Notes to the annual financial statements

FOR THE YEAR ENDED 31 MARCH 2010
« Note 31 Note 33 »

32.

Financial INSTRUMENTS
     
  32.1 Classes of financial instruments and fair value
    Financial instruments on the statement of financial position include investments, investment in money market funds, loans receivable, debtors, cash, creditors, short-term loans, long-term loans and derivative instruments. Details of the nature, extent and terms of these instruments are explained in the notes to the relevant items.
     
    The accounting policy for financial instruments was applied to the following statement of financial position line items. 
    Financial assets Non- 
financial 
assets 
R million 		 Loans 
and 
receivables 
R million 		 Assets at 
fair value 
through 
profit 
and loss 
R million 		 Available- 
for-sale 
R million 		 Carrying 
value 
R million 		 Fair 
value 
R million 
   

2010

            
    Investments – other      60  6 584  6 644  6 644 
    Loans    108      108  108 
    Loans to associated companies             
        and joint ventures    541      541  541 
    Debtors and short-term loans  62  1 879      1 941  1 941 
    Derivative instruments      145    145  145 
    Investment in money market funds      1 812    1 812  1 812 
    Cash and cash equivalents    3 827      3 827  3 827 
      62  6 355  2 017  6 584  15 018  15 018 
                 
    2009             
    Investments – other      40  4 702  4 742  4 742 
    Loans    100      100  100 
    Loans to associated companies             
        and joint ventures    43      43  43 
    Debtors and short-term loans  62  1 737      1 799  1 799 
    Derivative instruments      16    16  16 
    Investment in money market funds      1 578    1 578  1 578 
    Cash and cash equivalents    5 050      5 050  5 050 
      62  6 930  1 634  4 702  13 328  13 328 
                 
    Financial liabilities     Liabilities at 
amortised 
cost 
R million 		 Liabilities at 
fair value 
through 
profit 
and loss 
R million 		 Carrying 
value 
R million 		 Fair 
value 
R million 
   

2010

            
    Long-term loans      175    175  175 
    Trade and other payables      2 292    2 292  2 292 
    Short-term loans      146    146  146 
    Derivative instruments        3  3  3 
          2 613  3  2 616  2 616 
    2009             
    Long-term loans      191    191  191 
    Trade and other payables      1 999    1 999  1 999 
    Short-term loans      117    117  117 
    Derivative instruments        18  18  18 
          2 307  18  2 325  2 325 
    Fair value
    On 31 March 2010 and 2009 the fair value of financial instruments approximates their carrying value.

Fair value estimation
The following methods and assumptions are used to determine the fair value of each class of financial instruments:
  • Financial instruments available-for-sale and investment in money market funds: Fair value is based on quoted market prices or, in the case of unlisted instruments, appropriate valuation methodologies.
  • Cash and cash equivalents, debtors, creditors and short-term loans: Due to the expected short-term maturity of these financial instruments their carrying values approximate their fair value.
  • Borrowings: The fair value of long-term borrowings is based on discounted cash flows using the effective interest rate method. As the interest rates of long-term borrowings are all market related their carrying values approximate their fair value.
  • Derivative instruments: The fair value of derivative instruments is determined by using mark-to-market valuations.

The following table illustrates the fair values of financial assets that are measured at fair value, by hierarchy level:
      Level 1 
R million 		 Level 2 
R million 		 Level 3 
R million 		 Total 
R million 
    2010        
    Available-for-sale  6 310  –  274  6 584 
    Assets at fair value through profit and loss  47  –  13  60 
    Derivative instruments  –  12  133  145 
    Investment in money market funds  1 812  –  –  1 812 
      8 169  12  420  8 601 
             
    Reconciliation of carrying value of level 3 assets
at the beginning and end of the year 		 Available- 
for- sale 
R million 		 Assets at 
fair value 
through 
profit 
and loss 
R million 		 Derivative 
instruments 
R million 		 Total 
R million 
    2010        
    Balances at 1 April  91  –  –  91 
    Businesses acquired  201  9  55  265 
    Additions  37  4  –  41 
    Disposals  (5) –  –  (5)
    Exchange rate adjustments  (3) –  –  (3)
    Impairments  (32) –  –  (32)
    Fair value adjustments through profit and loss  –  –  78  78 
    Fair value adjustments through comprehensive income  (15) –  –  (15)
    Balances at 31 March  274  13  133  420 
             
    The following table illustrates the fair value of financial liability by hierarchy level:        
      Level 1 
R million 		 Level 2 
R million 		 Level 3 
R million 		 Total 
R million 
    2010        
    Derivative instruments –  3  –  3 
  32.2 Financial instruments and risk management
    Various financial risks have an impact on the Group’s results: market risk (including price risk, interest rate risk and foreign exchange risk), credit risk and liquidity risk. The Company and its subsidiary companies’ risk management programmes, of which key aspects are explained below, acknowledge the unpredictability of financial markets and are aimed to minimise any negative effect thereof. Derivative instruments are used to hedge against certain financial risk exposures.

Risk management is performed by the central treasury department in terms of policy that was approved by the Board of Directors. A treasury committee identifies, evaluates and hedges financial risks in terms of the Group’s risk appetite, sets risk limits and monitors compliance to policy and procedures. The committee is assisted by the internal audit department that regularly, and on an ad hoc basis, reviews risk management controls and procedures. It is the responsibility of the Remgro Audit and Risk Committee to supervise these functions and assess the appropriateness of risk management strategies.

Relevant financial risks and risk management programmes are summarised as follows:

Market risk
Price risk
Exposure to price risk is due to investments in listed and unlisted shares which are classified as “Investments availablefor-sale”, conversion rights on preference shares, investments in money market funds and investments in commodity future contracts.

“Investments available-for-sale” consists mainly of the investment in Impala Platinum Holdings Limited. The Management Board monitors all the investments continuously and makes recommendations to the investment committee and the Board of Directors in this regard.

Conversion rights on preference shares are preference shares in associated companies, the valuation of which is influenced by the underlying valuation of the associated company. The underlying valuations are monitored by the Board of Directors, through representation on the associated companies’ boards.

Investments in money market funds consist mainly of interest-bearing liquid investments with a low risk. Refer to note 16 for further details.

Some operating subsidiaries have commodity options and future contracts that are influenced by the prices of the underlying commodities. The Board of Directors monitors this through representation on the subsidiaries’ boards.

Foreign exchange risk
Certain subsidiary companies operate internationally and are therefore exposed to foreign currency risk due to commercial transactions denominated in foreign currencies. These risks are limited by using foreign exchange contracts when deemed necessary. Refer to note 14 for further details.

The Group is also exposed to foreign exchange translation risk through its investment in money market funds (note 16) and foreign cash (note 17).

The Board of Directors monitors the exposure on money market funds and foreign cash on a regular basis and the risk is limited through the diversification in foreign currencies.

Interest rate risk
Due to significant cash investments, movements in market interest rates influence income. The profile of the cash and cash equivalents is explained in note 17. Interest rate risk is managed by the treasury department by using approved counterparties that offer the best rates.

The Company and its subsidiary companies are also exposed to interest rate risk due to long-term debt. The interest rate profile of the liabilities is disclosed in note 20.

The Group’s sensitivity to market risk
The following table illustrates the sensitivity of the Group’s profit and equity to market risk if markets change with the following percentages:
      Change  2010 
Income 
statement 
R million 		 Equity 
R million 		 Change  2009 
Income 
statement 
R million 		 Equity 
R million 
    Interest rates  2.0%  86  –  2.0%  92  – 
    Foreign exchange  5.0%  1  231  5.0%  –  183 
    Equity prices  10.0%  9  566  10.0%  –  408 
        96  797    92  591 

The above was calculated with reference to the carrying value of financial instruments at year-end and a possible change in the market risk factor.

Credit risk
The Group’s exposure to credit risk is the fair value of loans, loans to associated companies and joint ventures, debtors, short-term loans, derivative instruments and cash and cash equivalents as indicated above, as well as financial guarantee contracts.

Loans to associated companies and joint ventures
Management continuously assesses the credit risk of loans to associated companies and joint ventures through its representation on the respective boards. Loans to associated companies and joint ventures are within their mandated terms and none have been impaired in the current financial year.

Financial guarantee contracts
Credit risk exposure relating to items not recognised on the statement of financial position relates to financial guarantee contracts. Refer to note 36 for further details.

Loans receivable and debtors
At year-end “Loans receivable” consisted of various insignificant loans. No significant concentration of credit risk existed regarding debtors as customers are spread over a wide geographical area. Policies and procedures are in place ensuring that sales occur only to customers with an acceptable credit history. Other debtors consist mainly of prepayments and dividends receivable.

Terms granted to trade debtors are determined by the respective credit policies of each operating subsidiary, i.e. Rainbow Chicken, Tsb Sugar and Wispeco.

The following table indicates the age analysis of trade debtors in arrears and the corresponding outstanding amount of debtors at year-end:

      Age analysis of trade debtors in arrears   
    Debtors 30 days 
R million 		 60 days 
R million 		 90 days 
R million 		 120 days + 
R million 		 Total trade 
debtors in 
arrears 
R million 
    2010 79  21  –  8  108 
    2009  159  17  2  19  197 

A provision for doubtful debts of R44 million (2009: R45 million) was made. Refer note 13.

The credit quality of performing trade debtors against whom no impairment was provided, is as follows:

      2010 
R million 		 2009 
R million 
    Existing customers (history of six months +) – no past defaults 1 234  778  
    Existing customers (history of six months +) – with past defaults 57  61  
    New customers (history of less than six months) 45  160  
      1 336  999  

Derivative instrument transactions and cash investments
Derivative instrument transactions are limited to transactions with financial institutions with a good credit rating. The treasury committee approves these institutions and determines the limit of credit exposure of each separate entity.

Cash and cash equivalents are only held by approved institutions with an acceptable credit-worthiness. The treasury committee sets the limit for each financial institution. Refer to the cash and cash equivalents note (note 17) for additional information.

Liquidity risk
The Company and its subsidiary companies have substantial cash balances at their disposal and minimum long-term debt that limit their liquidity risk. Nevertheless it is ensured that adequate credit facilities are available to maintain flexibility in the funding of transactions.

The following schedule indicates the repayment terms of outstanding debt:

          Non-discounted cash flow 
    Financial liabilities Carrying 
value 
R million 		 Contractual 
cash flow 
R million 		 0 to 12 
months 
R million 		 1 to 5 years 
R million 		 5 years and 
longer 
R million 
    2010           
    Long-term loans   175  273  –  270  3 
    Trade and other payables   2 292  2 292  2 292  –  – 
    Short-term loans   146  146  146  –  – 
    Derivative instruments   3  63  35  28  – 
    Financial guarantee contracts (note 36)   –  644  644  –  – 
      2 616  3 418  3 117  298  3 
               
    2009           
    Long-term loans   191   255   –   250   5  
    Trade and other payables   1 999   1 999   1 999   –   –  
    Short-term loans   117   139   139   –   –  
    Derivative instruments   18   159   117   28   14  
    Financial guarantee contracts (note 36)   –   644   644   –   –  
      2 325   3 196   2 899   278   19  

 

Annual report home page   |   PDF downloads   |   Print   |   Bookmark   |   Afrikaans