GENERAL
Risk management is a priority issue because it affects every part of the business. It is pre-emptive process that allows the Group and Company to assess and analyse risk in an integrated fashion, identifying potential areas in advance and then to proactively create processes and measures for compliance.

Fundamentally, the Board’s responsibility in managing risk is to protect the Group’s employees, its policyholder and the Group in every facet. It fully accepts overall responsibility for risk management and internal control and in so doing the Board has deployed effective control mechanisms to prevent and mitigate the impact of risk.

Primary responsibility for risk management at an operational level rests with the Executive Committee. Management and various specialist Committees are tasked with integrating the management of risk into the day-to-day activities of the Group and Company. Refer to the Corporate Governance statement for more detail regarding the Committee’s involved in risk management.

The Group and Company’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.

Refer to Note 9 for classes of financial assets and liabilities.

MARKET RISK
CURRENCY RISK
Currency risk arises when future commercial transactions, recognised assets and liabilities are denominated in a currency that is not the Group’s functional currency.

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group’s foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies.

The Group is not exposed to any currency risk in relation to its foreign operations in Namibia and Swaziland as the currencies of these countries are fixed to the South African Rand.

The most significant exposure is to the Mauritian Rupee, the Euro and US Dollar as a result of translation risk. The impact of currency risk on the statement of comprehensive income amounted to a profit (foreign currency gains) of R4.823 million (June 2015: R0.867 million).

At 30 June 2016, if the currency had weakened/ strengthened by 10% against the Mauritian Rupee with all other variables held constant, post-tax profit for the year would have been R331 261 lower/higher, mainly as a result of foreign exchange gains/losses on translation of the Mauritian operations.

At 30 June 2016,if the currency had weakened/ strengthened by 10% against the Euro with all other variables held constant, post-tax profit for the year would have been R407 496 lower/higher, mainly as a result of foreign exchange gains/losses on translation of the International operations.

At 30 June 2016,if the currency had weakened/ strengthened by 10% against the Dollar with all other variables held constant, post-tax profit for the year would have been R2 114 397 lower/higher, mainly as a result of foreign exchange gains/losses on translation of the Zimbabwean operations.

PRICE RISK
The Group and Company is exposed to equity securities price risk due to its investment in Jasco Electronics Holdings Limited and the collective investment schemes where participatory interest units are held. As such, the fair value of the investments is affected by changes in the share price. The Company’s own shares are also listed on the Johannesburg Stock Exchange.

To manage the price risk the Group and Company’s investment committee reviews its investments regularly to ensure that the downside price risk is mitigated.

The table below summaries the impact of an increase/decrease of the share price of Jasco Electronics Holdings Limited on the post-tax profit of the Group and Company.

The table below summaries the impact of an increase/decrease of the share price of Collective Schemes on the post-tax profit of the Group and Company.

CASH FLOW AND FAIR VALUE INTEREST RATE RISK
The Group’s and Company’s interest rate risk arises from interest bearing instruments and fixed deposits.

The Group and Company has used a sensitivity analysis technique that measures the estimated change to the statement of comprehensive income and equity of an instantaneous increase of 1% (100 basis points) in the market interest rates for each class of financial instrument with all other variables remaining constant. The sensitivity analysis excludes the impact of market risks on net post-employment benefit obligations.

Under these assumptions, a 1% increase in market interest rates at 30 June 2016 would increase Group profit before tax by approximately R3 587 000 (June 2015: R2 613 000) and Company profit before tax by approximately R3 600 000 (June 2015: R340 000).

CREDIT RISK
Credit risk arises from cash and cash equivalents and other investments, that is, deposits with banks and financial institutions, as well as credit exposures to clients, including outstanding receivables and committed transactions. The trade and other receivables from the WAD acquisition are receivable from medical schemes in 14 days. For banks and financial institutions only independently rated parties with a minimum rating of ‘BBB’ are accepted (please refer to 9.6). If clients do not have an independent rating, risk control assesses the credit quality of the client, taking into account its financial position, past experience and other factors. Credit risk is managed at both the Group and Company level.

A significant portion of the Group’s and Company’s client base comprises high-credit quality financial institutions. The “Healthcare business” has under agreement the authority to draw funds due and payable to it directly from the bank accounts of certain medical schemes using a collection module. Revenue from medical schemes is therefore settled in cash.

No credit limits were exceeded during the reporting period and management does not expect any losses from non-performance by these counterparties.

LIQUIDITY RISK
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities to meet debt repayment and operating requirements. Management monitors the cash position on a daily basis from a group and company level. Due to the dynamic nature of the underlying businesses, management flexibility in funding by keeping committed credit facilities available.

The contingent consideration will be settled by the issuance of shares and as such will not place a liquidity burden on the Group.

Management monitors rolling forecasts of the liquidity reserve on the basis of expected cash flow.

The table below analyses all cash flows from the financial liabilities into the time buckets in which that are contractually due to be paid:

TIME BUCKETS APPLICABLE TO THE GROUP

TIME BUCKETS APPLICABLE TO THE COMPANY

The table below analyses all undiscounted cash flows from financial assets into the time buckets that they are contractually due to be received.

TIME BUCKETS APPLICABLE TO THE GROUP

The carrying amount of all the financial assets and liabilities approximate the fair value.

TIME BUCKETS APPLICABLE TO THE COMPANY

The accounting policies for the Group’s financial instruments have been applied to the line items below:

The carrying value of loans and receivables and financial liabilities at amortised cost approximates the fair value and as a result the fair values have not been disclosed in the fair value hierarchy.

CAPITAL RISK MANAGEMENT
The objective of the Group and Company when managing capital is to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

Consistent with others in the industry, the Group Company monitors cash flow on the basis of the gearing ratio. This ratio is calculated as long-term debt divided by total capital employed. Total capital employed is calculated as ‘Equity’ as shown in the Statement of financial position plus long-term debt.

During 2016, the Group’s and Company’s strategy, which was unchanged from 2015, was to maintain the gearing ratio within 0% to 15%.

The gearing ratios at 30 June 2016 and 30 June 2015 respectively are as follows: