  
Accumulated depreciation and impairment 5,972     6,067  
Net book value 3,061     3,010  

The group incurred capital expenditure of US$471 million during the year on various capital improvement projects. This was largely offset by depreciation of US$277 million and foreign currency exposure of US$139 million due to the strengthening of the US Dollar against the ZAR and the EUR.


We regard ownership of our plantations in South Africa as a key strategic resource as it gives us access to low-cost fibre for pulp production and ensures continuity of supply on an important raw material input source.

We currently have access to approximately 529,000 hectares of land of which approximately 394,000 hectares are planted with pine and eucalyptus. These plantations provide approximately 66% of the wood requirements for our South Africa mills.

During the year, there were market price increases coupled with higher average fair value rates. These increases were offset by the rising cost of fuel and an increase in the discount rate. As we manage our plantations on a sustainable basis, the growth for the year was offset by timber felled during the year.

Our plantations are valued on the balance sheet at fair value less the estimated costs of delivery, including harvesting and transport costs. In notes 2.3.4 and 11 to the financial statements, we provide more detail on our accounting policies for plantations, how we manage our plantations as well as the major assumptions used in the calculation of fair value.

Working capital

The component parts of our working capital at the 2019 and 2018 fiscal year-ends are shown in the table below:

Net working capital

(US$ million) 2019      2018   
Inventories  709      741   
Trade and other receivables  718      767   
Trade and other payables and provisions  (975)     (1,015)  
Net working capital  452      493   

Optimising working capital remains a key focus area for us and appropriate targets are incorporated into the management incentive schemes for all businesses. The working capital investment is seasonal and typically peaks during the third quarter of each financial year.

Net working capital decreased to US$452 million in 2019 from US$493 million in 2018. The material movements in working capital are discussed below:

  • Inventories decreased by US$32 million, caused mainly by a favourable currency translation impact of US$31 million
  • Receivables decreased by US$49 million following lower net selling prices and decreased volumes in the fourth quarter, and a favourable currency translation impact of US$27 million
  • Payables decreased by US$40 million. The decrease in payables is largely due to an unfavourable currency translation impact of US$49 million, decreased raw material prices and decreases in bonus accruals. This was partially offset by higher accruals for capital expenditure.

Post-employment liabilities

We operate various defined benefit pension/lump sum plans, post-employment healthcare subsidies and other employee benefits in the various countries in which we operate. A summary of defined benefit assets and liabilities (pension and post-employment healthcare subsidies) is as follows:

Defined benefit liabilities

(US$ million) 2019      2018   
Defined benefit obligation  (1,525)     (1,431)  
Fair value of plan assets  1,227      1,170   
Net balance sheet liability  (298)     (261)  
Cash contributions to defined benefit plans/subsidies  36      40   
Income statement charge (credit) to profit or loss*  26      18   
Cash contributions deemed 'catch-up'**  17      19   
* There was a significant non-routine past service credit during fiscal 18, which causes the total charge to appear much lower compared to the amount charged in fiscal 19.
** 'Catch-up' is cash contributions paid to defined benefit plans in excess of current service cost.

Gross liabilities from all our plans (funded plans and unfunded) increased by US$94 million compared with last year. The main cause of the overall increase was a significant drop in discount rates due to falling yields in respective bond markets.

Fair value of plan assets rose by US$57 million over the year due to favourable investment returns of assets in our funded plans from outperforming bonds markets. Significant portions of our assets are held in bonds as part of liability matching strategic allocation.

Included in the liability and asset movements above is a US$12 million gain resulting from movements relative to the reporting currency.

The increase in liabilities exceeded the increase in assets, which contributed to an increase in the overall net liability by US$37 million as at September 2019. A reconciliation of the movement in the balance sheet over the year is shown graphically below and disclosed in more detail in note 28 of the annual financial statements.

Sappi Limited defined benefit pensions balance sheet movement (US$ million)  
Sappi Limited post-retirement medical aid subsidy balance sheet movement (US$ million)  


Year-on-year, equity increased by US$1 million to US$1,948 million as summarised below:

Equity reconciliation

(US$ million) 2019   
Equity as at September 2018  1,947   
Profit for the year  211   
Dividend paid  (92)  
Actuarial losses  (49)  
Share based movements   
Movement in hedging reserves  (11)  
Foreign currency movements  (67)  
Equity as at September 2019  1,948   

Profit for the year of US$211 million was offset by dividends of US$92 million, actuarial losses of US$49 million and foreign currency movements of US$67 million.


Debt is a major source of funding for the group. In the management of debt, we focus on net debt, which is the sum of current and non-current interest-bearing borrowings and bank overdrafts, net of cash and cash equivalents.

Debt funding structure

The Sappi group principally takes up debt in two legal entities. Sappi Southern Africa Limited issues debt in the local South African market for its own funding requirements and Sappi Papier Holding GmbH (SPH), which is the international holding company, issues debt in the international money and capital markets to fund our non-South African businesses. SPH's long-term debt is supported by a Sappi Limited guarantee and the financial covenants on certain of its debt are based on the ratios of the consolidated Sappi Limited group. The covenants applicable to the debt of these two entities and their respective credit ratings are discussed below.

The diagram below depicts our debt funding structure:

Below we highlight the main financing activities that occurred during the year:

  • The previous €330 million securitisation facility at Sappi Papier Holding was increased to €380 million and extended to 2022. The increase was required to cater for the additional receivables arising from the Cham Paper Group acquisition in 2018
  • The €450 million 2022 public bond was repaid at the April 2019 call window. The repayment was refinanced with a new €450 million public bond maturing in 2026
  • The 110,000 tons expansion project at Saiccor was partially financed with a new long-term facility. An unlisted ZAR1.5 billion five-year private placement under the Domestic Medium-Term Note programme was issued in May 2019
  • Shortly after the financial year-end the US$175 million Matane acquisition was finalised. The purchase price was financed with a new eight-year term loan from the Oesterreichische Kontrollbank in Austria. The term loan has a €74 million tranche and a CAD129 million tranche, with both tranches amortising in equal instalments from December 2021 to December 2027.

Structure of net debt and liquidity

We consider the liquidity position to be sufficient, with cash holdings exceeding short-term obligations by US$212 million at fiscal year-end. In addition, Sappi has US$640 million of unutilised committed credit facilities, including the revolving credit facility at SPH of €525 million (US$574 million).

The structure of our net debt at September 2019 and 2018 is summarised below:

(US$ million) 2019      2018   
Long-term debt  1,713      1,818   
Senior unsecured debt  1,465      1,471   
Securitisation funding  366      376   
Less: Short-term portion  (118)     (29)  
Net short-term debt/(cash) (212)     (250)  
Overdrafts and short-term loans  63      84   
Short-term portion of long-term debt  118      29   
Less: Cash  (393)     (363)  
Net debt  1,501      1,568   

Movement in net debt

The movement of our net debt from fiscal 2018 to fiscal 2019 is explained in the table below:

(US$ million) 2019   
Net debt as at September 2018  1,568   
Net cash generated  (1)  
Currency and other movements  (66)  
Net debt as at September 2019  1,501   

Group debt profile

We show the major components and maturities of our net debt at September 2019 below. These are split between our debt in South Africa and our debt outside South Africa.

US$ million 
currencies) % 
     Maturity (Sappi fiscal years)
   2020  2021  2022  2023  Thereafter    
South Africa                                  
Bank debt  26  9.72  Variable        26 
DMTN Private Placement  99  9.25  Fixed                    99    
2020 Bond  49  8.06  Fixed        49                
Gross debt  175                               
Less: Cash  (124)             (124)               
Net South Africa debt  51              (48) –  –  –  99    
Non-South African                                  
Securitisation (US$) 130  3.44  Variable              130          
Securitisation (EUR) 236  1.38  Variable              236          
OeKB term loan 1  45  1.25  Fixed        22  22             
OeKB term loan 2  164  2.20  Fixed        20  20  20  20  85    
Other bank debt (EUR) 65  0.33  Variable        64  0.2  0.1  0.3    
2023 public bonds (EUR) 383  4.00  Fixed                 383 
2026 public bonds (EUR) 492  3.13  Fixed                    492    
2032 Bonds (US$) 221  7.5  Fixed                    221    
IFRS adjustments  (16)                         (16)   
Gross debt  1,720                               
Less: Cash  (270)             (270)               
Net non-South African debt  1,450              (164) 42  386  403  783    
Net group debt  1,501              (212) 42  386  403  882    

The majority of our non-South African long-term debt is guaranteed by Sappi Limited, the group holding company.

A diagram of the debt maturity profile for Sappi fiscal years is shown below:

Debt maturity profile for Sappi fiscal years (US$ million)  


Non-South African covenants

Financial covenants apply to US$209 million of our non-South African bank debt, the €525 million revolving credit facility and the securitisation facility.

The covenants are described below and are calculated on a rolling last four quarter basis and require to be met at the end of each quarter:

  • the ratio of group net debt to EBITDA:
September 2019   December 2019   March 2020
to June 2021
  September 2021 to
September 2022
  December 2022   March 2023  
3.75   4.25   4.50   4.25   4.00   3.75  
  • the ratio of group EBITDA to net interest expense should not be less than 2.50-to-1.

The table below shows that at September 2019 we were well in compliance with these covenants:

Non-South Africa covenants 2019     Covenant  
Net debt to EBITDA 2.20     <3.75  
EBITDA to net interest 9.49     >2.50  

In addition to the financial covenants referred to above, our bonds and certain of our bank facilities contain customary affirmative and negative covenants restricting, among other things, the granting of security, incurrence of debt, the provision of loans and guarantees, mergers and disposals and certain restricted payments. As regards dividend payments, in terms of the international bond indentures, any cash dividends paid may not exceed 50% of net profit excluding special items after tax and certain other adjustments, calculated on a cumulative basis.

South African covenants

Separate covenants also apply to the revolving credit facility of our Southern African business.

These covenants are calculated on a rolling last four quarter basis and require that at the end of March and September, with regard to Sappi Southern Africa Limited and its subsidiaries:

  • The ratio of net debt to equity at the end of March and September is not greater than 65%
  • At the financial year-end, the ratio of EBITDA to net interest paid for the year is not less than 2-to-1.

Below we show that for the year ended September 2019 the South African financial covenants were comfortably met.

South African covenants 2019     Covenant  
Net debt to equity (%) 3.41     <65  
EBITDA to net interest 42.9     >2.00  

Credit ratings

Global credit ratings: South African national rating

Sappi Southern Africa Limited: AA (za)/A1+(za)/stable outlook (November 2019)


Sappi corporate family rating: Ba1/NP/stable outlook (January 2019)

SPH debt rating:

  • 2023/2026 bonds and RCF: Ba1/stable outlook (January 2019)
  • 2032 bonds: Ba3

S&P Global Ratings

Corporate credit rating: BB/B/stable outlook (March 2019)

SPH Debt Rating:

  • 2023/2026/2032 bonds and RCF: BB stable outlook (March 2019)
Section 6

Share price performance

Sappi share price – September 2016 to September 2019 (ZAR/share)  


The year under review was challenging in many respects but served to reinforce our commitment to our strategic initiatives. The foundation laid during fiscal 2018 in terms of conversions and capacity increases reduced the severity of the economic headwinds we experienced during the second half of fiscal 2019. We were able to adjust our short-term plans without compromising the long-term initiatives by focusing on cash generation and balance sheet management. One of the regrettable consequences of the balance sheet management has been the decision to suspend dividends.

The conversion projects in Europe and North America showed promise as packaging and speciality volumes increased by 12% year-on-year, denting the impact of the demand decline in the graphics sector. Similarly, the dissolving wood pulp volumes increased by 7% following the completion of the capacity increases at Cloquet and Ngodwana. The Saiccor capacity expansion project is scheduled to be completed towards the end of fiscal 2020. Our input costs were well controlled and cost improvement projects of US$88 million were recorded for the year.

Fiscal 2020 promises to be a challenging year, but we are well positioned to rise to the challenge.

GT Pearce

Chief Financial Officer