SAPPI LIMITED

Net Finance Costs
Annual finance costs may be analyzed as follows:
Finance Costs 2010 2009 2008
(US$ million)
Finance costs ................................... 309 198 181
Finance revenue ................................. (16) (61) (38)
Net interest paid ................................. 293 137 143
Finance costs capitalized .......................... — — (16)
Net foreign exchange gains ......................... (17) (17) (8)
Net fair value loss on financial instruments .............. (21) 25 7
Net finance costs ............................... 255 145 126
Net interest paid (finance costs less finance revenue) in fiscal 2010 was US$ 293 million compared
to US$ 137 million in 2009. The increase in net interest paid was a result of higher interest rates on higher
average debt following the Refinancing completed towards the end of fiscal 2009. The fiscal 2009 net
interest paid also includes a US$ 41 million gain relating to the discount received when we repaid, prior
to maturity, the vendor loan notes related to the Acquisition.
The finance costs capitalized in fiscal 2008 relate to the Saiccor expansion project in South Africa.
After the plant was commissioned in the latter part of fiscal 2008, capitalization of finance costs for the
project ceased.
The US$ 17 million net foreign exchange gain in fiscal 2010 was due to the timing of the netting
process of foreign exchange exposure. The Group’s policy is to identify foreign exchange risks
immediately when they arise and to cover these risks to the functional currency of the operation where
the risk lies. The majority of the Group’s foreign exchange exposures are covered centrally by the Group
Treasury which nets the internal exposures and hedges the residual exposure with third party banks.
The net fair value movement on financial instruments relates to the net impact of currency and
interest rate movements after hedge accounting for certain interest rate and currency swaps the Group
has entered into in order to manage the interest and currency exposure on internal and external loans.
During fiscal 2009 certain interest rate swaps were closed early in anticipation of the Refinancing and this
resulted in additional swap charges. The closure of these swaps stopped the hedging relationship with
the underlying debt and therefore the difference between the carrying amount and the notional amount
of the debt is being amortized over the period that the swaps would have been in place, had they not
been closed early. This has resulted in a gain to financial instruments of US$ 21 million for fiscal 2010.
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