Notes to the Group financial statements
for the year ended 30 June
26. | FINANCIAL RISK MANAGEMENT | ||||||
Liquidity risk | |||||||
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group at all times maintains adequate committed credit facilities in order to meet all its commitments as and when they fall due. Repayment of borrowings are structured to match the expected cash flows from operations to which they relate. The Group’s preference share funding is subject to debt covenants which are reviewed on an ongoing basis. The following are the contractual undiscounted maturities of financial liabilities (including principal and interest payments) presented in Rands: |
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R million | On demand or not exceeding 6 months |
More than 6 months but not exceeding 1 year |
More than 1 year but not exceeding 2 years |
More than 2 years but not exceeding 5 years |
More than 5 years |
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2014 | |||||||
Term facilities | 79 | 105 | 508 | 1 797 | 316 | ||
Minority shareholder loans | 362 | – | – | – | – | ||
V&A loan | 25 | 25 | 55 | 195 | 244 | ||
Redeemable preference shares | 946 | 49 | 76 | 1 156 | – | ||
Lease liabilities | 20 | 7 | 11 | 24 | – | ||
Vacation Club members | – | – | – | – | 81 | ||
Short-term banking facilities* | 78 | 2 410 | – | – | – | ||
Derivative financial instruments | (9) | (10) | (16) | (8) | 97 | ||
Trade payables | 265 | – | – | – | – | ||
Accrued expenses | 741 | – | – | – | – | ||
Interest payable | 8 | – | – | – | – | ||
Capital creditors | 29 | – | – | – | – | ||
Other payables | 93 | – | – | – | – | ||
Monticello purchase consideration | 1 687 | – | – | – | – | ||
4 324 | 2 586 | 634 | 3 164 | 738 | |||
2013 | |||||||
Term facilities | 457 | 154 | 296 | 907 | 132 | ||
Minority shareholder loans | 324 | – | – | – | – | ||
V&A loan | 23 | 23 | 50 | 179 | 315 | ||
Redeemable preference shares | 69 | 69 | 921 | 1 191 | – | ||
Lease liabilities | 32 | 31 | 20 | 2 | – | ||
Vacation Club members | – | – | – | – | 99 | ||
Short-term banking facilities* | 95 | 2 454 | – | – | – | ||
Derivative financial instruments | 7 | 8 | 12 | 8 | – | ||
Trade payables | 209 | – | – | – | – | ||
Accrued expenses | 699 | – | – | – | – | ||
Interest payable | 10 | – | – | – | – | ||
Capital creditors | 22 | – | – | – | – | ||
Other payables | 79 | – | – | – | – | ||
2 026 | 2 739 | 1 299 | 2 287 | 546 | |||
* These are 364 day notice facilities. As at date of this report no notice on any of these facilities had been received. All derivative financial instruments are classified as level 2 financial instruments. |
Credit risk Credit risk arises from loans and receivables, accounts receivable (excluding prepayments and VAT), and cash and cash equivalents. Trade debtors consist mainly of large tour operators. The granting of credit is controlled by application and account limits. Cash investments are only placed with high quality financial institutions. The maximum exposure to credit risk is represented by the carrying amount of all financial assets determined to be exposed to credit risk, with the exception of financial guarantees granted by the Group for which the maximum exposure to credit risk is the maximum amount the Group would have to pay if the guarantees are called on (refer to note 28). The Group has no significant concentrations of credit risk with respect to trade receivables due to a widely dispersed customer base. Credit risk with respect to loans and receivables is disclosed in note 14. Market risk Market risk includes foreign currency risk, interest rate risk and other price risk. The Group’s exposure to other price risk is limited as the Group does not have material investments which are subject to changes in equity prices. |
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(a) | Foreign currency risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to US Dollar, Sterling, Botswana Pula, Chilean Peso, Nigerian Naira, Zambian Kwacha and Colombian Peso. The Group manages its foreign currency risk by ensuring that the net foreign currency exposure remains within acceptable levels. Companies in the Group use foreign exchange contracts (FECs) and interest rate cross currency swaps to hedge certain of their exposures to foreign currency risk. The Group has one material FEC outstanding at 30 June 2014 (2013: two) with a fair value of R55 million (2013: R32 million). The notional amount of the outstanding FEC at 30 June 2014 was R500 million (2013: R239 million). Refer to paragraph (b) for the interest rate cross currency swaps. Included in the statements of financial position are the following amounts denominated in currencies other than the functional currency of the Group (Rand): |
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R million | 2014 | 2013 | ||
Financial assets | ||||
US Dollar | 353 | 366 | ||
Sterling | 11 | 28 | ||
Botswana Pula | 84 | 80 | ||
Chilean Peso | 294 | 246 | ||
Nigerian Naira | 35 | 35 | ||
Euro | – | 2 | ||
Zambia ZMW | 23 | 30 | ||
Colombian Pesos | 15 | – | ||
Financial liabilities | ||||
US Dollar | 400 | 726 | ||
Botswana Pula | 13 | 12 | ||
Chilean Peso | 645 | 251 | ||
Nigerian Naira | 82 | 74 | ||
Zambia ZMW | 21 | 29 | ||
Colombian Pesos | 4 | – | ||
Foreign currency risk is the risk that fair value or future cash flows of a financial instrument will fluctuate in Rand due to changes in foreign exchange rates. |
Foreign currency sensitivity A 10% strengthening in the Rand against foreign currencies at 30 June 2014 would decrease profit before tax by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis was performed on the same basis for 2013. |
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R million | 2014 | 2013 | ||
US Dollar | 29 | 30 | ||
Sterling | – | (1) | ||
A 10% weakening in the Rand against these currencies at 30 June 2014 would have an equal but opposite effect to the amounts shown above, on the basis that all other variables remain constant. A 10% strengthening in the Chilean Peso against the US Dollar at 30 June 2014 would increase/(decrease) the profit before tax by the amount shown below. This analysis assumes that all other variables, remain constant. |
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R million | 2014 | 2013 | ||
Profit before tax | – | (3) | ||
A 10% weakening in the Chilean Peso against the US Dollar at 30 June 2013 would have had an equal but opposite effect to the amount shown above, on the basis that all other variables remain constant. |
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(b) | Cash flow interest rate risk The Group’s cash flow interest rate risk arises from cash and cash equivalents and variable rate borrowings. The Group is not exposed to fair value interest rate risk as the Group does not have any fixed interest bearing financial instruments carried at fair value. |
The Group manages interest rate risk by entering into short and long term debt instruments with a combination of fixed and variable interest rates. It also uses floating-to-fixed interest rate swaps and interest rate cross currency swaps to hedge its foreign currency and interest rate cash flow risk. At 30 June 2014, the following derivative financial instruments were in place: |
2014 | 2013 | ||||
SIL interest rate cross currency swap |
Emfuleni interest rate swaps |
Emfuleni interest rate swaps |
SFIR interest rate cross currency swaps |
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Notional amount | R500 million | R300 million | R300 million | US$41 million | |
Fixed exchange rate | 9.8811 | 526 – 5912 | |||
Swapped notional | US$51 million | ||||
Fixed rate | 3.87% | ||||
30 September 2015 swap | 5.57% | 5.57% | |||
29 September 2017 swap | 5.97% | 5.97% | |||
Variable rate | 3 month Jibar + 2.05 NACS |
Linked to quarterly Jibar |
Linked to quarterly Jibar |
Linked to USD Libor |
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Fair value liability/(asset) at 30 June | R55 million | (R4 million) | (R4 million) | R44 million | |
Transfer of profit from hedging reserve to foreign exchange profits | R2 million | ||||
Net profit on cash flow hedges | R1 million | R3 million | |||
1 Swapped Rands for US Dollars. 2 3 fixed rate swaps were entered into swapping US Dollars for Chilean Pesos (US$1: CLP 526 – 591). The term over which the cash flows are expected to occur and impact on profit and loss is the same as set out in the derivatives maturity analysis on page 40. |
The interest rate characteristics of new and refinanced debt instruments are restructured according to expected movements in interest rates (refer to note 21). Interest rate sensitivity A 1% increase in interest rates at 30 June would decrease profit before tax by the amounts shown below. This analysis assumes that all other variables remain constant. |
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R million | 2014 | 2013 | |
Profit before tax | (58) | (34) |
A 1% decrease in interest rates at 30 June would have an equal but opposite effect to the amounts shown above, on the basis that all other variables remain constant. Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide benefits for its stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust this capital structure, the Group may issue new shares, adjust the amount of dividends paid to shareholders, return capital to shareholders or buy back existing shares. The board of directors monitors the level of capital, which the Group defines as total share capital, share premium, treasury shares and treasury share options. There were no changes to the Group’s approach to capital management during the year. The Group is not subject to externally imposed capital requirements. Fair value estimation The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. Level 2: 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) Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). |
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Assets | Level 1 | Level 2 | Level 3 | Total | |
Available-for-sale financial assets | |||||
Unlisted investments | – | – | 48 | 48 | |
Loans and receivables | |||||
Derivatives used for hedging | – | 7 | – | 7 | |
Total assets | – | 7 | 48 | 55 | |
Liabilities | Level 1 | Level 2 | Level 3 | Total | |
Financial liabilities at fair value through profit or loss | |||||
Derivatives used for hedging | – | 55 | – | 55 | |
Total liabilities | – | 55 | – | 55 | |
Financial instruments in level 3 | |||||
There have been no changes in level 3 instruments for the year ended 30 June 2014 or for the prior two years. |