d
Annual financial statements statement 2015
Supplement to the integrated annual report 30 June 2015
MENU

GROUP FINANCIALS STATEMENTS

MENU Notes to the consolidated financial statements — for the year ended 30 June 2015

  1. Accounting policies
  2. Segment information
  3. Property, plant and equipment
  4. Exploration and evaluation assets
  5. Investment in equity-accounted entities
  6. Deferred tax
  7. Other financial assets
  8. Derivative financial instrument
  9. Prepayments
  10. Inventories
  11. Trade and other receivables
  12. Cash and cash equivalents
  13. Share capital
  14. Non-controlling interest
  15. Borrowings
  16. Other financial liabilities
  17. Sundry liabilities
  18. Provisions
  19. Trade and other payables
  20. Financial instruments and financial risk management
  21. Current tax
  22. Revenue
  23. Cost of sales
  24. Other operating income
  25. Other operating expenses
  26. Impairment
  27. Royalty (income)/expense
  28. Finance income
  29. Finance cost
  30. Other income
  31. Other expenses
  32. Income tax expense
  33. Earnings per share
  34. Dividends
  35. Cash generated from operations
  36. Contingent liabilities and guarantees
  37. Related-party transactions

20.  

Financial instruments and financial risk management  

20.1

  

Financial instruments

  
  The following table summarises the Group’s classification of financial instruments:  
    2015   2014  
    Rm   Rm  
 

Financial assets

    
 

Loans and receivables

 4 898   6 372  
  Loans carried at amortised cost (note 7)  116   145  
  Trade receivables (note 11)  752   589  
  Advances (note 11)  699   643  
  Other receivables (note 11)  404   263  
  Employee receivables (note 11)  330   427  
  Cash and cash equivalents (note 12)  2 597   4 305  
 

Financial instruments at fair value through profit or loss  

    
  Derivative financial instruments (note 8)  630   332  
 

Held-to-maturity financial assets (note 7) 

 38   35  
 

Available-for-sale financial assets (note 7) 

 27   54  
 

Total financial assets  

 5 593   6 793  
 

Financial liabilities  

    
 

Financial liabilities at amortised cost  

 12 905   11 626  
  Borrowings (note 15)  8 076   7 787  
  Commitments (note 16)  74   84  
  Trade payables (note 19)  4 751   3 733  
  Other payables (note 19)  4   22  
 

Financial instruments at fair value through profit or loss  

    
  Derivative financial instruments (note 16)  —   18  
  Total financial liabilities   12 905   11 644  
 

Fair value  
  IFRS establishes a fair value hierarchy that categorises the inputs to valuation techniques used to measure fair value into three levels:  
Level 1 – Quoted prices in active markets for the same instrument.  
Level 2 – Valuation techniques for which significant inputs are based on observable market data.  
Level 3 – Valuation techniques for which any significant input is not based on observable market data.  

  The following financial instruments are carried at fair value:  
  Financial instrument   Fair value   Fair value  
hierarchy  		 Valuation technique and key inputs
2015   2014  
 
Available-for-sale financial assets  
        
  – Listed securities   27   54   Level 1   Quoted market price for the same instrument.
 
Financial instruments at fair value through profit
or loss
        
  – Derivative financial instrument – CCIRS   630   332   Level 2   Discounted cash flow. Risk-free ZAR interest rate, risk-free
US$ interest rate, US$ exchange rate.
  – Derivative financial instrument – Conversion option   —   18   Level 2   Binomial option model. Implats share price, Implats share
volatility, US$ exchange rate,
risk-free US$ interest rate.
  There have been no transfers between fair value hierarchy levels in the current year.  
  The carrying amount of financial assets and liabilities which are not carried at fair value, is a reasonable approximation of their fair value.  

  Financial instrument income/(expenses):  
    2015   2014  
    Rm   Rm  
  Net fair value movement on derivative financial instruments   229   165  
  Net fair value movement on available-for-sale financial assets      
  Recognised in other comprehensive income   (27)  (56) 
  Finance income for financial assets using effective-interest method   134   316  
  Finance expense for financial assets using effective-interest method   (600)  (568) 
  Impairment of loans and receivables   (81)  (71) 

20.2  

Financial risk management  
 

Introduction  
  The Group’s activities expose it to a variety of financial risks, market risk (including currency risk, fair value and cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group, from time to time, uses derivative financial instruments to hedge certain risk exposures.  
  Financial risk management is carried out by a central treasury department. Policies are approved by the board of directors, which sets guidelines to identify, evaluate and hedge financial risks in close co-operation with the Group’s operating units. The risk and audit committees approve written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investing excess liquidity.  
  Sovereign risk arises from foreign government credit risk, the risk that a foreign central bank or government will impose exchange regulations and the risk associated with negative events relating to taxation policy or other changes in the business climate of a country. These risks are monitored by management by actively engaging with both local and foreign government officials and by operating within the set frameworks.  
20.2.1  
Market risk  
 
Foreign exchange risk  
  The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar. Foreign exchange risk arises from future commercial transactions and recognised financial assets and liabilities.  
  To manage foreign exchange risk arising from future commercial transactions and recognised financial assets and liabilities, the Group, from time to time, uses forward exchange contracts within board-approved limits.  
  The Group entered into a Cross Currency Interest Rate Swap (CCIRS) amounting to US$200 million to hedge certain aspects of the foreign exchange risk on the US$ convertible bonds. The exchange rate risk on the dollar interest payments is hedged and the risk relating to future capital cash settlement of the bonds at a rand/dollar exchange rate weaker than R9.24/US$ is hedged. No hedge accounting has been applied. Excluding the foreign exchange effect of dollar interest rate change, a 10% movement in the exchange rate will result in a R243 (June 2014: R213) million profit or loss on the capital portion of the hedge, which offsets the borrowing (US$ bond) exposure in the sensitivity analysis below.  
 
Sensitivity analysis  
  Foreign exchange risk sensitivity analysis presents the effect of a 10% change in the year-end exchange rate on financial instruments denominated in US dollar in profit or loss. The US dollar exposure below excludes companies who’s functional currency is US dollar.  

    Year-end US$ exposure   Profit/loss effect  
    2015   2014   2015   2014  
    US$m   US$m   Rm   Rm  
 

Financial assets  

        
  Trade and other receivables   73   70   ±89   ±74  
  Cash and cash equivalents   4   11   ±5   ±12  
 

Financial liabilities  

        
  Borrowings   (190)  (186)  ±231   ±198  
  Trade and other payables   (187)  (193)  ±228   ±205  
    (300)  (298)  ±365   ±317  
  ± Refers to an inflow or outflow of economic resources. Figures are calculated before tax and non-controlling interest thereon.  
 
Securities price risk  
  The Group is exposed to insignificant equity securities price risk because of available-for-sale financial assets held by the Group.  
 
Commodity price risk  
  Commodity price risk refers to the risk of changes in fair value or cash flow of financial instruments as a result of commodity prices where the Group holds forward sales contracts, metal purchase commitments, included in trade and other payables which are determined with reference to commodity prices. This exposes the Group to commodity price risk.  
  From time to time, the Group enters into metal forward sales contracts, options or lease contracts to manage the fluctuations in metal prices, thereby preserving and enhancing its cash flow streams.  
 
Sensitivity analysis  
  Commodity price risk sensitivity analysis presents the effect of a 10% change in the commodity prices on commodity-based financial instruments in profit or loss.  
           
    Year-end commodity exposure   Profit/loss effect  
    2015   2014   2015   2014  
    Rm   Rm   Rm   Rm  
 

Financial assets  

 —   —   —   —  
 

Financial liabilities  

        
  Trade and other payables   (2 350)  (2 057)  ±235   ±206  
    (2 350)  (2 057)  ±235   ±206  
  ± Refers to an inflow or outflow of economic resources. Figures are calculated before tax and non-controlling interest thereon.  

 
Interest rate risk  
  The Group is exposed to fair value interest rate risk in respect of fixed rate financial assets and liabilities. Movement in interest rates will have an impact on the fair value of these instruments but will not affect profit or loss as these financial assets and liabilities are carried at amortised cost using the effective interest method.  
  Fixed interest rate exposure:  
    2015   2014  
    Rm   Rm  
 

Financial assets  

    
  Loans carried at amortised cost (note 7)  74   128  
 

Financial liabilities  

    
  Borrowings (note 15)  (4 812)  (4 410) 
    (4 738)  (4 282) 
  The Group is exposed to cash flow interest rate risk in respect of its variable rate financial assets and liabilities.  
  The Group monitors its exposure to fluctuating interest rates. Cash and cash equivalents and rehabilitation trust investments are primarily invested with short-term maturity dates, which expose the Group to cash flow interest rate risk.  
 
Sensitivity analysis  
  Cash flow interest rate risk sensitivity analysis presents the effect of a 100 basis points up and down fluctuation in the interest rate in profit or loss.  
    Variable interest rate exposure   Profit/loss effect  
    2015   2014   2015   2014  
    Rm   Rm   Rm   Rm  
 

Financial assets  

        
  Held-to-maturity financial assets (note 7)  38   35   ±0   ±0  
  Loans carried at amortised cost (note 7)  42   12   ±0   ±0  
  Trade and other receivables (note 11)  699   643   ±7   ±6  
  Cash and cash equivalents (note 12)  2 597   4 148   ±26   ±41  
 

Financial liabilities  

        
  Borrowings (note 15)  (1 879)  (1 995)  ±19   ±20  
    1 497   2 843   ±14   ±27  
  ± Refers to an inflow or outflow of economic resources. Figures are calculated before tax and non-controlling interest thereon.  
20.2.2  
Credit risk  
  Credit risk arises from the risk that the financial asset counterparty may default or not meet its obligations timeously. The Group minimises credit risk by ensuring that the exposure is spread over a number of counterparties.  
  The maximum exposure to the credit risk is represented by the carrying amount of all the financial assets and the maximum amount the Group could have to pay if the guarantees are called on (note 36).  
  There is no material concentration of credit risk in cash and cash equivalents, trade and other receivables and loans.  
 
Cash and cash equivalents  
  The Group has policies that limit the amount of credit exposure related to cash and cash equivalents to any single financial institution by only dealing with well-established financial institutions of high credit quality standing. The credit exposure to any one of the counterparties is managed by setting exposure limits which are approved by the board.  

    Exposure  
    2015   2014  
  Banks’ credit ratings   Rm   Rm  
 
South African operations  
    
  AA (zaf)  1 681   2 826  
  A+ (zaf)  15   1 062  
 
Overseas operations  
    
  AA (zaf)  901   417  
    2 597   4 305  
  Credit risk on cash and cash equivalents is analysed further in note 12.  
 
Trade and other receivables  
  The Group has policies in place to ensure that the sales of products are made to customers with an appropriate credit history. Trade debtors comprise a number of customers, dispersed across different geographical areas. Credit evaluations are performed on the financial condition of these and other receivables from time to time. Trade receivables are presented in the statement of financial position net of any provision for impairment. No trade receivables are past due.  
  Advances are made to customers based on toll refining “in-process metal”. Credit risk on advances where sufficient in-process metal creditors serve as collateral is low (note 11).  
  The table below provides an analysis of the Group’s customer mix:  
    New   2 years   From   Longer than    
    customers   and less   2 to 5 years   5 years   Total  
 

Financial year 2015  

          
  Number of customers   3   1   4   67   75  
  Value at year end (R million)  —   —   347   1 104   1 451  
 

Financial year 2014  

          
  Number of customers   1   2   3   65   71  
  Value at year end (R million)  —   44   418   770   1 232  

  No customers are in default at year end (2014: nil).  
  Credit risk exposure in respect of trade receivables and advances is analysed further in note 11.  
  Credit risk exposure in respect of employee receivables is limited taking the employee’s annual earnings into account.  
  Only an insignificant amount of these employee receivables are past due, as a result of employees having left the employment of the Group.  
 

Loans  
  Credit risk relating to loans mainly consists of employee housing loans. These loans are secured by a second bond over residential properties.  
  No loans are past due.  

20.2.3  
Liquidity risk  
  Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group has undrawn general banking facilities with various financial institutions as indicated below. Of these facilities, R3.0 (2014: R3.0) billion were committed facilities at year end.  
 

Credit limit facilities – South African banks  
    Credit limit facilities  
    2015   2014  
  Banks’ credit ratings   Rm   Rm  
  AA (zaf)  2 250   2 250  
  AAA (zaf)  750   750  
  A+ (zaf)  500   500  
  No rating   300   —  
    3 800   3 500  
  R nil (2014: R nil) million of these facilities had been drawn down at year end. These facilities are renewed annually.  
 

Credit limit facilities – Foreign banks  
    Credit limit facilities  
    2015   2014  
  Banks’ credit ratings   Rm   Rm  
  AA (zaf)  292   255  
  R85 (2014: R nil) million of these facilities had been drawn down at year end. These facilities are renewed annually.  
  Management regularly monitors rolling forecasts of the Group’s liquidity reserve comprising undrawn borrowing facilities and cash and cash equivalents (note 12) on the basis of expected cash flows.  

  The table below analyses the Group’s financial liabilities and derivative financial liabilities into the relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date.  
  Financial assets relevant to the understanding of future cash flow related to financial liabilities have been disclosed below:  
   
    Total  
carrying  
amount  		 Contractual   
interest   		 Total  
undiscounted  
contractual  
cash flow  		 Less than  
1 year  		 Between  
1 and  
2 years  		 Between  
2 and  
5 years  		 Over  
5 years  
    Rm   Rm    Rm   Rm   Rm   Rm   Rm  
 

At June 2015  

              
 

Financial assets  

              
  Loans carried at amortised cost (note 7)  116   51     167   35   15   27   90  
  Derivative financial instruments (note 8)  630   (456)* 174   (87)  (87)  348   —  
  Trade and other receivables (note 11)  2 184   —     2 184   2 184   —   —   —  
  Cash and cash equivalents (note 12)  2 430   —     2 430   2 430   —   —   —  
 

Financial liabilities  

              
  Borrowings (note 15)  8 076   2 501     10 577   852   755   6 405   2 565  
  Other financial liabilities (note 16)  74   16     90   26   64   —   —  
  Trade and other payables (note 19)  4 755   —     4 755   4 755   —   —   —  
 

At June 2014  

              
 

Financial assets  

              
  Loans carried at amortised cost (note 7)  145   68    213   14   9   26   164  
  Derivative financial instruments (note 8)  332   (462)* (130)  (89)  (89)  48   —  
  Trade and other receivables (note 11)  1 695   —    1 695   1 695   —   —   —  
  Cash and cash equivalents (note 12)  4 148   —    4 148   4 148   —   —   —  
 

Financial liabilities  

              
  Borrowings (note 15)  7 787   2 916    10 703   724   713   6 447   2 819  
  Other financial liabilities (note 16)  84   24    108   28   26   54   —  
  Trade and other payables (note 19)  3 755   —    3 755   3 755   —   —   —  
  * Represent the net cash flow of interest payment and receipts as well as the net swap in respect of future capital.