Group

The Group’s principal financial liabilities comprise bank loans and trade payables. The main purpose of these financial liabilities is to raise finance for the Group’s operations. The Group has various financial assets, such as trade receivables and cash and short-term deposits, which arise directly from its operations.

The main risk arising from the Group’s financial instruments are cash flow interest rate risk, liquidity risk, foreign currency risk and credit risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below. The Group’s primary objective of risk management is to reduce the uncertainty over future cash flows.

Company

The Company’s principal financial assets comprise loans given to a subsidiary company and trusts detailed in note 6, and cash and short- term deposits, which arise directly from its investments. The main risks arising from the Company’s financial instruments are cash flow interest rate risk, liquidity risk and credit risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below.

The Company’s primary objective of risk management is to reduce the uncertainty over future cash flows.

Interest rate risk

The Company and Group’s exposure to the risk of changes in market interest rates relates primarily to the finance income generating ability of cash surpluses and finance cost of term funding. To manage this risk, management constantly reviews cash placements, and contracts in financial expertise to ensure preferential interest rates are obtained for surplus funding.

As part of the process of managing the Group’s interest rate risk, interest rate characteristics of new borrowings are positioned according to expected movements in interest rates.

Group

At the end of the financial year, the Group had term funding liabilities of R502 million (2019: R503 million) on its statement of financial position. The following table demonstrates the Group’s profit before tax sensitivity to a change in interest rates with all other variables held constant (through the impact of floating rate borrowings):

Company

The Company is not sensitive to fluctuations in interest rates.

Foreign currency risk

Group

As the Group operates in various countries and undertakes transactions denominated in foreign currencies, exposures to foreign currency fluctuations arise.

Approximately 15% (2019: 15%) of cost of sales are denominated in currencies other than the Group’s functional currency.

The Group requires all of its operating units to use forward currency contracts to eliminate the currency exposures on any individual transaction for which payment is anticipated on terms after the Group has entered into a firm commitment for a purchase, on any individual transaction for which payment is anticipated on terms after the Group has entered into a firm commitment for a purchase, for which no letter of credit has been issued. The forward currency contracts must be in the same currency as the purchased item. It is the Group’s policy not to enter into forward contracts until a firm commitment is in place.

It is the Group’s policy not to apply hedge accounting, or to trade in derivatives for profit making purposes.

Forward exchange contracts outstanding at the reporting date all fall due within two months (2019: two months), have a settlement value of R4 million (2019: R5 million) and are denominated in Euro, with an average exchange rate of R19,54:€1 (2019:R16,45:€1, R2,06:CNY1 and R14,19:US$1).

Exchange rates utilised to convert financial information are as follows:

The exposure and concentration of the Group’s foreign currency risk is included in the table below.

The following table illustrates the Group's sensitivity to a change in exchange rates with all other variables held constant:

Company

The Company has no exposure to foreign currency risk.

Credit risk

Credit risk arises from the risk that a counterparty may default or not meet its obligations timeously. A counterparty is considered to be in default when payment is 90 days past due.

Group

The Group trades only with recognised, creditworthy parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures, and, where appropriate, credit guarantee insurance is purchased.

In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is contained.

The maximum exposure is the carrying amount as disclosed in note 20. There is no significant concentration of credit risk within the Group, and trade receivables have been grouped based on shared credit risk characteristics to measure expected credit losses as disclosed in note 20.

The expected loss allowance as disclosed in note 20 is management’s best estimate of trade receivables at year end which will not be recovered. Amounts which are considered irrecoverable, usually following an extensive process to attempt to recover overdue amounts including legal steps, are written off. Aggregate write-offs for the year are disclosed in note 20 (shown as a utilisation in the loss allowance movement reconciliation for the year).

Details relating to the loss allowance split per ageing category of trade receivables as at 30 June 2020 is as follows:

^# Less than R1 million.

^# Less than R1 million.

With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments, as disclosed in note 21.

In terms of the Group’s Treasury policy, surplus cash balances may only be invested in liquid money-market instruments managed by predefined reputable counterparties. The external credit rating of those counter parties holding material surplus cash balances, is A1+ (according to rating agency GCRs rating scale).

Company

With respect to credit risk arising from the cash and cash equivalents, trade and other receivables and BEE-related loans, the Company’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments, as disclosed in notes 16, 20 and 21. There is no loss allowance recorded for these balances, and no write offs have occurred. Cash and cash equivalents are deposited with financial institutions with credit ratings as detailed above for the Group.

Liquidity risk

Group

The Group monitors its risk to a shortage of funds arising by using a recurring liquidity planning tool. This tool considers the maturity of both its financial liabilities and financial assets and projected cash flows from operations.

In terms of the Group’s Treasury policy, surplus cash balances may only be invested in liquid money market instruments managed by predefined reputable counterparties.

Adequate cash reserves are invested in a dividend income fund in order to match the repayment profile of debt. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts.

In terms of the MOI, the Company’s borrowing powers are unlimited.

The table below summarises the maturity profile of the Group’s financial liabilities at year end based on contractual undiscounted payments.

The Group has cash and cash equivalents of R860 million (2019: R1 201 million), and unutilised credit facilities of R250 million (2019: R375 million) in respect of which all conditions precedent had been met. All covenants on borrowings have been met.

Company

The Company monitors its risk to a shortage of funds arising by using a recurring liquidity planning tool. This tool considers the maturity of both its financial liabilities and financial assets and projected cash flows from investments.

In terms of the MOI the Company’s borrowing powers are unlimited.

The Company has cash and cash equivalents of R30 million (2019: R0,1 million), and no credit facilities. All liabilities are current.

Capital management

Group

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy ratios in order to support its business and maximise shareholder value.

The Group manages its capital structure (equity attributable to the equity holders) and makes adjustments to it in light of changes in economic conditions.

To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made to the objectives, policies or processes during the years ended 30 June 2020 and 2019.

The Group monitors capital using a gearing ratio which is defined as interest-bearing debt and borrowings as a percentage of equity attributable to the equity holders of the parent.