SAPPI LIMITED

SAPPI
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued)
for the year ended September 2010
29. FINANCIAL INSTRUMENTS (Continued)
US$422.3 million for the US$ leg) of which a positive amount of US$15.4 million was due to the exchange
rate movement between inception and the reporting date. This amount is compensated by the opposite
movement of the underlying US$ external debt and therefore has no impact on profit or loss. The portion
of the fair value due to interest rate movements amounts to a positive value of US$3.3 million and has
been recorded in other comprehensive income. This value will reduce to zero at maturity.
For the period outstanding, the table above shows the impact that a shift of 50 bps on the LIBOR/
EURIBOR curve would have on the fair value. A decrease in the US$ LIBOR adds to the fair value, as
does an increase of the EURIBOR. When the EUR and the US$ interest rates move the same way, the
one roughly compensates the other. If the rates would drift in opposite directions this would have an
impact of approximately US$13.6 million for a shift of 50 bps.
The largest shift experienced over the last twelve-month period was a negative net shift of 0.84%,
due to a decrease in US$ rates of 0.81% and a decrease in the EUR rates of 1.65%. Applied to the fair
value as at the end of fiscal 2010, this would have resulted in a negative change in fair value of
US$11.1 million.
Base Scenario
Scenario Name Value Value Change % Change
�81 bps USD-LIBOR-3M .......................... 422.3 433.8 11.5 2.7
�165 bps EURIBOR-6M ........................... (403.6) (426.2) (22.6) (5.6)
Total ......................................... (11.1)
The above analysis measures the impact on profit or loss that a change in fair value of the interest
rate derivatives would have if the specified scenarios were to occur.
Sensitivity analysis: interest rate risk—in case of a credit rating downgrade of SAPPI
The following table shows the sensitivity of securitization debt to changes in the group’s own credit
rating. The securitization agreement stipulates that if the company were downgraded below our current
grading, an additional margin would be agreed between the bank and the company. In this respect we
assumed a hypothetical increase of 1.5%.
Please note that the change in value of the securitization debt is included in the sensitivity analysis of
floating rate debt in the table below:
Securitization in Europe and Hong Kong Notional
Impact on income
statement of a one notch
downgrade below
BB� credit rating
(US$ million)
Europe .............................. 311 5
Hong Kong ........................... 75 1
Sub-total ............................. 386 6
Impact calculated on total portfolio amounts to . . 1.55%
F-90