Our performance in 2009 - Sappi

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30. Financial instruments continued a) Market risk Interest rate risk 2009 annual report Interest rate risk is the risk that an investment’s value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve or in 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 table below 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 estimated fair value of the borrowings. The average fixed effective interest rates presented below 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 2009 and thereafter are based on the yield curves for each respective currency as published by Reuters on 27 September 2009. The information is presented in US$, which is the group’s reporting currency. A detailed analysis of the group’s borrowings is presented in note 20. (US$ equivalent in millions) Expected maturity date 2010 2011 2012 2013 2014 2015+ Total Carrying value 2009 Fair value 2008 Carrying value 167 2008 Fair value US Dollar Fixed rate 59 2 522 2 29 600 1,214 1,281 59 58 Average interest rate (%) 4.84 – 6.47 – 5.64 10.04 8.12 4.31 Variable rate (1) 128 – – – – – 128 128 979 885 Average interest rate (%) 2.08 – – – – – 2.08 6.61 Euro Fixed rate 13 186 137 137 572 3 1,048 1,290 603 582 Average interest rate (%) 5.86 9.29 9.26 9.27 12.72 1.87 11.09 4.62 Variable rate (2) 368 11 12 9 – – 400 399 488 488 Average interest rate (%) 2.68 5.35 5.35 5.35 – – 2.89 4.43 Rand Fixed rate 32 62 219 190 26 7 536 524 366 350 Average interest rate (%) 9.31 9.21 11.11 9.74 10.99 11.67 10.30 9.88 Variable rate (3) 1 – – – – – 1 1 7 7 Average interest rate (%) 10.55 – – – – – 10.55 10.67 financials
168 Notes to the group annual financial statements continued 30. Financial instruments continued (US$ equivalent in millions) Swiss Franc Expected maturity date 2010 2011 2012 2013 2014 2015+ Total carrying value 2009 fair value Fixed rate – – – – – – – Average interest rate (%) – – – – – – Variable rate – – – – – – – – 151 151 2008 carry- Average interest rate (%) – – – – – – – 3.26 Total Fixed rate 104 250 878 329 627 610 2,798 3,095 1,028 990 Average interest rate (%) 6.34 9.21 8.06 9.49 12.32 10.02 9.65 6.47 Variable rate 497 11 12 9 – – 529 528 1,625 1,531 Average interest rate (%) 2.55 5.35 5.35 5.35 – – 2.72 5.66 Fixed and variable 601 261 890 338 627 610 3,327 3,623 2,653 2,521 Current portion 601 602 821 821 Long-term portion 2,726 3,021 1,832 1,700 Total interest-bearing borrowings (refer to note 20) 3,327 3,623 2,653 2,521 The values reported under US Dollar fixed rates (2011 and 2013) represent fair value adjustments to hedged items which are non-interest-bearing, which is why there are no average rates stated for these amounts. The fair value of non-current borrowings is estimated by Sappi based on the 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 regarding interest rate risk for additional information regarding Sappi’s rating. (1) The US Dollar floating interest rates are based on the London Interbank Offered Rate (LIBOR). (2) The Euro floating interest rates are based on the European Interbank Offered Rate (EURIBOR). (3) The Rand floating interest rates are predominately based on the Johannesburg Interbank Agreed Rate (JIBAR). The range of interest rates in respect of all non-current borrowings comprising both fixed and floating rate obligations, is between 5.35% and 12.32% (depending on currency). At September 2009, 84% of Sappi’s borrowings were at fixed rates of interest, and 16% were at floating rates. Fixed rates of interest are based on contract rates. Sappi’s Southern African operations have in the past been particularly vulnerable to adverse changes in short-term domestic interest rates, as a result of the volatility in interest rates in South Africa. During 2009, domestic interest rates have decreased from 12.05% to 7.02% for the three-month JIBAR. ing value 2008 fair value
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SAPPI GROUP (Sappi Limited) ANNUAL
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• the impact of future investment
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Our reporting strategy As a leading
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1 2 North America 2 4 1 San Francis
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4 Our performance in 2009 Financial
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6 Our performance against financial
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8 Our performance against sustainab
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10 Our performance against sustaina
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12 Our performance against sustaina
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14 Our sustainable business cycle T
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16 Our products 1 2 3 Coated paper
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Our objectives for 2010 Improve pro
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20 Letter to shareholders continued
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22 Letter to shareholders continued
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24 Interview with Ralph Boëttger,
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26 Our leadership Independent non-e
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28 Our leadership continued Indepen
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30 Review of operations Sappi Fine
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32 Review of operations | Sappi Fin
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34 Review of operations | Sappi Fin
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36 Review of operations Sappi Fores
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38 Review of operations | Sappi For
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40 Value added statement for the ye
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42 Chief financial officer’s repo
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62 Five-year review for the year en
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64 Share statistics at September 20
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Risk management Global economic con
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Risk philosophy The Sappi Limited b
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Independence Accountability Given t
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Fairness Social responsibility Lege
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2009 annual report 75 Induction and
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2009 annual report 77 employment of
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2009 annual report 79 board to esta
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As part of continuous improvement t
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Compensation report In 2009, the co
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Balance between fixed and variable
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Executive directors (1) Details of
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2009 annual report 89 R J Boëttger
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2009 annual report 91 Board Committ
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Auditor’s report Independent audi
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Audit committee report The legal re
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Directors’ report for the year en
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Litigation We become involved from
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Group balance sheet at September 20
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Group statement of changes in equit
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Group balance sheet in Rands conven
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Notes to the group annual financial
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• Financial assets and financial
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2.2.10 Non-current assets held for
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(iii) Dividends Dividends are recog
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uyer and seller) multiple used in o
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Page 206 and 207: not be comparable with similarly ti
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Page 212 and 213: Proxy form for annual general meeti
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