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Fair Value Of Financial Instruments | 9 Months Ended
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Mar. 31, 2024
Fair Value Of Financial Instruments [Abstract] |
Fair Value Of Financial Instruments | 4. 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 manages its exposure to currency exchange, translation, interest rate, credit, microlending credit and equity price and liquidity risks as discussed below. Currency exchange risk The Company is subject to currency exchange risk because it purchases components for its safe assets, that the Company assembles, and inventories that it is required to settle in other currencies, primarily the euro, renminbi, 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 (“ZAR”), 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 a significant amount of its revenues and incurs a significant amount of its expenses in ZAR. The U.S. dollar to the 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 activities, the Company’s operating results are exposed to fluctuations in interest rates, which it manages primarily through regular financing activities. Interest rates in South Africa have been trending upwards in recent quarters but have now stabilized and are expected to remain at current levels, or perhaps even decline moderately over calendar 2024. Therefore, ignoring the impact of changes to the margin on its borrowings (refer to Note 8), the Company expects its cost of borrowing to remain stable, or even to decline moderately, in the foreseeable future, however if the upward trend resumes the Company would expect higher interest rates in the future which will increase its cost of borrowing. The Company periodically evaluates the cost and effectiveness of interest rate hedging strategies to manage this risk. The Company generally maintains surplus cash in cash equivalents and held to maturity investments 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 in respect of 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 “B” (or its equivalent) or better, as determined by credit rating agencies such as Standard & Poor’s, Moody’s and Fitch Ratings. Consumer microlending credit risk The Company is exposed to credit risk in its Consumer microlending activities, which provides unsecured short-term loans to qualifying customers. Credit bureau checks as well as an affordability test are conducted as part of the origination process, both of which are in line with local regulations. The Company considers this policy to be appropriate because the affordability test it performs takes into account a variety of factors such as other debts and total expenditures on normal household and lifestyle expenses. Additional allowances may be required should the ability of its customers to make payments when due deteriorate in the future. A significant amount of judgment is required to assess the ultimate recoverability of these finance loan receivables, including ongoing evaluation of the creditworthiness of each customer. Merchant lending The Company maintains an allowance for doubtful finance loans receivable related to its Merchant services segment with respect to short-term loans to qualifying merchant customers. The Company’s risk management procedures include adhering to its proprietary lending criteria which uses an online-system loan application process, obtaining necessary customer transaction-history data and credit bureau checks. The Company considers these procedures to be appropriate because it takes into account a variety of factors such as the customer’s credit capacity and customer-specific risk factors when originating a loan. 4. Fair value of financial instruments (continued) Risk management (continued) 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. The market price of these securities may fluctuate for a variety of reasons and, consequently, the amount that the Company may obtain in a subsequent sale of these securities may significantly differ from the reported market value. Equity 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 those 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 would apply 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 would be 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 Cell C The Company’s Level 3 asset represents an investment of 75,000,000 class “A” shares in Cell C, a significant mobile telecoms provider in South Africa. The Company used a discounted cash flow model developed by the Company to determine the fair value of its investment in Cell C as of March 31, 2024 and June 30, 2023, respectively, and valued Cell C at $ 0.0 (zero) and $ 0.0 (zero) as of March 31, 2024, and June 30, 2023, respectively. The Company incorporates the payments under Cell C’s lease liabilities into the cash flow forecasts and assumes that Cell C’s deferred tax assets would be utilized over the forecast period. The Company has increased the marketability discount from 10 % to 20 % and the minority discount from 15 % to 24 % due to the reduction in the Company’s shareholding percentage from 15 % to 5 % as well as current market conditions. The Company utilized the latest revised business plan provided by Cell C management for the period ended December 31, 2027, for the March 31, 2024, and June 30, 2023, valuations. Adjustments have been made to the WACC rate to reflect the Company’s assessment of risk to Cell C achieving its business plan. The following key valuation inputs were used as of March 31, 2024 and June 30, 2023: Weighted Average Cost of Capital ("WACC"): Between 20 % and 26 % over the period of the forecast Long term growth rate: 4.5 % ( 4.5 % as of June 30, 2023) Marketability discount: 20 % ( 20 % as of June 30, 2023) Minority discount: 24 % ( 24 % as of June 30, 2023) Net adjusted external debt - March 31, 2024: (1) ZAR 7.4 billion ($ 0.4 billion), no lease liabilities included Net adjusted external debt - June 30, 2023: (2) ZAR 8.1 billion ($ 0.4 billion), no lease liabilities included (1) translated from ZAR to U.S. dollars at exchange rates applicable as of March 31, 2024. (2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2023. The following table presents the impact on the carrying value of the Company’s Cell C investment of a 1.0% decrease and 1.0% increase in the WACC rate and the EBITDA margins respectively used in the Cell C valuation on March 31, 2024, all amounts translated at exchange rates applicable as of March 31, 2024: Sensitivity for fair value of Cell C investment 1.0% increase 1.0% decrease WACC rate $ - $ 553 EBITDA margin $ 1,241 $ - The fair value of the Cell C shares as of March 31, 2024, represented 0 % of the Company’s total assets, including these shares. The Company expects to hold these shares for an extended period of time and that there will be short-term equity price volatility with respect to these shares particularly given that Cell C remains in a turnaround process. 4. Fair value of financial instruments (continued) Financial instruments (continued) 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 “B” (or equivalent) 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 had no outstanding foreign exchange contracts as of March 31, 2024, and June 30, 2023. The following table presents the Company’s assets measured at fair value on a recurring basis as of March 31, 2024, according to the fair value hierarchy: Quoted Price in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Assets Investment in Cell C $ - $ - $ - $ - Related to insurance business: Cash, cash equivalents and restricted cash (included in other long-term assets) 213 - - 213 Fixed maturity investments (included in cash and cash equivalents) 4,963 - - 4,963 Total assets at fair value $ 5,176 $ - $ - $ 5,176 The following table presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2023, according to the fair value hierarchy: Quoted Price in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Assets Investment in Cell C $ - $ - $ - $ - Related to insurance business Cash and cash equivalents (included in other long-term assets) 258 - - 258 Fixed maturity investments (included in cash and cash equivalents) 3,119 - - 3,119 Total assets at fair value $ 3,377 $ - $ - $ 3,377 There have been no transfers in or out of Level 3 during the three and nine months ended March 31, 2024 and 2023, respectively. There was no movement in the carrying value of assets measured at fair value on a recurring basis, and categorized within Level 3, during the nine months ended March 31, 2024 and 2023. Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and categorized within Level 3, during the nine months ended March 31, 2024: Carrying value Assets Balance as of June 30, 2023 $ - Foreign currency adjustment (1) - Balance as of March 31, 2024 $ - (1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar on the carrying value. Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and categorized within Level 3, during the nine months ended March 31, 2023: Carrying value Assets Balance as of June 30, 2022 $ - Foreign currency adjustment (1) - Balance as of March 31, 2023 $ - (1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar on the carrying value. Assets measured at fair value on a nonrecurring basis The Company measures equity investments without readily determinable fair values at fair value on a nonrecurring basis. The fair values of these investments are determined based on valuation techniques 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 asset exceeds its fair value and the excess is determined to be other-than-temporary. Refer to Note 5 for impairment charges recorded during the reporting periods presented herein. The Company has no liabilities that are measured at fair value on a nonrecurring basis.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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