General
Risk management is a priority issue because it affects every part of the business. It is a pre-emptive process that allows the
Group and Company to assess and analyse risk in an integrated fashion, identify potential areas in advance and then
proactively create processes and measures for compliance.
Fundamentally, the Board’s responsibility in managing risk is to protect the Group’s employees, stakeholders 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 in the Annual Integrated Report for more detail regarding the
Committees involved in risk management.
The Healthcare and Administration business activities are exposed to a variety of financial risks:
- Market risk
- Credit risk
- Liquidity risk
The Group’s 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.
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 and US Dollar as a result of translation risk. The impact of currency risk
on the statement of other comprehensive income amounted to a profit/(loss) (foreign currency gains/(losses)) of
-R3.573 million (June 2016: R4.823 million).
At 30 June 2017, 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 R446 164 lower/higher, mainly as a result of foreign exchange
gains/losses on translation of the Mauritian operations.
At 30 June 2017, 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 R369 499 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. 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.
Fair value risk
The Group and Company investments in collective share investment schemes are subject to the terms and conditions of the
respective collective share investment schemes offering documentation and are susceptible to market price risk arising from
uncertainties about future values of those collective share investment schemes. The investment manager makes investment
decisions after extensive due diligence of the underlying fund, its strategy and the overall quality of the underlying fund’s
manager. All of the collective share investment schemes in the investment portfolio are managed by portfolio managers who
are compensated by the respective collective share investment schemes for their services. Such compensation generally
consists of an asset-based fee and a performance-based incentive fee and is reflected in the valuation of the Group’s
investment in each of the collective share investment schemes.
The right of the Group to request redemption of its investments in collective share investment schemes ranges in frequency
from weekly to annually.
The exposure to investments in collective share investment schemes at fair value by strategy employed is disclosed in the
following table at 30 June 2017. These investments are included in financial assets at fair value through profit or loss in the
statement of financial position.
| Strategy |
Number of
collective
investment
schemes |
Net asset
value of
collective
investment
schemes |
Investment
fair value |
|
| Multi-strategy |
6 |
93 459 098 960 |
327 718 813 |
|
The Group’s maximum exposure to loss from its interests in collective share investment schemes is equal to the total fair
value of its investments in collective share investment schemes.
Once the Group has disposed of its shares in a collective share investment scheme, it ceases to be exposed to any risk from
that collective share investment scheme.
Total purchases in collective share investment schemes during the year ended 30 June 2017 was R35 508 000. As at
30 June 2017 and 30 June 2016, there were no capital commitment obligations and no amounts due to collective share
investment schemes for unsettled purchases.
During the year ended 30 June 2017, total net gains on investments in collective share investment schemes were
R21 848 669.
To manage the price risk the Group’s and Company’s investment committee reviews its investments regularly to ensure that
the downside price risk is mitigated and assesses the economic environment to make informed decisions.
The table below summarises the impact of an increase/decrease of the share price of collective share investment schemes
on the post-tax profit of the Group and Company:
| Change in percentage share price |
Increase on
post-tax profit |
Decrease on
post-tax profit |
|
| 5% increase/(decrease) |
14 562 535 |
(14 562 535) |
|
| 10% increase/(decrease) |
29 125 071 |
(29 125 071) |
|
| 15% increase/(decrease) |
43 687 606 |
(43 687 606) |
|
The table below summarises 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:
| Change in percentage share price |
Increase on
post-tax profit |
Decrease on
post-tax profit |
|
| 5% increase/(decrease) |
1 814 816 |
(1 814 816) |
|
| 10% increase/(decrease) |
3 629 631 |
(3 629 631) |
|
| 15% increase/(decrease) |
5 444 447 |
(5 444 447) |
|
Cash flow and fair value interest rate risk
The Group does not have any external borrowings and is therefore not exposed to downside interest rate risk.
The Group and Company’s interest income arises from interest-bearing instruments and fixed deposits. The Group’s Treasury
manages excess funds on a daily basis into call/deposit accounts to ensure that the best yield is obtained for the Group.
The Group and Company have 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.
| |
| Instruments exposed |
Increase in
1% on
statement of
comprehensive
income
R’000 |
|
Increase in
1% on
statement of
comprehensive
income
R’000 |
|
| June 2017 |
|
|
|
|
| Bank balances and short-term investments |
3 982 |
|
591 |
|
| Financial assets at amortised cost |
799 |
|
799 |
|
| Total |
4 781 |
|
1 390 |
|
|
| June 2016 |
|
|
|
|
| Bank borrowings |
(461) |
|
– |
|
| Bank balances and short-term investments |
1 052 |
|
604 |
|
| Financial assets at amortised cost |
2 996 |
|
2 996 |
|
| Total |
3 587 |
|
3 600 |
|
Under these assumptions, a 1% increase in market interest rates at 30 June 2017 would increase Group profit before tax
by approximately R4 781 000 (June 2016: R3 587 000) and Company profit before tax by approximately R1 390 000
(June 2016: R3 600 000).
Credit risk
Credit risk arises from cash and cash equivalents and other investments, i.e. 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 Healthcare Assets 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 Note 9.5).
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 levels.
A significant portion of the Group 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.
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 the Group and Company levels. Due to the dynamic nature of the underlying
businesses, management maintains 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 they are contractually due to
be paid:
Time buckets applicable to the Group
| |
| |
Less than
3 months or
on demand
R’000 |
More than
3 months
but not
exceeding
6 months
R’000 |
More than
6 months
but not
exceeding
9 months
R’000 |
More than
6 months
but not
exceeding
1 year
R’000 |
Between 1
to 2 years
R’000 |
Between 2
to 3 years
R’000 |
Total
R’000 |
|
| June 2017 |
|
|
|
|
|
|
|
|
| Trade and other
payables |
258 304 |
2 030 |
2 030 |
2 030 |
– |
– |
264 394 |
|
|
| June 2016 |
|
|
|
|
|
|
|
|
| Trade and other payables |
379 759 |
1 090 |
1 090 |
1 090 |
– |
– |
383 029 |
|
Time buckets applicable to the Company
| |
| |
Less than
3 months or
on demand
R’000 |
More than
3 months
but not
exceeding
6 months
R’000 |
More than
6 months
but not
exceeding
9 months
R’000 |
More than
6 months
but not
exceeding
1 year
R’000 |
Between 1
to 2 years
R’000 |
Between 2
to 3 years
R’000 |
Total
R’000 |
|
| June 2017 |
|
|
|
|
|
|
|
|
| Loans from Group
companies |
10 242 |
– |
– |
– |
– |
– |
10 242 |
|
| Trade and other
payables |
3 103 |
5 357 |
5 357 |
5 357 |
– |
– |
19 174 |
|
|
| June 2016 |
|
|
|
|
|
|
|
|
| Loans from Group
companies |
44 477 |
– |
– |
– |
– |
– |
44 477 |
|
| Trade and other
payables |
1 181 |
1 986 |
1 986 |
1 986 |
– |
– |
7 139 |
|
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
| |
| |
Less than
3 months
or on
demand
R’000 |
More than
3 months
but not
exceeding
6 months
R’000 |
More than
6 months
but not
exceeding
9 months
R’000 |
More than
6 months
but not
exceeding
1 year
R’000 |
Between
1 to 2
years
R’000 |
Between
2 to 3
years
R’000 |
Total
R’000 |
|
| June 2017 |
|
|
|
|
|
|
|
|
| Trade and other receivables |
265 052 |
15 967 |
15 967 |
23 250 |
– |
– |
320 236 |
|
| Cash and cash equivalents |
361 738 |
– |
– |
– |
– |
– |
361 738 |
|
| Financial assets at fair value through profit and loss |
– |
– |
276 743 |
– |
– |
59 976 |
336 719 |
|
| Financial assets at amortised cost |
– |
79 892 |
– |
– |
– |
– |
79 892 |
|
|
| June 2016 |
|
|
|
|
|
|
|
|
| Trade and other receivables |
325 550 |
8 942 |
8 942 |
21 570 |
– |
– |
365 004 |
|
| Cash and cash equivalents |
373 068 |
– |
– |
– |
– |
– |
373 068 |
|
| Financial assets at fair value through profit and loss |
– |
– |
– |
– |
– |
268 173 |
268 173 |
|
| Financial assets at amortised cost |
– |
– |
– |
– |
143 761 |
– |
143 761 |
|
* This includes pre-payments and deposits. These are not considered ‘past due’ as no repayment terms are applicable to them.
The carrying amount of all the financial assets and liabilities approximate the fair value.
Time buckets applicable to the Company
| |
| |
Less than
3 months
or on
demand
R’000 |
More than
3 months
but not
exceeding
6 months
R’000 |
More than
6 months
but not
exceeding
9 months
R’000 |
More than
6 months
but not
exceeding
1 year
R’000 |
Between
1 to 2
years
R’000 |
Between
2 to 3
years
R’000 |
Total
R’000 |
|
| June 2017 |
|
|
|
|
|
|
|
|
| Trade and other receivables |
280 |
– |
– |
– |
– |
– |
280 |
|
| Cash and cash equivalents |
22 699 |
– |
– |
– |
– |
– |
22 699 |
|
| Financial assets at fair value through profit and loss |
– |
– |
276 743 |
– |
– |
59 976 |
336 719 |
|
| Financial assets at amortised cost |
– |
79 892 |
– |
– |
– |
– |
79 892 |
|
|
| June 2016 |
|
|
|
|
|
|
|
|
| Trade and other receivables |
815 |
– |
– |
– |
– |
– |
815 |
|
| Cash and cash equivalents |
145 884 |
– |
– |
– |
– |
– |
145 884 |
|
| Financial assets at fair value through profit and loss |
– |
– |
– |
– |
– |
268 173 |
268 173 |
|
| Financial assets at amortised cost |
– |
– |
– |
– |
143 761 |
– |
143 761 |
|
The accounting policies for the Group’s financial instruments have been applied to the line items below:
Description per the statement of financial position
| |
|
|
|
| |
|
|
|
June 2016
R’000 |
|
June 2016
R’000 |
|
| |
Fair
value |
Amortised
cost |
|
Carrying
value |
|
Carrying
value |
|
| Loans and receivables |
|
|
|
|
|
|
|
|
|
|
|
| Trade and other receivables |
|
√ |
|
320 236 |
|
365 004 |
|
280 |
|
815 |
|
| Cash and cash equivalents |
|
√ |
|
361 738 |
|
373 068 |
|
22 699 |
|
145 884 |
|
| Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
| Trade and other payables |
|
√ |
|
264 394 |
|
383 029 |
|
19 174 |
|
7 139 |
|
| Contingent consideration |
√ |
|
|
194 475 |
|
134 893 |
|
194 475 |
|
134 893 |
|
| Deferred payment |
|
√ |
|
5 051 |
|
– |
|
– |
|
– |
|
|
|
|
|
|
|
|
|
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. The Group is not subject to external capital requirements.
Consistent with others in the industry, the Group and 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. The Group is not subject to long-term debt as it does not
have any external capital requirements.
During 2017, the Group and Company’s strategy, which was unchanged from 2016, was to maintain the gearing ratio within
0% to 15%.
The gearing ratios at 30 June 2017 and 30 June 2016 respectively are as follows:
| |
| |
June 2016
R’000 |
|
June 2016
Restated*
R’000 |
|
| Total long-term borrowings |
– |
|
– |
|
– |
|
– |
|
| Total equity |
2 379 053 |
|
1 563 582 |
|
678 058 |
|
851 005 |
|
| Total capital employment |
2 379 053 |
|
1 563 582 |
|
678 058 |
|
851 005 |
|
| Gearing ratio |
– |
|
– |
|
– |
|
– |
|
| Adjusted to include short-term borrowings: |
|
|
|
|
|
|
|
|
| Total borrowings |
– |
|
– |
|
– |
|
– |
|
| Total equity |
2 379 053 |
|
1 563 582 |
|
678 058 |
|
851 005 |
|
| Total capital employed |
2 379 053 |
|
1 563 582 |
|
678 058 |
|
851 005 |
|
| Gearing ratio (including short-term borrowings) |
– |
|
– |
|
– |
|
– |
|
|
|
|
|
|
|