2012 Integrated report - Sappi

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Notes to the group annual financial statements for the year ended September 2012 29.2 Financial instruments The group’s financial instruments consist mainly of cash and cash equivalents, accounts receivable, certain investments, accounts payable, borrowings and derivative instruments. Introduction The principal risks to which Sappi is exposed through financial instruments are: a) market risk (the risk of loss arising from adverse changes in market rates and prices), arising from: • interest rate risk • currency risk • commodity price risk b) liquidity risk c) credit risk The group’s main financial risk management objectives are to identify, measure and manage the above risks as more fully discussed under the individual risk headings below. Sappi’s Group Treasury is comprised of two components: Sappi International, located in Brussels, which manages the group’s non-South African treasury activities and, for local regulatory reasons, the operations based in Johannesburg which manage the group’s Southern African treasury activities. These two operations collaborate closely and are primarily responsible for managing the group’s interest rate, foreign currency, liquidity and credit risk (in so far as it relates to deposits of cash, cash equivalents and financial investments). Credit risk (in so far as it relates to trade receivables) is primarily managed regionally but is co-ordinated on a group basis, whilst commodity price risk is managed regionally. The group’s Limits of Authority framework delegates responsibility and approval authority to various officers, committees and boards based on the nature, duration and size of the various transactions entered into by, and exposures of, the group including the exposures and transactions relating to those financial instruments and risks referred to in this note. a) Market risk Interest rate risk Interest rate risk is the risk that the value of a borrowing or an investment will change due to a change in the absolute level of interest rates, the spread between two rates, the shape of the yield curve or any other interest rate relationship. The group is exposed to interest rate risk as it borrows funds at both fixed and floating interest rates. The group monitors market conditions and may utilise approved interest rate derivatives to alter the existing balance between fixed and variable interest rate loans in response to changes in the interest rate environment. Hedging of interest rate risk for periods greater than one year is only allowed if income statement volatility can be minimised by means of hedge accounting, fair value accounting or other means. The group’s exposure to interest rate risk is set out below. Interest-bearing borrowings The following table provides information about Sappi’s current and non-current borrowings that are sensitive to changes in interest rates. The table presents cash flows by expected maturity dates and the estimated fair value of borrowings. The average fixed effective interest rates presented are based on weighted average contract rates applicable to the amount expected to mature in each respective year. Forward-looking average variable effective interest rates for the financial years ended September 2012 and thereafter are based on the yield curves for each respective currency as published by Bloomberg (effective 30 September 2012). The information is presented in US Dollar, which is the group’s reporting currency. 154
29.2 Financial instruments continued US$ equivalent in millions Expected maturity date 2013 2014 2015 2016 2017 2018+ Total carrying value 2012 fair value 2011 carrying value US Dollar Fixed rate debt (1) – – – – 391 509 900 1,057 503 541 Average interest rate (%) – – – – 7.94 8.19 8.08 10.45 Variable rate debt (2) – 138 – – – 366 504 554 472 476 Average interest rate (%) – 2.24 – – – 6.93 5.65 6.71 Euro Fixed rate debt 1 44 – – – 318 363 417 779 888 Average interest rate (%) 3.97 11.02 2.17 1.93 1.76 6.72 7.20 10.03 Variable rate debt (3) 83 238 23 23 126 – 493 493 511 511 Average interest rate (%) 2.35 2.49 5.50 5.50 5.63 – 3.55 3.24 Rand Fixed rate debt (4) 177 26 96 60 – – 359 381 473 507 Average interest rate (%) 9.79 11.02 8.04 9.63 – – 9.39 10.41 Total Fixed rate debt 178 70 96 60 391 827 1,622 1,855 1,755 1,936 Average interest rate (%) 9.73 11.02 8.02 9.59 7.93 7.63 8.17 10.25 Variable rate debt 83 376 23 23 126 366 997 1,047 983 987 Average interest rate (%) 2.35 2.40 5.50 5.50 5.63 6.93 4.61 4.90 Fixed and variable 261 446 119 83 517 1,193 2,619 2,902 2,738 2,923 Current portion 261 275 449 463 Long-term portion 2,358 2,627 2,289 2,460 Total interest-bearing borrowings (refer to note 20) 2,619 2,902 2,738 2,923 (1) US Dollar fixed rates of US$700 million debt have been swapped into Euro fixed rates. These swaps are subject to hedge accounting. (2) The US Dollar floating interest rates are based on the London Inter-bank Offered Rate (LIBOR). (3) The Euro floating interest rates are based on the European Inter-bank Offered Rate (EURIBOR). (4) ZAR floating rates of ZAR750 million debt have been swapped into ZAR fixed rates. These swaps are subject to hedge accounting. The fair value of non-current borrowings is estimated by Sappi based on rates from market quotations for non-current borrowings with fixed interest rates and on quotations provided by internationally recognised pricing services for notes, exchange debentures and revenue bonds. The above mentioned fair values include Sappi’s own credit risk. Please refer to the sensitivity analysis on interest rate risk in this note for additional information regarding Sappi’s rating. The range of interest rates in respect of all non-current borrowings comprising both fixed and floating rate obligations, is between 2.24% and 11.02% (depending on currency). At September 2012 after giving effect to interest rate swaps, 62% of Sappi’s borrowings were at fixed rates of interest, and 38% were at floating rates. Fixed rates of interest are based on contract rates. A detailed analysis of the group’s borrowings is presented in note 20. 2011 fair value sappi Integrated Report 2012 155
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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
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Defined benefit liabilities US$ mil
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Group debt profile We show the majo
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performance Section 6 Share price p
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Governance and compensation Corpora
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encourage Audit committee The audit
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Group IT steering committee The Gro
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During 2012 a board committee was e
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Governance element Principle Summar
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External assurance providers Report
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Principle Chapter 7 - Internal audi
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Stakeholder engagement report Sappi
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Compensation report The two large s
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strategic The primary components of
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Component Purpose Characteristics V
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competitive The policy on fatalitie
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empower Service contracts Mr Boëtt
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The dissolving wood pulp capacity c
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Focus on local communities Our busi
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Directors’ approval The directors
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Audit committee report for the year
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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 116 and 117: Notes to the group annual financial
Page 186 and 187: Annexure A - Investments at Septemb
Page 188 and 189: Glossary market pulp - pulp produce
Page 190 and 191: Glossary net operating assets - tot
Page 192 and 193: Notice to shareholders “Resolved
Page 194 and 195: Notice to shareholders “Resolved
Page 196 and 197: Notice to shareholders Annexure to
Page 198 and 199: Notice to shareholders The MOI prov
Page 200 and 201: Shareholder’s diary Annual genera
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Page 204 and 205: Notes to proxy The form of proxy mu
Page 206: Inspired to co-create We operate wi
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2012 Integrated report - Sappi

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