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Fair Value Of Financial Instruments And Equity-Accounted Investments
 9 Months Ended
Mar. 31, 2014
Fair Value Of Financial Instruments And Equity-Accounted Investments [Abstract]  
Fair Value Of Financial Instruments And Equity-Accounted Investments

5. Fair value of financial instruments and equity-accounted investments Fair value of financial instruments

Risk management

     The Company seeks to reduce its exposure to currencies other than the South African rand through a policy of matching, to the extent possible, assets and liabilities denominated in those currencies. In addition, the Company uses financial instruments in order to economically hedge its exposure to exchange rate and interest rate fluctuations arising from its operations. The Company is also exposed to equity price and liquidity risks as well as credit risks.

Currency exchange risk

     The Company is subject to currency exchange risk because it purchases inventories that it is required to settle in other currencies, primarily the euro and US dollar. The Company uses forward contracts in order to limit its exposure in these transactions to fluctuations in exchange rates between the ZAR, on the one hand, and the US dollar and the euro, on the other hand.

The Company's outstanding foreign exchange contracts are as follows:

As of March 31, 2014

        Fair market  
Notional amount Strike price value price Maturity
EUR 192,375 ZAR 14.9984 ZAR 14.5664 April 22, 2014
EUR 192,375 ZAR 15.1351 ZAR 14.5664 April 22, 2014
EUR 192,195 ZAR 15.2014 ZAR 14.6290 May 20, 2014
EUR 192,195 ZAR 15.0637 ZAR 14.6290 May 20, 2014
EUR 180,023 ZAR 15.2750 ZAR 14.7011 June 20, 2014
EUR 180,023 ZAR 15.1349 ZAR 14.7011 June 20, 2014
EUR 182,273 ZAR 15.2077 ZAR 14.7778 July 21, 2014
EUR 182,273 ZAR 15.3488 ZAR 14.7778 July 21, 2014
EUR 180,023 ZAR 15.4228 ZAR 14.8537 August 20, 2014
EUR 180,023 ZAR 15.2819 ZAR 14.8537 August 20, 2014
EUR 180,023 ZAR 15.3623 ZAR 14.9372 September 22, 2014
EUR 180,023 ZAR 15.5041 ZAR 14.9372 September 22, 2014

 

 

        Fair market  
Notional amount Strike price value price Maturity
EUR 181,571 ZAR 15.5739 ZAR 15.0122 October 20, 2014
EUR 181,571 ZAR 15.4316 ZAR 15.0122 October 20, 2014
EUR 180,023 ZAR 15.6552 ZAR 15.0976 November 20, 2014
EUR 180,023 ZAR 15.5136 ZAR 15.0976 November 20, 2014
EUR 180,023 ZAR 15.5970 ZAR 15.1859 December 22, 2014
EUR 180,023 ZAR 15.7391 ZAR 15.1859 December 22, 2014
EUR 174,425 ZAR 15.8119 ZAR 15.2688 January 20, 2015
EUR 174,425 ZAR 15.6729 ZAR 15.2688 January 20, 2015

 

As of June 30, 2013

        Fair market  
Notional amount Strike price value price Maturity
USD
4,000,000
 ZAR
9.0600
 ZAR
10.1397
September 30, 2013

 

Translation risk

     Translation risk relates to the risk that the Company's results of operations will vary significantly as the US dollar is its reporting currency, but it earns most of its revenues and incurs most of its expenses in ZAR. The US dollar to ZAR exchange rate has fluctuated significantly over the past two years. As exchange rates are outside the Company's control, there can be no assurance that future fluctuations will not adversely affect the Company's results of operations and financial condition.

Interest rate risk

     As a result of its normal borrowing and leasing activities, the Company's operating results are exposed to fluctuations in interest rates, which it manages primarily through regular financing activities. The Company generally maintains limited investment in cash equivalents and has occasionally invested in marketable securities.

Credit risk

     Credit risk relates to the risk of loss that the Company would incur as a result of non-performance by counterparties. The Company maintains credit risk policies with regard to its counterparties to minimize overall credit risk. These policies include an evaluation of a potential counterparty's financial condition, credit rating, and other credit criteria and risk mitigation tools as the Company's management deems appropriate.


     With respect to credit risk on financial instruments, the Company maintains a policy of entering into such transactions only with South African and European financial institutions that have a credit rating of BBB or better, as determined by credit rating agencies such as Standard & Poor's, Moody's and Fitch Ratings.

UEPS-based microlending credit risk

     The Company is exposed to credit risk in its UEPS-based microlending activities, which provides unsecured short-term loans to qualifying customers. The Company manages this risk by performing an affordability test for each prospective customer and assigns a "creditworthiness score", which takes into account a variety of factors such as other debts and total expenditures on normal household and lifestyle expenses.

Equity price and liquidity risk

     Equity price risk relates to the risk of loss that the Company would incur as a result of the volatility in the exchange-traded price of equity securities that it holds and the risk that it may not be able to liquidate these securities. The market price of these securities may fluctuate for a variety of reasons, consequently, the amount the Company may obtain in a subsequent sale of these securities may significantly differ from the reported market value.

     Liquidity risk relates to the risk of loss that the Company would incur as a result of the lack of liquidity on the exchange on which these securities are listed. The Company may not be able to sell some or all of these securities at one time, or over an extended period of time without influencing the exchange traded price, or at all.

     The following section describes the valuation methodologies the Company uses to measure its significant financial assets and liabilities at fair value.

   In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology applies to Level 1 investments. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then the Company uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly. These investments are included in Level 2 investments. In circumstances in which inputs are generally unobservable, values typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. Investments valued using such techniques are included in Level 3 investments.

     Asset measured at fair value using significant unobservable inputs – investment in Finbond Group Limited ("Finbond")

     The Company's Level 3 asset represents an investment of 156,788,712 shares of common stock of Finbond, which are exchange-traded equity securities. Finbond's shares are traded on the JSE Limited ("JSE") and the Company has designated such shares as available for sale investments. The Company has concluded that the market for Finbond shares is not active and consequently has employed alternative valuation techniques in order to determine the fair value of such stock. Currently, the operations of Finbond relate primarily to the provision of microlending products. In addition, it has a mutual banking licence and issues financial products under this licence. In determining the fair value of Finbond, the Company has considered amongst other things Finbond's historical financial information (including its most recent public accounts), press releases issued by Finbond and its published net asset value. The Company believes that the best indicator of fair value of Finbond is its published net asset value and has used this value to determine the fair value.

     The fair value of these securities as of March 31, 2014, represented approximately 1% of the Company's total assets, including these securities.

     The following table presents the Company's assets and liabilities measured at fair value on a recurring basis as of March 31, 2014, according to the fair value hierarchy:

    Quoted            
    Price in            
    Active   Significant        
    Markets for   Other   Significant    
    Identical   Observable   Unobservable    
    Assets   Inputs   Inputs    
    (Level 1)   (Level 2)   (Level 3)   Total
Assets                
Related to insurance business (included in                
other long-term assets):                
Cash and cash equivalents $ 1,778 $ - $ - $ 1,778
Investment in Finbond (available for sale                
assets included in other long-term assets)   -   -   7,662   7,662
Other   -   138   -   138
Total assets at fair value $ 1,778 $ 138 $ 7,662 $ 9,578

 

 

  Quoted          
  Price in          
  Active   Significant      
  Markets for   Other Significant    
  Identical   Observable Unobservable    
  Assets   Inputs Inputs    
  (Level 1)   (Level 2) (Level 3)   Total
Liabilities            
Foreign exchange contracts $ - $ 170 $ - $ 170
Total liabilities at fair value $ - $ 170 $ - $ 170

 

     The following table presents the Company's assets and liabilities measured at fair value on a recurring basis as of June 30, 2013, according to the fair value hierarchy:

                 
    Quoted            
    Price in            
    Active   Significant        
    Markets for   Other   Significant    
    Identical   Observable   Unobservable    
    Assets   Inputs   Inputs    
    (Level 1)   (Level 2)   (Level 3)   Total
Assets                
Related to insurance business (included in                
other long-term assets):                
Cash and cash equivalents $ 1,833 $ - $ - $ 1,833
Investment in Finbond (available for sale                
assets included in other long-term assets)   -   -   8,303   8,303
Other   -   147   -   147
Total assets at fair value $ 1,833 $ 147 $ 8,303 $ 10,283
 
Liabilities                
Foreign exchange contracts $ - $ 436 $ - $ 436
Total liabilities at fair value $ - $ 436 $ - $ 436

 

     Changes in the Company's investment in Finbond (Level 3 that are measured at fair value on a recurring basis) were insignificant during the three and nine months ended March 31, 2014 and 2013, respectively. There have been no transfers in or out of Level 3 during the three and six months ended March 31, 2014 and 2013, respectively.

Assets and liabilities measured at fair value on a nonrecurring basis

     The Company measures its assets at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired. The Company has no liabilities that are measured at fair value on a nonrecurring basis. The Company reviews the carrying values of its assets when events and circumstances warrant and considers all available evidence in evaluating when declines in fair value are other-than-temporary.

     The fair values of the Company's assets are determined using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of the assets exceeds its fair value and the excess is determined to be other-than-temporary. The Company has not recorded any impairment charges during the reporting periods presented herein.