SAPPI LTD (SAP) 6-K

M-real uses a centralised approach via a cash pooling arrangement to manage cash and to finance its operations. Each of the Company’s entities historically
maintained a separate balance sheet which included financing positions with M-real Group. Interest earned on deposits through the cash pooling arrangement
and payable on related party interest bearing borrowings was historically settled through the cash pool arrangement. Invested equity of the Company
represents M-real’s residual claim on the Company entities and includes allocations from M-real, settlement of intercompany transactions with M-real, and
the Company’s cumulative operating results, including other income items recognised directly in equity.
These combined financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted
by the International Accounting Standards Board (IASB). The combined financial statements are presented in thousands of Euros (EUR), unless otherwise
stated. The combined financial statements have been prepared on a historical cost basis, except for certain other financial assets and liabilities, which are
measured at fair value.
Note 2•Significant accounting policies
The financial statements have been prepared in accordance to IFRS. A summary of the significant accounting policies used in the preparation of the
accompanying combined financial statements is presented below.
Principles of combination
The combined financial statements include the accounts of the Company’s managed operations that are wholly owned by M-real and have been combined as
if together for all periods presented. Intercompany balances and transactions with combined entities have been eliminated. Intercompany balances and
transactions with M-real and its other subsidiaries have been recorded as related party transactions and are further discussed in the related parties and other
notes contained in these financial statements.
Critical accounting estimates and assumptions
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial year are discussed below.
(a) Estimated impairment and goodwill and fixed assets, including certain subsequent reversals
The Company annually tests whether goodwill has suffered any impairment in accordance with its accounting policy and on an interim basis if potential
impairment indicators have occurred. The recoverable amount of its cash-generating unit has been determined based on value-in-use
calculations. These calculations require the use of estimates.
(b) Estimated corporate overhead allocations
As disclosed in Note 1, management has estimated the allocation of various corporate overhead expenses and goodwill that have historically been paid
and maintained by M-real. These allocations require the use of estimates and management judgment.
Foreign currency
The combined financial statements are presented in Euros, which is the Company’s functional and presentation currency. The currency translation of financial
statements of the combined operations outside the Euro zone prepared in a foreign currency into the presentation currency is as follows: assets and liabilities
are translated at the closing rate, and income and expenses are translated to Euros, as the reporting currency, using average rates. Exchange differences are
recognised directly in equity. If foreign operations are sold, recorded differences from currency translation are reversed and recognised in income. When
making the transition to IFRS, translation differences that arose prior to 1 January 2004 were recorded in invested equity and will not be subsequently recasted
into the income statement. Biberist in Switzerland is the Company’s only business that has a functional currency other than the euro.
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