|
|
25. |
FINANCIAL RISK MANAGEMENT |
|
The group is exposed to various financial risks due to the nature and diversity of its activities and the use of various financial instruments.These risks include:
– Credit risk
– Liquidity risk
– Market risk
Details of the group’s exposure to each of the above risks and its objectives, policies and processes for measuring and managing these risks are included specifically in this note and more generally throughout the consolidated financial statements together with information regarding management of capital.
The boards of directors (boards) of all group companies have the overall responsibility for the establishment and oversight of the group’s risk management framework.These boards have delegated these responsibilities to Executive Committees, which are responsible for the development and monitoring of risk management policies within the group.These committees meet on an ad-hoc basis and regularly report to the respective boards on their activities.The risk management policies are established to identify and analyse the risks faced by the group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the activities of the group.
The roles and responsibilities of the committees include:
– approval of all counterparties; – approval of new instruments;
– approval of the group’s foreign exchange transaction policy; – approval of the investment policy;
– approval of treasury policy; and
– approval of long-term funding requirements.
The internal auditors undertake regular and ad-hoc reviews of risk management, controls and procedures, the results of which are monitored by the Assore Audit Committee. |
|
|
25.1 |
Credit risk |
|
Credit risk arises from possible defaults on payments by customers or, where letters of credit have been issued, by bank counterparties.The group minimises credit risk by the careful evaluation of the ongoing creditworthiness of customers and bank counterparties before transactions are concluded. Customers are generally required to raise letters of credit with banking institutions that have acceptable credit ratings, however, certain customers who have well established credit accounts are allowed to transact on open accounts.
Overdue amounts are individually assessed and if it is evident that an amount will not be recovered, it is impaired and legal action is instituted to recover the amounts involved.
Credit exposure and concentrations of credit risk
The carrying amount of financial assets represents the maximum credit exposure at the reporting date and the following table indicates various concentrations of credit risk for all non-derivative financial assets held: |
|
|
|
|
|
2009 |
|
2008 |
|
|
R’000 |
|
R’000 |
Trade receivables (refer to note 7) |
|
585 129 |
|
1 980 966 |
Local |
|
32 808 |
|
242 258 |
Foreign |
|
552 321 |
|
1 738 708 |
Sundry receivables – local (refer to note 7) |
|
7 958 |
|
17 576 |
Cash resources (refer to note 24.6) |
|
3 001 328 |
|
1 952 015 |
Total carrying amount per balance sheet |
|
3 594 415 |
|
3 950 557 |
Ageing |
|
|
|
|
Aged as follows: |
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
|
Receivables |
|
Receivables |
|
Impairment |
|
Carrying |
|
Receivables |
|
Receivables |
|
Impairment |
|
Carrying |
|
|
not impaired |
|
impaired |
|
amount |
|
value |
|
not impaired |
|
impaired |
|
amount |
|
value |
|
|
R’000 |
|
R’000 |
|
R’000 |
|
R’000 |
|
R’000 |
|
R’000 |
|
R’000 |
|
R’000 |
Trade receivables |
|
585 129 |
|
– |
|
– |
|
585 129 |
|
1 980 966 |
|
– |
|
– |
|
1 980 966 |
Not past due, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
not impaired |
|
582 252 |
|
– |
|
– |
|
582 252 |
|
1 980 966 |
|
– |
|
– |
|
1 980 966 |
Past due |
|
2 877 |
|
– |
|
– |
|
2 877 |
|
– |
|
– |
|
– |
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables |
|
7 958 |
|
– |
|
– |
|
7 958 |
|
17 576 |
|
– |
|
– |
|
17 576 |
Not past due, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
not impaired |
|
7 958 |
|
– |
|
– |
|
7 958 |
|
17 576 |
|
– |
|
– |
|
17 576 |
Past due |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As above |
|
593 087 |
|
– |
|
– |
|
593 087 |
|
1 998 542 |
|
– |
|
– |
|
1 998 542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
R’000 |
|
R’000 |
Security held over non-derivative financial assets |
Irrevocable letters of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
– issued by foreign banks |
|
|
|
|
|
|
|
|
|
|
|
214 126 |
|
394 739 |
|
|
|
25.2 |
Liquidity risk |
|
The Executive Committees manage the liquidity structure of the group’s assets, liabilities and commitments so as to ensure that cash flows are sufficiently balanced within the group as a whole. Updated cash flow information and projections of future cash flows are received by the Executive Committees from the group companies on a regular basis (depending on the type of funding required). Measures have been introduced to ensure that the cash flow information received is accurate and complete.
Surplus funds are deposited in liquid assets (eg liquid money market accounts) (refer to note 24.6).
Undrawn credit facilities
The borrowing capacity of the holding company, certain of its subsidiary companies and joint-venture entities is limited by their respective Articles of Association and is based on their aggregate issued and paid up share capital, share premium and retained earnings as set out below: |
|
|
|
2009 |
|
2008 |
|
|
R’000 |
|
R’000 |
Assore Limited |
|
|
|
|
Authorised in terms of the Articles of Association |
|
unlimited |
|
200 000 |
Less: external borrowings at year-end |
|
1 623 843 |
|
– |
Unutilised borrowing capacity |
|
unlimited |
|
200 000 |
Assmang Limited |
|
|
|
|
Authorised in terms of the Articles of Association |
|
5 994 297 |
|
4 986 084 |
Less: external borrowings at year-end |
|
|
|
|
– long-term borrowings |
|
– |
|
(13 805) |
– overdrafts and short-term borrowings |
|
(7 404) |
|
(255 915) |
Unutilised borrowing capacity |
|
5 986 893 |
|
4 716 364 |
Minerais U.S. LLC |
|
|
|
|
Authorised in terms of the Articles of Association |
|
386 000 |
|
392 015 |
External borrowings at year-end |
|
(186 438) |
|
(137 519) |
Unutilised borrowing capacity |
|
199 562 |
|
254 496 |
|
|
|
|
|
|
|
With the exception of the preference share debt referred to in note 17, the group is cash positive and does not rely on banking facilities for its day-to-day activities.
The general banking facilities made available to group companies are unsecured, bear interest at rates linked to prime, have no specific maturity date and are subject to annual review by the banks concerned.The facilities are in place to issue letters of credit, bank guarantees and ensure liquidity.
Exposure to liquidity risk
The following are the cash flows of the group’s financial assets and liabilities at year-end as determined by contractual maturity date, including interest receipts and payments but excluding the impact of any netting agreements with the third parties concerned. |
|
|
|
|
|
|
|
|
|
|
|
Between |
|
Between |
|
|
|
|
Carrying |
|
Total |
|
Less than |
|
4 and |
|
1 and |
|
More than |
|
|
amount |
|
cash flows |
|
4 months |
|
12 months |
|
5 years |
|
5 years |
|
|
R’000 |
|
R’000 |
|
R’000 |
|
R’000 |
|
R’000 |
|
R’000 |
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments |
|
415 066 |
|
415 066 |
|
– |
|
– |
|
– |
|
415 066 |
Other investments |
|
42 259 |
|
42 259 |
|
– |
|
– |
|
42 134 |
|
125 |
Trade and other receivables |
|
593 087 |
|
593 087 |
|
593 087 |
|
– |
|
– |
|
– |
Cash deposits held by |
|
|
|
|
|
|
|
|
|
|
|
|
environmental trusts |
|
47 739 |
|
47 739 |
|
47 739 |
|
– |
|
– |
|
– |
Cash resources |
|
3 001 328 |
|
3 001 328 |
|
3 001 328 |
|
– |
|
– |
|
– |
|
|
4 099 479 |
|
4 099 479 |
|
3 642 154 |
|
– |
|
42 134 |
|
415 191 |
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing borrowings |
|
13 759 |
|
13 759 |
|
– |
|
7 403 |
|
6 356 |
|
– |
Preference shares issued |
|
45 200 |
|
45 200 |
|
45 200 |
|
– |
|
– |
|
– |
Trade and other payables |
|
648 490 |
|
648 490 |
|
648 490 |
|
– |
|
– |
|
– |
Short-term borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
and overdrafts |
|
1 616 440 |
|
1 616 440 |
|
1 616 440 |
|
– |
|
– |
|
– |
|
|
2 323 889 |
|
2 323 889 |
|
2 310 130 |
|
7 403 |
|
6 356 |
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
Between |
|
Between |
|
|
|
|
Carrying |
|
Total |
|
Less than |
|
4 and |
|
1 and |
|
More than |
|
|
amount |
|
cash flows |
|
4 months |
|
12 months |
|
5 years |
|
5 years |
|
|
R’000 |
|
R’000 |
|
R’000 |
|
R’000 |
|
R’000 |
|
R’000 |
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments |
|
590 066 |
|
590 066 |
|
– |
|
– |
|
– |
|
590 066 |
Other investments |
|
125 |
|
125 |
|
– |
|
– |
|
– |
|
125 |
Trade and other receivables |
|
1 998 542 |
|
1 998 542 |
|
1 998 542 |
|
– |
|
– |
|
– |
Cash deposits held by |
|
|
|
|
|
|
|
|
|
|
|
|
environmental trusts |
|
36 942 |
|
36 942 |
|
36 942 |
|
– |
|
– |
|
– |
Cash resources |
|
1 952 015 |
|
1 952 015 |
|
1 952 015 |
|
– |
|
– |
|
– |
|
|
4 577 690 |
|
4 577 690 |
|
3 987 499 |
|
– |
|
– |
|
590 191 |
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing borrowings |
|
19 135 |
|
19 135 |
|
– |
|
5 330 |
|
13 805 |
|
– |
Preference shares issued |
|
58 987 |
|
58 987 |
|
58 987 |
|
– |
|
– |
|
– |
Trade and other payables |
|
1 043 517 |
|
1 043 517 |
|
1 043 517 |
|
– |
|
– |
|
– |
Short-term borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
and overdrafts |
|
2 616 159 |
|
2 616 159 |
|
2 616 159 |
|
– |
|
– |
|
– |
|
|
3 737 798 |
|
3 737 798 |
|
3 718 663 |
|
5 330 |
|
13 805 |
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25.3 |
Market risk |
|
Market risk is defined as the risk that movements in market risk factors, in particular US dollar commodity prices and the US dollar/SA rand exchange rate will affect the group’s revenue and operational costs as well as the value of its holdings of financial instruments.The objective of the group’s market risk management policy is to manage and control market risk exposures to minimise the impact of adverse market movements with respect to revenue protection and to optimise the funding of the business operations.
The group companies are responsible for the preparation and presentation of market risk information as it affects the relevant entity. Information is submitted to the Executive Committees where it is monitored and further analysed to be used in the decision-making process.The information submitted includes information on currency, interest rate and commodities and is used by the committee to determine the market risk strategy going forward. In addition, key market risk information is reported to the Executive Committees on a weekly basis and forecasts against budget are prepared for the entire group on a monthly basis.
Interest rate risk
Interest rate risk arises due to adverse movements in domestic and foreign interest rates.The group is primarily exposed to downward interest rate movements on floating investments purchased and to upward movements on overdrafts and other banking facilities.There is no other exposure to fair value interest rate risk as all fixed rate financial instruments are measured at amortised cost.
The Board determines the interest rate risk strategy based on economic expectations and recommendations received from the Executive Committees. Interest rates are monitored on an ongoing basis and the policy is to maintain short-term cash surpluses adequate to meet the group’s ongoing cash flow requirements at floating rates of interest.
At the reporting date the interest rate profile of the group’s interest-bearing financial instruments was as follows: |
|
|
|
|
|
2009 |
|
2008 |
|
|
R’000 |
|
R’000 |
Variable rate instruments |
|
|
|
|
Liabilities |
|
|
|
|
Preference shares (included in long-term borrowings; refer to note 12) |
|
45 200 |
|
58 987 |
Finance leases (refer to note 12) |
|
13 759 |
|
19 135 |
Preference shares (included in short-term borrowings; refer to note 17) |
|
1 430 000 |
|
– |
Share warehousing facility (refer to note 17) |
|
– |
|
2 228 056 |
Overdrafts (refer to note 17) |
|
186 440 |
|
388 103 |
Assets |
|
|
|
|
Cash resources |
|
3 001 328 |
|
1 952 015 |
Fair value sensitivity analysis for fixed rate instruments |
|
|
|
|
The group does not account for any fixed rate financial assets and liabilities |
|
|
|
|
at fair value through profit and loss, therefore a change in interest rates at |
|
|
|
|
the reporting date would not affect profit or loss. |
|
|
|
|
Cash flow sensitivity analysis for variable rate instruments |
|
|
|
|
An increase of 50 basis points in interest rates at the reporting date would |
|
|
|
|
have decreased profit after tax by the amounts shown below.This assumes |
|
|
|
|
that all other variables remain constant. |
|
|
|
|
Variable rate instruments |
|
10 275 |
|
5 630 |
|
|
|
|
|
|
|
Net effect on profit or loss is equal but opposite for a 50 basis point increase on the financial instruments listed above.
Commodity price and currency risk
Commodity price risk arises from the risk of an adverse effect on current or future earnings resulting from fluctuations in metal and mineral prices.The group also has transactional foreign exchange exposures, which arise from sales or purchases by the group in currencies other than the individual functional currencies of the group.The market is predominantly priced in US dollars and to a lesser extent in euros which exposes the group to the risk that fluctuations in the SA rand exchange rates may have an adverse effect on current or future earnings.
The group manages its commodity price risk where possible by entering into supply contracts with customers covering periods of between three months and a year, depending on the commodity traded. With respect to its exposure to foreign currency fluctuations, the group constantly reviews the extent to which its foreign currency receivables and payables are covered by forward exchange contracts taking into account changes in operational forecasts and market conditions and the group’s hedging policy. No speculation in foreign currency is allowed within the group.
The group’s exposure to currency risk at year-end was as follows: |
|
|
|
|
30 June 2009 |
30 June 2008 |
|
|
US dollar |
|
Euro |
|
US dollar |
|
Euro |
|
|
(USD) 000 |
|
(EUR) 000 |
|
(USD) 000 |
|
(EUR) 000 |
Assets |
|
67 026 |
|
3 920 |
|
212 349 |
|
7 274 |
Trade receivables |
|
67 026 |
|
3 920 |
|
212 349 |
|
7 274 |
Liabilities |
|
– |
|
(63) |
|
(225) |
|
(997) |
Trade payables |
|
– |
|
(63) |
|
(225) |
|
(997) |
Gross balance sheet exposure |
|
67 026 |
|
3 857 |
|
212 124 |
|
6 277 |
Estimated forecast sales |
|
192 627 |
|
173 |
|
187 371 |
|
3 277 |
Estimated forecast purchases |
|
– |
|
– |
|
– |
|
(342) |
|
|
|
|
|
|
|
|
|
Gross exposure |
|
259 653 |
|
4 030 |
|
399 495 |
|
9 212 |
Less: export sales covered by forward exchange contracts |
|
(631) |
|
– |
|
– |
|
– |
Net exposure |
|
259 022 |
|
4 030 |
|
399 495 |
|
9 212 |
A 5% strengthening of the rand against the following |
|
|
|
|
|
|
|
|
currencies at 30 June would have decreased profit |
|
|
|
|
|
|
|
|
before tax by the following amounts: |
|
R’000 |
|
R’000 |
|
R’000 |
|
R’000 |
|
|
25 872 |
|
2 081 |
|
83 156 |
|
3 881 |
|
|
|
|
|
|
|
|
|
|
|
A 5% weakening of the rand against the above currencies at 30 June would have had an equal but opposite effect on the amounts shown above, on the basis that all other variables remain constant.
Forward exchange contracts
At year-end, the group had open forward exchange contracts in the amount of R4,9 million (2008: Nil) and a foreign subsidiary had forward commitments with regard to its inventory of ores, alloys and metals, which for accounting purposes are regarded as executory contracts and are therefore not included on the balance sheet, but can be summarised as follows: |
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
2008 |
|
|
|
|
Foreign |
|
Legal |
|
|
|
Foreign |
|
Legal |
|
|
|
|
currency |
|
currency |
|
|
|
currency |
|
currency |
|
|
|
|
notional |
|
notional |
|
|
|
notional |
|
notional |
|
|
|
|
amount |
|
amount |
|
Fair value |
|
amount |
|
amount |
|
Fair value |
|
|
USD’000 |
|
R’000 |
|
R’000 |
|
USD’000 |
|
R’000 |
|
R’000 |
Purchase contracts |
|
|
|
|
|
|
|
|
|
|
|
|
US dollar |
|
1 500 |
|
11 580 |
|
11 580 |
|
37 700 |
|
280 047 |
|
280 047 |
Sales contracts |
|
|
|
|
|
|
|
|
|
|
|
|
US dollar |
|
19 700 |
|
152 084 |
|
152 084 |
|
68 400 |
|
508 096 |
|
508 096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25.4 |
Fair value of financial assets and liabilities |
|
The categorisation of each class of financial asset and liability, including their fair values are included below: |
|
|
|
|
|
Available- |
|
|
|
Liabilities at |
|
Other |
|
Total |
|
|
|
|
|
|
for-sale |
|
Loans and |
|
amortised |
|
assets and |
|
carrying |
|
|
|
|
|
|
investments |
|
receivables |
|
cost |
|
liabilities |
|
value |
|
Fair value |
2009 |
|
Note |
|
R’000 |
|
R’000 |
|
R’000 |
|
R’000 |
|
R’000 |
|
R’000 |
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments |
|
5 |
|
415 066 |
|
|
|
|
|
– |
|
415 066 |
|
415 066 |
Other investments |
|
5 |
|
|
|
42 134 |
|
|
|
125 |
|
42 259 |
|
42 259 |
Trade and other receivables |
|
7 |
|
|
|
593 087 |
|
|
|
– |
|
593 087 |
|
593 087 |
Cash deposits held by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
environmental trusts |
|
|
|
|
|
47 739 |
|
|
|
– |
|
47 739 |
|
47 739 |
Cash resources |
|
24.6 |
|
|
|
3 001 328 |
|
|
|
– |
|
3 001 328 |
|
3 001 328 |
|
|
|
|
415 066 |
|
3 684 288 |
|
|
|
125 |
|
4 099 479 |
|
4 099 479 |
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing borrowings |
|
12 |
|
|
|
|
|
51 556 |
|
– |
|
51 556 |
|
51 556 |
Trade and other payables |
|
15 |
|
|
|
|
|
648 490 |
|
– |
|
648 490 |
|
648 490 |
Short-term borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and overdrafts |
|
17 |
|
|
|
|
|
1 623 843 |
|
– |
|
1 623 843 |
|
1 623 843 |
|
|
|
|
|
|
|
|
2 323 889 |
|
– |
|
2 323 889 |
|
2 323 889 |
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments |
|
5 |
|
590 066 |
|
|
|
|
|
– |
|
590 066 |
|
590 066 |
Other investments |
|
5 |
|
|
|
|
|
|
|
125 |
|
125 |
|
125 |
Trade and other receivables |
|
7 |
|
|
|
1 998 542 |
|
|
|
– |
|
1 998 542 |
|
1 998 542 |
Cash deposits held by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
environmental trusts |
|
|
|
|
|
36 942 |
|
|
|
– |
|
36 942 |
|
36 942 |
Cash resources |
|
24.6 |
|
|
|
1 952 015 |
|
|
|
– |
|
1 952 015 |
|
1 952 015 |
|
|
|
|
590 066 |
|
3 987 499 |
|
|
|
125 |
|
4 577 690 |
|
4 577 690 |
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing borrowings |
|
12 |
|
|
|
|
|
72 792 |
|
– |
|
72 792 |
|
72 792 |
Trade and other payables |
|
15 |
|
|
|
|
|
1 043 517 |
|
– |
|
1 043 517 |
|
1 043 517 |
Short-term borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and overdrafts |
|
17 |
|
|
|
|
|
2 621 489 |
|
– |
|
2 621 489 |
|
2 621 489 |
|
|
|
|
|
|
|
|
3 737 798 |
|
– |
|
3 737 798 |
|
3 737 798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Determination of fair values
Quoted market prices at reporting date have been used to determine the fair value of available-for-sale investments. Where quoted market prices were not available, a valuation technique, most commonly discounted cash flows, was used. For trade receivables and payables, the fair value was determined using the discounted cash flow method at market-related interest rate. Carrying amounts approximate fair value for all other financial assets and liabilities. |