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
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.
Cash and cash equivalents
The Company places cash and cash equivalents with major banking groups and quality institutions that have high credit ratings.
Loans receivable
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 R1.5 billion (2015: R1.5 billion).
| |
2016
R’000 |
|
2015
R’000 |
|
| Loans to subsidiaries and joint venture |
|
|
|
|
| Group 1 |
— |
|
— |
|
| Group 2 |
161 536 |
|
976 |
|
| Group 3 |
— |
|
— |
|
|
|
|
|
|
| |
161 536 |
|
976 |
|
| Loans receivable |
|
|
|
|
| Group 1 |
— |
|
— |
|
| Group 2 |
115 678 |
|
80 672 |
|
| Group 3 |
— |
|
— |
|
|
|
|
|
|
| |
115 678 |
|
80 672 |
|
| Trade receivables |
|
|
|
|
| Counterparties without external credit rating |
|
|
|
|
| Group 1 |
— |
|
— |
|
| Group 2 |
5 329 |
|
3 592 |
|
| Group 3 |
— |
|
— |
|
|
|
|
|
|
| Total unimpaired trade receivables |
5 329 |
|
3 592 |
|
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 S&P Global local currency long-term issuer default ratings.
| |
2016
R’000 |
|
2015
R’000 |
|
| BBB- |
1 303 |
|
2 283 |
|
| |
1 303 |
|
2 283 |
|
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 2016. In addition, the Company and four of its subsidiaries have issued a cross surety in the amount of
R1.3 million.
The Company has issued a surety in respect of guarantees in the amount of R98.8 million in favour of third parties,
for normal trade obligations of Group companies.
Maturity of financial liabilities
The table below analyses the Group’s non-derivative financial liabilities into relevant maturity groupings based on
the remaining period at the statement of financial position date to the contractual maturity date.
The amounts disclosed in the table are the contractual undiscounted cash flows.
| |
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 |
|
| 2016 |
|
|
|
|
|
|
|
|
|
|
| Loans from subsidiaries |
— |
|
1 183 399 |
|
— |
|
— |
|
— |
|
| Trade and other payables* |
3 537 |
|
54 282 |
|
24 790 |
|
— |
|
— |
|
| Total |
3 537 |
|
1 237 681 |
|
24 790 |
|
— |
|
— |
|
| 2015 |
|
|
|
|
|
|
|
|
|
|
| Loans from subsidiaries |
754 891 |
|
— |
|
— |
|
— |
|
— |
|
| Trade and other payables* |
2 785 |
|
10 946 |
|
48 425 |
|
55 300 |
|
— |
|
| Total |
757 676 |
|
10 946 |
|
48 425 |
|
55 300 |
|
— |
|
* 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:
| |
2016
R’000 |
|
2015
R’000 |
|
| Contingent consideration |
|
|
|
|
| Opening balance |
93 280 |
|
7 256 |
|
| Acquisition of Viamedia Proprietary Limited |
— |
|
84 783 |
|
| Settlements |
(1 931) |
|
(4 113) |
|
| Gains and losses recognised in profit or loss |
(23 117) |
|
5 354 |
|
| Closing balance |
68 232 |
|
93 280 |
|
| 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 |
(30 924) |
|
(923) |
|
| Interest paid |
(7 807) |
|
6 277 |
|
| Change in unrealised gains or losses for the period included in profit or loss for liabilities held at the end of the reporting period |
7 222 |
|
1 382 |
|
Refer to note 3.2.1 of the Group financial statements.
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 2016, 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 sensitivity
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 2016 would increase or
decrease profit before tax by R1.2 million (2015: R22 830).
Foreign currency sensitivity
Financial instruments by currency
| |
2016 |
|
2015 |
|
| |
ZAR
R’000 |
|
USD
R’000 |
|
Total
R’000 |
|
ZAR
R’000 |
|
USD
R’000 |
|
Total
R’000 |
|
| Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash |
1 303 |
|
— |
|
1 303 |
|
2 283 |
|
— |
|
2 283 |
|
| Trade and other receivables* |
6 203 |
|
— |
|
6 203 |
|
3 592 |
|
— |
|
3 592 |
|
| Loans to subsidiaries |
161 536** |
|
— |
|
161 536 |
|
976 |
|
— |
|
976 |
|
| Loans receivable |
— |
|
115 678 |
|
115 678 |
|
— |
|
80 672 |
|
80 672 |
|
| |
169 042 |
|
115 678 |
|
284 720 |
|
6 851 |
|
80 672 |
|
87 523 |
|
| Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Loans from subsidiaries |
1 183 399 |
|
— |
|
1 183 399 |
|
754 891 |
|
— |
|
754 891 |
|
| Trade and other payables* |
82 609 |
|
— |
|
82 609 |
|
117 456 |
|
— |
|
117 456 |
|
| |
1 266 008 |
|
— |
|
1 266 008 |
|
872 347 |
|
— |
|
872 347 |
|
| Net financial position |
(1 096 966) |
|
115 678 |
|
(981 288) |
|
(865 496) |
|
80 672 |
|
(784 824) |
|
| * |
Trade and other receivables and trade and other payables exclude non-financial instruments. |
| ** |
A portion of this loan in substance forms part of the Company’s investment into Gold Label Investments Proprietary Limited. |
With a 10% strengthening or weakening in the rand against the US dollar, profit before tax would decrease or increase by R11.6 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. Although the Company is in a deficit position, the value of its significant
subsidiary exceeds the carrying value.
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.
|