Integrated Reports Senwes Financial Review 2018 - Page 44

44 FINANCIAL REVIEW Sensitivity of interest rates GROUP The potential impact of interest rate changes on finance costs is illustrated below: 2017 Interest rate risk Note Property, plant and equipment Investment in joint ventures Investment in associate Other non-current assets Inventory Trade and other receivables (current) Loans and other receivables (non-current) Inventory held to satisfy firm sales Cash and short-term deposits Other current assets Total Interest-bearing liabilities 4.2 Net exposure to interest rate risk (limited to Rnil) GROUP Non- interest- Interest- earning earning Assets assets assets R’m R’m R’m 471 471 - 228 228 - 25 25 - 22 22 - 674 674 - 2 557 58 2 499 1 031 - 1 031 75 75 - 14 - 14 164 - 164 5 261 1 553 3 708 (2 617) - Interest costs are naturally hedged in instances where interest-earning assets exceed interest-bearing liabilities. Interest rates are hedged by means of financial instruments in times of high volatility or when interest-bearing liabilities significantly exceed interest-earn- ing assets. 2017 2018 (Increase)/ (Increase)/ decrease decrease interest interest Increase/ expenses Increase/ expenses (decrease) before tax (decrease) before tax % R’m % R’m Commodity finance Short-term debt Long-term debt 2% (3,0) 2% - 1% (1,5) 1% - (1)% 1,5 (1)% - (2)% 3,0 (2)% - 2% (36,7) 2% (31,4) 1% (18,4) 1% (15,7) (1)% 18,4 (1)% 15,7 (2)% 36,7 (2)% 31,4 2% (20,0) 2% (20,0) 1% (10,0) 1% (10,0) (1)% 10,0 (1)% 10,0 (2)% 20,0 (2)% 20,0 21.1.2 CREDIT RISK Concentration risk The potential credit concentration risk relates mainly to trade debtors. Trade debtors consist of a large number of clients, spread over different geographic areas and credit is extended in accordance with the credit policy of the group. Prudent credit evaluation processes are strictly adhered to. The value at risk mentioned below is calculated as follows: 1. “Gross exposure” is calculated by decreasing the total producer debtor balance by the security value held or ceded to Senwes as well as the appropriate provision for bad debt. 2. Distribution (spread) is measured against best practices in the industry, given the concentration in respect of geography, stratification, categorisation and arrears. Sources for measurement of concentration risk are formulated by using various agricultural industry norms, market trends in large companies and own analyses. The spread will increase the value at risk should it be higher than the norm and will decrease the risk should it be lower than the norm. FINANCIAL REVIEW