Our performance in 2009 - Sappi

60 Chief financial officer’s report continued
pricing and demand in the light of an expected softening economic growth. One of the key
requirements of this rating was the successful refinancing of material debt maturities in 2010,
well ahead of time. This refinancing took place in August 2009 and S&P subsequently confirmed
the rating.
In June 2009, Moody’s revised its rating from Ba2 to Ba3, with a stable outlook. The main reasons
for this revision were the difficult market conditions in the European paper industry, and the slower
than expected improvement in the key rating metrics. In September 2009 this rating and outlook
were confirmed after the successful refinancing of material 2010 debt maturities.
In November 2009 Fitch revised their Sappi Manufacturing local South African rating from
A+/F1/Negative to A/F1/Negative, mainly due to the continuing difficult market and trading
conditions, and the resulting negative impact on the operating margins of Sappi Manufacturing
when compared to the requirements for the previous rating.
A security rating is not a recommendation to buy, sell or hold securities and it may be revised or
withdrawn at any time by the rating agencies without prior notice to us. Each rating should be
evaluated independently of any other rating.
Gearing
Net debt to capitalisation for each of the past two years is set out below:
US$ million 2009 2008
Net debt 2,576 2,405
Net debt and equity 4,370 4,010
Net debt to capitalisation ratio 59% 60%
Given our relatively high level of fixed costs, we are highly ‘operationally’ geared – changes in
volume, sales prices and variable costs have a material effect on our operating results. After the
re-financing of much of our debt at our current credit rating, finance costs have increased
substantially – previously most of our debt had been raised when the group had a much better
credit rating. The higher finance costs we now face have increased our ‘financial’ gearing and we
plan to address this by aggressively reducing our debt levels. We have made a good start at this
by generating net cash of US$289 million in fiscal 2009 – despite the difficult operating conditions.
Significant accounting policies and judgements
The group has defined accounting policies as significant if they have the potential to materially
affect the group’s financial performance, position or cash flow.
The group’s significant accounting policies are those that relate to:
Asset impairments;
Business combinations and goodwill impairments;
Property, plant and equipment;
Taxation;
Hedge accounting;
Plantations;
Post-employment benefit funds; and
Provisions.
The effect of these accounting policies and judgements is included in note 2 to the annual financial
statements.
Shareholding and equity
The group’s primary listing is on the JSE Limited, South Africa’s stock exchange, and has a
secondary listing on the New York Stock Exchange. Sappi delisted from the London Stock
Exchange in November 2009. Information regarding shares, share price, the value of shares
traded, main shareholders and other related information is contained on pages 64 and 65 of this
annual report.