SAPPI LIMITED

The gains or losses, which are recognized directly in shareholders’ equity, are transferred to profit or
loss in the same period in which the hedged transaction affects profit or loss.
If the forecasted transaction results in the recognition on a non-financial asset or non-financial
liability, the associated cumulative gain or loss is transferred from equity to the underlying asset or
liability on the transaction date.
Hedge of a net investment in a foreign operation
The effective portion of the gain or loss on the hedging instrument is recognized in other
comprehensive income and is only reclassified to profit or loss on the disposal or partial disposal of the
foreign operation.
Hedge accounting is discontinued on a prospective basis when the hedge no longer meets the
hedge accounting criteria (including when it becomes ineffective), when the hedge instrument is sold,
terminated or exercised when, for cash flow hedges, the designation is revoked and the forecast
transaction is no longer expected to occur. Where a forecasted transaction is no longer expected to
occur, the cumulative gain or loss deferred in equity is transferred to profit or loss.
The financial instruments that are used in hedging transactions are assessed both at inception and
quarterly thereafter to ensure they are effective in offsetting changes in either the fair value or cash flows
of the related underlying exposures. Hedge ineffectiveness is recognized immediately in profit or loss.
Refer to note 29 to the Group Annual Financial Statements for details of the fair value hedging
relationships as well as the impact of the hedge on the pre-tax profit or loss for the period.
Plantations. Plantations are stated at fair value less estimated cost to sell at the harvesting stage. In
arriving at plantation fair values, the key assumptions are estimated prices less cost of delivery, discount
rates, and volume and growth estimations. All changes in fair value are recognized in the period in which
they arise.
The impact of changes in estimate prices, discount rates and, volume and growth assumptions may
have on the calculated fair value and other key financial information on plantations are disclosed in
note 10 to the Group Annual Financial Statements.
Estimated prices less cost of delivery
In periods prior to the third quarter of fiscal 2010 the Group used unadjusted current market prices
to estimate the fair value of timber.
In the third quarter of fiscal 2010 the Group revised this methodology for all immature timber and
mature timber that is to be felled in more than 12 months from the reporting period to consider a 12
quarter rolling historical average price. This is considered a reasonable period of time taking into
consideration the length of the growth cycle of the plantations. The new methodology also takes into
consideration expected future price trends and recent market transactions involving comparable
plantations.
The Group considers the new methodology to be preferable. Current market prices for timber that is
expected to be felled in more than 12 months from the end of the reporting period are highly volatile.
Therefore, the Group considers the use of a rolling historical average price coupled with consideration of
expected future price trends and recent market transactions involving comparable plantations to be a
preferable methodology.
Mature timber that is expected be felled within 12 months from the end of the reporting period
continues to be valued using unadjusted current market prices. Such timber is expected to be used in
the short term and consequently, current market prices are considered an appropriate reflection of fair
value.
105