Our performance in 2009 - Sappi

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2009 annual report 30. Financial instruments continued Sensitivity analysis of interest rate risk – in case of a credit rating downgrade of SAPPI The following table shows the sensitivity of securitisation debt to changes in the group’s own credit rating. The securitisation agreement stipulates that if the company were downgraded below our current grading, an additional margin would be agreed between the bank and the company. In this respect we assumed a hypothetical increase of 1.5%. Please note that the change in value of the securitisation debt is included in the sensitivity analysis of floating rate debt in the table below: Securitisation in Europe and Hong Kong Notional 173 Impact on income statement of downgrade below BB credit rating Europe 271,863 4,078 Hong Kong 66,650 1,000 Sub-total 338,513 5,078 Impact calculated on total portfolio amounts to: 1.50% The pricing of the securitisation contracts in Europe and Hong Kong would be impacted as set out in the table above if the company were to be downgraded below the current rating. Based on the existing agreement, the US securitisation arrangement would not be impacted by a possible downgrade, as there are sufficient other credit enhancements to mitigate the co-mingling risk. All other external debt would not be impacted by a possible downgrading of Sappi. The table below shows the sensitivity of certain fixed rate debt to changes in the group’s own credit rating. The agreements of these specific external loans stipulate that if the company were downgraded below our current grading, an additional margin would be added to the contractual funding rate. External loan agreements sensitive to the group’s own credit rating Notional Impact on income statement of downgrade below BB ‘secured’ credit rating Commitment fee on unused revolving credit facility 209,000 690 Interest on utilised bank syndicated loan 400,000 3,000 Sub-total 609,000 3,690 Impact calculated on total portfolio amounts to: 0.61% Sensitivity analysis of interest rate risk of floating rate debt Total debt Total Fixed rate Floating rate Impact on income statement of 50bps interest 3,327.4 2,798.8 528.6 2.6 Ratio fixed/floating to total debt 84% 16% The floating rate debt represents 16% of total debt. If interest rates were to increase (decrease) by 50bps the finance cost on floating rate debt would increase (decrease) by US$2.6 million. financials
174 Notes to the group annual financial statements continued 30. 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 purchases and dividends. Where possible, commercial transactions are only entered into 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. On consolidation this gives rise to translation exposure which is not hedged. 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 and currency options. 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. Total Total in scope USD EUR ZAR GBP Other (converted into USD) 2009 Financial assets Other non-current assets Non-current derivative 101 43 2 11 29 – 1 financial assets* Trade and other 10 10 (120) – – 130 – receivables Current derivative 858 734 277 339 22 45 51 financial assets* Cash and cash 10 10 10 – – – – equivalents 770 770 299 383 84 – 4 1,567 468 733 135 175 56 Financial liabilities Non-current interestbearing borrowings Non-current derivative 2,726 2,726 1,154 1,068 504 – – financial liabilities* Current interest-bearing 24 24 (429) 452 1 – – borrowings 601 601 187 380 34 – – Overdraft Current derivative 19 19 3 5 – 3 8 financial liabilities* 14 14 2 – – 11 1 Trade and other payables 1,116 860 182 402 216 19 41 4,244 1,099 2,307 755 33 50 Foreign exchange gap (2,677) (631) (1,574) (620) 142 6
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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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Corporate and eliminations Group 20
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2009 annual report US$ million 2009
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Page 212 and 213: Proxy form for annual general meeti
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Our performance in 2009 - Sappi

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