2008 Annual report - Sappi

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Notes to the group annual financial statements // continued for the year ended September 2008 2. Accounting policies (continued) Monetary and non-monetary assets and liabilities in foreign currencies are translated into the functional currency of the entities in the group at rates of exchange ruling at the reporting date. Non-monetary assets (plantations) denominated in foreign currencies that are stated at fair value are translated into the functional currency of the group’s individual operations at foreign exchange rates ruling at the reporting date. Exchange gains and losses on the translation and settlement of foreign currency monetary assets and liabilities during the period are recognised in the income statement in the period in which they arise. (ii) Consolidation of foreign operations The assets and liabilities, including goodwill of entities that have non-dollar functional currencies are translated at the closing rate, while the income and expenses are translated using the average exchange rate. The differences that arise on translation are reported directly in equity. These translation differences are recognised in profit or loss for the period on disposal of the foreign operation. The functional currency of the European business is Euro, the Southern African business is ZAR and the North American business is US Dollars. Other minor companies in the group may have different functional currencies depending on the business environment in which they operate. Goodwill and fair value adjustments arising on the acquisition of a non-dollar functional currency entity are treated as assets and liabilities of the entity and are translated at the closing rate. The group used the following exchange rates for financial reporting purposes: Rate at Sep 08 Sep 07 Sep 06 ZAR to one US$ 8.0751 6.8713 7.7738 GBP to one US$ 0.5421 0.4885 0.5340 EUR to one US$ 0.6843 0.7007 0.7891 Average annual rate Sep 08 Sep 07 Sep 06 ZAR to one US$ 7.4294 7.1741 6.6039 GBP to one US$ 0.5049 0.5072 0.5560 EUR to one US$ 0.6638 0.7499 0.8120 2.2.2 Group accounting (i) Subsidiary undertakings and specialpurpose entities The group financial statements include the assets, liabilities and results of the company and subsidiary undertakings (including special-purpose entities) controlled by the group. The results of subsidiary undertakings acquired or disposed of in the year are included in the consolidated income statement from the date of acquisition or up to the date of disposal or cessation of control. Intragroup balances and transactions, and profits and losses arising from intragroup transactions, are eliminated in the preparation of the group financial statements. Unrealised losses are not eliminated to the extent that they provide objective evidence of impairment. (ii) Associates and Joint Ventures The results and assets and liabilities of associates and joint ventures are incorporated in the group’s financial statements using the equity method of accounting. The share of the associates’ or joint venture’s retained income, which is the profit after tax, is determined from their latest financial statements. The carrying amount of such investments is reduced to recognise any impairment in the value of individual investments. When the group’s share of losses exceeds the carrying amount of the associate or joint venture, the carrying amount is reduced to nil, inclusive of any debt outstanding, and recognition of further losses is discontinued, except to the extent that the group has incurred or guaranteed obligations in respect of the associate or joint venture. Where an entity within the group transacts with an associate or joint venture of the group, unrealised profits and losses are eliminated to the extent of the group’s interest in the relevant associate or joint venture. Investments in associates and joint ventures held with the intention of disposing thereof within 12 months are accounted for as non-current assets held for sale. (iii) Goodwill The excess between the cost of the business combination and the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill in the balance sheet. Goodwill is subsequently held at cost less any accumulated impairment losses. Goodwill is not amortised but tested for impairment annually or more frequently where there is an indication of impairment. 86
sappi // Goodwill is tested for impairment based on an allocation to one or more cash-generating units (CGUs) in which the synergies from the business combinations are expected. Each CGU containing goodwill is tested annually for impairment. An impairment loss is recognised whenever the carrying amount of an asset or its CGU exceeds its recoverable amount. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to a CGU and then to reduce the carrying amount of the other assets in the CGU on a pro-rata basis. Impairment losses relating to goodwill are not reversed. Critical areas of judgement and the use of estimates involving goodwill are included in section 2.3 of the accounting policies. 2.2.3 Environmental expenditures and liabilities Environmental expenditure that pertains to current operations or relates to future revenues are expensed or capitalised, consistent with the company’s capitalisation policy. Expenditures that result from the remediation of an existing condition caused by past operations, and do not contribute to current or future revenues, are recognised in profit and loss for the period. Environmental accruals are recorded based on current inter - pretation of environmental laws and regulations. Amounts accrued do not include third-party recoveries. All available information is considered including the results of remedial investigation/feasibility studies (RI/FS). In evaluating any disposal site environmental exposure, an assessment is made of the company’s potential share of the remediation costs by reference to the known or estimated volume of the company’s waste that was sent to the site and the range of costs to treat similar waste at other sites if a RI/FS is not available. 2.2.4 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 transaction date. (ii) Initial measurement All financial instruments are initially recognised at fair value plus 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 and loss’. Financial instruments carried at fair value through profit and loss are measured at fair value on transaction date. All transaction costs are immediately written off in the income statement. (iii) Subsequent measurement Subsequent to initial measurement, financial instruments are either measured at fair value or amortised cost, depending on their classification: • 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. The group has not designated any financial instruments as at fair value through profit or loss. • Non-trading financial liabilities All financial liabilities, other than those at fair value through profit or loss, are classified as non-trading financial liabilities and are measured at amortised cost. • Held-to-maturity financial assets Held-to-maturity financial assets are measured at amortised cost, with interest income recognised in profit and loss for the period. The group does not presently have any held to maturity financial assets. • Loans and receivables Loans and receivables are carried at amortised cost, with interest revenue recognised in profit and loss for the period. The majority of the group’s receivables are included in the loans and receivables category. • 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 removed from equity to the income statement on debt instruments when they arise. (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 unrealised gains and losses reported in profit or loss. // 2008 Annual report 87
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annual report 2008
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sappi Our report in overview In pro
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sappi Our performance The group’s
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sappi Target Target Net debt to tot
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sappi Our score on the DJSI World D
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sappi People continued Our commitme
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sappi Our business structure Johann
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sappi Pulp Paper pulp is the main r
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sappi Ideas that matter Print remai
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sappi Objectives for 2009 Meaningf
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sappi Deenadayalen (Len) Konar // (
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sappi Divisional and corporate mana
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sappi We are of the opinion that su
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sappi input cost reductions across
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sappi Q // Will the integration of
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sappi Sappi Fine Paper Mills/ Capac
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sappi deliver excellent service and
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sappi Transaction funding overview
Page 37 and 38: sappi Sappi Forest Products Mills/
Page 39: sappi Demand and prices in the inte
Page 42 and 43: Risk management Our top risks These
Page 44 and 45: Risk management // continued Risk m
Page 46 and 47: Chief financial officer’s report
Page 60 and 61: Five year review Not restated for I
Page 62 and 63: Share statistics at September 2008
Page 64 and 65: Corporate governance We are committ
Page 66 and 67: Corporate governance // continued E
Page 68 and 69: Corporate governance // continued A
Page 70 and 71: Corporate governance // continued r
Page 72 and 73: Compensation report Compensation co
Page 74 and 75: Annual financial statements for the
Page 76 and 77: Directors’ approval The directors
Page 78 and 79: Directors’ report // continued fo
Page 80 and 81: Group income statement for the year
Page 82 and 83: Group cash flow statement for the y
Page 84 and 85: Group income statement in Rands con
Page 86 and 87: Group cash flow statement in Rands
Page 90 and 91: Notes to the group annual financial
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Notes to the group annual financial
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Condensed Sappi Limited company inc
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Condensed Sappi Limited company cas
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Notes to the condensed Sappi Limite
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Glossary General definitions bleach
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Glossary // continued Non-GAAP fina
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Notice to shareholders // continued
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Notice to shareholders // continued
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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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Notes 1. To be effective, this form
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Notes 1. To be effective, this form
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2008 Annual report - Sappi

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