SAPPI LIMITED

SAPPI
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued)
for the year ended September 2010
29. FINANCIAL INSTRUMENTS (Continued)
commercial transactions are only entered into in currencies that are readily convertible by means
of formal external forward exchange contracts; and
– Translation exposure arises when translating the group’s assets, liabilities, income and
expenditure into the group’s presentation currency. Borrowings are taken out in a range of
currencies which are based on the group’s preferred ratios of gearing and interest cover based on
a judgement of the best financial structure for the group. On consolidation this gives rise to
translation exposure which is not hedged.
In managing currency risk, the group first makes use of internal hedging techniques with external
hedging being applied thereafter. External hedging techniques consist primarily of foreign currency
forward exchange contracts and currency options. Foreign currency capital expenditure on projects
must be covered as soon as practical (subject to regulatory approval).
Currency risk analysis
In the preparation of the currency risk analysis the derivative instrument has been allocated to the
currency which the underlying instrument has been hedging.
Total
Total in
Scope* USD EUR ZAR GBP Other
(US$ million)
2010
Financial assets
Other non-current assets .............. 105 38 2 13 22 — 1
Non-current derivative financial assets** . . . 19 19 422 (403) — — —
Trade and other receivables ............ 889 777 296 366 24 56 35
Current derivative financial assets** ...... 15 15 15 — — — —
Cash and cash equivalents ............. 792 792 337 320 128 1 6
Financial liabilities
1,641 1,072 296 174 57 42
Non-current interest-bearing borrowings . . . 2,317 2,317 1,015 830 472 — —
Current interest-bearing borrowings ....... 691 691 136 490 65 — —
Overdraft .......................... 5 5 4 1 — — —
Current derivative financial liabilities** ..... 3 3 (2) (1) 6 — —
Trade and other payables .............. 1,270 991 221 436 286 18 30
4,007 1,374 1,756 829 18 30
Foreign exchange gap ............... (2,366) (302) (1,460) (655) 39 12
* This refers to items that are within the scope of IAS 39.
** The amount disclosed with respect to derivative instruments, reflects the currency which the derivative instrument is
covering.
F-92