2012 Integrated report - Sappi

29.2 Financial instruments continued
Currency risk
Sappi is exposed to economic, transaction and translation currency risks. The objective of the group in managing currency risk is to
ensure that foreign exchange exposures are identified as early as possible and actively managed.
• Economic exposure consists of planned net foreign currency trade in goods and services not yet manifested in the form of actual
invoices and orders;
• Transaction exposure arises due to transactions entered into, which result in a flow of cash in foreign currency such as payments under
foreign currency long- and short-term loan liabilities, purchases and sales of goods and services, capital expenditure and dividends.
Where possible, commercial transactions are only entered in currencies that are readily convertible by means of formal external forward
exchange contracts; and
• Translation exposure arises when translating the group’s assets, liabilities, income and expenditure into the group’s presentation
currency. Borrowings are taken out in a range of currencies which are based on the group’s preferred ratios of gearing and interest
cover based on a judgement of the best financial structure for the group. This gives rise to translation exposure on consolidation.
In managing currency risk, the group first makes use of internal hedging techniques with external hedging being applied thereafter.
External hedging techniques consist primarily of foreign currency forward exchange contracts. Foreign currency capital expenditure on
projects must be covered as soon as practical (subject to regulatory approval).
Currency risk analysis
In the preparation of the currency risk analysis, the derivative instrument has been allocated to the currency which the underlying
instrument has been hedging.
US$ million
Total
Total in
scope (1) USD EUR ZAR GBP Other
September 2012
Financial assets
Other non-current assets 80 22 – 10 9 – 3
Non-current derivative financial assets (2) 22 22 22 – – – –
Trade and other receivables 807 723 311 301 36 41 34
Current derivative financial assets (2) – – – – – – –
Cash and cash equivalents 645 645 194 300 143 – 8
1,412 527 611 188 41 45
Financial liabilities
Non-current interest-bearing borrowings 2,358 2,358 1,403 772 183 – –
Non-current financial liabilities 46 46 (981) 1,024 3 – –
Other non-current liabilities 605 1 1 – – – –
Current interest-bearing borrowings 261 261 – 83 178 – –
Overdraft 5 5 5 – – – –
Current derivative financial liabilities (2) 1 1 – (42) 64 1 (22)
Trade and other payables 1,005 784 167 364 240 – 13
3,456 595 2,201 668 1 (9)
Foreign exchange gap (2,044) (68) 1,590 (480) 40 54
September 2011
Financial assets
Other non-current assets 104 25 – 12 9 – 4
Non-current derivative financial assets (2) 41 41 414 (411) 38 – –
Trade and other receivables 831 735 284 351 21 39 40
Current derivative financial assets (2) 3 3 (2) (52) 68 – (11)
Cash and cash equivalents 639 639 130 225 278 1 5
1,443 826 125 414 40 38
Financial liabilities
Non-current interest-bearing borrowings 2,289 2,289 975 1,042 272 – –
Other non-current liabilities 553 2 2 – – – –
Current interest-bearing borrowings 449 449 – 249 200 – –
Overdraft 1 1 – – – – 1
Current derivative financial liabilities (2) 10 10 9 – – 1 –
Trade and other payables 1,065 840 145 475 208 – 12
3,591 1,131 1,766 680 1 13
Foreign exchange gap (2,148) (305) (1,641) (266) 39 25
(1) This refers to items that are within the scope of IAS 39.
(2) The amount disclosed with respect to derivative instruments, reflects the currency which the derivative instrument is covering.
The above table does not indicate the group’s foreign exchange exposure, it only shows the financial instruments assets and liabilities
classified per underlying currency.
sappi Integrated Report 2012 159