Our performance in 2009 - Sappi

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30. Financial instruments continued 2. Cash flow hedges 2009 annual report In August 2009, Sappi entered into seven 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 equity under 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 profit or loss (interest expense and foreign currency revaluation). Sappi uses the REVALHedgeRx module (REVAL), a web-based application providing treasury and risk management solutions supplied by Reval.Com, Inc., a financial technology company based in New York to assess the fair value of the IRCS and to measure the effectiveness of the cash flow hedge relationship. At inception and at the beginning of each quarterly reporting period, the future effectiveness of the hedge relationship is assessed using the critical terms match. In order to measure retrospective hedge effectiveness a hypothetical derivative with identical critical terms as the hedged item, has been built as a perfect hedge. The periodic Dollar-offset retrospective hedge effectiveness test is based on the comparison of the actual past periodical changes in fair value between the hedging derivative and the hypothetical derivative. The ratio of the periodic change in fair value of the hedging instrument since inception or since the last quarterly measurement divided by the periodic change in fair value of the hypothetical derivative since inception or since the last quarterly measurement for the hedge falls with the range of 80% to 125%. If, however, both changes in fair value are less than 1% of the notional amount of the IRCS, these changes in fair value are considered to be both immaterial and the hedge effectiveness test is met. The counterparties of the hedging instruments are tested for creditworthiness on a quarterly basis. If the credit risk of a given counterparty would fall under the minimum required rating, any positive fair value of the hedging instrument would be adjusted to cater for the additional credit risk. This would not affect the hypothetical derivative. c) Liquidity risk Liquidity risk is the risk that the group will be unable to meet its current and future financial obligations as they fall due. The group’s objective is to manage its liquidity risk by: – managing its bank balances, cash concentration methods and cash flows; – managing its working capital and capital expenditure; – ensuring the availability of a minimum amount of short-term borrowing facilities at all times, to meet any unexpected funding requirements; and – ensuring appropriate long-term funding is in place to support the group’s long-term strategy. Details of the group’s borrowings, including the maturity profile thereof, as well as the group’s committed and uncommitted facilities are set out in note 20. The group is in compliance with all material financial covenants applicable to its borrowing facilities. 179 financials
180 Notes to the group annual financial statements continued 30. Financial instruments continued Liquidity risk management – September 2009 Financial assets Total financial assets and liabilities Fair value of financial instruments 0 – 6 months 6 – 12 months Undiscounted cash flows 1 – 2 years 2 – 5 years > 5 years Total Other non-current assets 43 43 13 1 8 7 15 44 Non-current derivative financial assets 10 10 10 – – – – 10 Receive leg 130 – – – – 130 Pay leg (120) – – – – (120) Trade and other receivables 734 734 734 – – – – 734 Current derivative financial assets 10 10 11 – – – – 11 Receive leg 262 – – – – 262 Pay leg (251) – – – – (251) Cash and cash equivalents 770 770 770 – – – – 770 Financial liabilities 1,538 1 8 7 15 1,569 Interest-bearing borrowings 2,726 3,021 97 100 494 2,716 123 3,530 Non-current derivative financial liabilities 24 24 1 1 2 17 1 22 Pay leg 19 19 38 425 1 502 Receive leg (18) (18) (36) (408) – (480) Interest-bearing borrowings 601 602 549 106 – – – 655 Overdraft 19 19 19 – – – – 19 Current derivative financial liabilities 14 14 14 – – – – 14 Pay leg 620 – – – – 620 Receive leg (606) – – – – (606) Trade and other payables 860 860 818 – – – – 818 1,498 207 496 2,733 124 5,058 Liquidity gap 40 (206) (488) (2,726) (109) (3,489)
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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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2009 annual report 9. Property, pla
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Page 172 and 173: 30. Financial instruments continued
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Our performance in 2009 - Sappi

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