Financial instruments by category

Trade receivables that are less than 90 days are not considered for impairment. As of 30 June 2018, trade receivables of R110.4 million (2017: R64.5 million) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default and are expected to be recoverable.

Ageing of trade and other receivables (R’000):

Movement in the provision for impairment of trade receivables are as follows:

No ageing is applicable to the other categories within trade and other receivables. However, all trade and other receivables of the Company are current or due on demand.

The majority of the Group’s client base, comprises large medical healthcare providers for open schemes and listed blue chip companies with regards to closed medical schemes. Amounts invoiced to these clients are immediately recoverable after month end and before the fifth working day of the new month, therefore the risk of non-recovery is very low.

Provisions for impairment are raised when there is evidence that amounts are not recoverable in full or part from the debtor. Disputed claims and long outstanding debts are usually indicators of non-recovery. The Group does not raise a general provision for all outstanding debtors due to the high quality of its debtors and a good repayment history. The provision raised above relates to specific debtors.

The creation and release of provision for impaired receivables have been included in ‘other expenses’ in the statement of comprehensive income. Amounts charged to the allowance account are generally written off, when there is no expectation of recovering additional cash.

The other classes within trade and other receivables, detailed in note 8.2 do not contain impaired assets.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security.

* Prepayments are not financial instruments but are included in trade and other receivables.

All receivables are current. The carrying amounts of all trade and other receivables approximate fair value.

Refer to note 8.1 for ageing of trade and other receivables

Management has assessed the likelihood of non-recovery of outstanding amounts due from its associates and determined that no impairment is necessary due to the fact that all associates are profitable or will be profitable in the foreseeable future.

Classification of investment as available for sale

The investment in AAR was accounted for as an available for sale financial instrument as management intends to hold the investment for the medium to long term and is not held for trading. Due to certain performance conditions not being met there was a clawback and impairment in the current year resulting in the decrease in the shareholding from 3% to 1.78%.

Significant estimates

The fair value of the investment in AAR Insurance Holdings Kenya is not traded in an active market and as a result is determined using valuation techniques. The Group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of the reporting period. Refer to note 8.6 for further details on fair value

The ratings for ABSA Bank Limited, Nedbank Limited and Standard Bank Limited were obtained from Moody’s.

The ratings for Sasfin Limited and Bank Windhoek Limited were obtained from Global Credit Rating Company.

The rating scores are based on the following broad investment grade definitions:

* Short-term deposits relate to cash at the year end deposited into specific bank accounts.

For purposes of the statement of cash flows, the year-end cash and cash equivalents comprise the following:

* All trade and other payables are current and are expected to be settled within the next 12 months. The carrying values at the year end approximate their fair values.

Fair value hierarchy

The following hierarchy is used to classify financial and non-financial instruments for fair value measurement purposes:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – Inputs other than quoted prices included within level that are observable for the asset or liability either directly (that is, as prices) or indirectly (that is, derived from prices).

Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. The significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

The following table presents the groups assets and liabilities that are measured at fair value at 30 June 2018:

Specific valuation techniques used to value financial and non-financial instruments include:

• the use of quoted market prices or dealer quotes for similar instruments. The Jasco Electronics share price was obtained from the Johannesburg Stock Exchange (JSE);
• the fair value of the collective investment schemes is determined using the current unit price of underlying unitised asset, multiplied by the number of units held;
• the fair value of the remaining financial instruments is determined using discounted cash flow analysis and P/E ratios; and
• The fair value of the investment property is determined by using the comparable sales method.

The assets disclosed above that have been classified as a Level 3 financial and non-financial instruments i.e. the inputs are not based on observable market data. The carrying amount of all assets in the table above approximates the fair value of the assets.

Group fair value measurements using significant unobservable inputs (Level 3):

Valuation inputs and relationships to fair value

Investment in AAR

The fair value of the investment in AAR Insurance Holdings is derived by price earnings ratio using the most recent financial information available to AfroCentric Investment Corporation Limited. Management are satisfied that valuation of the investment in the AAR represents an amount equal to the fair value.

Investment property

The fair value of the investment property is derived by an external property valuer using the comparable sales method. In applying this approach the valuer has selected other properties that have similar risk, growth and cash-generatingprofiles. Management reviews the valuation performed by the external valuer and is satisfied that the inputs used by the external property valuer are reasonable. The investment property is valued on an annual basis.

Contingent consideration

The fair value of the contingent consideration was determined by the ACT share price at 2017 year end, multiplied by the number of shares to be issued. The number of shares to be issued is stipulated in the shareholders agreement which is derived from the actual profits generated from Glen Eden. Under the contingent consideration arrangement, AfroCentric Investment Corporation Limited was required to issue WAD Holdings Proprietary Limited an additional 31 366 977 shares based on the above. R194.5 million was the estimated fair value of this obligation and was settled in cash and not shares the current financial year as cash was selected.

The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value measurements.

Valuation process

The finance department of the group performs the valuations of the investments for financial reporting purposes, including level 3 fair values (excluding the investment property). The team reports directly to the Chief Financial Officer (“CFO”). Discussions of the valuation processes and results are held between the CFO and the Group Finance at year end to determine the fair value of investments unless there is an indication of impairment which will result in a write-off of the investment in that point in time.

Financial assets at fair value through profit and loss

In the current financial year the Company and Group had funds in the following investments, namely:

• STANLIB Extra Income Fund
• NedGroup Core Income Fund
• Coronation Strategic Income Fund
• Prescient Income Proper Fund

During the prior financial year the Company and Group had funds in the following investments, namely:

• STANLIB Extra Income Fund
• NedGroup Core Income Fund
• Coronation Strategic Income Fund
• Prescient Income Proper Fund
• Sanlam Sim Inflation Plus Fund B4
• Sanlam Sim inflation Plus Fund B5

Classification of financial assets through profit and loss

As a result of holding these assets for the medium term these have been designated at fair value through profit and loss. The Collective investment schemes were designated at fair value through profit and loss at initial recognition. The Investment in Jasco was initially designated at fair value through profit and loss and was sold in the current financial year.

Financial assets at amortised

AA – The financial instrument is judged to be of high quality, is subject to very low credit risk and indicates quality issuers.

Classification financial assets at amortised cost

Deposits are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. The deposits are included as non-current assets, except for those with maturities less than 12 months from the end of the reporting period, which would be classified as current assets. The carrying amount approximates the fair value of the investments.

Summary