Our performance in 2009 - Sappi

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30. Financial instruments continued Commodity risk Commodity risk arises mainly from price volatility and threats to security of supply. 2009 annual report A combination of contract and spot deals are used to manage price volatility and contain costs. Contracts are limited to the group’s own use requirements. The group aims to improve its understanding of the direction, magnitude and duration of future commodity price changes and to develop commodity specific expertise. During 2009, we have not contracted any derivatives with respect to commodities. b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the group. The group faces credit risk in relation to trade receivables, cash deposits and financial investments. Credit risk relating to trade debtor management is the responsibility of regional management and is co-ordinated on a group basis. The group’s objective in relation to credit risk is to limit the exposure to credit risk through specific group-wide policies and procedures. Credit control procedures are designed to ensure the effective implementation of best trade receivable practices, the comprehensive maintenance of all related records, and effective management of credit risk for the group. The group assesses the credit worthiness of potential and existing customers in line with the credit policies and procedures. Appropriate collateral is obtained to minimise risk. Exposures are monitored on an ongoing basis utilising various reporting tools which highlight potential risks. In the event of deterioration of credit risk, the appropriate measures are taken by the regional credit management. All known risks are required to be fully disclosed, accounted for, and provided for as bad debts in accordance with the applicable accounting standards. Quantitative disclosures on credit risk are included in note 16 of the annual financial statements. A large percentage of our trade receivables are credit insured. Hedge accounting 1. Fair value hedges Until June 2009, the group had the following fair value hedges which qualified for hedge accounting. Bonds at fixed interest rates for a total notional amount of US$856 million were hedged by seven external interest rate swaps (IRS). These interest rate swaps converted the USD fixed interest rates into floating six-month LIBOR set in arrears. The hedged risk was designated to be the interest rate risk arising from fluctuations in the US LIBOR swap curve. The effect of this transaction was to convert fixed rate debt into floating rate debt. In June 2009, these swaps were sold for a total positive value of US$55 million (on a clean basis, excluding interest accruals) and the underlying debt now carries the original fixed interest rates. A net loss of US$18 million was booked to the income statement. 177 financials
178 Notes to the group annual financial statements continued 30. Financial instruments continued 1. Fair value hedges continued The final life-to-date fair value adjustment of the underlying bonds on the date of the sale of the swaps was booked in June 2009 will be amortised over the life of the initial hedge designation period and amounted to US$46.2 million. The future profit and loss account will be impacted as follows: Accounting year in millions Fourth quarter 2009 0.6 2010 13.2 2011 13.9 2012 14.7 2013 1.8 2014 1.7 2015 0.3 Total 46.2 As at September 2009, the group does not have any outstanding fair value hedges. The following is an analysis of the impact on pre-tax profit and loss for the period based on the consolidated accounts translated at average rates: (unfavourable) favourable Fair value hedges US$ million at average US$ 2009 2008 rate US$ million at average Net P/L impact of sale of interest rate swaps (18) – Realised result on sold hedging instruments 52 – Reversal of life to date fair value adjustment on hedging instruments (59) – Reversal unrealised interest accrual on IRS (11) – Amortisation – (5) Residual ineffectiveness (9) – – gain on hedging instruments 41 30 – loss on hedged item (50) (30) Total (27) (5) rate
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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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6. Taxation (benefit) charge contin
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7. Earnings per share and headline
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Page 202 and 203: 2009 annual report Notes to the con
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Page 206 and 207: not be comparable with similarly ti
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Page 210 and 211: Notes Confirmation of appointment o
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Our performance in 2009 - Sappi

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