SAPPI LTD (SAP) 6-K

Related party financing and hedging arrangements
M-real’s partially owned internal specialised finance company or bank, Metsä Group Financial Services Oy (“Metsä Finance”), has historically been
responsible for managing the Company’s financial position according to the strategy and financial policy of M-real. Metsä Finance’s influence has included
the daily management of cash pooling arrangements, related party contractual financing arrangements and financial and commodity risk hedging. Note 4,
“Related Parties” contains details regarding transactions with the Parent and other related parties to the Company.
Based on long-term capital assessments, Metsä Finance has entered into related party interest bearing loan agreements with certain of the Company
entities. These agreements have contractual maturity dates and interest rates. Interest on these loans is regularly settled through the cash pooling
arrangement. The Company presents loans from the Parent as borrowings in the combined balance sheets. Interest expense on these loans is presented as
other financial expense in the combined income statements.
In the regular course of business, the Company is exposed to certain financial risks which are hedged by either the local business or by Metsä Finance on
positions held by the Company. These risks are typically commodity (energy) prices, foreign currency exposure and translation risk of net investments in
foreign entities. The Company has elected not to allocate hedging positions of the Company specific risk, held by Metsä Finance, to the combined financial
statements.
Standards, amendments and interpretations effective in 2007
IFRS 7, ‘Financial instruments: Disclosures’, and the complementary amendment to IAS 1, ‘Presentation of financial statements – Capital disclosures’. The
standard requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified
minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. The amendment to IAS 1 introduces
disclosures about the level of an entity’s capital and how it manages capital. The standard introduces new disclosures relating to financial instruments, but has
no impact on classification or valuation of the derivatives. The IAS 1 amended Capital disclosures are not relevant to the Company’s combined financial
statements as they are prepared on a “carve-out” basis and normal ways of capital management do not apply to Company’s invested equity.
Standards, amendments and interpretations effective in 2007 but considered not relevant to the Company’s operations
IFRIC 8, ‘Scope of IFRS 2’, requires consideration of transactions involving the issuance of equity instruments, where the identifiable consideration received
is less than the fair value of the equity instruments issued in order to establish whether or not they fall within the scope of IFRS 2. This interpretation does not
have any impact on the Company’s combined financial statements.
IFRIC 9, “Reassessment of Embedded Derivatives”, concludes that an entity should not reassess the conclusion as to whether an embedded derivative needs
to be separated from the hybrid contract after it is initially recognised. This interpretation does not have any impact on the Company’s combined financial
statements.
IFRIC 10, ‘Interim financial reporting and impairment’, prohibits the impairment losses recognised
in an interim period on goodwill and investments in equity instruments and in financial assets carried at cost to be reversed at a subsequent balance sheet date.
This interpretation does not have any impact on the Company’s combined financial statements.
IFRIC 7, ‘Applying the restatement approach under IAS 29, Financial reporting in hyperinflationary economies’.
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