2012 Integrated report - Sappi

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Notes to the group annual financial statements for the year ended September 2012 reclassified to profit or loss on disposal of the foreign operation, using the step-by-step consolidation method in terms of IFRIC 16 Hedges of a Net Investment in a Foreign Operation. The group used the following exchange rates for financial reporting purposes: Period-end rate Sept 12 Sept 11 Sept 10 US$1 = ZAR 8.3096 8.0963 7.0190 e1 = US$ 1.2859 1.3386 1.3491 Annual average rate Sept 12 Sept 11 Sept 10 US$1 = ZAR 8.0531 6.9577 7.4917 e1 = US$ 1.2988 1.3947 1.3658 2.2.2 Group accounting (i) Subsidiary undertakings and special-purpose entities The group annual financial statements include the assets, liabilities and results of the company and subsidiaries (including specialpurpose entities) controlled by the group. The results of subsidiaries acquired or disposed of in the year are included in the group income statements from the date of acquisition or up to the date of disposal or cessation of control. Inter-group balances and transactions, and profits and losses arising from inter-group transactions, are eliminated in the preparation of the group annual financial statements. Inter-group losses are not eliminated to the extent that they provide objective evidence of impairment. (ii) Associates and joint ventures The results, assets and liabilities of associates and joint ventures are incorporated in the group’s annual financial statements using the equity method of accounting. The share of the associate’s or joint venture’s profit after tax is determined from their latest financial statements or, if their year-ends are different to those of the group, from their unaudited management accounts that corresponds to the group’s financial year-end. The requirements of IAS 39 Financial Instruments: Recognition and Measurement are applied to determine whether it is necessary to recognise any impairment loss with respect to the group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised, which is recorded in other operating expenses, is deducted from the carrying amount of the investment. Any reversal of an impairment loss increases the carrying value of the investment to the extent recoverable, but not higher than the historical amount. 2.2.3 Financial instruments (i) Initial recognition Financial instruments are recognised on the balance sheet when the group becomes a party to the contractual provisions of a financial instrument. All purchases of financial assets that require delivery within the time frame established by regulation or market convention (‘regular way’ purchases) are recognised at trade date. (ii) Initial measurement All financial instruments are initially recognised at fair value, including transaction costs that are incremental to the group and directly attributable to the acquisition or issue of the financial asset or financial liability except, for those classified as fair value through profit or loss where the transaction costs are recognised immediately in profit or loss. (iii) Subsequent measurement • Financial assets and financial liabilities at fair value through profit or loss Financial instruments at fair value through profit or loss consist of items classified as held for trading or where they have been designated as fair value through profit or loss. • Financial liabilities at amortised cost All financial liabilities, other than those at fair value through profit or loss, are classified as financial liabilities at amortised cost. • Loans and receivables Loans and receivables are carried at amortised cost, with interest revenue recognised in profit or loss for the period using the effective interest rate method. • Available-for-sale financial assets Available-for-sale financial assets are measured at fair value, with any gains and losses recognised directly in equity along with the associated deferred taxation. Any foreign currency translation gains or losses or interest revenue, measured on an effective-yield basis, are recognised in profit or loss. (iv) Embedded derivatives Certain derivatives embedded in financial and host contracts, are treated as separate derivatives and recognised on a standalone basis, when their risks and characteristics are not closely related to those of the host contract and the host contract is not carried at fair value, with gains and losses reported in profit or loss. (v) Derecognition The group derecognises a financial asset when the rights to receive cash flows from the asset have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. A financial liability is derecognised when and only when the liability is extinguished, ie when the obligation specified in the contract is discharged, cancelled or has expired. (vi) Impairment of financial assets • Loans and receivables An impairment loss is recognised in profit or loss when there is evidence that the group will not be able to collect all amounts due according to the original terms of the receivables. • Available-for-sale financial assets When there is objective evidence that an available-for-sale financial asset is impaired, the cumulative unrealised gains and losses recognised in equity are reclassified to profit or loss even though the financial asset has not been derecognised. Impairment losses are only reversed in a subsequent period if the fair value increases due to an objective event occurring since the loss was recognised. Impairment reversals other than available-for-sale debt securities are not reversed through profit or loss but through other comprehensive income. (vii) Interest income and expense Interest income and expense are recognised in profit or loss using the effective interest rate method. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or financial liability to that asset’s or liability’s net carrying amount on initial recognition. 2.2.4 Government grants Government grants related to income are recognised in sundry income under selling, general and administrative expenses. 112
Government grants related to assets are recognised by deducting the grant from the carrying amount of the related asset. 2.2.5 Intangible assets (i) Research activities Expenditures on research activities and internally generated goodwill are recognised in profit or loss as an expense as incurred. (ii) Development activities Intangible assets are stated at cost less accumulated amortisation and impairment losses. Amortisation of engineering projects, computer software and development costs is charged to profit or loss on a straight-line basis over the estimated useful lives of these assets, not exceeding five years. (iii) Brands and patents Brands and patents acquired are capitalised and amortised on a straight-line basis over their estimated useful lives, which is on average ten years. Patents are derecognised when legal protection relating to the patented item ceases to exist. (iv) Licence fees Licence fees are amortised on a straight-line basis over the useful life of each licence. 2.2.6 Inventories Inventories are stated at the lower of cost or net realisable value. Cost includes all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost is determined on the following basis: Classification Cost formula Finished goods First in first out (‘FIFO’) Raw materials, work in progress Weighted average and consumable stores Cost of items that are not interchangeable Specific identification inventory valuation basis 2.2.7 Leases (i) The group as lessee Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased asset or the present value of the minimum lease payments. Lease payments are allocated between capital repayments and finance charges using the effective interest rate method. Capitalised leased assets are depreciated on a consistent basis as those with owned assets except where the transfer of ownership is uncertain at the end of the lease period in which case they are depreciated on a straight-line basis over the shorter of the lease period and the expected useful life of the asset. Lease payments made under operating leases are charged to profit or loss on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern of the group’s benefit. (ii) Recognition of lease of land The land and buildings elements of a lease are considered separately for the purpose of lease classification. Where the building is a finance lease, and the lease payments cannot be allocated reliably between these two elements, the entire lease is classified as a finance lease. 2.2.8 Non-current assets held for sale Non-current assets (or disposal groups) are classified as held for sale when their carrying value will be recovered principally through sale rather than use. Non-current assets held for sale are measured at the lower of carrying amount and fair value less cost to sell and are not depreciated. 2.2.9 Segment reporting Sappi reports and discloses segment information on the basis of information that is reviewed by the chief operating decision maker to make decisions when allocating resources and to assess performance of the group’s operating segments. The group’s reportable segments are Sappi Fine Paper North America, Sappi Fine Paper Europe and Sappi Southern Africa. Assets, liabilities, revenues or expenses that are not directly attributable to a particular segment are allocated between segments where there is a reasonable basis for doing so. The group accounts for inter-segment revenues and transfers as if the transactions were with third parties at current market prices. 2.2.10 Borrowing costs Borrowing costs directly attributable to the acquisition, construction and production of qualifying assets are capitalised as part of the costs of those assets. Borrowing costs capitalised are calculated at the group’s average funding cost, except to the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset. Where this occurs, actual borrowing costs incurred less any investment income on the temporary investment of those borrowings are capitalised. 2.2.11 Revenue Revenue, arising from the sale of goods, is recognised when the significant risks and rewards of ownership have been transferred, delivery has been made and title has passed, the amount of the revenue and the related costs can be reliably measured and when it is probable that the debtor will pay for the goods. For the majority of local and regional sales, transfer occurs at the point of offloading the shipment into the customer warehouse, whereas for the majority of export sales transfer occurs when the goods have been loaded into the relevant carrier, unless the contract of sale specifies different terms. Revenue is measured at the fair value of the amount received or receivable which is arrived at after deducting trade and settlement discounts, rebates, and customer returns. Shipping and handling costs, such as freight to the group’s customers’ destination are included in cost of sales. These costs, when included in the sales price charged for the group’s products are recognised in sales. 2.2.12 Emission trading The group recognises grants, when allocated by governments for emission rights, as an intangible asset at cost with an equal liability at the time of the grant. The group does not recognise a liability for emissions to the extent that it has sufficient allowances to satisfy emission liabilities. Where there is a shortfall of allowances that the group would have to deliver for emissions, a liability is recognised at the current market value of the shortfall. Where the group sells allowances to parties outside the group at amounts greater than carrying value, a gain is recognised in selling, general and administrative expenses in profit or loss for the period. 2.2.13 Alternative fuel mixture credits Up until 31 December 2009, the U.S. Internal Revenue Code allowed an excise tax credit for alternative fuel mixtures produced by a taxpayer for sale, or for use as a fuel in a taxpayer’s trade or business. sappi Integrated Report 2012 113
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Sappi Group (Sappi Limited) INTEGRA
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About this report Introduction Our
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2012 was a year that positioned us
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global Sales by source 2012: US$6,3
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Non-financial highlights Specific p
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performance the region as a whole.
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The restructuring of our paper oper
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Group overview continued Q&A with R
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Focus on product development Produc
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4 electricity steam black liquor pu
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commitment Europe Our European empl
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iodiversity Sustainable fibre suppl
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Exciter value delivery was US$23.9
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market leaders > Print is particula
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Focus on innovation Knowledge, insi
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Pulp Share of sales paper pulp + di
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governance Deenadayalen (Len) Konar
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guidance Executive management Mark
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Review of operations Sappi Fine Pap
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streamlined The closure of the Bibe
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Focus on skills development Sappi c
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accelerate Capacity (’000) Divisi
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progress The year ahead The demand
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US$ million September 2012 Septembe
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Share statistics 2012 2011 2010 200
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Chief financial officer’s report
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positive Section 2 Financial perfor
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improvement Operating profit exclud
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cost reduction Taxation The tax exp
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service Sappi Fine Paper North Amer
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priority Section 4 Cash flow In the
Page 65 and 66: Defined benefit liabilities US$ mil
Page 67 and 68: Group debt profile We show the majo
Page 69 and 70: performance Section 6 Share price p
Page 71 and 72: Governance and compensation Corpora
Page 73 and 74: encourage Audit committee The audit
Page 75 and 76: Group IT steering committee The Gro
Page 77 and 78: During 2012 a board committee was e
Page 79 and 80: Governance element Principle Summar
Page 81 and 82: External assurance providers Report
Page 83 and 84: Principle Chapter 7 - Internal audi
Page 85 and 86: Stakeholder engagement report Sappi
Page 87 and 88: Compensation report The two large s
Page 89 and 90: strategic The primary components of
Page 91 and 92: Component Purpose Characteristics V
Page 93 and 94: competitive The policy on fatalitie
Page 95 and 96: empower Service contracts Mr Boëtt
Page 97 and 98: The dissolving wood pulp capacity c
Page 99: Focus on local communities Our busi
Page 102 and 103: Directors’ approval The directors
Page 104 and 105: Audit committee report for the year
Page 106 and 107: Directors’ report for the year en
Page 108 and 109: Group income statements for the yea
Page 110 and 111: Group statements of cash flows for
Page 112 and 113: Group income statements in Rands (c
Page 114 and 115: Group statements of cash flows in R
Page 118 and 119: Notes to the group annual financial
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Notes to the group annual financial
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Annexure A - Investments at Septemb
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Glossary market pulp - pulp produce
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Glossary net operating assets - tot
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Notice to shareholders “Resolved
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Notice to shareholders “Resolved
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Notice to shareholders Annexure to
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Notice to shareholders The MOI prov
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Shareholder’s diary Annual genera
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Notes to proxy The form of proxy mu
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Inspired to co-create We operate wi
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2012 Integrated report - Sappi

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