Our performance in 2009 - Sappi

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30. Financial instruments continued Interest rate derivatives 2009 annual report Sappi uses interest rate options, caps, swaps (IRS) and interest rate and currency swaps (IRCS) as a means of managing interest rate risk associated with outstanding debt entered into in the normal course of business. Sappi does not use these instruments for speculative purposes. Interest rate derivative financial instruments are measured at fair value at each reporting date with changes in fair value recorded in profit or loss for the period or in equity, depending on certain hedge designations carried out by the group in a documented hedging strategy. Until June 2009, the group had in total seven US$ interest rate swaps, converting fixed rates to floating rates for a total amount of US$857 million. In June 2009, these swaps were sold for a total positive value of US$55 million and the underlying debt now carries the original fixed interest rates. The total difference between Sappi’s valuation on the date of sale and the effective sales price of the swaps amounted to US$20 million. This difference predominately related to the payment of certain selling costs (breakage fees of US$13 million, a liquidity reduction and some smaller trading rate differences). In August 2009, Sappi entered into seven new fixed for fixed interest and currency swaps with different banks, which have been designated as cash flow hedges of future cash flows linked to fixed rate debt denominated in foreign currency. Each swap corresponds to the hedged portion of the underlying US$300 million senior secured notes due 2014. The swaps convert all future US$ cash flows into Euro. The effective gains and losses from changes in fair value of these derivatives are recorded in other comprehensive income. These accumulated gains and losses will be recycled to profit or loss in the same line as the hedged item at the moment the hedged item affects the income statement (interest expense and foreign currency revaluation). In order to measure hedge effectiveness, a hypothetical derivative with identical critical terms as the hedged item, has been built as a perfect hedge. The changes in fair value of the actual derivatives are compared with the changes in fair value of the hypothetical derivative. As at September 2009, the effectiveness tests for the above mentioned hedges showed a 100% hedge effectiveness. The swaps showed a total negative fair value of US$24 million, the negative fair value of the currency leg of the swap of US$10 million was booked to profit or loss to offset the corresponding foreign currency unrealised gain of the revaluation of the underlying hedged item, whereas the remaining negative fair value of the interest leg of the swap of US$14 million was deferred in equity. The existing interest rate and currency swap contract converting future US$ cash flows into GBP and fixed US$ interest rates into fixed GBP interest rates (2008: US$233 miilion with a fair value of US$57 million) has an outstanding amount of US$117 million at September 2009 with a positive fair value of US$10 million. This derivative is not designated as a hedge in a documented hedge strategy. The changes in fair value of this instrument are booked in profit or loss for the period. 169 financials
170 Notes to the group annual financial statements continued 30. Financial instruments continued See details of the swaps in the table below: Instrument Interest rate Maturity date IRS: IRCS: Nominal value US$ million Sales value Fair value* favourable (unfavourable) US$ million 6.75% to variable (LIBOR) June 2012 250 15 – 6.75% to variable (LIBOR) June 2012 200 12 – 6.75% to variable (LIBOR) June 2012 50 3 – 7.50% to variable (LIBOR) June 2012 250 15 – 5.90% to variable (LIBOR) November 2013 28 3 – 7.38% to variable (LIBOR) July 2014 44 4 – 6.65% to variable (LIBOR) October 2014 35 3 – US Dollar 6.30% into Pound Sterling 6.66% December 2009 117 – 10 US Dollar 12% into EUR 12.2375% August 2014 90 – (7) US Dollar 12% into EUR 12.3175% August 2014 50 – (4) US Dollar 12% into EUR 12.1375% August 2014 45 – (3) US Dollar 12% into EUR 12.3375% August 2014 40 – (4) US Dollar 12% into EUR 11.8375% August 2014 25 – (2) US Dollar 12% into EUR 12.0875% August 2014 25 – (2) US Dollar 12% into EUR 12.0875% August 2014 25 – (2) Total 55 (14) * This refers to the carrying value. The fair value of the IRCS is the estimated amount that Sappi would pay or receive to terminate the agreement at the balance sheet date, taking into account current interest rates and the current creditworthiness of the counterparties considering the specific relationships of the Sappi group with those counterparties. However, this amount excludes the possible breakage and other fees which would be incurred in case of a sale before the maturity date.
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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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2.4 Adoption of accounting standard
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Page 198 and 199: Company auditor’s report for the
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Page 202 and 203: 2009 annual report Notes to the con
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Our performance in 2009 - Sappi

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