|
FINANCIAL RISKS
In the course of its business, the Company is exposed to a number of financial risks: credit risk, liquidity risk
and market risk (including foreign currency and other price risk). This note presents the Company’s
objectives, policies and processes for managing its financial risk and capital.
Credit risk
Credit risk arises because a counterparty may fail to meet its obligations to the Company. The Company is
exposed to credit risks on financial instruments such as receivables, loans receivable and cash.
Trade and other receivables consist primarily of invoiced amounts owing from related parties. The
recoverability of these amounts are regularly monitored with reference to the counterparties’ financial
performance. Where necessary, a provision for impairment is made.
The Company places cash and cash equivalents with major banking groups and quality institutions that have
high credit ratings.
Loans are only granted to holders with an appropriate credit history, taking into account the holder’s financial
position and past experience.
The Company’s maximum credit risk exposure is the carrying amount of all financial assets on the statement
of financial position and sureties provided with the maximum amount the Company could have to pay if the
sureties are called on amounting to R1 billion (2013: R900 million).
| |
|
2014
R’000 |
|
|
2013
R’000 |
|
| Loans to subsidiaries and joint venture |
|
|
|
|
|
|
| Group 1 |
|
— |
|
|
— |
|
| Group 2 |
|
32 619 |
|
|
38 421 |
|
| Group 3 |
|
— |
|
|
— |
|
 |
|
|
|
|
|
|
| |
|
32 619 |
|
|
38 421 |
|
| Loans receivable |
|
|
|
|
|
|
| Group 1 |
|
— |
|
|
— |
|
| Group 2 |
|
63 035 |
|
|
— |
|
| Group 3 |
|
— |
|
|
— |
|
|
|
|
|
|
|
|
| |
|
63 035 |
|
|
— |
|
| Trade receivables |
|
|
|
|
|
|
| Counterparties without external credit rating |
|
|
|
|
|
|
| Group 1 |
|
— |
|
|
— |
|
| Group 2 |
|
— |
|
|
6 443 |
|
| Group 3 |
|
— |
|
|
— |
|
|
|
|
|
|
|
|
| Total unimpaired trade receivables |
|
— |
|
|
6 443 |
|
The rating groups for counterparties without external credit ratings are categorised as follows:
Group 1 – New customers/related parties (less than six months).
Group 2 – Existing customers/related parties (more than six months) with no defaults in the past.
Group 3 – Existing customers/related parties (more than six months) with some defaults in the past. All
defaults were fully recovered.
Cash at bank and short-term bank deposits
Credit rating based on latest Fitch local currency long-term issuer default ratings.
| |
|
2014
R’000 |
|
|
2013
R’000 |
|
|
|
|
|
|
|
|
| BBB |
|
— |
|
|
305 |
|
| BBB- |
|
1 418 |
|
|
805 |
|
|
|
|
|
|
|
|
| |
|
1 418 |
|
|
1 110 |
|
Liquidity risk
Liquidity risk arises when a company encounters difficulties to meet commitments associated with liabilities
and other payment obligations. The Company’s objective is to maintain prudent liquidity risk management by
maintaining sufficient cash and marketable securities, the availability of funding through an adequate
amount of committed credit facilities and the ability to close out market positions. Company finance
monitors rolling forecasts of the Company’s liquidity requirements to ensure it has sufficient cash to meet
operational needs. Due to the dynamic nature of the underlying businesses, the Company aims to maintain
flexibility in funding by keeping committed credit lines available.
Management is satisfied as to the liquidity of the Company since the majority of the current liabilities relate
to the loans from subsidiaries. These subsidiaries are 100% held by the Company and therefore the
Company has control of their assets including cash resources.
The Company and a subsidiary company have issued a cross surety in respect of a guarantee for an overdraft
facility in the amount of R19.85 million in favour of FNB, a division of FirstRand Bank Limited. This facility
was unutilised as at 31 May 2014. In addition, the Company and four of its subsidiaries have issued a cross
surety in the amount of R1.7 million.
Maturity of financial liabilities
| |
|
Less than
one month
or on
demand
R’000 |
More than
one month
but not
exceeding
one year
R’000 |
Payable in:
More than
one year
but not
exceeding
two years
R’000 |
More than
two years
but not
exceeding
five years
R’000 |
More than
five years
R’000 |
|
| 2014 |
|
|
|
|
|
|
|
| Loans from subsidiaries |
|
474 949 |
— |
— |
— |
— |
|
| Trade and other payables* |
|
2 512 |
11 557 |
— |
— |
— |
|
| Total |
|
477 461 |
11 557 |
— |
— |
— |
|
| 2013 |
|
|
|
|
|
|
|
| Loans from subsidiaries |
|
150 858 |
— |
— |
— |
— |
|
| Trade and other payables* |
|
1 642 |
7 596 |
— |
— |
— |
|
| Total |
|
152 500 |
7 596 |
— |
— |
— |
|
| * |
Trade and other payables exclude non-financial instruments being VAT and certain amounts within accruals and sundry
creditors. |
Market risk
Market risk is the risk that changes in market prices (interest rate and currency risk) will affect the Company’s
income or the value of its holding of financial instruments. The objective of market risk management is to
manage and control market risk exposures within acceptable parameters, while optimising the return.
The Company is exposed to risks from movements in foreign exchange rates and interest rates that affect its
assets, liabilities and anticipated future transactions.
Fair value measurement hierarchy:
| • |
Level 1: fair value based on quoted prices (unadjusted) in active markets for identical assets or liabilities; |
| • |
Level 2: fair value based on inputs other than quoted prices included within level 1 that are observable for
the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); or |
| • |
Level 3: fair value based on inputs for the asset or liability that are not based on observable market data
(that is, unobservable inputs). |
Contingent consideration, included in trade and other payables are level 3 financial liabilities.
Changes in level 3 instruments are as follows:
| |
|
2014
R’000 |
|
2013
R’000 |
|
| Contingent consideration |
|
|
|
|
|
| Opening balance |
|
3 030 |
|
— |
|
| Acquisition of Panacea Proprietary Limited |
|
6 155 |
|
2 334 |
|
| Acquisition of Blue Label Engage Proprietary Limited |
|
— |
|
335 |
|
| Settlements |
|
(1 800) |
|
— |
|
| Gains and losses recognised in profit or loss |
|
(129) |
|
361 |
|
| Closing balance |
|
7 256 |
|
3 030 |
|
| Total gains or losses for the period included in profit or loss for liabilities held at the end of the reporting period, under: |
|
|
|
|
|
| Other income |
|
(827) |
|
— |
|
| Interest paid |
|
698 |
|
361 |
|
| Change in unrealised gains or losses for the period included in profit or loss for liabilities held at the end of the reporting period |
|
698 |
|
361 |
|
Cash flow and fair value interest rate risk
The Company’s cash flow interest rate risk arises from loans receivable and cash and cash equivalents. The
Company is not exposed to fair value interest rate risk as the Company does not have any fixed interest-bearing
instruments carried at fair value nor any interest-bearing borrowings.
As part of the process of managing the Company’s exposure to interest rate risk, interest rate characteristics
of new borrowings and the refinancing of existing borrowings are positioned according to expected
movements in interest rates.
Foreign currency risk
The Company is exposed to foreign currency risk from transactions. Transaction exposure arises due to the
Company granting loans to affiliated companies in foreign currencies.
The Company manages its exposure to foreign currency risk by ensuring that the net foreign currency
exposure remains within acceptable levels. Hedging instruments are used in certain instances to reduce risks
arising from foreign currency fluctuations. The Company did not enter into any forward exchange contracts
during the period under review.
IFRS 7 – Sensitivity analysis
The Company has used a sensitivity analysis technique that measures the estimated change to the statement
of comprehensive income of either an instantaneous increase or decrease of 1% (100 basis points) in market
interest rates or a 10% strengthening or weakening of the rand against all other currencies, from the rates
applicable at 31 May 2014, for each class of financial instrument with all other variables remaining constant.
This analysis is for illustrative purposes only, as in practice market rates rarely change in isolation.
Interest rate risks
The interest rate sensitivity analysis is based on the following assumptions:
| • |
Changes in market interest rates affect the interest income or expense of variable interest financial
instruments; and |
| • |
Changes in market interest rates only affect interest income or expense in relation to financial instruments
with fixed interest rates if these are recognised at fair value. |
Under these assumptions, a 1% increase or decrease in market interest rates at 31 May 2014 would
increase or decrease profit before tax by R655 070 (2013: R11 092).
Foreign currency risk
Financial instruments by currency
| |
|
2014 |
2013 |
|
| |
|
ZAR
R’000 |
USD
R’000 |
Total
R’000 |
ZAR
R’000 |
Total
R’000 |
|
| Financial assets |
|
|
|
|
|
|
|
| Cash |
|
1 418 |
— |
1 418 |
1 110 |
1 110 |
|
| Trade and other receivables* |
|
177 |
— |
177 |
6 445 |
6 445 |
|
| Loans to subsidiaries and associates |
|
31 565 |
1 054 |
32 619 |
38 419 |
38 419 |
|
| Loans receivable |
|
— |
63 035 |
63 035 |
2 |
2 |
|
| |
|
33 160 |
64 089 |
97 249 |
45 976 |
45 976 |
|
| Financial liabilities |
|
|
|
|
|
|
|
| Non-interest-bearing borrowings |
|
474 949 |
— |
474 949 |
150 858 |
150 858 |
|
| Trade and other payables* |
|
14 069 |
— |
14 069 |
9 238 |
9 238 |
|
| |
|
489 018 |
— |
489 018 |
160 096 |
160 096 |
|
| Net financial position |
|
(455 858) |
64 089 |
(391 769) |
(114 120) |
(114 120) |
|
| * |
Trade and other receivables and trade and other payables exclude non-financial instruments. |
With a 10% strengthening or weakening in the rand against all other currencies, profit before tax would
increase or decrease by R6.4 million respectively.
Capital risk
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as
a going concern in order to provide returns for shareholders and benefits for other stakeholders and to
maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust this capital structure, the Company may issue new shares, adjust the amount
of dividends paid to shareholders, return capital to shareholders or sell assets to reduce debt.
The Company defines capital as capital and reserves and non-current borrowings.
The Company is not subject to externally imposed capital requirements. There were no changes to the
Company’s approach to capital management during the year.
Fair value measurement
For all short-term financial assets and liabilities, the carrying amount is regarded as an approximation of the
fair value. |