Our performance in 2009 - Sappi

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