XML 26 R13.htm IDEA: XBRL DOCUMENT v3.6.0.2
Fair Value Of Financial Instruments
 6 Months Ended
Dec. 31, 2016
Fair Value Of Financial Instruments [Abstract]  
Fair Value Of Financial Instruments

6. Fair value of financial instruments

          Initial recognition and measurement

     Financial instruments are recognized when the Company becomes a party to the transaction. Initial measurements are at cost, which includes transaction costs.

         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 U.S. dollar. The Company has used forward contracts in order to limit its exposure in these transactions to fluctuations in exchange rates between the South African rand, on the one hand, and the U.S. dollar and the euro, on the other hand.

          Translation risk

     Translation risk relates to the risk that the Company's results of operations will vary significantly as the U.S. dollar is its reporting currency, but it earns most of its revenues and incurs most of its expenses in ZAR. The U.S. dollar to ZAR exchange rate has fluctuated significantly over the past three 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.

      Financial instruments

     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.

          Derivative transactions - Foreign exchange contracts

     As part of the Company's risk management strategy, the Company enters into derivative transactions to mitigate exposures to foreign currencies using foreign exchange contracts. These foreign exchange contracts are over-the-counter derivative transactions. Substantially all of the Company's derivative exposures are with counterparties that have long-term credit ratings of BBB or better. The Company uses quoted prices in active markets for similar assets and liabilities to determine fair value (Level 2). The Company has no derivatives that require fair value measurement under Level 1 or 3 of the fair value hierarchy.

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

     As of December 31, 2016

     None.

     As of June 30, 2016
 
    Fair market  
Notional amount Strike price value price Maturity
EUR 573,765.00 ZAR 15.9587 ZAR 16.3393 July 20, 2016
EUR 554,494.50 ZAR 16.0643 ZAR 16.4564 August 19, 2016
EUR 465,711.00 ZAR 16.1798 ZAR 16.582 September 20, 2016
EUR 393,675.00 ZAR 16.2911 ZAR 16.7017 October 20, 2016
EUR 302,368.50 ZAR 16.4085 ZAR 16.8301 November 21, 2016
 
     The following table presents the Company's assets measured at fair value on a recurring basis as of December 31, 2016, 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 $ 572 $ - $ - $ 572
Other   -   35    -   35
Total assets at fair value $ 572 $ 35 $ - $ 607
 
     The following table presents the Company's assets measured at fair value on a recurring basis as of June 30, 2016, 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 $ 533 $ - $ - $ 533
Foreign exchange contracts   -   62 -   62
Other   -   37   -   37
Total assets at fair value $ 533 $ 99 $ - $ 632

     Changes in the Company's investment in Finbond Group Limited, or Finbond (Level 3 that are measured at fair value on a recurring basis) were insignificant during the six months ended December 31, 2015. There have been no transfers in or out of Level 3 during the three and six months ended December 31, 2016 and during the three months ended December 31, 2015, 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.

     Equity accounted investments

          Finbond

     On October 7, 2016, the Company provided a loan of ZAR 139.2 million ($10.0 million) to Finbond in order for Finbond to partially finance its expansion strategy in the United States. Interest on the loan is payable quarterly in arrears and is based on the London Interbank Offered Rate ("LIBOR") in effect from time to time plus a margin of 10.00%. The LIBOR rate was 0.7717% on December 31, 2016. The loan is repayable in full at the earlier of Finbond concluding a rights offer or February 28, 2017. Finbond expects to conclude the rights offering during the first quarter of calendar 2017, and the Company has provided an irrevocable undertaking to participate in the rights offering and convert the ZAR 139.2 million loan to Finbond shares as part of this process.